TMI Blog2015 (8) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 concur with the said view of the coordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in section 153C which is found during the search u/s. 132, which are seized or requisitioned belongs to a person other than the person 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 carried out and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notice u/s 153C, the assessee filed a return for assessment year 2003-04 on 11.11.2010 declaring nil income. A copy of the panchnama, reasons for issuing notice u/s 153C and jurisdiction order dated 19/21.10.2010 u/s 127 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 is 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 as invested in stocks of textiles. He further found that as and when cash was required, the stocks were sold and the money was utilized for other purposes as per required. Against this background, the AO analyzed the facts of the case. The AO opened the assessment under the provisions of section 153C for the assessment year 2003-04. The AO noticed that the company was incorporated on 13.03.1999 and had been filling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 closing stock of last year stood at ₹ 11,33,06,829/- and this year the figure was ₹ 11,33,51,510/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the year under consideration and in absence of any incriminating seized document in the case of appellant, assessment framed u/s153C of the Income Tax Act for the year under consideration, is bad in law and deserve to be quashed. 5. A) That on the facts and on the circumstances of the case and the provision of law, the Ld. CIT Appeal has erred in sustaining the addition of ₹ 36,50,180/- being purchases made during the year, by way of arbitrarily treating the same as unexplained purchases u/s 69C of IT Act. B) That the Ld. CIT Appeal has erred in sustaining the addition of ₹ 36,50,180/- on account of purchases whereas profits from sale of said goods has already been taxed. No defect is pointed out in the books of account and the evidences produced, confirmations received have been illegally and arbitrarily ignored. 6. That on the facts and on the circumstances of the case and the provision of law, the Ld. (IT Appeal has erred in upholding the observation, finding and action of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been agitated before us is that satisfaction of the AO of the searched person as envisaged under section 153C of the Act has not been recorded, before initiating the proceedings against the assessee u/s 153C of the Act, which vitiated the entire impugned assessments. 6. Ld. AR for the assessee, Shri B. K. Dhingra, submitted that in the present case, there is no satisfaction recorded by the AO of the raided party, as admitted in RTI replies placed at pages 3 to 5A of the paperbook and available satisfaction note, is placed at pages 1 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 same facts in the following cases :- (i) Delhi ITAT, H Bench order in the case of Tanveer Collections 168 TTJ 145; (ii) Delhi ITAT, C Bench order in the case of IECS Solutions Pvt. Ltd. (order dated 13.03.2015); (iii) Delhi ITAT, 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 Pharmaceutical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. 9. From a bare reading of 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 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 of the person searche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 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 1 of the paper book, as under :- Satisfaction Note for issuing Notice u/s 153C of the I. T. Act, 1961 in the case of M/s. Satkar Fincap Ld. C-105, Ramdutt Enclavew, Uttam Nagar, New Delhi, PAN : AAJCS6828A for A. Y. 2003-04 to 2008-09. 08.09.2010 In the case of Sh. B. K. Dhingra, Smt. Poonam Dhingra, M/s Madhusudan Buildcon Pvt. Ltd., M/s. Mayank Traders Pvt. Ltd., M/s. Horizon Pvt. Ltd., search seizure took place u/s 132 on 20.10.2008. The undersigned is the jurisdictional AO of these cases. During the course of search seizure documents/papers page 1 to 31 of Anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Traders (P) 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 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, M/s Madhusudan Buildcon Pvt. Ltd. , M/s Horizon Pvt. Ltd and Narendra Singh and Mayank Traders (P) Ltd.) that some books of account or documents etc. belonging to the assessee were found which were handed over to the AO of the other person (i. E. the assessee). The Satisfaction note as reproduced above has been prepared by the AO of the assessee. 13. The ld. DR 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary satisfaction, it is the AO having jurisdiction over the person searched who is obliged to record such satisfaction in the capacity of that AO and that too in the case of the person searched. The mere fact that the AO of the person searched and the assessee is the same person, does not, 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 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 such other person and issue notice and assess or reassess the income of the other person referred to in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction 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 contended that the above referred two Tribunal orders are per incurium and should not be followed. The main reason for declaring the tribunal orders as per incurium was the nonconsideration of the judgment of the Hon 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rfectly in accordance with law. 26. Coming back to facts of the instant case, it is palpable that the AO of Shri B. K. Dhingra, Smt. Poonam 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 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 the other grounds taken by the assessee dealing with other legal issues or merits. 28. In the result, the appeal is allowed. 15. In the light of the said ratio-decidendi of the aforesaid order of the Tribunal, the ld counsel for assessee, submitted that the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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), Ahmedabad to the Assessing Officer of the petitioner at Bareilly. All the requirements of Section 153(c) were complied with by the Income Tax Officer, Ward-Ill (2), Ahmedabad. A search under Section 132A was carried 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 proceed under Section 153(c) of the LT. Act. 21. After the assessment of the person in respect of whom search action was carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong 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 seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49 to 64) wherein on similar facts as in the instant case, where, i. E. B. K Dhingra, Smt. Poonam Dhingra, M/s Madhusudan Buildcon Pvt. Ltd., M/s. Mayank Traders (P) Ltd. and M/s Horizon Pvt. Ltd. were searched, but no satisfaction was recorded in the searched persons records like in this case, before proceeding against other person under section 153C of the Act where it was held as under: 11. The assessee falls into the jurisdiction of Hon ble Delhi High Court in view of the case law of Pepsi Foods (P) Ltd, therefore, we held that recording of satisfaction by AO of searched 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 challenging this order ( P. R. Commissioner of Income Tax, Central-II) vs. Aakash Arogya Mandir Pvt. Ltd.) (page 65) wherein Hon ble High Court, while dismissing the appeal of the Revenue, held as under :- (page 69to70). 8. The Revenue has not placed any material to dispute the factual finding of the ITAT that the requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person other than the person 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 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 or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned assessment order passed u/s. 153C is also a nullity. 20. Since we have quashed the notice u/s 153C of the Act itself, the other grounds are not adjudicated being academic. 21. As the facts and circumstances in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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