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M/s. Instronics Ltd. Versus ACIT and DCIT

2015 (3) TMI 885 - ITAT DELHI

Validity of assessment framed u/s 153C read with Section 143(3) - whether is a nullity in the eyes of law for want of satisfaction recorded by the A.O. of the searched party? - Held that:- As decided in Pepsi Foods (P) Ltd. [2014 (8) TMI 425 - DELHI HIGH COURT] recording of satisfaction by AO of searched persons is a necessary pre condition for initiation of proceeding u/s 153C. As in the present case the revenue has not placed any satisfaction recorded by the A.O. of the searched persons on rec .....

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Mehrotra And Shri Kul Bharat JJ. For the Appellant : Shri Kapil Goel, Adv. For the Respondent : Shri Gunjan Prasad, CIT DR ORDER Per Bench: This is bunch of 06 appeals filed by assessee against separate orders of Ld. CIT(A)-II, New Delhi dated 05.09.2014, 08.09.2014, 09.09.2014, 10.09.2014 and 11.09.2014 pertaining to Assessment Years 2003-04, 2004- 05, 2005-06, 2006-07 and 2007-08. Out of 10 appeals, 4 appeals are cross appeals filed by Revenue in Assessment Years 2005-06, 2006-07, 2007-08 & .....

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d that from the information sought under Right to Information Act, it is evident that the A.O. of searched person has not recorded satisfaction. He submitted that the satisfaction note by the A.O. of searched person is a condition precedent for initiating proceedings u/s 153C of the Act against the person other than the searched person. He submitted that the issue is no more res integra as the issue has already been decided by Hon ble Jurisdictional High Court in the case of Pepsi Foods Vs CIT ( .....

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under: 3. That on the facts and circumstances of the case and the provisions of law, the Ld. CIT(A) has failed to appreciate that the assessment framed by Ld. A.O. is against the statutory provisions of the Act and without complying the procedures prescribed u/s 153C of the I. T. Act, 1961 and as such, the assessment being bad in law deserves to be quashed. 4. The representatives of respective parties have adopted the arguments as addressed in a separate batch of appeals fixed for hearing on the .....

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132 of the I.T. Act was carried out in the cases of Sh. B.K.Dhingra, Smt. Poonam Dhingra & M/s Madhusudan Buildcon Pvt. Ltd. on 20/10/2008 and during the course of search at their residential premises at F-[6/5, Vasant Vihar, New Delhi certain documents belonging to the assessee were seized. On the basis of documents so found belonging to the assessee company, proceedings were initiated in the case of the assessee company u/s 153C read with section 153A of the I.T.Act. The case of assessee w .....

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ssessee company were found at the searched premises bearing no. F 6/5 Vasant Vihar, New Delhi in the case of Sh. B.K.Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. belonging to the assesssee. The contention of Ld. Counsel is that the AO of the searched party should have recorded satisfaction but from the replies furnished under the Right to Information Act no such satisfaction was recorded. The contents of reply furnished by Revenue reads as under :- 2. From the assessment re .....

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Counsel for the Assessee that no satisfaction was recorded by the AO of the searched party. 7.2. Before adverting to the rival contentions of the parties it would be appropriate to reproduce the relevant provisions of law. Section 153C 153C. 3[(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account .....

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cer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A] :] [Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to 82[subsection (1) of] section 153A shall be construed .....

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earch is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year- (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or r .....

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8, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in t .....

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shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or rea .....

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. Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. Ld. CIT(DR) during the counsel of hearing also drew attention to Section 148 ( .....

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ssment cannot be annulled. In support of this submission the reliance is placed on the judgment Hon ble Kerala High Court rendered in the case of Dr. K.M. Mehboob Vs. DCIT Anr. (2012) 76 DTR (Ker) 90. Secondly, it was pointed out that Ld. CIT(A) in para 4.3 of the impugned order has observed that the Assessee has no objection in respect of initiation of proceedings. Now the assessee cannot be allowed to blow hot and cold at the same time. Thirdly, it was contended that the provision should be li .....

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s contended by the Assesssee is that issue is no more res-integra and has been decided in favour of the Assessee by the Authoritative Judicial Pronouncement by the Hon ble High Court of Delhi, other High Courts and the co-ordinate Benches of this Tribunal. Therefore, it is prayed that Assessment order be quashed being illegal and nullity in the eyes of law. The brief synopsis as filed is reproduced herein below for the sake of clarity :- Before the Hon ble Income Tax Appellate Tribunal, C Bench, .....

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5-2006 to 2008-09 ITA Nos. 6553/Del-2014 to 6556/Del-2014 NDOH (Filed by Revenue on 29.05.2014) 04.03.2015 Synopsis(Covered Matter) Assessee Company s Cross Appeals inter-alia on legality and validity of proceedings u/s 153C and Revenue s Appeals on merits. May it Please Your Honors. 1. Satisfaction note as supplied to assessee company dated 30.09.2010 (Paper Book for the AY. 2003-04 to AY. 2008-09, Page No. 11) Satisfaction Note for issuing notice u/s. 153C of I.T. Act, 1961, in the case of M/s .....

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M/s. Instronics Ltd., 192C, J&K Pocket, Dilshad Garden, New Delhi. I have examined the above mentioned documents/papers and provision of section 153C is invokeable in this case. As the under signed is also the jurisdictional AO of M/s. Instronics Ltd., 192C, J & K Pocket, Dilshad Garden, New Delhi, this satisfaction note is placed in the file before issuing notice u/s. 153C. Sd/- 30.09.2010 ACIT, Central Circle-17, New Delhi Reasons for aforesaid satisfaction note is not valid to assume .....

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ssment of a particular searched person on the contrary, from cursory look it is palpable that same is mere noting by AO of assessee (other person) before issuance of notice u/s 153C. It is supported by i)firstly, Opening language and most importantly it is recorded that "In the case of She B.K. Dhingra, Smt. Poonam Dhingra and Mls. Mayank Traders Pvt. Ltd., Horizon Pvt Ltd. search & seizure took place u/s. 132 on 20.10.2008; ................ Secondly, documents/papers at pages 1 to 39 o .....

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153C of the Act. On identical facts, Hon'ble Delhi benches of ITAT on three different occasions in cases of Inlay Marketing Pvt. Ltd. (Case Law Paper Book Pages 78 to 128), Akash Arogya Mandir Pvt. Ltd. (Case Law Paper Book Pages 129 to 144) and Tanvir Collections Pvt. Ltd. (Case Law Paper Book Pages 145 to 166) have quashed the similar proceedings being nullity for lack of jurisdiction. In these precedents, Coordinate bench decisions, Hon'ble Jurisdictional High Court and Apex Court de .....

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to jettisoned by Hon'ble Delhi High Court, ITA 583/2013 dated 05.12.2014. Regarding specific satisfaction by AO of raided party and in its absence consequential nullification of proceedings, Hon'ble Delhi High Court decision dated 26.11.2014 in case of Manju Finance Corporation (IT A No. 339/2002) (Case Law Paper Book Pages 17 to 24) is noteworthy. 2.2 That instant note is recorded mechanically and without application of mind: It is vivid from aforesaid note that same is recorded without .....

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. Nothing is comprehensible from the aforesaid note. How can without enumeration of basic documents mere mentioning of Annexure No's can be treated as adequate for arriving at just and valid satisfaction u/s 153C which reflects mechanical recording of the same. On both the above counts, that is non recording of satisfaction by specified authority (being AO of a raided party) and for total lack of clarity of nature of documents seized and how treated to be belonging to, makes the instant proc .....

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TR 411) and Telangana & Andhra Pradesh High Court in Shetty Pharmaceuticals (26.11.2014) ITT A 662 of 2014 and batch) (Case Law Paper Book Pages 31 to 66) where in detailed principles on validity of proceedings U/S 153C are laid down which supports the view taken in cases of i) Inlay Marketing Pvt. Ltd. (supra) ii) Akash Arogya Mandir Pvt. Ltd. (supra) iii) Tanvir Collections Pvt. Ltd. and iv) DSL Properties Pvt. Ltd. and our prayer(Supra). In aforesaid connection, it is very respectfully su .....

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tional High Court (here T & AP High Court in Shetty case and Allahabad High Court in Gopi Apartments). Same view is reiterated in decision of Mumbai bench of ITAT reported at 20 SOT 129. In context of revenue's attempt to distinguish the Jurisdictional high court decisions (in cases of Pepsi and Pepsico supra) on non existing and extraneous grounds, respectfully submitting, it is urged that once the decision of jurisdictional high Court exists on an issue, it is settled position in law a .....

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roperty interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax" that is where two views are there one which favors the tax payer must be followed. (vide se decision in case of Vegetable Products 88 ITR 192). 4. Further where the issue is covered in favor of assessee on legal jurisdictional grounds there is no need to enter into merits at all is supported by Bombay High Court decision in case of M/s. Petroleum India Inte .....

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Ld. AO. In the month of November, 2010 during assessment proceedings (pages 22 to 28 of Paper Book for the AY. 2003-04 to AY. 2008-09) that seized document are fully disclosed and accounted and nothing is undisclosed as far as search related documents are concerned which remained uncontroverted; ii) At no stage it is controverted that seized documents found during search are fully disclosed and accounted. PARA 17 of aforesaid decision as applies to present case in favor of assessee: ' The se .....

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tep to the enquiry, which is to follow. The Assessing Officer who has searched the satisfaction that the document relates 'to a person other than the searched person can do nothing except to forward the document to the Assessing Officer having jurisdiction over the other person and thereafter it is for the Assessing Officer having jurisdiction over the other person to follow the procedure prescribed by section 153A in an attempt to ensure that the income reflected by the document has been ac .....

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substance, is the position. " Further Supportive case laws where aforesaid decision of Delhi high court in SSP Aviation para 17 is applied: i) In identical fact situation, IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "B", NEW DELHI in I.T.A. Nos. 5430 to 5436IDel/2013 A.YRS. : 2003-04 to 2009-10 'Devi Dayal Petro Chemicals Pvt. Ltd., order dated 10-9-2014.' (Refer Case Law Paper Book Pages 67 to 77 ) has observed that "Therefore, the Assessing Officer will drop t .....

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in Trishul Hi-Tech Industries case order dated 24.09.2014, IT(SS)A Nos. 84-86/KoI/2011 (Refer Case Law Paper Book Pages 197 to 209) has held that "To put it simply this amendment to proviso to section 153C(1) by finance act 2014 of the Act debars the AO from making any assessment dehorse any incriminating material found during the search" iii) Pune bench ITAT in Bharati Vidyapeeth Foundation duly approved by Bombay High Court on 10/06/2014 ITA No. 959/PN/10 to 967/PN/10 in turn based o .....

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Supra). However, since all the entries found in those documents have already been reflected in the books of accounts as per the chart furnished by the assessee which have been reproduced at Para 9 of this order and which have been analysed above and which could not be controverted by the learned DR, therefore, in ivew of the decision of the Hon ble Delhi High Court in the case of SSP Aviation Ltd. (Supra) further proceedings should have been closed by the AO. Otherwise it will cause undue harass .....

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ice. However, since the assessee has satisfactorily explained that entries found in the seized documents are reflected in the regular books of account, further proceedings u/s. 153C will have to be closed and no further addition can be made by making roving and fishing enquiries since the assessee cannot be put to undue harassment. Since the assesssee succeds on this preliminary issue we refrain ourselves from adjudicating the other grounds by the assessee as well as the revenue on merit. Decisi .....

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ha Kataria, ITA No. 3105-3107/Del/2011 xi) Merigold Merchandise (P). Ltd. ITA No. 2666/Del/2013 xii) Pradeep Kumar, ITA No. 4016/Del/2011 xiii) ACIT vs. Manoj Narain Agarwal; 99 DTR (Del) (Trib.) 279 xiv) Parivar Properties (P) Ltd., ITA No. 1011/Del/2013 xv) Inlay Marketing Pvt. Ltd, ITA No. 4200/Del/2012 (identical fact setting) (Case Law Paper Book Pages 78 to 128) xvi) V.K.Fiscal, ITA No. 5460/Del/2013 xvii) Parsvnath Developers Ltd. vs. DCIT, 5188/Del/2013 xviii) Special Bench of the ITAT i .....

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e in hand, there is no satisfaction note by the AO of the searched party. The explanation for not recording satisfaction is that law does not envisage that the satisfaction should be recorded. This contention is against the ratio laid down by the Hon ble Delhi High Court in the case of Pepsi Foods (P) Ltd. Vs. Assistant Commissioner of Income Tax [2014] 52 taxman. Com 220 (Delhi) in para 6 of the judgment has held as under :- 6. On a plain reading of Section 153C, it is evident that the Assessin .....

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tice to that person and assess or re-assess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is - after such satisfaction is arrived at - that the document is handed over to the Assessing Off .....

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y provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or satisfaction that the document in fact belongs to somebody WP(C) 415/2014 & Ors. Page 10 of 15 else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that th .....

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searched person is satisfied that the seized documents belong to a person other than the searched persons. It is pertinent to note here that the Hon ble Delhi High Court in the case of Pepsi Food (P) Ltd. Vs. ACIT (Supra) has held that the satisfaction note by the AO searched party is a condition precedent for issuance of notice u/s 153C of the Act. In the light of judgment of the Hon ble Delhi High Court, we cannot accept the argument of Revenue that no satisfaction is required to be recorded o .....

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the Assessing Officer of other person for initiating proceeding u/s 153C of the Act. Therefore, we find no merit into this contention of Ld. CIT(DR). Moreover, we cannot ignore the mandate of the statutory provision under the garb of technical defect. 10. Ld. Counsel for the Assessee has relied on the decision of the decision of the co-ordinate Bench of this Tribunal in the case of Tanvir Finance & Leasing Ltd. Vs. DCIT in Cross objection nos. 268 to 271/Del/2014 (in ITA Nos. 14 to 17/Del/20 .....

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has been elaborately dealt with by the Tribunal in the case of Tanvir Collections P. Ltd. (supra). We, therefore, do not approve this contention. Respectfully following the decision of Hon ble co-ordinate Bench, we hereby reject the contention Ld. CIT(DR) that non recording of satisfaction is only a technical defect, and the assessment cannot be annulled on this basis. 11. During the course of hearing Ld. CIT(DR) has relied upon the judgment of the Hon ble Kerla High Court rendered in the case o .....

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it was held that recording of satisfaction by AO of searched persons is a necessary pre condition for initiation of proceeding u/s 153C which was not done in that case. Accordingly, the Hon ble co-ordinate Bench was pleased to quash the Assessment Proceedings. In the case in hand also the assessee company is within the territorial jurisdictional of the Hon ble Delhi High Court. The facts are identical, no contrary view of the Hon ble Delhi High Court or the Hon ble Supreme Court brought to our .....

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Moreover, the satisfaction as envisaged under Section 153C is also not placed on record. Therefore, we have no option but to accept the contention of Ld. Counsel for the assessee that no satisfaction was recorded by the Assessing Officer of the searched party, this contention is supported by the reply of Revenue furnished under Right to Information Act. It is expected that the Assessing Officer should be careful in complying with the mandate of law to avoid loss to exchequer. 13. Accordingly th .....

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n the result Assessee s cross objection no. 353/Del/2014 is partly allowed as indicated hereinabove. 14. In respect of cross objections numbers also 354 to 358/Del/2014 pertaining to the Assessment Years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 and ITA No. 6405 to 6409/Del/2013 pertaining to Assessment Years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. The facts are identical no change into facts and circumstances is pointed out. In all these years also there is no satisfaction recorded .....

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