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2015 (8) TMI 714 - ITAT DELHI

2015 (8) TMI 714 - 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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K. Dhingra, Advocate For The Revenue : Smt. Nirupama Kotru, CIT DR ORDER PER A. T. VARKEY, JUDICIAL MEMBER : These six appeals, at the instance of 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 circumstances in all the assessment years are similar except the difference in the additions, therefore, for the sake of brevity, we take the facts from the proceedings of the assessment .....

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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/Centralization/2009-10/2515 dated 29.10.2010. Notice u/s 153C dated 08.09.2010 was issued to the assessee by the DCIT, CC 17, New Delhi requiring the assessee to file return of income with .....

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y 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 investe .....

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a closing stock of ₹ 11,33,06,829/- 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 ₹ 36,50,180/- and had made sales of ₹ 39,77,470/-. 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 sa .....

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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 6 (six) number of concerns connected with the Thapar Group were declared as operating from the address, C-105, Ramdutt Enclave, Uttam Nagar, New Delhi and the number might be much higher also. During the course of inquiries, the AO .....

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laimed that the assessee had a godown at Khasra No. 3417, Village Dera Mandl, Tehsil Mehraull, New Delhi. But, the AO observed that the 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 .....

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; 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 purc .....

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377; 3,76,465/- were disallowed. Further, the AO found that as the identity and genuineness of the shareholders had not been proved, the amount of ₹ 4,51,000/- was also held unexplained cash credit u/s 68 of the Act. Aggrieved by the same, the assessee preferred an appeal before the ld. CIT (A) who was pleased to dismiss the appeal of the assessee. 3. The assessee, being aggrieved by the order of the ld. CIT (A), is in appeal before us. 4. The grounds of appeal taken by the assessee in ass .....

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sions of law, the Ld CIT Appeal has failed to appreciate that the Ld AO was not justified to ignore the submission 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 153 C and since the same didn't abate, the proceedings u/s 153C of the Income Tax 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 Appeal has .....

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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/- be .....

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d the provision of law, the Ld. (IT Appeal has erred in upholding the observation, finding and action of the Ld AO in respect of sales made as income from undisclosed sources u/s 68. The Ld. (IT Appeal and Ld. AO has erred in not appreciating the fact that the sales are the conversion of stock, part of which is from the opening stock and the profit from said sales is already taxed. 7. That on the facts and on the circumstances of the case and the provisions of law, the Ld. CIT Appeal has erred i .....

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That on the facts and circumstances of the case and the provision of law, the Ld CIT Appeal has erred in holding the conclusion that the 'audited books' notwithstanding, the book results are required to be rejected, since the narrations are artificial, sham and not reflective of the actual business / commercial transactions. 10. That the Ld. CIT Appeal has erred in ignoring the explanation given, evidences and material placed and available on record. The same has not been properly consi .....

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the provisions of law, the Ld CIT Appeal and Ld AO has erred in ignoring the concept of real income and not allowing telescoping of the income. 13. That the Ld CIT Appeal has failed to appreciate that on the facts and circumstances of the case, the various observations and findings of the Ld AO in the impugned assessment order is irrelevant and vitiated in the law. 14. That the Appellant craves the right to amend, append, delete any or all grounds of appeal. 5. The main ground that has been agit .....

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on 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 Benc .....

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he 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 relied on the orders of the AO and CIT (A) and was of the opinion that satisfaction has been recorded by the AO before proceedings against the assessee u/s 153C of the Act, and took our attention to page 1 of the PB where satisfaction of the AO to proceed against the assessee dated 03.09.2010 is there, so there is no illegality as p .....

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ould 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. Dhingra, Smt. Poonam Dhingra, M/s Mayank Traders Pvt. Ltd. and M/s. Horizon Pvt. Ltd., and in such search proceedings, certain documents belonging to the assessee was found which led to the making of assessment u/s 153C read with section 153A of the Act. In order to appreciate the contention made by the ld. AR on the question of recordi .....

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r 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 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 clea .....

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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 searched and such documents or assets seized, etc., are handed over to the AO of the other person , that the later AO acquires jurisdiction to make assessment or reassessment of the other person. It is, therefore, clear that the AO of the other person can acquire jurisdiction to asse .....

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e 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 authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. . It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact doe .....

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arlier 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 income belongs to any person, other than the person with respect to whom search was made under s. 132; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 15 .....

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e 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 Build .....

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ision of section 153C is invokeable in this case. As the undersigned is also the jurisdictional AO of M/s. Satkar Fincap Ld.,C-105, Ramdutt Enclavew, Uttam Nagar, New Delhi, this satisfaction note is recorded and is placed in the file before issuing notice u/s 153C. Sd/- ACIT, Central Circle - 17, New Delhi It can be seen from the assessment order that notice u/s 153C was issued to the assessee by the DCIT, Central Circle-17 on 08.09.2010 and satisfaction was recorded on 08.09.2010. It is appare .....

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Mudhusudan Buildcon Pvt. Ltd. M/s Mayank Traders Pvt. Ltd. and M/s. Horizon Pvt. Ltd. Pages 3 - 5A of the paper book are the copies of the reply dated 10.06.2013 and 28.06.2013/02.07.2013 furnished by the Dy. Commissioner of Income-tax, Central Circle-17, New Delhi to Shri B. K. Dhingra, Smt. Poonam Dhingra, Mudhusudan Buildcon Pvt. Ltd. , Shri Prabash Swain, Director of M/s. Horizons Solutions Integration Pvt. Ltd. (now known as Suridhi Infratech Pvt. Ltd.), and Narendra singh, M/s Mayank Trade .....

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or of M/s. Horizons Solutions Integration Pvt. Ltd. (now known as Suridhi Infratech Pvt. Ltd.) and Narendra Singh, Mayank 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 re .....

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pinion 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 Pvt. Ltd. Vs. A .....

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, jewellery, books of account or documents etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person se .....

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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 persons searched .....

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nner, 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 co .....

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r 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 now making i .....

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ch 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 start with t .....

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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 the Tribun .....

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isdictional 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 than the sea .....

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cate the existence of some income in the hands of the assessee. The argument is simply confined to non-recording of satisfaction by the AO of the persons searched. Instead of supporting the Department s case, we find that this judgment strengthens the assesasee s case by making it clear in no uncertain terms that the AO of the person searched is obliged to record the satisfaction. The relevant observations of the Hon ble High Court contained in para 15 merit reproduction as under: - It needs to .....

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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, the judici .....

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ra 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 .....

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unsel 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 examined the de .....

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ated 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 the .....

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(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 .....

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ut 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 proc .....

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ng."(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, Bare .....

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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 qu .....

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puria 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 A .....

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ments) 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 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 photocopie .....

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ng to the searched person, the 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 purc .....

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ments - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said 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 all .....

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ase, 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. Thereaf .....

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tion by the AO even in respect of the searched person was not fulfilled. Consequently, the fact that it was the same AO both for the searched person and the Assessee makes no difference to the consequence of non-compliance with the legal requirement regarding the recording of satisfaction. The Court also agrees with 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 d .....

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arch, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed 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. Thereafte .....

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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 require .....

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y 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 the ca .....

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