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2015 (11) TMI 19 - DELHI HIGH COURT

2015 (11) TMI 19 - DELHI HIGH COURT - [2016] 380 ITR 612 - Addition under Section 69C - AO bringing to tax the amounts disallowed in the course of search assessment under Section 153C - Held that:- In the case of a searched person the AO of the searched person assumes possession of seized assets/documents on search of the Assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person .....

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essee’s income for that year.

Whether the concluded assessments could be reassessed on the basis of the seized assets/documents? - Held that:- In the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of .....

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se appeals under Section 260A of the Income Tax Act, 1961 (hereafter the Act ) impugning a common order dated 26th August, 2014 passed by the Income Tax Appellate Tribunal (hereafter the Tribunal ) in a batch of six appeals and six cross objections relating to six assessment years (AYs), being AYs 2003-04 to 2008-09. The aforesaid appeals before the Tribunal, were filed by the Revenue (being ITA Nos. 4232-4237/Del/2012) impugning a common order of the Commissioner Income Tax (Appeals) dated 17th .....

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med 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, .....

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rch assessment under Section 153C. 3. At the outset, Mr Goyal, learned counsel for the Assessee submitted that the AO had no jurisdiction to make an assessment under Section 153C of the Act as no relevant material belonging to the Assessee had been found during the search conducted under Section 132 of the Act on B.K. Dhingra, Poonam Dhingra and Madhusudan Buildcon Pvt. Ltd. He submitted that in absence of any incriminating material, proceedings under Section 153C of the Act could not be initiat .....

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of notice in these appeals, the Assessee had no opportunity to suggest the same. 4. Mr N.P. Sahni, learned Senior Standing Counsel for the Revenue, did not dispute that the substantial question of law as suggested by Mr. Goyal also arose in these matters. Accordingly, the parties were also heard on the following question of law which arises from the impugned order passed by the Tribunal:- (a) Whether the AO had jurisdiction to assess and reassess the income of the Assessee under Section 153C in .....

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es of working papers, balance sheets and data for income tax filings, were seized during the search. The AO of the searched persons recorded a Satisfaction Note on 8th September, 2010 to the effect that the documents seized and the data contained 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. .....

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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 reply, the Assessee claimed that all the purchases were made in ca .....

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ations were undertaken from the aforementioned premises. In view of the aforesaid, the AO concluded that the Assessee was unable to substantiate any purchase of stocks and, therefore, made addition of the amounts reflected as purchases under Section 69C of the Act. The AO also disallowed 100% of the expenses claimed by the Assessee in its P&L Account concluding that they were unverifiable. 5.6 In response to a request under the Right to Information Act, 2005, vide a letter dated 14th May, 20 .....

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d persons, the Deputy Commissioner of Income Tax, Central Circle-17, vide a letter dated 10th June, 2013 noticed that there was no satisfaction note available/recorded in respect of the other entities whose documents were allegedly seized during the search. 5.8 The Assessee, being aggrieved by the AO s order, filed appeals before the CIT(A). The Assessee raised several grounds in each of its six appeals. The grounds pertaining to the applicability of Section 153C of the Act are relevant and are .....

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ed 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 .....

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of recording of satisfaction and, therefore, six years which could be assessed under Section 153C of the Act were the preceding previous years from 1st April, 2004 to 31st March, 2010 being relevant to AYs 2005-06 to 2010-11. Further, the Assessee contended that the seized hard disk contained working papers, balance sheets and other material for income tax filings and as such was fully disclosed in its returns and, therefore, proceedings under Section 153C of the Act could not be initiated on th .....

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f M/s Bhupesh K. Dhingra and Co. and did not belong to the Assessee. The Assessee submitted that Section 153C of the Act can only be invoked where the AO is satisfied that any money/documents etc. seized belonged to a person other than the one searched and such material is of incriminating nature indicating undisclosed income of such person. The Assessee further emphasized that proceedings under Section 153C could be initiated only in respect of such years in respect of which some incriminating .....

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g that the Assessee company had mis-interpreted the first proviso of Section 153C(1) of the Act and that the six previous years were to be calculated with reference to the date of the search and not from the date of recording of the satisfaction note. 5.12 The CIT after considering the submissions of the Assessee and the reply of the AO, inter alia, held as under:- "It is also observed from the plain and literal interpretation of the provision of section 153C - that once a document is found .....

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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 .....

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ied that the documents etc. belong to the other person than the person searched. In the present case such satisfaction has been stated to have been recorded and I have nothing to doubt the action of the AO in this respect as is being made out by the appellant. Now coming back to the issue of limitation raised by the appellant in the above said grounds of Appeal no. 1, 2, 3 & 5 it has been argued that while search has taken place in the group case in October 2008 but the documents are deemed .....

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AY. 2005-06 to 2010-11. The above view is clear on reading the proviso to sec 153C(1) r. w. s 153A(1) of the IT Act. In this connection reliance is also placed in the ratio of decision in the case of VJM Vimawal vs ACIT 124 TTJ 508 (UR). Accordingly the initiation of the proceedings for A.Y. 03-04 (and the other respective AY's as the case may be)which has been made on 08.09.2010 is barred by limitation, and therefore the assessment order passed u/s 153C is held as a nullity. This plea howe .....

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of the 'satisfaction 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 ap .....

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e 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 CIT(A) that an addition under Section 69C of the Act was not sustainable and, accordingly, by an order dated 26th August, 2014, rejected the appeals preferred by the Revenue. The Tribunal did not examine the challenge to initiation of proceedings under Section 153C of the Act .....

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O had failed and neglected to provide the documents/materials on the basis of which proceedings under Section 153C of the Act were initiated and in the circumstances, the Assessee was constrained to apply for the same under the Right to Information Act, 2005. In response thereto, the Assessee received a letter dated 14/15th May, 2015 enclosing therewith a photocopy of the record slip of a cheque book, which reflected three entries for issue of three cheques on 11th August, 2008, 27th August, 200 .....

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Bhupesh Kumar Dhingra. 7. Mr Goyal further submitted that the hard disk, inter alia, contained soft copies of working papers for preparation of the Assessee s balance sheet, income tax computation and details of income tax filings. He submitted that the balance sheet prepared on the basis of working papers had already been filed with the Income Tax Department and, therefore, none of the information as contained in the working papers could be considered as undisclosed. 8. In addition to the abov .....

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ained 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/ docume .....

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e Assessee was only a paper company and used for capital formation. 10. We heard the learned counsel for the parties at length. 11. The principal issue to be addressed is whether the assessments made under Section 153C of the Act were without jurisdiction. In this regard, it is relevant to note that the search under Section 132 of the Act, which ultimately led to the proceedings under Section 153C of the Act, was conducted on 20th October, 2008. It is the Revenue s claim that during the said ope .....

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) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,- (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of acco .....

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ome of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A : Provided that in case of such other person, the reference to the date of initiation of the 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 jurisdictio .....

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ssment 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 proceedings under Section 153C of the Act. The AO of the searched person is not required to examine wh .....

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e is to issue a notice to assess/re-assess the income of such person - that is, the Assessee other than the person searched - in accordance with provisions of Section 153A of the Act. 14. The proviso to Section 153C(1) of the Act expressly indicates that reference to the date of initiation of search for the purposes of second proviso to Section 153A shall be construed as a reference to the date on which valuable assets or documents are received by the AO of an Assessee (other than a searched per .....

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any assessment year within a period of six assessment years shall abate, is the date of initiation of search under Section 132 or requisition under Section 132A. However, in case of other person.. such date will be the date of receiving the books of account or documents or assets seized or requisition by the Assessing Officer having jurisdiction over such other person. In the case of other person, the question of pendency and abatement of proceedings of assessment or reassessment to the six asse .....

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ncial 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 .....

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a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the pro visions of section 153A. Therefore, before a notice under section 153C ca .....

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has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when, inter alia, any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that t .....

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1. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word "satisfaction" or the words "I am satisfied" in the orde .....

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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 .....

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ction 132(1) or has been proceeded under Section 132A, is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such oth .....

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f initiation of such proceedings against the 'searched person' or during the assessment proceedings against him or even after the completion of the assessment proceedings against him, the Assessing Officer of such a 'searched person', may, if he is satisfied, that any money, document etc. belongs to a person other than the searched person, then such money, documents etc. are to be handed over to the Assessing Officer having jurisdiction over 'such other person'. The secon .....

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atisfaction 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, a .....

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at 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 searched person that assets/documents seized belong to some other person is sine qua non to commencing proceedings under Section 153C of the Act in respect of such other person, the AO could not assume jurisdiction and transmit the items to another file concerning the person (other than the one searched) pending .....

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search has been initiated under Section 132 of the Act, the AO is required to issue notice requiring the noticee to furnish returns of income in respect of six assessment years relevant to the six previous years preceding the previous year in which the search is conducted. As discussed hereinbefore, by virtue of second proviso to Section 153A, the assessment/reassessment pending on the date of initiation of search abate. In the context of proceedings under Section 153C of the Act, the reference .....

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he jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may have remained undisclosed in the relevant assessment years. This Court in Commissioner of Income Tax (Central)-III v. Kabul Chawla: ITA 707/2014, decided on 28th August, 2015 has held that completed assessments could only .....

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ned 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 .....

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153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the comple .....

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s of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 22. The .....

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had claimed that the assessments for the concerned assessment years were not pending on the date of recording of satisfaction by the AO and, therefore, 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 refere .....

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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 Section 153C of the Act, i.e., 8th September, 2010. In this view, the assessments made in respect of assessment year 2003-04 and 2004-05 would be be .....

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rs preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the AO would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of Sect .....

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f the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an .....

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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 s .....

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avit dated 11th October, 2011 filed by Sh. B.K. Dhingra, explaining the contents of the seized material. He affirmed that search was conducted on 20th/21st October, 2008 at F-6/5, Vasant Vihar and 801, Padma Tower-II, Rajinder Place, New Delhi and a cheque book of the Current Account bearing no.124002000001410 with Centurion Bank of Punjab Limited (Now HDFC Bank Ltd.), Tilak Nagar Branch, New Delhi containing details of transactions for the assessment year 2009-10 of RRJ Textiles (A Unit of RRJ .....

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med that the Balance Sheet which had been prepared on the basis of the working papers etc. had already been filed with the Income Tax Department and, therefore, the same was fully disclosed and the transactions as contained in the soft copies were fully recorded. In addition, he confirmed that the soft copies of papers were the property of M/s Bhupesh K. Dhingra & Co. - a sole proprietorship concern of B.K. Dhingra - and did not belong to RRJ Securities Ltd. as the said documents were part o .....

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e, it was rightly held that the hard disc belong to the Assessee. Concededly, this contention would not be sustainable in view of the principles laid down by this Court in Pepsico India Holdings Pvt. Ltd. (supra) with regard to the interpretation of the words belongs to in Section 153C of the Act. The hard disk was recovered from the computer belonging 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 filin .....

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he 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, .....

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is not required to examine whether such documents could provide a clue for discovery of undisclosed income of the person to whom the document so belongs. This Court in SSP Aviation Ltd. (supra) had observed as under:- At the time when the Assessing Officer having jurisdiction over the searched person reaches the satisfaction that the document belongs to a person other than the searched person, it is not necessary for him to also reach a firm conclusion/opinion that the document shows undisclose .....

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ich the assessments were concluded and in respect of which the seized document had no bearing. In our view, the same would be clearly impermissible as the seized material now available with the AO, admittedly, had no nexus with those assessments and was wholly irrelevant for the purpose of assessing the income of the Assessee for the years in question. Merely because a valuable article or document belonging to an Assessee is seized from the possession of a person searched under Section 132 of th .....

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he 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 satisfactio .....

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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 any undisclosed income of the Assessee under his jurisdiction. As explained in SSP Aviation (supra), Section 153C only enables the AO of a person other than the one searched, to investigate into the documents seized and/or the assets seized and ascertain that the same do not reflect any undisclosed income of the Assessee (i.e a person other than the one search .....

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ee have been seized and handed over to the AO of the Assessee would not necessarily require the AO to reopen the concluded assessments and reassess the income of the Assessee. 36. The decision in SSP Aviation (supra) cannot be understood to mean that the AO has the jurisdiction to make a reassement in every case, where seized assets or documents are handed over to the AO. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the AO .....

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