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2016 (4) TMI 749 - ITAT MUMBAI

2016 (4) TMI 749 - ITAT MUMBAI - TMI - Validity of assessment u/s 153C - Held that:- In the case on hand, it is an admitted fact recorded in the orders of assessment that the incriminating documents in the form of diaries were found during the survey proceedings undertaken in the business premises of the assessee firm. It is therefore clear that the concerned documents/diaries did not emanate from out of seizures made in the course of search action. In this factual matrix of the case on hand, we .....

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ing the course of search action u/s132 of the Act and (ii) that the Assessing Officer should have recorded his satisfaction are not fulfilled in this case. Further, the CBDT, Circular No: 24/2015 dt. 31/12/2015 has made its applicability to pending litigation as well. In view of the above factual and legal matrix of the case, we uphold the ground raised that the orders of assessments for Asst. years 2006-07 and 2007-08 passed u/s 143(3) r.w.s. 153C of the Act are without jurisdiction. - Decided .....

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issues, were heard together, they are being disposed off by way of this common order. 2. The facts of the case, briefly, are as under:- 2.1 The assessee is a firm in the Haresh Patel Group and was engaged in the development of a project by the name of Giriraj Horizon, at Kharghar, Navi Mumbai. Search action u/s 132 of the Income Tax Act, 1961(in short the Act ) was carried in the case of Shri. Haresh N. Patel and connected persons on 10/01/2007. As Shri. Haresh Patel was a partner in the assess .....

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there are cash expenditures also and admitted an amount of ₹ 150 lakhs as additional income for the financial year relevant to Asst. year 2007-08. Further, in the survey proceedings, another diary was found which contained evidence of cash transaction in the sale of shop no. 3 in the residential building complex, wherein the cash component was ₹ 21,12,500/-. 2.3 The case was taken up for scrutiny and the assessee was issued notices u/s 153C of the Act for the relevant Asst. years. Th .....

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admitted by the assessee, the amount of ₹ 1,50,00,000/-was added to the income of the assessee for Asst. year 2007- 08. 2.3.2 Income attributed on account of cash in shops Based on the noting found in another diary during the survey proceedings, evidencing cash receipts of ₹ 21,12,500/- for shop No. 3, the assessing officer ( AO ) attributed an amount of ₹ 20 Lakhs of unaccounted cash receipts for each of the shops sold and worked out the unaccounted income from the shops as un .....

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on money in respect of the sale these 9 shops. (ii) The Ld. CIT(A) observed that there was no evidence of on money receipts in the earlier year and therefore deleted the addition of ₹ 40,00,000/- made in respect of cash receipts on sale of 2 shops. (iii) The Ld. CIT(A) held that there is no basis for adopting on money receipts of ₹ 20 lakhs per shop and directed that for Asst. year 2007-08 the on money receipts on sale of these 9 shops is to be computed @ ₹ 21,12,500/- per sho .....

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ey. II. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in not accepting the fact that the evidence brought on record for addition on account of unaccounted sales of shops for A.Y. 2007-08 can also be used it for arriving at unaccounted sale of shops for A.Y. 2006-07, applying the ration of the decision of the Hon ble Supreme Court in the case of CST vs. H.M.Esufali H.M. Abdualili (1973) 90 ITR 271. III. On the facts and circumstances of the case and in law .....

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n the grounds stated above, the order of the CIT(A), Central VII, Mumbai may be set aside and that of the Assessing Officer restored. VI. The appellant craves leave to add, amend, alter or delete any or all the grounds of appeal, if need be. 5.2. Even though the assessee has got the relief it sought entirely pursuant to the impugned order of the Ld. CIT(A), the assessee has preferred the following grounds challenging the assumption of jurisdiction by the Assessing Officer while passing the order .....

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may be affirmed. 6. Asst. year 2007-08 6.1 The grounds of appeal raised by revenue are as under:- I. In the facts and circumstances of the law the Ld. CIT(A) erred in reducing the addition made on account of unaccounted income as on money from 26 shops to 9 shops. II. In the facts and circumstances of the law the Ld. CIT(A) erred in not accepting the fact that there was an unaccounted sale of 26 shops which was established during the assessment proceedings. III. The appellant craves leave to ad .....

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1,90,12,500/- with respect to sale of shops during the previous year. (b) The learned CIT(Appeals) erred in appreciating the fact that no incriminating evidence was found in respect of shops on account of which the addition of alleged on-money receipt is made during the year. (c) The learned CIT(Appeals) erred in facts by ignoring the fact that the income offered by the appellant during the course of survey was sufficient estimate to cover all the discrepancies including the receipt of alleged o .....

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or delete any or all grounds of appeal. 6.2.2 The assessee has also raised the following additional grounds of appeal:- 1. The learned Assessing Officer erred in making assessment u/s 143(3) and the same is without jurisdiction and bad in law. 2. The learned Assessing Officer failed to appreciate that notice u/s. 143(2) was not issued within time permitted and that the assessment order u/s 143(3) is without jurisdiction and bad in law. 3. The assessee prays that the assessment order may be canc .....

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uring the course of survey action in the business premises of the assessee firm and therefore, proceedings u/s 153C of the Act are not tenable. (iii) The notice u/s 143(2) of the Act was not issued in time and as the notice issued was beyond time, the order of assessment for Asst. year 2007-08 passed u/s 153C r.w.s 143(3) of the Act is invalid. 7.2. It was submitted by the Ld.AR for the assessee that the additional grounds raised (supra) are legal issues and therefore can be raised at any stage .....

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rounds raised by the assessee are purely legal grounds and since the same go to the very root of the matter, we are inclined to admit the same for consideration and adjudication in this appeal. 7.4.2 It is a settled principle that a legal question/issues can be raised at the appellate state and such a question need not be raised as a ground. It is also a settled principle that when a legal question/issues is raised, the Tribunal has to consider the same in accordance with law and cannot refuse t .....

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ounds raised. 8. Notice u/s 153C of the Act is without jurisdiction 8.1 It is the contention of the assessee that no incriminating evidence relating to the assessee firm was found during the search action u/s 132 of the Act at the residence of the partner of the assessee firm. It was submitted that the two diaries which were used as evidences for the on money receipts for flats and shops were found and impounded during the survey action u/s 133A of the Act in the business premises of the assesse .....

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cord. Section 153C of the Act reads as under:- 153C. [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned .....

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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 5[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. 8.2.2 The scope of Secti .....

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High Court held that the proceedings u/s 153C of the Act should emanate from search action u/s 132 of the Act. The relevant paragraph dealing with the scope of Section 153C of the Act are extracted hereunder:- 4.……………………………………………………………………………………………&hellip .....

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d the efficacy of notices issued by the Assessing Officer against the respondent therein. The same reads thus:- "78. We have considered the rival contentions, carefully gone through the orders of the authorities below and deliberated on the case laws referred by the lower authorities in their respective orders and by the respective counsels during the course of hearing before us. From the record we find that the search was carried out at the residential premises of directors/partners of the .....

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ssing the search party, is satisfied that the jewellery or other valuable articles or things or books of accounts or documents or assets, seized or requisitioned, pertain to some person other than the person referred to in section 153A, then the books of accounts or the documents or assets seized or requisitioned, shall be handed over by the Assessing Officer of searched person to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed agains .....

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153A, meaning thereby the Assessing Officer is to record a satisfaction to the effect that such jewellery or document so seized does not belong to the searched person but to some other person referred to in section 153A of the Act. Thus, the prerequisite of section 153C is that the Assessing Officer making the assessment of the searched person has to satisfy himself that some material found during the course of search and seizure belongs to some person other than the searched person. Then the As .....

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Act is to be issued only after recording of satisfaction. The assumption of jurisdiction to issue notice and frame assessment under section 153C read with section 153A is acquired by the Assessing Officer only after having been satisfied and such satisfaction is recorded in writing. These provisions of section 153C are in pari materia with the provisions of section 158BD which provides that the Assessing Officer making the assessment of the searched person has to satisfy himself that some undis .....

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urt decision was followed by the Hon'ble Delhi High Court in the case of New Delhi Auto Finance Limited; 300 ITR 83. The Hon'ble Supreme Court has laid down a proposition that the Assessing Officer making the assessment of the searched person has to necessarily record in writing the specific objective satisfaction which is mandatory to the effect that the undisclosed income found by him, on the basis of seized material, belongs to some person other than the searched person. Insofar as th .....

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ch satisfaction is void ab initio. Applying the proposition of law laid down by the Hon'ble Supreme Court, as discussed above, it is quite evident that recording of satisfaction before issue of notice u/s 153C is mandatory and in case where no such satisfaction has been recorded by the Assessing Officer in the case of searched person to the effect that some incriminating material so found belongs to some other person, the assessment framed u/s 153C will be liable to be quashed. However, deta .....

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f assessment in the instant cases by the Assessing Officer u/s 153C were bad in law. 79&80………………………………………………………………………… 81. We have deliberated upon the contentions of the learned CIT DR, Shri K.K. Singh and learned counsel for the assessee, Shri H.P. Verma, with regard to interpretation of recording .....

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ma facie, Assessing Officer of searched person should form an opinion with regard to any document, valuable, etc. as found during the course of search that such document, which is declined by the searched person, actually belongs to some other person against whom proceedings u/s 153C are required to put into operation. After such recording, of satisfaction, the documents so seized should be handed over to the Assessing Officer of such other person. The legal requirement of recording of such sati .....

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hed person with respect to their correct income and to plan a strategy for further deep inquiry and investigation of documents found during the course of search. Since copy of such appraisal note is not supplied to the assessee, it cannot be taken at par with the requirement of recording of satisfaction note as stipulated u/s 153C of the Act, which is a mandatory requirement…………….. Further, the Hon ble High Court in its order has observed that:- 8. The responde .....

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isfaction has been recorded by the Assessing Officer having jurisdiction before issuing notice under section 153C. Further, none of the material adverted to, belong to the respondent or can be said to belong to it. Further, no addition or even observation has been made by the Assessing Officer having jurisdiction in any of the orders for the concerned assessment years on the basis of the material found during the course of search. Even for that reason, no action under Section 153C could have bee .....

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t of scope of Section 158BD. In case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax & another and in the case of Commissioner of Income Tax-III Vs. Calcutta Knitwears . Even the Tribunal has referred to the decision of the Supreme Court on the scope of Section 158BD as no direct judgment of the Supreme Court on Section 153C was referred to. Besides the Supreme Court decisions on Section 158BD, reliance has been placed on the decisions of different High Courts with reference to .....

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Creams and Bakes dated 29.3.2012, Creative Cooperative Credit Society Ltd. Vs. Amal Garg, Deputy Commissioner of Income-Tax dated 26.2.2014, Asstt. Commissioner of Income Tax Vs. J.B. Enterprises and others dated 26.6.2014. Since there is no direct judgment of the Supreme Court on Section 153C, reliance has been placed on the decisions of different High Courts on Section 153C, namely- of SSP Aviation Ltd. Vs. Deputy Commissioner of Income-tax dated 29.3.2012, Commissioner of Income Tax Vs. Clas .....

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p;…………………………………………. 11. The moot question is: whether there is any distinction or dissimilarity between Section 158BD and Section 153C of the I.T. Act? If we accept the argument of the Department, that the purpose underlying the two provisions is completely different, further investigation into the scope of Section 153C may become necessary. 12. As the scope of Section 158BD has alread .....

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m search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor 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 Section 132 of the Act; (ii) The books of account o .....

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ocuments and other assets had been requisitioned under Section 132A of the Act. 13. In a recent decision of the Supreme Court in the case of Commissioner of Income Tax-III Vs. Calcutta Knitwears (supra), although the question considered was at what stage the Assessing Officer must record his satisfaction as envisaged in Section 158BD. The observed thus:- 38. Having said that, let us revert to discussion of Section 158BD of the Act. The said provision is a machinery provision and inserted in the .....

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After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD of the Act, the other provisions of XIV-B shall apply. 39. The opening words of Section 158BD of the Act are that the assessing officer must be satisfied that undisclosed income belongs to any other person other than the person with respec .....

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on under Section 132 and 132A of the Act or during the course of the assessment proceedings under Section 158BC of the Act or after completion of the proceedings under Section 158BC of the Act. 40………………………………………………………………………………… 41. We would certainly say that before initiating proce .....

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the existence of cogent and demonstrative material is germane to the assessing officers satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during .....

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sing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 42…………………………………………………………………………………. 43………………………&hell .....

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owing stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person. 14. Thus, as envisaged by Section 158BD, satisfaction of the Assessing Officer before he transmits the material/records to other Assessing Officer having jurisdiction .....

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ment of search cases. Further, Section 153C opens with non-obstante clause. However, the non-obstante clause in Section 153C is necessitated to give power to the Assessing Officer having jurisdiction to proceed against the person other than the person referred to in Section 153A, inspite of the action under Section 139, 147, 148, 149, 151 and 153 of the I.T. Act. However, on closer scrutiny of the two provisions, it is indisputable that, these provisions are machinery provisions and have been pr .....

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his jurisdiction, if seizes or requisitions the items (books of account or other documents or any assets for Section 158BD; and money, bullion, jewellery or other valuable article or thing or books of account or documents for Section 153C), is expected to handover those items to the Assessing Officer having jurisdiction over such other person and thereafter the Assessing Officer having jurisdiction has to proceed against such other person within his jurisdiction. Even for the purpose of Section .....

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to in Section 153A, is drastic - of assessment or reassessment of his income falling within six assessment years. 16. Suffice it to observe that the dissimilarity of the form of two provisions would make no difference to the purpose underlying. The power bestowed on the Assessing Officer having jurisdiction - be it under Section 153C or Section 158BD - is identical. 17…………………………………………& .....

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er than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which in .....

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e other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. Similarly, as there is no provision either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the argu .....

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ip;………………………………………………... 21. We conclude that the condition precedent for resorting to action under Section 158BD delineated by the Supreme Court in the case of Manish Maheshwari (supra) and in the recent case of Commissioner of Income Tax-III Vs. Calcutta Knitwears (supra), would apply on all fours mandating satisfaction of the Assessing Officer(s) dealing with the case .....

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Assessing Officer before issuing of notice under section 153C. Further, none of the papers seized belongs or belong to the assessee (noticee). The Appellate Forums have further found that no addition or even observations have been made by the Assessing Officer in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified. These findings of fact need no interference and have .....

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is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers satisfaction in concluding that the seized documents belong to a person other than the searched per .....

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ts income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 42. Further, Secti .....

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d consequent issuance of notice to the other person. 43…………………………………………………………………………...... 44. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing o .....

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Hon ble Apex Court in the case of Calcutta Knitwears in Civil Appeal No: 3958 of 2014 dt. 12/03/2014 and consequently issued CIRCULAR NO. 24/2015 dt. 30/12/2015 (in F.No. 279/Misc/140/2015/ITJ) on the subject of recording of satisfaction note u/s 158BD/153C of the Act. This CBDT Circular reads as under:- CIRCULAR NO. 24/2015 F.No.279/Misc./140 /2015/ITJ Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, 31st December, 2015 Subject: Recording of .....

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te must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or (b) in the course of the assessment proceedings under section 158BC of the Act; or (c) immediately after the assessment proceedings .....

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e Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts. 5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. .....

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ss premises of the assessee firm. It is therefore clear that the concerned documents/diaries did not emanate from out of seizures made in the course of search action. In this factual matrix of the case on hand, we find that the essential condition of section 153C of the Act is not fulfilled. Further, the Assessing Officer vide letter dt. 16/10/2015 has admitted that the satisfaction note for initiating the proceedings u/s 143(3) r.w.s.153C of the Act is not available on record., but has stated t .....

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