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2015 (7) TMI 538 - MADHYA PRADESH HIGH COURT

2015 (7) TMI 538 - MADHYA PRADESH HIGH COURT - [2016] 380 ITR 591 - Validity of assessment under Section 153C - whether Tribunal was justified in law in upholding the order of the CIT(A) quashing the assessment proceedings on the ground that the AO had not recorded, his satisfaction even which the AO making the assessment of searched person was himself having jurisdiction over such other person (i.e. the assesse) and thus was not required to record any satisfaction for initiating proceedings u/s .....

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rvations have been made by the Assessing Officer in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified. These findings of fact need no interference and have not been questioned before us.

The power bestowed on the Assessing Officer having jurisdiction be it under Section 153C or Section 158BD is identical.Suffice it to observe that the dissimilarity .....

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handing over the items referred to in Section 153C to the Assessing Officer having jurisdiction, of his duty to be satisfied about the jurisdictional fact that the items belongs or belong to a person other than the person referred to in Section 153A.

After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction wi .....

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nal on the questions under consideration. The view taken by us is reinforced from the decisions of other High Courts in the cases of Commissioner of Income Tax (Central) Vs. Gopi Apartment (2014 (5) TMI 158 - ALLAHABAD HIGH COURT ), Pepsi Foods P. Ltd. (2014 (8) TMI 425 - DELHI HIGH COURT ), Pepsico India Holdings P. Ltd. (2014 (8) TMI 898 - DELHI HIGH COURT) and lastly CIT Vs. Madhi Keshwani (2015 (3) TMI 542 - ALLAHABAD HIGH COURT). - Decided in favour of assessee. - I.T.A. No.44, 45, 48, 50, .....

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d 56 of 2011 respectively. Moreover, these appeals emanate from a common order passed by the Income Tax Appellate Tribunal, Indore Bench, at Indore dated 29.12.2010. Since common substantial questions of law have been framed in these appeals, the same were heard analogously and, therefore, are being disposed of by this common judgment. 2. The respondent is a partnership firm carrying on the business of Hi. Tech Heavy Steel Fabricators and manufacturer for last more than 25 years. It is stated th .....

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that survey. However, the Assessing Officer [ACIT-1(2)] issued notice under section 153C on 22.3.2006, calling upon the respondent to file returns for the AYs 2000-01 to 2005-06 within 30 days from the date of receipt of the said notice. The respondent filed returns within the prescribed time on 24.4.2006 for the respective assessment years. The respondent also filed return for the Assessment Year 2006-07 under Section 139(1) on 30.10.2006. Besides, a response was also filed to the notice under .....

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T-275 to 281/2007-08. These appeals were decided by a common order passed by the First Appellate Authority dated 15.7.2008. Before the Appellate Authority, amongst other grounds, the principal grievance was about the inappropriate assumption of jurisdiction under Section 153C. With regard to that ground, the Appellate Authority relied on the decision of CIT (A), Jabalpur in the case of Hotel Sonam and Smart Bar, Sagar in appeal No.J/CIT (A)-1/ACIT/SAGAR/116 to 122/06-07 and extracted the relevan .....

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be initiated against a person-not-searched merely on the ground that some account or even a bank statement of the person has been found in a search action. If in such a case invoking of section 153C is held to be justified, then this section can become a ready tool for reopening six year cases on any pretext of a person, who had some dealing with the person-searched. The ld. A. R. has argued that before invoking section 153C there has to be some material on record to come out of the presumption .....

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tereo type satisfactions by stating that during search actions carried out in December 2003 in the cases of Santosh Kumar Sahu and others incriminating documents pertaining to each of the years were found and seized whereas the fact is that in some of the years of some of those concerns were not in existence. However, these facts by themselves could not be regarded to be a sufficient ground to hold the invoking of section 153C was illegal. It is because of the reason that on a plain reading of s .....

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e also been confronted to the assessee. But during the assessment proceedings no seized record pertaining to the assessee was confronted to him. What were confronted were the documents impounded during the survey action conducted at its office. In view of these facts, it is held that the invoking of section 153C against the assessee was bad in law. The proceedings so initiated, therefore, are held to be void ab-initio and all the assessments therefore, are declared ab-initio null and void. (emph .....

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pellate Authority concluded that the action of the Assessing Officer was illegal and invalid; and quashed the same for the concerned assessment years. The First Appellate Authority accordingly allowed the appeals filed by the respondents. The First Appellate Authority also considered other grounds raised by the respondent in the said appeals about denial of adequate opportunity, book of A/cs, finding of the Assessing Officer regarding undisclosed sales of ₹ 9,73,541/-, bogus purchases for .....

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ee also filed cross objection numbered as C.O.No.126/Ind/2008 for A.Ys. 2003-04. All the above numbered appeals and cross objection were disposed of together by a common judgment by the Tribunal. The Tribunal, in turn, relied on its decision in the case of M/s Chirchind Hydro Power Limited - IT (SS) A No.171. 172 and 174/Ind/2008 and also M/s Gwalior Tanks & Vessels Limited - IT(SS) A No.175 to 181/Ind/2008. Paragraph Nos.78 to 82 of the said decision has been reproduced by the Tribunal for .....

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ch was carried out at the residential premises of directors/partners of these concerns and not at the premises of these concerns. After the search was carried out at the residence of directors/partners of these associate concerns, assessment was framed in respect of these concerns u/s 153C of the Act on the plea that incriminating material was found during the course of search at the residence of partners/directors. The assumption of power by the Assessing Officer u/s 153C of the Act for framing .....

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n over such other person and that the Assessing Officer shall proceed against each of such persons and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A of the Act. The opening word of section 153C speaks that not-with-standing anything contained in sections 139, 147, 148, 149, 151 and 153, where the Assessing Officer is "satisfied" that any money, jewellery or books of accounts or documents seized or req .....

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nd seizure belongs to some person other than the searched person. Then the Assessing Officer making the assessment of searched person has to hand-over the said incriminating material belonging to some person other than the searched person to the Assessing Officer having jurisdiction over the said other person. Thereafter, the Assessing Officer having the jurisdiction over the person other than the searched person shall issue a notice u/s 153C to such other person and assess his income in terms o .....

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the assessment of the searched person has to satisfy himself that some undisclosed income found by him belongs to some person other than the searched person and then he or the Assessing Officer having jurisdiction over such other person after receipt of record from the Assessing Officer of the searched person has to issue notice u/s 158BD of the Act and has to assess income of such other person. The provisions of section 158BD of the Act were examined in detail by the Hon'ble Supreme Court .....

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aterial, belongs to some person other than the searched person. Insofar as the provisions of section 153C of the Act are in pari materia with the provisions of section 158BD of the Act with regard to the requirements of recording necessary satisfaction by the Assessing Officer of searched person, the law laid down by the Hon'ble Supreme Court in the case of Manish Maheshwari (supra) shall apply with full force in case of initiation of proceedings u/s 153C. The assumption of jurisdiction and .....

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, the assessment framed u/s 153C will be liable to be quashed. However, detailed finding has been recorded by the learned Commissioner of Incometax (Appeals) after examining the assessment records of the concerned person/parties to the effect that no satisfaction has been recorded by the Assessing Officer of the searched person. This finding of the learned Commissioner of Income tax (Appeals) has not been controverted by the department by bringing any positive material on record. Accordingly, ap .....

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t in case of search cases, the legislature has clearly stipulated the requirement for recording of satisfaction while assuming jurisdiction to issue notice and frame assessment u/s 153C of the Act which requires that satisfaction to be recorded with reference to the documents and other materials found during the course of search belonging to a person other than the searched person. Prima facie, Assessing Officer of searched person should form an opinion with regard to any document, valuable, etc .....

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h insofar as such appraisal note is a secret document prepared by the department for their internal use, contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. The appraisal note so prepared by the department is meant to monitor after the search proceedings are over so as to ensure exhaustive assessment of all searched person with respect to their correct income and to plan a strategy for further deep inquiry and investigatio .....

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Accordingly, we are not inclined to agree with the proposition that the appraisal note prepared by the department should be treated as a satisfaction note as required to be recorded in terms of sec tion 153C of the Act so as to empower the Assessing Officer to assume jurisdiction to issue notice and thereafter frame assessment u/s 153A read with section 143(3) of the Act. 82. In view of the above discussion, we do not find any infirmity in the order of the learned Commissioner of Income tax (App .....

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lied) 5. The Tribunal, adverting to the finding of fact recorded by the First Appellate Authority on the question under consideration; and agreeing with that finding, proceeded to dismiss all the appeals preferred by the Department. In this backdrop, present seven appeals have been filed by the Department against the common order of the Tribunal dated 29.12.2010. 6. These appeals have been admitted only on two substantial questions of law, which read thus:- (i) Whether, on the facts and in the c .....

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ase, the Tribunal was justified in law in upholding the quashing of the assessment proceedings u/s 153C on the ground that the AO had not recorded, in writing, his satisfaction, by placing reliance on the decision of the Hon ble Supreme Court in the case of Manish Maheshwari vs. ACIT, 289 ITR 341 which was delivered in the context of section 158BD and not section 153C of the I.T. Act? 7. Counsel for the Department more or less reiterated the grounds as were pressed into service by the Department .....

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isclosed income. It is contended that in the matter of search carried out with reference to the provisions under Chapter XIV the Assessing Officer is not required to record satisfaction that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned during search belongs or belong to a person other than the person referred to in Section 153A. Inasmuch as, the said Assessing Officer cannot have access to the information which may be g .....

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the Assessing Officer having jurisdiction to form his own view on the subject matter. It is submitted that on a bare reading of Section 153C it is clear that it involves two stages. First stage is referable to the seizure made by the Assessing Officer engaged in search of the assessee within his jurisdiction and finds that the material (money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned) belongs or belong to a person other than .....

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erred to in Section 153A. The obligation of the Assessing Officer, at this stage, is merely to forward the material not belonging to the person under search referred to in Section 153A to the Assessing Officer having jurisdiction over the other person for further action. It is further submitted that other person would be served with notice by the Assessing Officer having jurisdiction and proceeded in accordance with the provision of Section 153A where he would get opportunity to explain his posi .....

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erson referred to in Section 153A does not visit with any consequence to the other person (other than the person referred to in Section 153A) until the issuance of notice by the Assessing Officer having jurisdiction over such person. 8. The respondent, on the other hand, has supported the opinion of the Tribunal. That, the principle underlying the mandate of Section 158BD would apply on all fours to the procedure specified in Section 153C of the I.T. Act. Because, the purpose of both the provisi .....

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tion has been made by the Assessing Officer having jurisdiction in any of the orders for the concerned assessment years on the basis of the material found during the course of search. Even for that reason, no action under Section 153C could have been initiated against the respondent. The respondent submits that the Assessing Officer who seized or requisitioned the material during the search of a person referred to in Section 153A as also the Assessing Officer having jurisdiction over the respond .....

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unal has referred to the decision of the Supreme Court on the scope of Section 158BD as no direct judgment of the Supreme Court on Section 153C was referred to. Besides the Supreme Court decisions on Section 158BD, reliance has been placed on the decisions of different High Courts with reference to the same provisions on Section 158BD. To wit, Amity Hotels (P) Ltd. and others Vs. Commissioner of Income Tax and others (2005) 272 ITR 75 (Delhi) dated 5.10.2004, New Delhi Auto Finance (P) Ltd. Vs. .....

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o-operative Credit Society Ltd. Vs. Amal Garg, Deputy Commissioner of Income-Tax (2014) 369 ITR 596 (Guj) dated 26.2.2014, Asstt. Commissioner of Income Tax Vs. J.B. Enterprises and others(2014) 24 ITJ 754 (MP) dated 26.6.2014. Since there is no direct judgment of the Supreme Court on Section 153C, reliance has been placed on the decisions of different High Courts on Section 153C, namely- of SSP Aviation Ltd. Vs. Deputy Commissioner of Income-tax (2012) 346 ITR 177 (Delhi) dated 29.3.2012, Commi .....

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me Tax Appeal No.108 of 2014 (All) dated 11.3.2015. 10. Having considered the rival submissions, even though, the wider issues raised on behalf of the Department may not require consideration in the facts of the present case; and more particularly in the backdrop of the concurrent finding recorded by the two Appellate Authorities, we may deal with the same in this judgment as it may arise for consideration in the companion appeals heard analogously and are being disposed of by separate judgment .....

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to be considered and juxtaposed with Section 158BD for answering the issue. Sections 153C(1) and 158BD reads thus :- 153C. [(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 or documents, seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, th .....

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quisition under section 132A in the second proviso to [sub-section (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person. 158BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documen .....

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e of Manish Maheshwari (supra). After analyzing the relevant provisions for amplifying the efficacy of Section 158BD, in Paragraph No.7, the Court observed thus:- 7. Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requ .....

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sing Officer having jurisdiction over such other person; and (iii) The AO has proceeded under Section 158BC against such other person. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act. (emphasis supplied) 13. In a recen .....

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erson under Sections 132 or 132A of the Act. Under Section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132 A of the Act , after recording such satisfaction, may transmit the records/documents/ chits/papers etc to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other document .....

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under Section 132A of the Act and thereafter, transmit the records for assessment of such other person. Therefore, the short question that falls for our consideration and decision is at what stage of the proceedings should the satisfaction note be prepared by the assessing officer: whether at the time of initiating proceedings under Section 158BC for the completion of the assessments of the searched person under Section 132 and 132A of the Act or during the course of the assessment proceedings .....

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were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satis .....

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32 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 42………. 43………. 44. In the result, we hold that for the purpose of Section 158BD of the Act a satis .....

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eedings are completed under Section 158BC of the Act of the searched person. (emphasis supplied) 14. Thus, as envisaged by Section 158BD, satisfaction of the Assessing Officer before he transmits the material/records to other Assessing Officer having jurisdiction over such other person is sine qua non. Sans such satisfaction, the Assessing Officer cannot validly take recourse to the machinery provision. 15. We may now turn to Section 153C. No doubt, the form of Section 153C is dissimilar to that .....

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than the person referred to in Section 153A, inspite of the action under Section 139, 147, 148, 149, 151 and 153 of the I.T. Act. However, on closer scrutiny of the two provisions, it is indisputable that, these provisions are machinery provisions and have been provided for in the statute book for the purpose of carrying out assessment of a person other than the searched person under Section 132 or 132A of the I.T. Act in relation to Section 158BD; and Section 153A in relation to Section 153C. N .....

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3C), is expected to handover those items to the Assessing Officer having jurisdiction over such other person and thereafter the Assessing Officer having jurisdiction has to proceed against such other person within his jurisdiction. Even for the purpose of Section 153C, the Assessing Officer before handing over the items to the Assessing Officer having jurisdiction must be satisfied that the items belongs or belong to the person other than the person referred to in Section 153A. That satisfaction .....

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rlying. The power bestowed on the Assessing Officer having jurisdiction - be it under Section 153C or Section 158BD - is identical. 17. We are not inclined to accept the argument of the Department that the purpose underlying the two provisions is different. We also find that even the procedure is not different. The subject matter of the action would differ in the context of the machinery provision invoked, in the given case. That, however, cannot be the basis to extricate the Assessing Officer, .....

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essing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a per .....

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whom the items are handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. Similarly, as there is no provision either e .....

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re issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him. 20. As a result, we hold that there is no infirmity in the view taken by the Tribunal on the questions under consideration. The view taken .....

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