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TMI Blog2015 (11) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 'AO') under Section 153C read with Section 143(2) of the Act. The Revenue was aggrieved inasmuch as the CIT(A) had set aside the addition to the total income of the Assessee made by the AO under Section 69C of the Act in respect of the purchases as declared by the Assessee as well as the AO's decision to disallow the entire expenses claimed by the Assessee. The Tribunal's order dated 26th August, 2014 also disposed of the cross objections preferred by the Assessee - 6 in number - as being academic. The Assessee had challenged the CIT(A)'s order to the limited extent that the CIT(A) had not accepted the Assessee's contention that the assessment orders passed were illegal and without jurisdiction. 2. This Court, by an order dated 9th March, 2015, admitted the present appeals and issued notice to the respondents. On the said date, the following questions were framed:- 1. Did the ITAT fall into error in holding that Section 69C was inapplicable in the facts and circumstances of the present cases given that the Revenue's contention was that the material in the form of statement recorded during the search proceedings indicated that no genuine sale and purchase transaction was ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in the hard disk belonged to the Assessee and, hence, Section 153C was invokeable. On the aforesaid basis, proceedings were initiated under Section 153C and a notice dated 8th September, 2010 for the AYs 2003-04 to 2008-09 was issued to the Assessee. 5.2 The Assessee, in compliance with the notice issued under Section 153C of the Act, filed its returns of income under protest. Subsequently, notices under Section 142(1)/143(2) of the Act were also issued for the purpose of assessing the income of the Assessee with respect to AYs 2003- 04 to 2008-09. 5.3 The Assessee sent a letter dated 29th November, 2010 to the AO requesting the AO to provide copies of the seized material; the Assessee contested the initiation of proceedings under Section 153C of the Act and also contended that the assessments were time barred. 5.4 The AO subsequently passed assessment orders dated 31st December, 2010, under Section 143(3)/153C of the Act. During the assessment proceedings, it was observed that the Assessee had purchased and sold textile goods and it was called upon to provide evidence of purchases and was further directed to provide the details of payments (by cash or cheque). In its rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case and the provisions of the law, the proceedings initiated u/s 153C are illegal, bad in law, without jurisdiction and time barred and as such the Assessment Order passed in consequence thereof also become illegal, bad in law, without jurisdiction and barred by limitation. 3. That on the. facts and circumstances of the case and the provisions of the law the notice issued u/s 153C is illegal, bad in law, without jurisdiction and time barred and as such the assessment framed in consequence thereof is liable to be quashed. 5. That on the facts and the circumstances of the case and the provisions of the Law the assessment framed is against the statutory provisions of the act and without complying the procedures prescribed under section 153C of the act and as such assessment being bad in law deserves to be quashed." 5.9 The Assessee also filed detailed submissions with respect to the above grounds. It was claimed by the Assessee that the initiation of proceedings for the AY 2003-04 and 2004-05 were time barred since the documents recovered pursuant to the search were deemed to be handed over to the AO of the Assessee on 8th September, 2010, being the date of recording of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teral interpretation of the provision of section 153C - that once a document is found to be belonging to a person other than the person referred to in section 153A the provisions of section 153C are ipso facto attracted and it is automatic that the assessments covered under all the years falling within the mandate of proviso of section 153C(1) and read with 153A(1) get attracted. Moreover, there is no legal requirement that initiation of proceedings should only be with respect to such years in respect of which there is some material. Now coming to the issue that the satisfaction note should contain some satisfaction on the part of the AO leading to undisclosed income on the basis of the seized material. In this regard also I have considered the facts of the case and in my considered opinion recording of satisfaction so as to show existence of undisclosed income is not a prerequisite under the provision of sec 153C which are distinguishable from the provisions of sec 158 BD of the Act which is also related to block assessments. The literal meaning of sec 153C that once documents are handed over to the AO of the other person, which incidentally is the same AO, the provision of sec 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction note' when asked by the appellant company. I do not find any merit in the grounds of the appeals nor any infirmity in the notice issued or the order passed u/s 153A/153C in this case on account of grounds no 1, 2, 3 & 5 taken by the appellant. These grounds are therefore dismissed." 5.13 The CIT(A), however, allowed the appeal of the Assessee with regard to the disallowance of purchases under Section 69C of the Act and observed that Section 69C of the Act applies only when there is some expenditure and the Assessee is unable to explain the source from which such expenditure has been incurred. The CIT(A) held that the Assessee had accounted for all the purchases made in cash in its books of accounts and, thus, the source of the expenditure could not be stated to be unexplained. The CIT(A) also deleted the addition made by the AO on account of 100% disallowance of expenditure. 5.14 Being aggrieved by the common order dated 17th May, 2012 passed by the CIT(A), the Revenue filed six separate appeals in respect of the relevant assessment years. The Assessee, on the other hand, filed cross objections which were numbered as separate appeals. The Tribunal upheld the view of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases recorded in the books of accounts or that disallowance of any expenditure incurred by the Assessee was warranted. 9. Mr Sahni, learned Senior Standing Counsel for the Revenue contested the submissions made by Mr Goyal. He submitted that the hard disk seized from the premises of M/s Bhupesh K. Dhingra and Co. belonged to the Assessee since the information contained therein related to the Assessee. He further submitted that the AO had recorded a finding that the seized documents belonged to the Assessee and the same was sufficient to initiate proceedings under Section 153C of the Act. He contended that at the stage of initiation of proceedings under Section 153C of the Act, it is not necessary for the AO to conclude that the documents or the material reflect any undisclosed income. He submitted that once the AO was satisfied that seized assets/ documents belonged to the Assessee, no further enquiry was necessary for commencing proceedings under Section 153C of the Act. With respect to the issue regarding the deletion of addition made under Section 69C of the Act, Mr Sahni did not dispute that such addition could only be made where the source of expenditure remained une ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search under section 132 or making of requisition under section 132A in the second proviso to subsection (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated." 13. The first and foremost step for initiation of proceedings under Section 153C of the Act is for the AO of the searched person to be satisfied that the assets or documents seized belong to the Assessee (being a person other than the searched person). The AO of the Assessee, on receiving the documents and the assets seized, would have jurisdiction to commence pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our view, this distinction is not relevant in the scheme of Section 153C of the Act and the CIT(A) erred in proceeding on the basis that the period of six years was to be reckoned from the end of the financial year preceding the financial year in which the search was conducted. 17. In Pepsi Foods Pvt. Ltd. v. Assistant Commissioner of Income Tax: (2014) 367 ITR 112 (Del), this Court had explained that on a plain reading of Section 153C of the Act, a notice under that section could be issued only after two preceding conditions had been met. First of all, the AO of the searched person would have to arrive at a satisfaction that document or asset seized does not belong to the person searched but to some other person and secondly, the seized documents/assets are handed over to the AO having jurisdiction over that person, that is, the person other than the one searched and to whom the seized documents/assets are said to belong. The relevant extract of the said decision is quoted below:- "6. On a plain reading of section 153C, it is evident that the Assessing Officer of the searched person must be 'satisfied' that, inter alia, any document seized or requisitioned 'belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. Mere use or mention of the word "satisfaction" or the words "I am satisfied" in the order or the note would not meet the requirement of the concept of satisfaction as used in section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any "satisfaction" of the kind required under section 153C of the said Act'." 18. It, plainly, follows that the recording of a satisfaction that the assets/documents seized belong to a person other than the person searched is necessarily the first step towards initiation of proceedings under Section 153C of the Act. In the case where the AO of the searched person as well as the other person is one and the same, the date on which such satisfaction is recorded would be the date on which the AO assumes possession of the seized assets/documents in his capacity as an AO of the person other than the one searched. 19. The Allahabad High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the 'searched person', or even during the assessment proceedings against him or even after completion of the same, but before issuance of notice to the 'such other person' under Section 153C. 26. Even in a case, where the Assessing Officer of both the persons is the same and assuming that no handing over of documents is required, the recording of 'satisfaction' is a must, as, that is the foundation, upon which the subsequent proceedings against the 'other person' are initiated. The handing over of documents etc. in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory." 20. Mention may also be made to the decision of the Madhya Pradesh High Court in Commissioner of Income Tax v. Mechmen: (2015) 60 taxmann.com 484 (Madhya Pradesh). In that case, the Court had explained that the fact that incidentally the AO is common at both stages would not extricate him from recording satisfaction at the respective stages. It was explained that since the satisfaction of the AO of a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments. This Court had summarized the legal position in respect of Section 153A of the Act as under:- "37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not abate by virtue of the second proviso to Section 153A of the Act. Further, the period of six years would also have to be reckoned with respect to the date of recording of satisfaction note - that is, 8th September, 2010 - and not the date of search. 24. As discussed hereinbefore, in terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the Assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee. Further proceedings, by virtue of Section 153C(1) of the Act, would have to be in accordance with Section 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. In this case, it would be the date of the recording of satisfaction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote for issuing notice under Section 153C of the Act on 8th September, 2010 which read as under:- "Satisfaction Note for issuing Notice u/s 153C of the I.T. Act, 1961 in the case of M/s RRJ Securities Ltd., 113, 1st Floor Vasant Village, Vasant Vihar, New Delhi, PAN : AADCR4683C for A.Y. 2003-04 to 2008-09. 08.09.2010. In the case of Sh. B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. and Mayank Trading Pvt. Ltd., M/s horizon solution 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 Pages 126 to 179 of Annexure A-34 seizure by R-2 and data containing in the hard disc in Annuxure A- 102 seized by party - 04, are found to belong to M/s RRJ Securities Ltd., 113, 1st Floor Vasant Village, Vasant Vihar, New Delhi. I have examined the above mentioned documents/papers and provision of section 153C is invokeable in this case. As the undersigned is also the jurisdictional AO of M/s RRJ Securities Ltd., 113, 1st Floor Vasant Village, Vasant Vihar, New Delhi, this satisfaction note is placed in the file before issuing notice u/s 153C." 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onging to M/s B.K. Dhingra & Co. which contained soft copies of working papers and balance sheet pertaining to the Assessee for its income tax filing. It has been contended that B.K. Dhingra is a Chartered Accountant and had the data pertaining to the Assessee in his professional capacity. Merely because such data pertained to the Assessee (who claims to be a client of M/s B.K. Dhingra and Co.) the hard disk could not be stated to belong to the Assessee. 30. It is not disputed that the said hard disk also did not contain any incriminating material as the data on the hard disc only supported the return filed by the Assessee. This apart, as the hard disc did not belong to the Assessee, in our view, proceedings under Section 153C of the Act could not be initiated on the basis of the said disk. 31. Insofar as the documents referred to as pages 126 to 179 of Annexure A-34 is concerned, admittedly, the same only consisted of a single page of the record slip of a cheque book and other pages were blank. The record slip only contained three entries reflecting issue of three cheques on 11th August, 2008, 27th August, 2008 and 10th December, 2008 respectively. Thus, it is apparent that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (supra), this Court had noted the difference between the provisions of Section 158BD of the Act and the provisions of Section 153C. Whereas Section 158BD referred to the satisfaction of an AO with regard to any "undisclosed income" belonging to a person other than the searched person, Section 153C(1) of the Act in contrast referred merely to the AO being satisfied that assets/documents seized during a search belonged to a person other than one searched. It is, thus, clear that it was not necessary for the AO, at the stage of recording the satisfaction under Section 153C to come to a conclusion that seized assets which belong to another person represent any undisclosed income. If the AO of a searched person is satisfied that an asset/documents seized belong to another person, he has a duty to forward the documents or the valuable assets seized to the AO of the person concerned; apart from doing so, the AO can do nothing more. 35. The AO of the person other than the one searched also, is not, at the stage of issuing notice under Section 153C/153A of the Act, required to conclude that the assets/documents handed over to him by the AO of the searched person represent or indicate a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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