Itta/148/2004 Of Malreddy Ranga Reddy v. Asst. Commissioner Of Income Tax

HON'BLE SRI JUSTICE L.NARASIMHA REDDYANDHON'BLE SRI JUSTICE M.SEETHARAMA MURTI I.T.T.A.No.148 of 2004 JUDGMENT:(per the Hon’ble Sri Justice L.Narasimha Reddy) This appeal under Section 260-A of the Income Tax Act, 1961(for short ‘the Act’) is preferred against the order dated 28.04.2004passed by the Hyderabad Bench ‘A’ of the Income Tax AppellateTribunal (for short ‘Tribunal’) in IT(SS)A No.123/HYD/2003. Theassessee is the appellant. The premises of the appellant was searched on 19.01.2001 bythe officials of the Income Tax Department in exercise of power underSection 132 of the Act. A receipt evidencing payment of a sum ofRs.10,00,000/- to one Mr. Prabhakar Reddy is said to have beendiscovered. Another receipt evidencing repayment of that very amountwas also discovered. A statement under sub-Section (4) of Section132 of the Act is also recorded on the day of search. When a questionwas put to the appellant as to whether he has made any payment toone Mr.Prabhu, he gave answer in a negative. Thereafter, a further statement was recorded on 27.03.2001. Aquestion was put to the appellant as to whether he paid a sum ofRs.10,00,000/- to Mr. Prabhakar Reddy. The appellant accepted thathe paid that amount to Mr.Prabhakar Reddy on 25.11.2000 forpurchasing of a plot. He further explained that the deal did not fructify,and as such, the amount of Rs.10,00,000/- was returned to him on30.11.2000. The case of the appellant was that the amount is from thefunds of M/s.Sapta Sikhara Housing Private Limited (for short ‘thecompany’) in which he himself and his family members havesubstantial stake. The Assessing Officer passed an order of Block Assessment on31.01.2003 adding a sum of Rs.10,00,000/- to his income and levyingtax as provided for under Chapter 14B of the Act. The appellant filed an appeal before the Commissioner of Income Tax (Appeals)-I,Hyderabad. The same was dismissed on 22.08.2003. Thereupon, hefiled an appeal before the Tribunal and that was also dismissed on28.04.2004. Sri Y. Ratnakar, learned counsel for the appellant submits thatthe very recording of statement from the appellant was without basis,since no cash or other incriminating documents were recovered duringthe search. He contends that if the receipts in relation to the paymentof amount and then refunding of the same are to be treated asdocuments within the purview of Section 132 of the Act, the very basisfor the Block Assessment Proceedings ceases, since the Departmentdid not believe those receipts at all as true. He contends that though aspecific mention was made that the company has sufficient resourcesand that the amount of Rs.10,00,000/- was from those resources, noeffort was made to verify that. Learned counsel submits that theamount has been reflected in the books of account of the saidcompany and despite that the Block Assessment was made. Ms. M. Kiranmayee, learned Junior Standing Counsel appearingfor Sri J.V. Prasad, learned Standing Counsel for Income Tax, on theother hand, submits that there existed adequate basis for recording thestatement of the appellant once certain material in the form of receiptswere recovered. She contends that the appellant himself admitted thathe paid a sum of Rs.10,00,000/- and then received it back, but, he didnot indicate the source thereof. Learned counsel points out that theinclusion of the amount in the books of account of the company was anafter thought and that no interference is warranted in the orders passedby the Assessing Officer, the Commissioner and the Tribunal. The appellant is an assessee under the Act and he has beenfiling returns year after year. His premises were searched on19.01.2001. He stated that except two rough receipts evidencingpayment and taking refund of a sum of Rs.10,00,000/- in a transactionwith Mr.Prabhakar Reddy, nothing else was noticed or recovered in the search. The appellant is an assessee under the Act and he has beenfiling returns year after year. His premises were searched on19.01.2001. He stated that except two rough receipts evidencingpayment and taking refund of a sum of Rs.10,00,000/- in a transactionwith Mr.Prabhakar Reddy, nothing else was noticed or recovered in the search. Section 132 of the Act confers power upon various authorities ofthe Department to conduct search. Since it entails in penalconsequences, every step stipulated therein is required to be followedmeticulously. The recording of statement under sub-Section (4) ofSection 132 of the Act would take place, as a sequel to the search. Itis only when a person is found to be in possession and control of anybooks of account, documents, money, bullion or jewellery, that hisstatement can be recorded. The sole basis for recording of statement from the appellantherein is the recovery of the two receipts referred to above. In such anevent, further steps in the matter must proceed on the assumption thatthose two receipts are true. Sub-Section 4A(ii) of Section 132 of the Act becomes relevant in this regard, which reads as under: “(4A) Where any books of account, other documents,money, bullion, jewellery or other valuable article or thing areor is found in the possession or control of any person in thecourse of a search, it may be presumed - (i)that such books of account, otherdocuments, money, bullion, jewellery or othervaluable article or thing belong or belongs tosuch person; (ii)that the contents of such books of accountand other documents are true; and”. (rest of the provision is omitted since it is not relevant for thepurpose of this lis.) A perusal of this provision discloses that the contents of books ofaccount or other documents must be taken as true. If for any reason,the authority, who conducted the search, does not believe suchdocuments as true, the very basis for the proceedings collapses. In the instant case, the plea of the appellant was that the amountwas held by the company and that it was paid to the owner of the land. The transaction did not fructify and it was paid back to the company. Neither the person, who is said to have received the amount nor anyother individual, were examined to prove that the payment was by; or,for and on behalf of the appellant herein. The plea of theappellant was that the department did not cross-verify the matter fromany authorized representative of the company. Therefore, whether onegoes by the factum of the Department itself treating the onlydocuments, namely, receipts as not true; or their failure to record thestatements of any individual including the authorized representative ofthe company, the very basis for the proceedings ceases to exist. The Assessing Officer as well as the Tribunal proceeded on theassumption that the appellant was under obligation to explain thefactum of payment. When the amount was not recovered nor was saidto be in the control and custody of the appellant, there was no basis forinitiating that proceedings. We, therefore, allow the appeal and set aside the order of BlockAssessment insofar as it has added a sum of Rs.10,00,000/- to theincome of the appellant. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall also standdisposed of. ___________________________ L.NARASIMHA REDDY, J Date: 24.12.2014Note: L.R copy to be marked.B/o.va ____________________________ M.SEETHARAMA MURTI, J