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2015 (8) TMI 710 - ITAT DELHI

2015 (8) TMI 710 - ITAT DELHI - TMI - Validity of assessment proceedings u/s. 153C - Assessment of income of any other person - Held that:- On a reading of Section 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Coordinate Bench of this Tribunal in the case of DSL Properties Pvt. Ltd. Vs. DCIT [2013 (9) TMI 123 - ITAT DELHI] has held that if the Assessing Officer is assessing the person searched as well as other person whose assets, books of account or .....

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e file of such other person. Thereafter, in the capacity of the Assessing Officer of such other person, he has to issue the notice u/s 153A read with section 153C.

The Assessing Officer of the searched person and such other person may be the same but these are two different assessees and therefore the Assessing Officer has to carry out the dual exercise first as the Assessing Officer of the person searched in which he has to record the satisfaction, during the course of assessment ord .....

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/s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a ‘sine-qua-non’ to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of Section 153C. We could not find any mention .....

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d:- 14-8-2015 - SHRI R.S. SYAL AND SHRI A.T. VARKEY, JJ. For The Assessee : Shri B. K. Dhingra, Advocate For The Revenue : Shri Anupama Kotru, CIT DR ORDER PER A.T. VARKEY, JUDICIAL MEMBER : These six appeals by the revenue and six cross objections by the assessee are directed against the orders of the Commissioner of Income-tax (Appeals)-II, New Delhi all dated 12.09.2013 for the assessment years 2003-04 to 2008-09. 2. The facts and circumstance in all the assessment years are similar except th .....

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to the assessee, which is a private limited company were seized. On the basis of documents so found belonging to the assessee, proceedings were initiated in the case of the assessee u/s 153C read with section 153A of the Act. The case of the assessee was initially centralized with ACIT, Central Circle 17 u/s 127 of the Act by CIT, Delhi-III, New Delhi vide order F.No. CIT-III/Centralisation/2009-10/2515 dated 29.10.2009. Notice u/s 153C dated 08.07.2010 was issued to the assessee by the ACIT, C .....

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7 of the Act were dispatched to the assessee on 12.11.2010 as sought by the assessee. In response to the notice, the assessee took part in the proceedings The AO found that the assessee company belonged to the Thapar Group of cases and one of the main allegations against the group was that several concerns had been floated by the group with dummy Directors and shareholders. He observed that these concerns were basically capital formation concerns which had build up huge reserves and surpluses ov .....

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tax department regularly. The AO further found that the assessee had declared a closing stock of ₹ 12,02,09,649/- as on 31.03.2002, which formed the opening stock for the previous year under consideration. During the relevant assessment year, the AO found that the assessee had purchased textile goods of ₹ 32,03,768/- and had made sales of ₹ 31,74,818/-. The AO directed the assessee to prove its trading activities and to produce sale tax records. The assessee had claimed that si .....

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32,03,768/- and it was also stated that it did not maintain any bank account during the year and the assessee dealt with tax free goods only there was no necessity for it to file sales tax return. The AO found that during the post search enquiries conducted by the Investigation Wing from the address of the assessee, it indicated that at least 15 (fifteen) number of concerns connected with the Thapar Group were declared as operating from the address, B-340, Hari Nagar, New Delhi and the number m .....

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claim was non-verifiable due to lapse of so many years. The AO also found that most of the concerns of Thapar group had sought to declare this premises as their godown but no such claim was made during search proceedings. The AO observed that in the case of present assessee, all the purchases & sales were in cash. The items purchased & sold were textile & fabrics. The name and style of the textiles & fabrics were Denim, Fabrics K-III Super Fine (N), Fabric (PS), Fabric (PS) Embro .....

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₹ 12,02,38,599/- which was almost the same. Therefore, he observed that the purchases & sales were only out of current year transactions which were held unverifiable and bogus. The AO further observed that it was highly improbable that with a huge stock inventory of goods which change in fashion and taste, the assessee had to make sales from fresh purchases only. The AO observed that the preponderance of probability suggested that the stocks were not genuine but since these were declar .....

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y allow the appeal of the assessee. 3. The revenue and the assessee, being aggrieved by the order of the ld. CIT (A), are in appeal and cross objection before us. 4. The grounds of appeal taken by the revenue in assessment year 2003-04 are as follow :- 1. The Commissioner of Income Tax (Appeal), erred in law and on facts in deleting the addition of ₹ 32,03,768/- on account of unexplained purchase u/s 69C of the Act. 2. The Commissioner of Income Tax (Appeal) erred in law and on facts in de .....

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CIT (A) has failed to appreciate that the notice issued u/s 153C and assessment order passed by the Ld. AO u/s. 153C/143(3) is illegal, bad in law, time barred, without jurisdiction and wrong on facts. The additions made are unjust, unlawful and arbitrary and are made against the principles of natural justice. 2. That on the facts and circumstances of the case and the provisions of law, the Ld. CIT (A) has failed to appreciate that the Ld. AO was not justified to ignore the submissions of the a .....

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procedures prescribed u/s. 153C of the LT. Act and as such the assessment being bad in law deserves to be quashed. 4. That on the facts and circumstances of the case and the provisions of law, the Ld CIT (A) has failed to appreciate that the Ld AO was not justified to ignore the submissions of the appellant that assessment u/s 153C of the Income Tax Act be restricted to assessment in respect of seized documents of incriminating nature in the case of the appellant for only the year to which said .....

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lective of the actual business / commercial transactions. However, the Ld CIT (A) still relying on these books /book results for giving directions to the AO for the purpose of calculating the peak from the entries in the cash book of the appellant for the relevant year. 6. That in view of the facts and circumstances of the case, CIT (A) has erred in disregarding the purchases of ₹ 32,03,768/-, the sales and the expenses of ₹ 3,92,518/- claimed by the assessee company. 7. A) That on t .....

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opportunity of being heard to the appellant company and ignored the concept of 'Real Income' and wrongly directed the AO to work out the peak from the entries in the cash book of the appellant company for the relevant year, without granting the credit of the peak of financial transactions as per the cash book for the preceding years. 8. That on the facts and on the circumstances of the case and the provision of law, the CIT (A) has erred in ignoring the fact that the AO has erred both o .....

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ly considered and judicially interpreted and the same do not justify the additions/disallowances made. The additions have been sustained with preset mind of the CIT (A) and her order is based on surmises, conjectures and suspicion. 11. That on the facts and circumstances of the case the interest charged u/s 234A and 234 B has been wrongly and illegally charged and in any case is highly excessive. 12. That the respondent craves the right to amend, append, delete any or all grounds of appeal. 5. A .....

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ioned the very assumption of jurisdiction of AO to initiate proceedings under section 153C of the Act. 6. Ld. AR for the assessee submitted that in the present case, there is no satisfaction recorded by the AO of the raided party, as admitted by the department in RTI replies placed at pages 3 to 5 of the paper book ; and the satisfaction note, at pages 1 &2 of the paper book, is one recorded by the AO of the present assessee/other person. He submitted that the same is held to be invalid on s .....

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case that two separate notes are must u/s 153C i. E. one/first by raided party AO and other/second by non-raided party AO even if both are same, this recording of satisfaction is a sine-qua non for assumption of jurisdiction U/s 153C. He submitted that ratio of the aforesaid judgment was also relied upon by Delhi ITAT, H Bench in the case of Vinita Chaurasia order dated 29.05.2015 and also in ITAT Mumbai, Bench D in the case of Deven Mehta (order dated 24.04.2015). 7. On the other hand, ld. DR .....

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and carefully gone through the records and the case laws cited before us. The main issue that was raised by the assessee is that assumption of jurisdiction by the AO before issuing notice u/s 153C of the Act is not in accordance to law and so the impugned assessment U/s 153C read with 153A/143(3) of the Act is void-ab-initio and should be quashed being quarum-non-judice. A perusal of the assessment order of the assessee reveals that a search was carried out u/s 132 of the Act on Shri B. K. Dhin .....

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other person.- (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, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing O .....

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ents or assets, etc., shall be handed over to the AO of the other person and the later AO shall proceed against such other person to assess or reassess his income. A bare perusal of the provision indicates that before handing over such documents etc. to the AO of the other person , a satisfaction has to be recorded by the AO of the person searched that money, bullion or jewellery, etc., found from the person searched belong to the other person . Only when such satisfaction is recorded by the AO .....

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emerges is that the recording of satisfaction by the AO of the person searched is a condition precedent for the AO of the other person to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the other person. 10. In the case of Anil Kumar & Ors. vs. UOI & Ors. Reported in 155 Taxman 659 (SC), the Hon ble Apex Court observed that A jurisdictional fact is a fact which must exist before a court, a tribunal or an .....

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is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. The existence of 'jurisdictional fact' is sine qua non for the exercise of power by a court of limited jurisdiction . 11. As noted earlier section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wherefore are : (i) satisfaction must be recorded by the AO that any undisclosed i .....

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son other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the other person. 12. Let us examine the facts of the instant case more elaborately. It is seen that some satisfaction was recorded, a copy of which is available on page 2 of the paper book, as .....

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hingra, M/s Madhusudan Buildcon P Ltd. have been found to belong to M/s Satkar Road Lines Pvt. Ltd, Kasra No. 34/7, Village Dera Mandi, Tehsil Mehrauli, New Delhi which has not been covered u/s132 of the I.T. Act, 1961. Accordingly, in terms of provisions of section 153C of the Act, notices u/s 153C are hereby issued for the A.Y. 2003to2008-09 in the case of M/s Satkar Road Lines Pvt. Ltd. The case was centralized in the Central Circle -17, New Delhi vide orders dated 29/Oct/2009 of CIT-III, New .....

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oubt that it was recorded by the AO of the assessee before taking up the assessment u/s 153C of the Act pursuant to the search conducted on Shri B. K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt Ltd. Pages 3-5 of the paper book are the copies of the reply dated 10.06.2013 furnished by the Dy. Commissioner of Income-tax, Central Circle-17, New Delhi to Shri B. K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon (P) Ltd, under the provisions of RTI Act, 2005. The relevant .....

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ns searched, it is manifest that there is no satisfaction note available/recorded in respect of other entities . On a conjoint reading of the Satisfaction note and replies given by the Department to the persons searched under the RTI Act, it clearly emerges that no satisfaction was recorded by the AO in the cases of the persons searched u/s 132(1) of the Act (i. E. Shri B. K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd.) that some books of account or documents etc. belongin .....

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is opinion stood satisfied, by virtue of it having been recorded by the common AO. 14. This particular argument of the revenue was answered by the Coordinate Bench in the case of M/s. Tanvir Collections Pvt. Ltd. Vs. ACIT, Central Circle 21, New Delhi in ITA No.2421/Del/2014 order dated 16.01.2015 as under :- 16. In our considered opinion, this contention advanced on behalf of the Revenue is devoid of merit. We fail to comprehend as to how the requirement of recording satisfaction by the AO of t .....

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he 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 .....

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faction by the AO of the assessee. We are again unable to appreciate this contention that the commonness of the AO would make no difference in so far as the recording of satisfaction in the case of the persons searched is concerned. What is relevant for this purpose is not the identity of the person assessing but his position and the capacity. When the law requires the AO of the person searched to record the necessary satisfaction, it is the AO having jurisdiction over the person searched who is .....

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y. In view of the fact that when the statutory stipulation is for recording the satisfaction by the AO of the person searched, then, it cannot be substituted with the satisfaction of the AO of the other person. This contention also fails. 18. At this stage, it is relevant to note that the legislature has substituted the latter part of section 153C(1) by the Finance (No.2) Act, 2014 w. E. F. 1.10.2014. The hitherto part of sub-section (1) : and that Assessing Officer shall proceed against each su .....

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have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in subsection (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 und .....

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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 enable the AO of the other person to start with the proceedings for making assessment or reassessment. 20. The ld. DR contended that recording of satisfaction by the AO of the assessee at the most can be treated as a technical mistake and hence should not eclipse the assessment. Relying on certain judgments, the ld. DR submitted .....

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risdiction goes to the very root of the matter and cuts the tree of assessment if the foundation of jurisdiction is missing. 22. The ld. AR has brought to our notice two orders passed by the Delhi Benches of the Tribunal, namely, ACIT vs. Inlay Marketing Pvt. Ltd. (ITA No.4200/Del/2012), etc. and DCIT vs. Aakash Arogya Mandir Pvt. Ltd. (ITA No.5437/Del/2013), etc., in which the notices and the consequential assessments u/s 153C, under identical circumstances, have been quashed. The ld. DR conten .....

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held that the Assessing Officer having jurisdiction over the searched person should be satisfied that the valuable article or books of account or documents seized during the search belong to a person other than the searched person and 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 conclusively reflect or disclose any undisclosed income. We find that ther .....

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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 .....

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ent does not support the Revenue s case. Resultantly, the characterization of the above Tribunal orders as per incurium by the ld. DR, is absolutely without any legally sustainable basis. 25. Even otherwise, the judicial discipline requires a subsequent bench to the follow an earlier order of a coordinate bench on the point. It is only if the subsequent bench feels itself unable to concur with the view taken earlier that it is required to refer the case for consideration by a special bench. In o .....

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valid and lawful jurisdiction on the AO of the assessee to proceed with the matter of the assessment u/s 153C of the Act. We, ergo, set aside the initiation and the ensuing assessment on the assessee as void ab initio. 27. The reliance of the ld. DR on some decisions on other legal issues or merits is of no consequence in view of the lack of jurisdiction of the AO to proceed with the assessments u/s 153C of the Act. In view of our decision on the first legal issue, there is no need to espouse t .....

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iday (P) Ltd Vs. ACIT (2014) 50 Taxmann. Com 299 (Delhi), after considering the decisions cited by the Revenue held in para 5 as follows:- 5. While coming to the aforesaid conclusions the court had also examined the decisions which had been cited on behalf of the Revenue and which are, once again, being reiterated by the learned counsel for the Revenue before us. Those decisions are Kamleshbhai Dharamshibhai Patel v. CIT [2013] 214 Taxman 558/31 taxmann. Com 50 (Guj.); CIT v. Classic Enterprises .....

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s (supra), this Court had indicated that it could not agree with the conclusions and observations of the Allahabad High Court inasmuch as the decision of the Allahabad High Court was premised on a consideration of the provisions of Section 158BD of the said Act which are entirely different from the provisions of Section 153C of the said Act. Furthermore, with regard to the decision in SSP Aviation Ltd. (supra), this court had noted that the said decision does not militate against the view taken .....

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se (Supra) the Supreme Court observed that taxing statute must be constructed strictly. The Court, however, shall not interpret statutory provisions in such a manner, which would create an additional physical burden on a person. In case of any doubt or dispute, construction is to be made in favour of the tax payer and against the revenue. 20. In the present case we do not find anything wrong in the satisfaction note and the forwarding of the entire matter by the Income Tax Officer, Ward-Ill (2), .....

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Assessing Officer of the petitioner at Bareilly. The Income Tax Officer, Ward-Ill (2), Ahmedabad did not commit any error in law, in recording the satisfaction note requesting the petitioner s Assessing officer to proceed under Section 153(c) of the LT. Act. 21. After the assessment of the person in respect of whom search action was carried out is completed, the officer under Section 153C, where he find that seized articles belong to some other person, has to forward a satisfaction note to the A .....

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t in the case of Savesh Kumar Agarwal (supra) is to be found in paragraph 20 Page 13 of 16 thereof where it has been observed that the assessee established that the seized silver belongs to M/s. Sarvesh Jewellers, Bareilly - the petitioner. In other words, the person from whom the bullion was seized was able to establish that it did not belong to him but to Sarvesh Jewellers. It is in that context that the provisions of Section 153C of the Act were invoked inasmuch as the Assessing Officer would .....

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faction that the said documents or materials do not belong to the searched person. We may point out that in the course of the arguments we had asked the learned counsel for the Revenue as to whether the documents in question had been disclaimed by the Jaipuria Group. The learned counsel for the Revenue, on instructions, states that this was not the case. In other words, it follows that the Jaipuria Group did not say that the documents did not belong to them. 17. The Hon ble Delhi High Court furt .....

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ss and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is that "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 .... " In vi .....

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even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. 15. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong" to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of .....

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t;refers to". A registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it "belongs to" the vendor just because his name is mentioned in the document. In the converse case if the vendor s premises are searched and a copy of the sale deed is seized, it .....

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e been satisfied in this case. Consequently the notices dated 02.08.2013 issued under Section 153C of the said Act are quashed. Accordingly all proceedings pursuant thereto stand quashed. 18. The writ petitions are allowed as above. There shall be no orders as to costs. 18. The Ld AR took our attention to the order of the co-ordinate Bench in DCIT vs. Aakash Arogya Mindir P. Ltd. (ITA Nos. 5437 to 5442/Del/ 2013) (PB Pages 49 to 64) wherein on similar facts of the searched person i. E. B. K Dhin .....

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not been done in the present appeals. Therefore, we quash the assessment proceedings being illegal. Thereafter, we find that the department went in appeal before the Hon ble High Court of Delhi against the aforesaid order ( P. R. Commissioner of Income Tax, Central-II) vs. Aakash Arogya Mandir Pvt. Ltd.) (page 65) wherein, the Hon ble High Court, while dismissing the appeal of the Revenue, held as under :- 8. The Revenue has not placed any material to dispute the factual finding of the ITAT tha .....

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ded separately qua the searched person and the Assessee. 9. No substantial question of law arises for determination. The appeal are dismissed. 19. In the light of the case laws cited above and on a reading of Section 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Coordinate Bench of this Tribunal in the case of DSL Properties Pvt. Ltd. Vs. DCIT 33 Taxman. Com 420 vide para 15 has held that if the Assessing Officer is assessing the person searched as we .....

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ransferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the Assessing Officer of such other person, he has to issue the notice u/s 153A read with section 153C. The Assessing Officer of the searched person and such other person may be the same but these are two different assessees and therefore the Assessing Officer has to carry out the dual exercise first as the Assessing Officer of the person searched in which he has to record the satisfa .....

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ly satisfaction as envisaged u/s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a sine-qua-non to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of Section 153C. W .....

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