TMI Blog2011 (4) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... e of LMJ INTERNATIONAL LIMITED. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX. [ 2007 (12) TMI 237 - ITAT CALCUTTA-E] that where nothing incriminating is found in the course of search relating to any assessment year, the assessments for such years cannot be distributed. Thus, the assessments made by the AO u/s 153C of the Act without the existence of AY-specific incriminating documents are invalid. In present case, based on the existence of the seized documents, these six AYs can categorized into two categories: AYs without seizure of any documents - In the present case regarding AYs 2000-01 to 2003-04 2005-06, admittedly, there is no seizure of the documents, thus issuance of notices u/s 153C, is invalid. AY with the seizure of some documents - For AY 2004-05, admittedly, there is some seizure of the documents. We are convinced that the said ledger is an accounted one. Mere appearance of names does not mean anything as section 153C is intended for taxing the undisclosed income of the third party based on the material/others seized during the search action. The documents, the ledger in the instant case relevant for the AY 2004-05, with no financial implications can neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are either common or interlinked or overlapping on the issues, we proceed to adjudicate all of them in a consolidated manner. For the sake reference, we consider the impugned orders for the AY 2000-01 and the relevant grounds for the said AY 2000-01 are reproduced as under. 3. The following grounds including the additional ground are taken by the assessee for the AY 2000-01 and they are without prejudice to each other On facts and in law, 1. The ld CIT(A) erred in not appreciating that the notice issued u/s 153C was not valid and therefore, the assessment made u/s 153C r.w.s. 153A was null and void. 2. The ld CIT(A) erred in holding that the activities of the assessee trust were covered u/s 10(23C) and therefore, the claim of exemption of the assessee could be examined only u/s 10(23C) and not u/s 11 13. 3. The ld CIT(A) erred in holding that the appellant trust was not entitled to the exemption u/s 11 as it had violated the provisions of sections 13(1)(d) r.w.s. 11(5). 4. The ld CIT(A) erred in confirming the addition in respect of donation received through issue of coupons of ₹ 31,25,000/- without appreciating that the said donations were received towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an Accounts Officer looking after the accounts of various trusts of Bharati Group including the assessee-trust. During the course of search action, number of documents relating to assessee were seized from Shri R D Shinde vide Panchanama dt 22.7.2005.The said seizer also includes Bundle No 10 which is the ledger of the assessee trust for the F.Y 2003-04. The case was assigned to this charge vide CIT (Central) Pune s order No Pn/CIT(C)/ Assign.Juris/2006-07/15 dt 26.4.2006. On the basis of documents seized/ impounded from Sri R D Shinde and also on the basis of certain facts revealed during the course of post search enquiries the then AO after satisfying himself about the invocations of provisions of section 153C in the case of assessee issued a notice u/s 153C on 30.3.2007. As no returns were filed in response to this notice a further notice u/s 142(1) calling the returns and the final notice was issued to assessee on 2.8.2007 which was served on the assessee on 3.8.2007. As there was no response to this notice also a summons u/s 131 requiring the assessee trust to file the returns was issued to Managing Trustee on 16.8.2007. In the intervening period the assessee had however d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is a common order passed by the AO attending to the grounds raised on the issues arising out of the search Assessment Order passed under section 153C r w s 143(3) and also the fresh assessment order passed u/s 153C r w s 143(3) r w s 263 of the Act. During the first appellate proceedings the assessee made various written submission on this issue relating to the validity of the notice u/s 153C of the Act issued to the assessee in respect of the six AYs under consideration ie 2000-01 to 20005-06. After considering the same, the first appellate authority dismissed the ground of the assessee and upheld the validity of the notice. It is the consistent view of the revenue that the vide the section 153C of the Act r w the first proviso to section 153A of the Act, the AO can assume jurisdiction automatically in respect of six AYs prior to the search irrespective of the fact whether there exist any incriminating material or otherwise as the expression incriminating is not borne out of the Act. For the sake of completeness, we proceed to reproduce the said paragraph 5 from the impugned order and the same read as under. 5. Grounds No. 1 Assessment is null and void: 5.1 The appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions which are duly accounted by the assessee trust in its books and therefore, there was no reason to issue notice to the assessee u/s 153C. The assessee contends that where regular documents which are accounted and can be verified are seized, then no notice u/s 153C can be issued. It is submitted that the ledger accounts for F Y 2003-04 were found with Shri Shinde. It is submitted that all these accounts were duly accounted and no incriminating material was found pertaining to the assessee during the search on Shri Shinde. Hence, we submit that the notice issued u/s 153C is not valid at all since no incriminating evidence has been found pertaining to the assessee. Accordingly, we submit that the notice u/s 153C is not valid and therefore, the asst. made by the ld AO in pursuance of the said notice is also invalid. 3.2 Without prejudice to the above submissions, the assessee submits that the notice issued u/s 153C was on 30.3.2007. Now, as per the proviso to section 153C, the date of reckoning the date of initiation of asst. proceedings for earlier years is the date of handing over the documents by the AO. Now, in this case, the search on Shri R D Shinde took place on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment given by Hon ble ITAT Ahmedabad in Vijay M Vimawal, it is seen the above argument is based on the interpretation of amendment brought in proviso to s. 153C by Finance Act, 2005 with retrospective effect from 1.6.2003. However, in that process, the appellant seem to be ignoring other amendments brought in simultaneously through the same Finance Act in other related sections for bringing in harmony in the entire process of assessment and re-assessment required to be done after searches. The proviso to sub-section 1 of s. 153C was inserted along with second proviso to sub-section 1 of s. 153A and proviso to sub-section 1 o s. 153B. Along with the same, certain other amendments were made in those relevant sections. If all such amendments are considered together, it is not difficult to understand that by these amendments it was never meant that six years are to be counted from the assessment year in which cash/documents are received in case of persons referred in s. 153C. On the contrary, the same was to provide the AO time period of atleast one year for completing the assessment after receiving the seized materials. This aspect has been very clearly explained by the CBDT in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, CIT(A) dismissed the submissions of the assessee and dismissed the relevant legal grounds. With regard to the validity of the notice u/s 153C for the AY 2000-01, the CIT(A) mentioned that the submissions of the gets answered by the departmental circular and finally, he held that the notice issued for AY 2000- 01 is also valid. Otherwise, for the AY, the assessee submitted that the search on Shri R D Shinde took place on 20.7.2005 and notice issued u/s 153C was on 30.3.2007. As per the proviso to section 153C, the date of reckoning the date of initiation of asst. proceedings for earlier years is the date of handing over the documents by the AO. But the AO wrongly considered the date of search and accoridngly, the notices weere issued for immediate six preceding years i.e. F.Ys 1999-2000 to 2004-05 instead of the six preceding years are F.Ys 2000-01 to 2005-06 considering the date of transfer of the documents. Accordingly, in view of the proviso to section 153C, the asst. for A.Y 2000-01 could not be completed u/s 153C. In this context, reliance was placed on the ITAT s decision in the case of Vijay M Vimawal (25 DTR 363)(Ahd) wherein Hon ble ITAT has upheld this principle. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted and not an incriminating document. (iii) Purpose of 153C - Unfettered Powers: It is submitted that the stand of the department is grossly incorrect in law as the purpose behind the introduction the special provision of section 153C is the same as that behind the provisions of section 158BD. That is, in short, to enable the department to proceed against a third person for bringing to tax any income of such third person, in search action, the diary, loose papers, assets etc have to be found unaccounted and incriminating in nature or not disclosed found to be belonging to a third person. Then only the AO gets the jurisdiction to assess such third person u/s 153C of the Act. The intention behind the provisions of section 153C is not to give unfettered powers to the AO to proceed against any such third person if any document is found pertaining to him. If the departmental stand is accepted it would lead to a situation wherein for genuine and fully accounted transactions, the ITO may get powers to proceed against any other person. To give an example, if a cloth dealer is searched he has purchased cloth from various reputed companies and the purchase bills are found with him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just because some document, whether accounted and not incriminating, of the third part is found during search, it would lead to the cases mentioned in above wherein genuine parties for the fully accounted documents or assets will be subjected to the harassment of undergoing the block assessments ordeal to million of citizens as a consequence of wrong invoking of the provisions of u/s 153C of the Act. In short, as the departmental stand will lead to a harassment for the assessees in general and an arbitrary authority for the officers, such interpretation has to be avoided. In this context, the assessee relies upon the following decisions wherein the courts have held that when no incriminating evidence is found, no addition can be made in the assessment u/s 153A/153C A. Anil Kumar Bhatia Ors (2010) 1 ITR (Trib) 484 (Del): In this case, it has been held that in respect of an assessment under s. 153A, where processing returns u/s 143(1)(a) stood completed in respect of returns filed in due course before search and no material is found in search thereafter, no addition can be made. B. LMJ International Ltd. (2008) 119 TTJ 214 (Kol): In this case, it has been held hat where nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is found during the course of search on Shri R D Sinde pertaining to the assessee, the notice issued u/s 153C for the AYs 2000-01 to 2005-06 may be declared null and void. Without prejudice, only one document is found for the AY 2005-06 i.e. the inward register. Hence, for other five years since no document has been found and therefore, in view of the decision of ITAT, Pune in the case of Sinhgad Technical Education Society v ACIT (ITA Nos 114 to 117/PN/10) and M/s Kumar Co. vide ITA No 463/PN/08 for the AY 2000-01, it is submitted that the assessment completed for these 5 years be declared null and void. 12. Further, the AO in the satisfaction note referred to the statement of Shri R D Shinde recorded during the course of search u/s 132(4). According to him, Shri Shinde had stated that the amount collected from the students has been deposited in the building and equipment fund of the various trusts of Bharati Vidyapeeth Group. Hence, this statement of Shri Shinde has also been considered while recording the satisfaction note u/s 153C. It is submitted that as per section 153C, where any money bullion, jewellery or other valuable articles or thing or books of account or docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The conditions precedent for initiation of the proceedings u/s 153C are therefore satisfied and the proceedings are therefore valid. If it is the assessee s contention that the books of accounts or documents seized during the search should be specific to particular A.Y and that these should contain incriminating material, these contentions deserve to be rejected. In this contention your honour s kind attention is invited to the provisions of section 153C of the I.T. Act. It may kindly be seen that as per the provisions of section 153C, the satisfaction required to be arrived at by the AO for issue of notice u/s 153C is that any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A If this satisfaction is arrived at, the AO is entitled to issue notice to the person in accordance with the provisions of section 153A. The provisions of section u/s 153A provide for the assessments or reassessments of the income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, as per the express provisions, it is not necessary that documents pertaining to each of the six assessment years should have been seized and handed over to the AO of the assessee. 15. We have heard the parties and perused the voluminous papers filed before us involving all the six AYs including the written submissions of the parties.As stated in the preceding paragraphs, we proceed the adjudicate the issue relating to the validity of the notice issued u/s 153C of the Act for the Six years in question. For this purpose we examine SATISFACTION NOTE RECORDED BY THE HANDING OVER-AO; SATISFACTION NOTE: Satisfaction note for proceedings u/s 153C of the I. T. Act, 1961 in the case of Bharati Vidyapeeth Mredical Foundation,Bharati Vidya Bhavan, Pune 411030. The search action u/s 132 of the IT Act was carried in the case of Shri Ramchandra Dada Shinde, on 22.7.2005. The assessee was working as accounts officer in the Bharati Vidyapeeth Group of trusts. During the search action the office cabin of the assessee situated at Bharati Vidya Bhavan near Alka Talkies, Pune-30 was searched alongwith his residential premises. During the search action books of accounts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that there is seizure of ledger involving the assessee by way of Bundle No. 10 This is ledger of Bharati Vidyapeeth Medical Foundation and we find it relates to AY 2004-05 and not for A.Y 2003-04 as mentioned by the AO in the above extracted satisfaction note . It is also a fact that there is no other seized documents/other listed ones pertaining to other AYs under consideration and belonging to the assessee. Further, it is the inescapable observation that rest of the documents relate to the AY 2006-07, which is not the subject matter of this order. As stated above, the CIT(A) dismissed the said legal ground of the assessee on the reasoning that the (i) issue of validity of the notice was not raised before the AO; (ii) the said issue was pending before the ITAT at the relevant point of time and therefore, CIT(A) did not want to interfere by giving his decision on the issue; (iii) However, the CIT (A) opined that the expression incriminating is not borne out of the statute and in our words, it is not a case of casus omisus and there is no need to supply the words in the legislation; (iv) CIT(A) is of the view that the provisions contained u/s 292B and 292BB of the I.T. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minating material belonging to the assessee pertains to some other AY. We proceed to import relevant portions of an unreported decision of the Tribunal of this bench in the case of Sinhgad Technical Education Society Vide ITA NO 114 to 117/pn/10. This extract consists of the relevant portions again imported from the order of the Tribunal in the case of the Kumar and Company vide ITA No. 463/PN/08 for the same A.Y 2000-01. Extraction of paragraphs 8 to 15 from the order of the Sinhgad Technical Education Society vide ITA NO 114 to 117/Pn/10. 8. Additional Ground: Invalid Notices U/s 153C: In this regard, we have perused the reasons recorded by the AO of the assessee. We find that there exists the reasons for issue of notice u/s 153C of the Act and it is an undisputed fact. We also find that they are common reasons for all six AYs including the four AYs under consideration. The Counsel for the assessee argued vehemently that AO issued notices u/s 153C simply relying on the contents of section 153A(1)(b) of the Act and also its first proviso ignoring various settled legal propositions ie the concluded assessments, which fall in the bunch of six AY, should not disturbed unless ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e items at sl 6 to 9 above, the Counsel mentioned the said documents seized are either recorded in the books of account or involves cheque transactions. Thus, he summed up stating that the documents in question are neither the incriminating ones nor unaccounted transactions of the assessee and nor they relate to the impugned four AYs. In such circumstances, the AO not only assumed jurisdiction invalidly but also erred in disturbing the settled and completed assessments. Accordingly, AO should not assume jurisdiction in respect of such AYs in the absence of any incriminating information or transactions specific to any of the impugned four AYs ie 2000-01 to 2003-04. The contrary argument from the side of the revenue is that the overall approach in matters of concealment by the group assesses and all the discoveries of the search on Mr Navale and it concerns, have to be taken into account while forming the satisfaction within the meaning of section 153C of the act. Considering the divergent views of the parties, we have examined the said satisfaction note very closely and found that the impugned reasons mentioned by the AO are silent in so far as any AY-Specific-Incriminating- Informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s? Income Tax provisions are not merely for the issue of notice u/s 153C but it is essentially for taxing the income of the person. What is point in issuing notice u/s 153C on flimsy grounds and finally tax nothing? Such proceedings only creates avoidable nuisance both to the over-burdened taxman and the much hazzled taxpayers. In the instant case, provisions of section 153C are invoked merely to apply the provisions of section 45(4) in this year, the issue which was already examined and concluded as inapplicable to the facts of the case. Such issue of notice is unwarranted and such reopening of the assessment for the AY 2000-01 is uncalled for. 26. Therefore, the proceedings initiated u/s 153C is not valid in view of the decision in the case of LMJ International (supra). Under these circumstances, we are of the opinion, the AO has invalidly issued the notice u/s 153C for the AY 2000-01 on the wrong presumption that AO can assume jurisdictional in respect all the six AYs automatically even with out any incriminating documents in respect of the concluded issues too. Accordingly, the relevant grounds of the assessee are allowed. 12. From the above, it is our finding that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed in due course before search and no material is found in search thereafter, no addition can be made. 2) Suncity Alloys (P) Ltd. (2009) 124 TTJ (Jd) 674 Conclusion:- Assessments or reassessments made pursuant to notice under s. 153A are not de novo assessment and therefore no new claim of deduction or allowance can be made by assessee where admittedly the regular assessments are shown as completed assessments on the date of initiation of action under s. 132. 3) Meghmani Organics Ltd. (2010) 129 TTJ (Ahd) 255 Conclusion:- Record maintained by a person for his own purpose though referable to the assessee cannot be said to be belonging to the assessee within the meaning of s. 153C. Further, where none of the assessments are pending on the date of action under s. 153C, such assessments do not abate. 4) LMJ International Ltd. (2008) 119 TTJ (Kol) 214 Conclusion:- Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be distributed; items of regular assessment cannot be added back in the proceedings under s. 153C when no incriminating documents were found in respect of the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stributed and other local decision cited above. Accordingly, the additional ground raised by the assessee for all the 4 appeals under consideration are allowed and in favour of assessee. 15. As the additional ground for all the four years are allowed in favour of the assessee, we are of the considered opinion the adjudication of the grounds relating to the merits of the additions is merely an academic exercise. Therefore, the relevant grounds in all the four appeals are dismissed as academic. 18. We have discussed the existing legal proposition on the issue of validity of the notice in the light of the provisions of section 153C r w s ₹ 153A of the Act. From the above, it is the decision of this bench of the Tribunal, taken relying on the decisions of the other benches of the Tribunal ie in the case of LMJ International Ltd (supra) that where nothing incriminating is found in the course of search relating to any assessment year, the assessments for such years cannot be distributed. Thus, the assessments made by the AO u/s 153C of the Act without the existence of AY-specific incriminating documents are invalid. 19. Application of the above scope to the facts of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seizure of any documents or any other seizures as referred to in the provisions of section 153C of the Act; and (ii) the AY with the seizure of some documents as referred to in the provisions of section 153C of the Act. 22. Appeals by the Assessee - AYs 2000-01 to 2003-04 2005-06: In connection with the AYs at sl no (i) above ie AYs 2000-01 to 2004-05, admittedly, there is no seizure of the documents as evident from the satisfaction note and the tables explained by the assessee. Considering the above scope of the provisions and legal propositions already adopted by this bench in the case of Sinhgad Technical Education Society (supra), we are of the opinion that the issuance of notices u/s 153C for the AYs 2000-01 to 2003-04 2005-06, where there are no seized documents, is invalid. 23. In so far as the lone appeal for the revenue in respect of the appeal ITA1039/PN/10 for AY 2003-04 is concerned, the same has to be dismissed without going in to the merits of the ground as we quashed the assessment proceedings in view of the invalid notice. 24. Appeals by the Assessee - AY 2004-05: In connection with the AYs at sl no (ii) above ie AYs 2004-05, admittedly, there is some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s appeals arising out of the orders passed by the CIT u/s 263 of the Act. The ITA numbers under consideration here are as under.659/PN/08 for the AY 2000-01, 660/PN/08 for the AY 2001-02, 661/PN/08for the AY 2002-03, 662/PN/08 for the AY 2004-05 and 663/PN/08 for the AY 2005-06. As per Sri Sunil Pathak, Ld Counsel, all these appeals have to be quashed in case the notices issued by the AO u/s 153C in respect of all the AYs under consideration are held null and void. Ld DR relied on the orders of the revenue. We heard the parties and considered the arguments of the parties and the documents filed before us. We find that the legal ground raised by the assessee questions the validity of the review order of the CIT passed u/s 263 of the Act. From the above paragraphs of this order, it is evident that we have upheld the invalidity of the notices issued u/s 153C of the Act and in favour of the assessee and in effect, we hold that the orders passed u/s 153C r w s 143(3) by the AO for the AYs under consideration are held to be null and void. Consequently, the assessment orders reviewed by the CIT u/s 263 of the Act are null and void and therefore, the review order of the CIT also beco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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