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TMI Blog2015 (5) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... Dhingra & M/s Madhusudan Buildcon Private Limited on 20/10/2008. During the course of search and seizure operation certain documents belonging to the present assessee were seized and on the basis of the same documents, so found belonging to the assessee company, proceedings were initiated u/s 153C read with section 153A of the Act. Initially the cases were centralized with ACIT, Central Circle-17, u/s 127 of the Act and subsequently transferred to Central Circle-21 by another order u/s 127 of the Act dated 19/10/2010. A notice u/s 153C of the Act was issued to the assessee company for filing return for A.Y. 2003-04 to 2008-09 and in response to the said notice filed return for all six assessment years on 02/11/2010. The AO dispatched the punchnama, reasons for issuing notice u/s 153C of the Act and jurisdiction order dated 19/10/2010 u/s 127 of the Act on 10/11/2010 as sought by the assessee. 3. The AO rejected legal contentions of the assessee and made additions u/s 69C of the Act pertaining to unexplained purchases and also made disallowance of expenditure as per discussions in the respective assessment orders. 4. The assessee preferred an appeal before CIT(A) which was partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard argument of both the sides and carefully perused the relevant material placed on record before us, inter-alia, assessment order, impugned order, assessees' paper book spread over 64 pages, second paper book spread on merits over 147 pages and case laws paper book spread over 209 pages. The ld. AR submitted that the documents found during the search and seizure operations as mentioned in the satisfaction note, recorded by the AO of the assessee (the person other than the person searched), do not belong to the assessee company as these were the part of working papers of Chartered Accountant of the assessee's company Shri B.K. Dhingra whose office was searched on 20/10/2008. The ld. AR also submitted that the proceedings have been initiated and the assessment has been framed in non-confirmation with the statutory provisions of section 143(3) read with section 153C of the Act and, therefore, the CIT(A) was not justified on facts and in law in confirming and upholding the action of the AO and rejecting the legal contentions of the assessee. 8. The ld. AR strenuously contended that the CIT(A) was not justified and grossly erred in not considering the fact that the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d M/s Madhusudan Buildcon Pvt. Ltd., search & seizure took place u/s 132 on 20.10.2008. The undersigned is the jurisdictional AO of this case. During the course of search & seizure documents/papers at pages 101 to 132 of Annexure A-30, Page 144 of Annexure 7 and pages 33 to 48 of Annexure 22 seized by Party R- 2, are found to belong to M/s Tanveer Collection Pvt. Ltd., RZ-126, West Sagar Pur, Shankar park, New Delhi. I have examined the above mentioned documents/papers and provision of section 153C is invokeable in this case. As the undersigned is also the jurisdictional AO of M/s Tanveer Collection Pvt. Ltd., RZ-126, West Sagar Pur, Shankar Park, New Delhi. This satisfaction note is recorded and is placed in the file before issuing notice u/s 153C. 13. It can be seen from the assessment order that notice u/s 153C was issued to the assessee by the ACIT, Central Circle-17 on 08.09.2010, being the same date on which the above satisfaction was recorded. It is apparent that it was : ' Satisfaction Note for issuing Notice u/s 153C of the I.T. Act, 1961 in the case of M/s Tanveer Collection Pvt. Ltd.' It is further noticeable from the above that : 'This satisfaction note is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to how the requirement of recording satisfaction by the AO of the person searched provided by the statute can be substituted with anything else. There is an underlying rationale in providing for recording of such satisfaction by the AO of the person searched. As the money, bullion, jewellery, books of account or documents etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person searched and to the others and thus handed over to the concerned AOs of the person searched and others for making assessment. As it is only the AO of the person searched who can reach a conclusion that some of the documents etc. do not belong to the person searched but to some other person, the legislature has provided for recording of such satisfaction by the AO of the person searched. It is not permissible under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.' 19. The above substitution has the effect of now making it mandatory for the AO of the 'other person' also to record satisfaction that the books of account or documents, etc., have a bearing on the determination of the total income of such 'other person' before embarking upon the exercise of his assessment or reassessment. Therefore, now under the law, w.e.f. 1.10.2014 it has become obligatory not only for the AO of the person searched to record satisfaction before handing over books of account or documents, etc., to the AO of the 'other person', but, such AO of the 'other person' is also required to record satisfaction that the books of account or documents, etc. have a bearing on the determination of the total income of such other person. In the pre-substitution era of the relevant part of sub-section (1) of section 153C covering the period under consideration, the jurisdictional condition remains that the satisfaction is required to be recorded by and in the case of the person searched so as to enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroversy before us as was there before the Hon'ble High Court. It is not the case of the assessee before us in this ground that the documents etc. found from the persons searched did not positively indicate the existence of some income in the hands of the assessee. The argument is simply confined to non-recording of satisfaction by the AO of the persons searched. Instead of supporting the Department's case, we find that this judgment strengthens the assesasee's case by making it clear in no uncertain terms that the AO of the person searched is obliged to record the satisfaction. The relevant observations of the Hon'ble High Court contained in para 15 merit reproduction as under: - 'It needs to be appreciated that the satisfaction that is required to be reached by the Assessing Officer having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person other than the searched person. There is no requirement in Section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered view that there is no need to go with conflicting decisions on the legal issue as though section 153C of the Act is analogous to the earlier provisions of section 158BD of the Act but there is a complete deviation in the newly inserted provision of section 153C of the Act inasmuch as while section 158BD of the Act stipulates that for transfer of file only when the Assessing Officer who conducted the search or who called for books of accounts was satisfied that the undisclosed income found therefrom belongs to any person other than the person searched who has to be assessed under Section 158BD r/w section 158BC of the Act. While under Section 153C of the Act for transferring the material or evidence collected during course of search to the Assessing Officer of assessee other than the person searched, what is required is that the money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized in the course of search of an assessee belonged to or related to a person other than the person searched. In simpler words unlike section 158BD of the Act for transferring a file under Section 153C of the Act, there is no need to examine whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 and the provisions of section 153C, 132(4A)(i) and 292 C(1)(i), it has been held thus:- "Before we examine these writ petitions in detail it would be pertinent to point out that recently in the case of Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax, WP (C) No.415/2014 and other connected matters, this court had occasion to examine the very provisions which are under consideration in the matters before us. In the judgement delivered on 07.08.2014 in the case of Pepsi Foods Pvt. Ltd. (supra), after examining the provisions of Sections 153C, 132(4A)(i) & 292C(1 )(i) of the said Act, this Court had observed as under: "6. On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be "satisfied" that inter alia any document seized or requisitioned "belongs to" a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any "satisfaction" of the kind required under Section 153C of the said Act." 24. The coordinate bench of the Tribunal in the case of DSL Properties (P) Ltd. Vs DCIT in operative paras 15, 18 and 21 (supra) has held thus:- "Held Action u/s 153C can be taken in respect of any other person than person searched if AO of person searched is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents belong to person other than person searched. Therefore, recording of satisfaction by AO of person searched that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized belong to person other than person searched is a sine qua non for initiating action u/s 153C. In S. 158BD, AO of person searched is to be satisfied that any undisclosed income belong to any person other than person searched, while, in case of S. 153C, AO of person searched is to be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. DR found himself unable to submit the outcome of the assessment, proceedings for AY 2009-10 relevant to previous 2008-09, pertaining to which alleged cheque book as termed as incriminating material by the department, was related. In this situation, we can safely presume that no regular assessment order has been passed till date for the AY 2009-10 to which only seized material i.e. cheque book pertains to. Ld. DR has also not disputed the fact submitted by the assessee that the details of cheque book were duly reflected in the return of the assessee for AY 2009-10. Therefore, if the AO of the person other than person searched might have gone through the return of the assessee for AY 2009-10, which was admittedly filed on 30.09.2009, then he could have drawn a proper conclusion about further action of the proceedings for AY 2009-10 but this exercise was not conducted prior to issuance of notice u/s 153C of the Act, on 6.7.2010, hence, the initiation of proceedings and assumption of jurisdiction u/s 153C of the Act gets vitiated on account of non-recording of required satisfaction by the AO of the person searched and non application of mind by the AO of the person other than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the Act as the transactions reflected from the said cheque book were duly recorded in the books of accounts of the assessee of the relevant financial year/previous year, therefore, no incriminating material was found during the search which could impeach the book results of the assessee company for the all six assessment years under consideration in present appeals. 14. Turning to the facts of the present case, undisputedly, the AO of the persons searched had not recorded any satisfaction note and the only satisfaction note available at page no. 5 of the paper book has been recorded by the AO of the person other than persons searched i.e. the assessee, does not satisfy the conditions of validly assuming jurisdiction u/s 153C of the Act. The present case is squarely covered by the decision of Hon'ble High Court in the case of Pepsico (supra). Thus, assumption of jurisdiction was not valid, bad in law and void ab initio. Accordingly, cross objections from 1 to 4 of the assessee being legal contentions are hereby allowed. Cross objection nos. 5 to 12 of the assessee and ground no. 1 to 3 in A.Y. 2003-04 & ground no. 1 & 2 of the Revenue for A.Y. 2004-05 to 2008-09 of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entries in the cash book of the assessee company for the relevant assessment year and to make a singular addition of the said amount. Therefore, we find it just and proper to adjudicate grounds of the Revenue as well as cross objections of the assessee on the merits together by the subsequent part of this order. 18. The ld. DR submitted that the AO and the CIT(A) have held that the purchases, sales and expenses made by the assessee during the relevant assessment period are bogus and unverifiable by nature. Therefore, the AO was justified and making additions in regard to unexplained purchases and expenses in all assessment years. The DR also contended that the AO was also justified in making addition u/s 68 of the Act for A.Y. 2003-04 on account of cash capital u/s 68 of the Act. The ld. DR further submitted that the CIT(A) deleted the additions made by the AO with a direction to make addition on the basis of peak entry in the books of accounts for the relevant period and to make a singular addition of the amounts are not acceptable by the Revenue. Therefore, impugned orders of the CIT(A) may be set aside by restoring that of the AO. 19. Replying to the above, the ld. AR subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 (Mad.) and CIT vs. Anandha Metal Corpn., 273 ITR 262 (Mad.) and ratio of these decisions support the conclusion of the CIT(A). 21. On this issue we respectfully take cognigence of the judgments of the Hon'ble Jurisdictional High Court of Delhi, dated 10.1.2010 in ITA No. 608/2009, CIT vs. Harbir Singh and the judgment dated 09/04/2010 in ITA No. 613/2010 in the case of CIT vs. Kailash Jewellery House, as relied by the assessee, wherein it has been held thus: "3. The Commissioner of Income Tax (Appeals) had returned a finding that the stock and cash found at the time of search had been examined by the AO and was compared with the stock and cash position as per books. The stock and cash position as per the books had been arrived at after the effect of the aforesaid cash sales. The stock position as well as the cash position as per the said books had been accepted by the AO. The Commissioner of Income Tax (Appeals) also noted that the appellant had furnished the complete set of books of accounts and the cash books and no discrepancy had been pointed out. The AO had doubted the aforesaid sales as bogus and had made the aforesaid addition. However, the Commissioner of Income Tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted contra accounting entries we are in agreement with the view taken by the CIT(A) that addition u/s 68 of the Act is not sustainable and we upheld the same. 24. The ld. AR also drawn our attention towards assessment order para 4 and submitted that the AO proceeded on the basis of surmises and conjectures without having any incriminating material or substance by imagining a modus operandi at his own without any justified basis and presuming that the assessee company are basically capital formation concerned which have build up huge results and surpluses over the years which declared invested in the stock of textiles. 25. The ld. AR also pointed out that the Revenue Authorities have no reasonable cause or valid reason to doubt the commercial transactions carried out by the assessee which were duly recorded in the books of accounts maintained by the assessee. The ld. AR vehemently contended that the Revenue Authorities are not empowered to make a pure guess work in making assessment without any reference to any cogent evidence or material and there must be some incriminating material more than baseless suspicion to support additions and disallowances in the assessment order u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical approach without pointing out any defects or deficiency in the books of accounts and results of the audited accounts. The ld. AR drawn our attention towards paragraph no. 4, 5 & 6 of the assessment order and submitted that the AO acted with a pre-determine subjective approach which cannot be a basis of making valid disallowance and additions. The ld. AR also drawn our attention towards paragraph no. 7.15 of the impugned order and submitted that the CIT(A) was right in deleting the impugned additions but the CIT(A) directed the AO to work out peak from the entries in the cash book of the assessee without any reason or basis. The ld. AR further pointed out that the CIT(A) himself was not sure in directing the AO as to where the work out peak amount has to be added and, therefore, the CIT(A) has made a vague direction to the AO for making a singular addition either as unexplained investment or as expenditure or as cash credit. The ld. AR further pointed out that no incriminating material except counter file of cheque book pertaining to assessment year 2009-10 have been found during the search and seizure operation on 20/10/2008 and the additions made by the AO are not based on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with tax free goods only there is no necessity for it to file sales tax returns. Thus, it seems that except the declaration of the assessee, there is no independent proof of sale/purchase of the goods except the bank transactions. During the course of assessment proceedings the assessee was asked to give break up of cash or cheque purchases. In response thereto a reply has been filed and placed on record in which assessee has declared its entire purchase as cash purchases of Rs. 35,53,545/- . Assessee company has also stated that it did not maintain any bank account during the year and the assessee deals with tax free goods only there is no necessity for it to file sales tax return. The parties from whom purchases are made are: 1) M/s Pole Star Fabrics Rs. 26,02,864/- The above is actually unit of Thapar group companies and the unit is mentioned in correspondence to hide the true persons. The above concerns is part of the Thapar group of companies having similar modus operandi. This has been assessed u/s 153C in the this circle and in these case also the business transactions has been held to be not genuine. Similar the sales are declared to have been made in cash to concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are held to represent income from undisclosed sources u/s 68 only. No extra addition is made in the present order on bogus sales. It is also held that the assessee was not doing any genuine business and was only giving accommodation entries to other parties. 11. During the year the assessee has increased share capital from 400 to 100000/-. Vide questionnaire dated 12.11.2010 the assessee was asked to file details of the shareholders, their PAN and to produce shareholder register. The assessee has not produced any detail except giving the name of shareholders. No confirmation are produced and no PAN are supplied. Further the company admittedly had no bank account and, therefore, the share capital was received in cash only. As the identity and genuineness of the shareholders has not been proved, the amount of Rs. 100000/- is held unexplained cash credit u/s 68." 30. From operative part of the impugned order of the CIT(A), we note that the CIT(A) has deleted the impugned additions made by the AO but has directed the AO to work out the peak from the entries in the cash book of the assessee with following observations and conclusions: "7.14. These findings also lead to the inescap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted books and results of the assessee proceeded to make additions. The CIT(A) deleted these additions by holding that the additions made by the AO needs to be revisited. The CIT(A) further hold that while the rejection of books and the book results by the AO is confirmed then the reliance is being placed on the transactions traversing the cash book irrespective of their amounts. The ld. CIT(A) further held that no separate addition is required to be made on account of purchase or expenditure in share capital and directed the AO to work out peak from the entries in the cash book of the assessee for the relevant assessment years and to make a singular addition of the said amount. But the CIT(A) has not given any specific direction that the amount of peak has to be added as either unexplained investment or expenditure or cash credit and the direction of the CIT(A) is vague and not sustainable. 32. Under above noted facts and circumstances, we are of the considered view that the AO proceeded to make additions with a predetermine mind without pointing out any defects in the audited books and book results of the assessee. In these cases the proceedings u/s 153C of the Act was initiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, it is apparent that: (a) The assessments or reassessments, which stand abated in terms of II proviso to section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments, have to be made; (b) Regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and (c) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. Though such a claim by the assessee for the first time under section 153A of the Act is not completed, the case in hand, has to be considered at best similar to a case where in spite of a search and/or requisition, nothing incriminating is found. In such a case though Section 153A of the Act would be triggered and assessment or reassessment to ascertain the total income of the person is required to be done, however, the same would in that case not result in any addition and the assessments passed earlier may have to be reiterated. 23. The reliance placed by the counsel for the appellant on the case of Anil Kumar Bhatia (supra) also does not help the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment or reassessment resulting into the demand or proceedings of penalty"(Emphasis supplied) The said judgment which essentially deals with second proviso to section 153A of the Act also supports the conclusion, which we have reached hereinbefore." 34. On the basis of aforesaid discussion and deliberations, we reach to a logical and fortified conclusion that the AO was not justified in making impugned disallowances and additions pertains to unexplained purchases u/s 69C of the Act and disallowance of expenses in all six assessment years and addition u/s 68 of the Act in regard to share capital for A.Y. 2003-04 without any justified basis and that is too without any incriminating material and thus, we are inclined to hold that the CIT(A) was correct in deleting the same. 35. In view of above, we are inclined to hold that the AO made additions without any justify basis and incriminating material which was deleted by the CIT(A). We further hold that the CIT(A) made a vague and unsustainable directions to the AO for making additions to work out peak amount from the entries in the cash book of the assessee for the relevant assessment year and make a singular addition which is also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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