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2015 (8) TMI 711 - ITAT DELHI

2015 (8) TMI 711 - ITAT DELHI - TMI - Validity of assessment u/s 153C - 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 documents were found at the time of search, then also, f .....

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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 order proceedings of the person searched.

We con .....

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uired 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 of any seized materials like valuable articles or things .....

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For The Assessee : Shri B. K.Dhingra, Advocate For The Respondent : Shri Anupama Kotru, CIT DR 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 for the assessment years 2003-04 to 2008-09. 2. The facts and circumstance in all the assessment years are similar except the difference in the additions, therefore, for the sake of brevity, we take the fa .....

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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/2009-10/2414 dated 21.10.2009. Notice u/s 153C dated 08.07.2010 was issued to the assessee by the ACIT, CC 17, New Delhi requiring the assessee to file return of income wit .....

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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 over the years and these reserves and surpluses were declared invested in .....

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osing stock of ₹ 8,94,32,924/- 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 ₹ 21,15,780/- and had made sales of ₹ 26,54,875/-. The AO directed the assessee to prove its trading activities and to produce sale tax records. The assessee had claimed that since it dealt with tax free goods only there was no necessity for it to file sales t .....

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g the year and the assessee dealt with tax free goods only there was no necessity for it to file sales tax return. During the course of inquiries, the AO found that the director/shareholder was not a man of means and the premises were not commercial premises. It was also reported by the investigation wing that no evidence of stock was found from any other premises of the Thapar Homes Group. During the course of assessment proceedings, the assessee claimed that the assessee had a godown at Khasra .....

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es & fabrics were Denim, Fabrics K-III Super Fine (N), Fabric (PS), Fabric (PS) Embroidery, Fabric (PS) Excel, Fabrics, Kashmiri Fabrics-I, Kashmiri Fabrics-I (D), etc. From these items, the AO observed that the assessee was not dealing in branded items and there was no name of any company in these products. He further observed that the purchases & sales were within M/s Thapar Homes Group of cases. He found that in inventories of Fabric & Textile Goods shown in the balance sheet, the .....

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e of probability suggested that the stocks were not genuine but since these were declared prior to 01.04.2002, no action was being taken for now. In view of the above, the AO observed that all cash purchases were held unverifiable and hence a sum of ₹ 21,15,780/- was disallowed u/s 69C. Similarly, the AO observed that the expenses claimed by the assessee company in P&L account were also unverifiable as such 100% of the expenses i.e. ₹ 4,43,240/- were disallowed. Aggrieved by the .....

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expenditure. 2. The Commissioner of Income Tax (Appeal), erred in law and on facts in deleting the addition of ₹ 21,15,780/- on account of unexplained purchase u/s 69C of the Act. 3.(a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before on during the course of the hearing of the appeal. The assessee in the cross objection for assessment year 2003-04 has taken the following g .....

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d. CIT (A) has failed to appreciate that the Ld. AO was not justified to ignore the submissions of the appellant that the assessment proceedings for the year under appeal was not pending on the date of the recording of satisfaction u/s. 153C and since the same didn t abate, the proceedings u/s. 153C of the LT. Act in this case are bad in law and deserves to be quashed. 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 a .....

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ized documents of incriminating nature in the case of the appellant for only the year to which said documents relates to, and in absence of any such incriminating seized document in the case of appellant, assessment framed u/s. 153C of the I.T. Act for the year under consideration, is bad in law and deserve to be quashed. 5. That on the facts and circumstances of the case and the provision of law, the Ld CIT (A) has erred in holding the conclusion that the audited books notwithstanding, the book .....

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les and the expenses of ₹ 4,43,240/-claimed by the assessee company. 7.A) That on the facts and on the circumstances of the case and the provision of law, the Ld. CIT (A) has erred in wrongly directing the AO to work out the peak from the entries in the cash book of the appellant company for the relevant year and make a singular addition of the said amount, as unexplained investment/expenditure, ignoring the fact that the same has duly been entered in the audited books of accounts of the a .....

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and findings of the Ld CIT (A) and Ld AO in the impugned appellate order and assessment order, respectively, is irrelevant and vitiated in the law. 9. That the CIT (A) has erred in ignoring the explanation given, evidences and material placed and available on record. The same has not been properly 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 .....

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ct has not been recorded, before initiating the proceedings against the assessee u/s 153C of the Act, which vitiated the entire impugned assessments, so we deem it fit to deal with the said ground first because it goes to the root of the matter i.e., by raising this ground the assessee has questioned 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 t .....

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C Bench order in the case of Grover Garments (P) Ltd. (order dated 29.04.2015); (iv) Delhi ITAT, B Bench order in the case of DSL Properties - 60 SOT 88. Ld. AR submitted that it is now held by Hon ble Telangana & Andhra Pradesh High Court in Shetty Pharmaceuticals 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 1 .....

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ion of the AO to proceed against the assessee dated 05.07.2010 is there, so there is no illegality as pointed out by the ld. AR. Therefore, according to Ld DR, the ground raised in this behalf is not valid and needs to be rejected. 8. We have heard the rival submission 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 t .....

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In order to appreciate the contention made by the ld. AR on the question of recording of proper satisfaction, it would be apposite to note down the prescription of the relevant parts of section 153(1) at the material time, as under:- 153C.Assessment of income of any 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 .....

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ovisions of section 153A. 9. From the above provision, it is clear that where the AO of the person searched is satisfied that any money, bullion, jewellery, books of accounts or other documents etc., belong to a person other than the person searched, then, such documents 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 su .....

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that the AO of the other person can acquire jurisdiction to assess or reassess income of the other person only when the AO of the person searched records satisfaction in his case (searched person) before handing over money, bullion, jewellery, etc. to him. So, what 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 .....

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agency s power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle 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 .....

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person; and (iii) the AO has proceeded under s. 153C against such other person. The conditions precedent for invoking the provisions of s. 153C, thus, are required to be satisfied before the provisions of said section 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 s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prer .....

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7.2010 Documents at pages 1 to 37 of Annexure of A-34 seized by the party R-2 from the premises at F 6/5, Vasant Vihar, New Delhi during the course of search conducted u/s 132 of the I.T. Act, 1961 on 20/10/2008 in the case of Sh. B.K.Dhingra, Smt.Poonam Dhingra, M/s Madhusudan Buildcon P Ltd. have been found to belong to M/s. Shivaansh Advertising & Publications Pvt. Ltd., RZ F-7, Vijay Enclave, Dwarka Puri, New Delhi which has not been covered u/s132 of the I.T. Act, 1961. Accordingly, in .....

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corded on 05.07.2010. 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. Shivaansh Advertising & Publications Pvt. Ltd., RZ F-7, Vijay Enclave, Dwarka Puri, New Delhi . The contents of the above satisfaction note leave nothing to doubt 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 Bu .....

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3-04 to 2008-09 (Block period) it is noticed that there is no satisfaction note available/recorded in respect of other entities. Similar replies have been given to Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. On a consideration of the above replies given by the Department to the persons 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 .....

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was of the opinion that since the AO of the persons searched and the assessee is same, it does not make any difference whether the satisfaction is recorded in the case of the persons searched or other person. He emphasized on the factum of recording satisfaction by the AO, which condition in his 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 Pv .....

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oney, 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 .....

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on by the AO. 17. As regards the other argument of the ld. DR that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction 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 per .....

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ot, in any manner, obliterate the requirement of law necessitating the recording of satisfaction in the case of the person searched that money, bullion, jewellery, etc., found from the person searched belongs to the other person. What is crucial to note is capacity of the AO and not his identity. 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 pe .....

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sing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer 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 subsection (1) of section. 19. The above substitution has the effect of n .....

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, 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 enable the AO of the other person to sta .....

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rtant to note that the lack of jurisdiction by the AO cannot be put under the carpet in the guise of a technical defect. It goes without saying that no assessment or other proceedings can be lawfully taken up and completed unless the concerned authority has jurisdiction to do so. Lack of jurisdiction 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 t .....

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n ble jurisdictional High Court in judgment in the case of SSP Aviation Ltd. VS. DCIT (2012) 252 CTR (Del) 291. 23. Let us examine the case of SSP Aviation Ltd. (supra) for evaluating the contention that the instant assessment be declared as per law. The Hon ble High Court in that case has 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 tha .....

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vely 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 .....

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lusively reflect or disclose any undisclosed income. 24. It is pretty clear from the above extraction that the satisfaction as referred to it in this case is that of the Assessing Officer having jurisdiction over the searched person. As such, we are of the considered opinion that this judgment 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, t .....

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am Dhingra and M/s Madhusudan Buildcon Pvt. Ltd., did not record any satisfaction that some money, bullion, jewellery or books of accounts or other documents found from these persons belonged to the assessee. The absence of such satisfaction, in our considered opinion, failed to confer any 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 a .....

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he ld counsel for assessee, submitted that the first step itself has not been fulfilled. So according to the ld counsel, the issuance of notice u/s 153C is illegal. 16. We also take note of the recent judgement of the Hon ble jurisdictional High Court in a similar case in Pepsico India Holiday (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 examine .....

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indicated in its judgement in Pepsi Foods (P.) Ltd. (supra) that the case of Kamleshbhai Dharamshibhai Patel (supra) was distinguishable on facts. Those observations would apply to the present writ petitions also. As regards the decision of the Allahabad High Court in Classic Enterprises (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 .....

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n 109 (Mag.)/35 taxmann.com 85 (All). This decision also, in our view, does not advance the case of the Revenue. This would be evident from the observations of the Allahabad High Court in paragraphs 19 to 21 of the said decision, which read as under: 19. In Manish Maheshwari s case (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 .....

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out and bullion was seized. The case was selected for compulsory scrutiny for six assessment years. The assessee established that the seized silver belongs to M/s Sarvesh Jewellers, Bareilly - the petitioner. The ownership and consignment of the petitioner was also confirmed by the 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 pro .....

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belong. (Underlining Added) 7. The above extract makes it clear that a taxing statute must be construed strictly and in the case of a doubt or dispute the construction in favour of the assessee has to be adopted. Apart from this, the material observation of the Allahabad High Court 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, Barei .....

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From the foregoing discussion it is evident that in order that the Assessing Officer of the searched person comes to the satisfaction that documents or materials found during the search belong to a person other than the searched person, it is necessary that he arrives at the satisfaction 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 que .....

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uria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners. 14. First of all we may point out, once again, that it is nobody s case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless 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 .....

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long to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is 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 .....

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question of invoking Section 153C of the said Act does not arise. 16. Thirdly, we would also like to make it clear that the assessing officers should not confuse the expression belongs to with the expressions relates to or 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 .....

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id to belong to the petitioner. 17. In view of the foregoing discussion, we do not find that the ingredients of Section 153C of the said Act have 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. Aa .....

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hed persons is a necessary pre condition for initiation of proceedings u/s 153C which has 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 in the aforesaid case ( 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 .....

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th the ITAT that even if the AO were the same, satisfaction would have to be recorded 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 .....

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laced in the file of such other person and the relevant document should also be transferred 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 t .....

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on searched; and there should be a clear finding to that effect based on which only 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 car .....

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