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THE COMMISSIONER OF INCOME-TAX, BANGALORE AND THE DEPUTY COMMISSIONER OF INCOME-TAX, BANGALORE Versus M/s. IBC KNOWLEDGE PARK PVT. LTD. AND VICA-VERSA

Depreciation in respect of electrical installations, elevators, DG sets installed in the building, which have been let-out by the assessee, which is receiving rental income from the said building - Held that:- The lessee is required to pay not only the rentals on the building but also charges for the facilities provided by the assessee. The facilities and services provided by the assessee are at Annexure–2 to the said agreement. On a conjoint reading, it becomes clear that the rental income is i .....

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hat:- It is noted that in the financial year 2003-04, assessee had constructed a project known as M/s.IBC Knowledge Park Pvt. Ltd., on Bannerghatta Road, Bengaluru. However, there were disputes between the assessee and Bangalore Housing Development and Investments, a partnership firm, with whom the assessee had entered into a joint development agreement. As a result, assessee could not sell the constructed properties. Sale of constructed properties is not a sine qua non for commencement of busin .....

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right in giving relief to the assessee and the findings of the Tribunal would not call for any interference.- Decided in favour of assessee - Disallowance of interest - Held that:- The Tribunal has found that the assessee had filed a letter dated 30/9/2006 before the Assessing Officer. In paragraph No. 21 of the said letter, detailed workout of interest on borrowings for 'Tower A' is furnished. 'Tower A' had been let-out and the interest amount was paid during the previous year. Interest in .....

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wards construction management services, it would have incurred expenditure in various forms. But the details of expenditure was not putforth by the assessee. In the circumstances, the Tribunal assessed the expenditure to be allowed as expenses at 25% of the gross fee. We think that the Tribunal was right in construing the said income as business income and not as income from other sources. We do not find any perversity in the said assessment of 25% being the expenditure incurred from the gross f .....

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g the course of search leading to reopening of a concluded assessment. In the instant case, though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. Consequently, no satisfaction was recorded in the case of the assessee.- Decided in favour of assessee - Assessment u/s 153C / 158BD - Held that:- In the instant case, one of the .....

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403/2009, C/W 402/2009, 410-412/2014, 394/2014 & 271/2015, 399/2014, 400/2014 & 351/2015, 402/2014 & 352/2015 - Dated:- 28-4-2016 - MR. JAYANT PATEL AND MRS. B.V. NAGARATHNA , JJ. FOR THE APPELLANT : SRI: K.V. ARAVIND, ADVOCATE FOR THE RESPONDENT : SRI: A. SHANKAR & SRI. M. LAVA, ADVOCATES JUDGMENT These appeals, filed by the Revenue as well as the assessee, assail order dated 25/4/2014, passed by the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal" for the .....

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3. By order dated 3/8/2015, the appeals filed by the assessee were admitted on the following substantial questions of law: (a) Whether the Tribunal was right in holding that the initiation of proceedings and the consequent order passed under Section 153C of the Act were valid, on a mere coincidence that the appellant was also carrying on its business in the searched premises along with the searched persons? (b) Whether the Tribunal was correct in holding that the assessment under Section 153C w .....

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r Section 153C of the Act for the assessment year 2005-06 despite there being no pending assessment as on the date of search and the documents not revealing any undisclosed income? 4. The appeals filed by the Revenue raise the following substantial questions of law and were admitted on 28/5/2010 and 3/8/2015: "(i) Whether the Appellate Authorities were correct in holding that separate depreciation is allowable in respect of 'Electrical installations, elevators, DG set' installed in .....

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in holding that a sum of ₹ 1.91 crores cannot be disallowed as held by the Assessing Officer despite the same not been reflected in the Balance Sheet and no particulars having been furnished recorded a perverse finding, not supported by materials? (iv) Whether the Tribunal was correct in holding that the claim of ₹ 1,29,08,375/- shown as construction management fee is allowable to the extent of 25% even though no evidence has been adduced in support of the claim when this expense re .....

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art of the leased are part of the leased building which do not have any independent existence and that no independent receipt/fees/ maintenance charges were received against these facilities/services and therefore, they are receipts are taxable as "income from house property?" 5. Briefly stated, the facts are that the assessee is a company registered under the Companies Act, 1956 and is engaged in the business of development of properties, construction and engineering activities and su .....

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onging to the assessee were seized from the premises searched. Documents of the assessee seized during the search operation were transferred by the Assessing Officer, who searched the premises, to the Deputy Commissioner of Income Tax, Central Circle-1(3) (hereinafter referred to as "the Assessing Officer") of the assessee. The Assessing Officer issued notice under Section 153C of the Act. The assessee requested the Assessing Officer to furnish reasons for initiating action under that .....

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e relevant assessment years are in respect of the following: (i) Depreciation on Elevators, DG Set and other such items (for all assessment years) (ii) Professional charges (for assessment year 2004-05) (iii) Interest expenses (for assessment year 2004-05) (iv) Disallowance of interest capitalized (for assessment years 2004-05 and 2006-07) 7. That in respect of the assessment year 2004-05, the order under Section 143(3) had been passed on 27/12/2006 and in that assessment order, all deductions w .....

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ranting relief against disallowances made by the Assessing Officer by following the earlier order of the Tribunal for the assessment year 2004-05. The orders of the Assessing Officer, Appellate Authority and the Tribunal are at Annexures-A to F respectively. 10. Against the order of the Appellate Commissioner, Revenue had filed appeals before the Tribunal for three assessment years in question, which were numbered as ITA.Nos.903-905/2013. As regards the initiation of proceedings under Section 15 .....

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the Revenue, Sri. K.P.Kumar, learned Senior Counsel appearing for Sri.J.Suryanarayana, learned counsel for M/s. King & Partridge as well as Sri. A.Shankar, learned counsel for the assessee and perused the material on record. We now consider the substantial questions of law raised by the Revenue in seriatim along with the submissions of the learned counsel. 12. The first substantial question of law is with regard to depreciation allowable in respect of electrical installations, elevators, DG .....

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entered into by the assessee with various lessees held that the agreement indicated that rentals of the building and rent for the electrical installation were being separately charged, which was not denied by the Revenue. The assessee was also entitled to claim depreciation in respect of maintenance of amenities for which it received a separate fee. The assessee had computed such income under the head profit and gains of business and profession and therefore, the claim of depreciation was permis .....

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t is contended on behalf of the Revenue that the fixtures such as, transformers, D.G.sets, elevators etc., were part of the building and income from letting out of building is chargeable to tax under the head income from house property. That the assessing officer had rightly disallowed the claim of the assessee for deduction on account of depreciation on the aforesaid assets against income received in the form of maintenance fee charged from the tenants of the building, which was offered to tax .....

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ce of amenities for which it received a separate fee. 14. Per contra, the submission of learned counsel for the assessee is that the issue was already decided by the Tribunal in the case of this very assessee for the assessment year 2004-05, wherein the Tribunal had held that rentals for the building and rent for the aforesaid facilities were separately charged and that the assessee was entitled to claim depreciation on the said assets in respect of maintenance of amenities for which it has rece .....

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the aforesaid submissions in light of the lease agreement dated 11/8/2003, which was submitted during the course of arguments. On perusal of the said agreement, relevant portions of Clause 1 provides as under: "1. The LESSORS doth hereby grant on lease and the LESSEE doth hereby take on lease the Demised Premises (Demised Premises are described in Schedule "B" hereto). a) (i) The first term of the lease for the Demised Premises shall be for a period of Five (5) years, commencing .....

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y other portion/building of IBC Knowledge Park. The exact amount of rent payable shall be as provided in Clause 1(a)(iv) below and at present is estimated at ₹ 52,44,962 (Rupees Fifty Two Lakhs Forty Four Thousand Nine Hundred Sixty Two Only). It is agreed that the area being leased to the LESSEE is as described in Schedule "B" and only as regards the rent agreed, the super built up area of the ground plus six floors of Tower A (including bridge areas), shall be taken into accoun .....

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a fresh lease which shall be duly registered, and the rent payable for the renewed term shall also be as provided in Annexure III. The detailed calculations of rent payable by the LESSEE for the entire duration of the lease and its renewal, is set out in Annexure III. The LESSEE shall pay an amount of ₹ 52,44,962/= to the LESSORS, towards one month's rent in advance and to be adjusted against rent for Tower A on commencement of the lease and after complete adjustment of the said amoun .....

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it shall be multiplied ₹ 25.30p (instead of ₹ 22/-) per Sq. Ft. per month of actual plinth area." Clauses 3 (a) and (f) read as under: 3 a) The LESSORS agree that it is imperative for the quiet and peaceful occupation and use of the Demised Premises by the LESSEE and for the purpose the LESSEE intends to occupy and use the Demised Premises, that the Demised Premises have, at all times, the provision of services and facilities stipulated in Annexure II and as per the specificati .....

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suring that the services and facilities set out in Annexure II and provision of primary power and 100% power backup for common Areas, and in the manner they are set out in this lease and all the Annexures, are provided to the LESSEE by the LESSORS at all times while the LESSEE is in occupation of the Demised Premises or any portion thereof. However, the LESSORS shall be entitled to nominate a Maintenance Agency to maintain the said services, while being responsible for all acts of the Maintenanc .....

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commercial use, being an amount of ₹ 7,15,222/= per month if the bridge area is authorized for commercial use, and being an amount of Rs,. 6,43,715/- per month if the bridge area is not authorized for commercial use. The LESSORS shall not be entitled to any escalation during the three years of the first term, for any reason whatsoever. The said amounts to be paid alongwith lease rents. ii. For the second term of the lease, if the charges exceed ₹ 4/= per square foot per month, the sa .....

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t the rental income is income from house property. But the charges received towards provision and maintenance of facilities and services as per Annexure-2 cannot be construed to be income from house property. The said income, in our view, has to be considered as income from business and therefore, the claim for depreciation has to be allowed, which has been rightly done so by the Tribunal. Substantial question of law No.1 is accordingly answered in favour of the assessee. 17. As far as the secon .....

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But the assessee had not sold any building and therefore, the business of the assessee had not commenced. The stand of the Revenue is that the sale of flats or building constructed was a sine qua non for commencement of its business. 18. On the other hand, the assessee had contended that it had purchased land and on obtaining sanctioned plan had started construction and had completed a few towers by 31/3/2004. Therefore, assessee's business had commenced. Disallowance of interest was incorre .....

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is noted that the Assessing Officer had disallowed a sum of ₹ 52.56 crore related to investment in the construction of the towers, which have been let-out and proportionate interest was allowed under Section 24 of the Act, but the balance amount of ₹ 72.00 lakh was disallowed on the ground that the building in respect of which the loan was taken had not yet been let-out. But the Tribunal noted that where interest on borrowed funds were utilized towards other current assets and the l .....

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h was income from house property. 21. Per contra, learned counsel for the assessee contended that merely because the assessee had not sold the flats it had constructed, it could not be said that the assessee had not commenced business. The moment land was purchased and several steps were taken towards construction of towers would imply that the assessee had commenced business. Therefore, disallowance on payment of interest was incorrect. 22. It is noted that in the financial year 2003-04, assess .....

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land, obtained plan sanction and put up construction. Thus, when the business of the assessee had commenced during the financial year 2003-04, interest paid by the assessee on borrowed capital cannot be added back to the work in progress. The Tribunal in this regard has relied upon a decision in the case of K.Raheja Development [102 ITD 414], which has been held to be correct by this court. We hold that the Tribunal was right in giving relief to the assessee and the findings of the Tribunal wou .....

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order, in ITA.Nos.903 to 906/Bang/2013, letter dated 30/9/2006 was filed by the assessee before the Assessing Officer, which was furnished to the Tribunal as well. The Appellate Commissioner had held that the detailed working of interest on borrowings for Tower 'A' were furnished and that Tower 'A' had been let-out and the interest pertaining to the said aspect amounted to ₹ 1,91,14,354/- paid during the previous years. The Tribunal held that there was no infirmity in the .....

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ight in directing the Assessing Officer to allow the interest, which direction has been affirmed by the Tribunal. 25. Per contra, learned counsel for the assessee supported the order of the Appellate Commissioner as well as the Tribunal on this issue. The Tribunal has found that the assessee had filed a letter dated 30/9/2006 before the Assessing Officer. In paragraph No. 21 of the said letter, detailed workout of interest on borrowings for 'Tower A' is furnished. 'Tower A' had b .....

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regard to the correctness of allowing the claim of deduction on construction management fee to an extent of 25% even though no evidence has been adduced in support of the claim, when this expense related to the property constructed by the assessee which was let-out and rental income was received under the head Income from House Property and therefore, the question of earning expense did not arise and therefore, the same could not be capitalized. The case of the assessee is that it had supervised .....

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penses, such as advertisement, sales promotion etc. Therefore, the income had to be assessed under the head income from other sources. The Tribunal held that the income had to be assessed as business income and the assessee could not have received a sum of ₹ 78.25 lakh without incurring expenses. Therefore, 25% of the gross fee earned was allowed as expenses. 28. Learned counsel for the Revenue contended that the assessee had not produced any evidence with regard to the claim of ₹ 1, .....

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teriors of M/s.Accenture Services Pvt. Ltd., and the aforesaid disputed amount was the expenses incurred in the process. 30. It is noted that M/s. Accenture Services Pvt. Ltd., had engaged the services of the assessee herein as construction management services. The income earned is business income and cannot be considered as income from other sources. Also, if the assessee had received income of ₹ 78.25 lakh towards construction management services, it would have incurred expenditure in va .....

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h is answered against the Revenue. In the result, the appeals filed by the Revenue are liable to be dismissed. ASSESSEE'S APPEALS: 31. As far as the appeals filed by the assessee with regard to the proceedings under Section 153C is concerned, submission of learned Senior Counsel, Sri.K.P.Kumar, appearing for the assessee is that under Section 132 of the Act, search was conducted on Mr. Yunus Zia, Mr.Ziaulla Sheriff and M/s. India Builders Corporation on 17/6/2008. One of the offices of the a .....

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learned Senior Counsel contended that in the absence of any incriminating material found during the search operation, the assessments made under Section 153C were without jurisdiction. That the purpose of Sections 153A to 153C of the Act is to bring to tax undisclosed income. However, for the relevant assessment years no new additions were made on the basis of the documents seized. That the additions made were the very same ones made in the earlier assessment order dated 27/12/2006. That before .....

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parties were bound to be found in the premises searched as it carries on business from the very same premises. Merely because documents of the assessee were found and seized, proceedings under Section 153C could not have been initiated. The requisite procedure under Section 132 of the Act cannot be ignored while invoking Section 153C of the Act. Further, for the accounting year 2004-05, assessment had been completed on 12/12/2006 and thus, the assessment proceedings did not abate. Hence, no ord .....

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ear 2006-07 is concerned, no notice for assessment was pending under Section 143(2) had been issued. 33. Learned Senior Counsel further contended that the precedents relied upon by the Revenue do not support the proposition, that even in the absence of any incriminating material found assessment under Section 153A/153C could be made. Learned Senior Counsel lastly contended on merits, the judgment to be passed in ITA.No.402/2009 arising out of original scrutiny assessment proceedings for assessme .....

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aid three sections deal with undisclosed income on the basis of the evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information that are available with the Assessing Officer and such other relatable evidence. In other words, detection of undisclosed income was a sine qua non for invocation of those sections. But Section 153C of the Act mandates recording of satisfaction only to the extent of any money, bullion or other valua .....

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course of search or requisition is sufficient for reopening the assessment, it is not necessary that undisclosed income must be found. Thus, according to learned counsel, detection of any undisclosed income during search operation or requisition is not a sine qua non for reopening of assessment under Sections 153A and 153C and that the finding of the Tribunal in that regard is not correct. 35. He further submitted that as per the earlier scheme under Sections 158BC and 158BD of the Act, block as .....

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nder Section 153C of the Act was not valid and the original assessment was reiterated, but all the six assessment years were rightly reopened under Section 153C of the Act. 36. Thus, according to learned counsel for Revenue, the finding of the Tribunal that assessment under Sections 153A and 153C have to be confined to only when undisclosed income was detected on the basis of the incriminating material found during the course of search would imply that the Assessing Officer cannot make use of an .....

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for the Revenue contended that the Assessing Officer under Section 153C of the Act has to record satisfaction regarding the material seized in the course of search of a person when it belonged to any other person. But detection of undisclosed income is not material. Relying on certain decisions of the Hon'ble Supreme Court as well as various High Courts, learned counsel for Revenue sought for dismissal of assessee's appeals. 38. Both sides have relied upon decisions of the Hon'ble S .....

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Assessee's contention that the proceedings were not initiated in accordance with law, was not accepted by the appellate Commissioner, who dismissed the appeals. Before the Tribunal, it was contended that the assessee also carried out its functions from the very premises which was searched. Therefore, assesse's documents were bound to be found in the said premises. Therefore, it was contended that Section 153C could not be invoked. 40. It was next contended before the Tribunal that the do .....

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d income. It was also contended that the assessment under Section 153A read with Section 153C could be made only in respect of those assessment years relating to the documents detected. 41. The Tribunal while considering the aforesaid contentions held that the assessee shared common business premises with the person searched. But the fact that it ipso facto could not face proceedings under Section 153C of the Act, unless there was undisclosed income on the part of the assessee detected in the se .....

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sment year relevant to previous year in which search was conducted or requisition was made. 42. As far as the assessment year 2004-05 was concerned, the Tribunal noted that as on the date the search was conducted i.e., on 17/06/2008, no assessment proceeding for that year was pending and the additions made for the assessment year under Section 153A r/w Section 153C are identical to the ones made in the assessment order dated 27/12/2006 for the said year. As no undisclosed income was detected, th .....

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fore, the argument of the assessee was not accepted. In the circumstances, cross-objection of the assessee was partly allowed for the assessment year 2004-05 and for the assessment years 2005-06 and 2006-07 were dismissed by the Tribunal. 44. Before considering the rival contentions, it is necessary to advert to the scheme of the Act regarding special procedure for assessment in cases of search. Subsection (1) of Section 132 of the Act states that where the Chief Commissioner or any other office .....

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ace, vessel, vehicle or aircraft, where he has reason to suspect that such books of account, other documents, or valuable assets are kept or search any person, break open the lock of any door etc., seize any books of account, other documents, or other valuable assets found as a result of such search and do all other things necessary as prescribed under Section 132 of the Act. 45. Sections 153A, 153B and 153C were inserted by the Finance Act, 2003, with effect from 1/6/2003. They have replaced th .....

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the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of Section 153(1) in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of the Act shall, so far as may be, apply accordingly as if such return were a return requ .....

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sition under Section 132A, as the case may be, shall abate. The explanation states, save as otherwise provided in Sections 153A, 153B and 153C, all other provisions of the Act shall apply to the assessment made under Section 153A. Section 153B speaks about time-limit for completion of assessment under Section 153A. 46. 153C is relevant for the purposes of this case. Sub-section (1) of Section 153C begins with a non obstante clause and it states that notwithstanding anything contained in Sections .....

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person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of Section 153A, if that Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of Section 153A. Sub-section .....

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me has been furnished by such other person and no notice under sub-section (1) of Section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under subsection (2) of Section 143 has been served and limitation of serving the notice under sub-section (2) of Section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or valuable assets seized or requisitioned .....

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lating to search conducted under Section 132 of the Act or requisitions made under Section 132A after 30/06/1995. Section 158B(b) defines 'undisclosed income' to include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or .....

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which the search was conducted under Section 132 or any requisition was made under Section 132A and also includes the period up to the date of commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made. The proviso is not relevant for the purpose of this case. 48. Section 158BD is relevant for the present case and it states that where the Assessing Officer is satisfied that any undisclosed income belongs to any pers .....

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. Section 158BE prescribes time limit for completion of block assessment. Section 158BH states that except as otherwise provided in Chapter XIV-B all other provisions of the Act shall apply to the assessment made under the said chapter. Section 153C provides for the role of the Assessing Officer having jurisdiction over the person searched/requisitioned as regards third party liability. The said section covers assessments which have become necessary, because of books of accounts, documents or va .....

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over. 49. On a conjoint reading of the aforesaid provisions, it becomes clear that a search can take place only when a concerned officer has information and reason to believe that any person is in possession of any valuable assets, which has not been or would not be disclosed under the Act. In such a case, a search can take place. Following the search, if any books of account, other documents, any valuable assets is or are found in the possession or control of any person in the course of a searc .....

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ssessment of income of any other person, when the Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to under sub-section(1) of Section 153A of the Act. In such a case, the Assessing Officer has to issue notice to assess or re-assess income of other person under Section 153A of the Act. Thus, the fact that se .....

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e assets. It is only when the concerned officer has information about the same and has reason to believe that the said valuable assets has not been or would not be disclosed would give jurisdiction to the officer authorized to conduct a search operation. Therefore, the object and purpose of a search is to detect undisclosed income. As defined under Clause (b) of Section 158B of the Act, it is only when the undisclosed income is detected in a search operation that there would be assessment or re- .....

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is that the sine qua non for the purpose of assessment or re-assessment pursuant to a search operation is detection of undisclosed income. In fact, the initiation of search proceeding is also based on possession of information and reason to believe that a person is in possession of certain valuable assets, which has not been or would not be disclosed under the Act. The same is nothing but 'undisclosed income' as defined in Clause (b) of Section 158B(b) of the Act. This becomes even more .....

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sed income, then there would be no need for pending assessment to abate. Thus, when particulars of income declared in the return is already available with the Assessing Officer, such income cannot form part of undisclosed income even if such return is filed beyond the time limit, but before search, as long as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. Sec .....

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n over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said third party. Thus, where no material belonging to a third party .....

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. Asst. Commissioner of Income-Tax & another [(2007) 289 ITR 341 (SC)]. In that case, search was conducted on one of the directors of the assessee-company M/s. Indore Construction (Pvt.) Ltd. When the search was conducted in the premises of the director Sri. Manish Maheshwari and his wife several incriminating documents relating to the company were seized. While dealing with Section 158BD of the Act, the Hon'ble Supreme Court has observed as under: "Condition precedent for invoking .....

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re : (i) Satisfaction must be recorded by the Assessing Officer 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 or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. The conditions precedent for invok .....

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ter. Therefore, the judgment of the High Court was set aside and the appeals were allowed. 52. The decisions relied upon by the learned Senior Counsel appearing for the assessee are as under: (a) In Commissioner of Income-Tax vs. Calcutta Knitwears [(2014)362 ITR 673 (SC)], the Hon'ble Supreme Court considered the question, as to at what stage of the proceedings under Chapter XIV-B, the Assessing Authority was required to record his satisfaction for issuing notice under Section 158BD of the .....

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ad completed the block assessments in the case of Bhatia group. Since certain other documents did not pertain to the person searched under Section 132 of the Act, the Assessing Authority therein thought it fit to transmit those documents, which according to him pertained to undisclosed income on account of investment element and profit element of the assessee-firm and required to be assessed under Section 158BC read with Section 158BD of the Act to another Assessing Authority in whose jurisdicti .....

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rity, who concluded the assessment proceedings under Section 158BD of the Act. It was also held that notice could be issued even after completion of the proceedings of the searched person under Section 158BC of the Act. Aggrieved by the order of the Assessing Officer, the assessee therein had filed an appeal before the Appellate Authority, who had partly allowed the appeal. The Revenue had carried the matter further by filing an appeal before the Tribunal and the assessee therein filed cross-obj .....

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f recording satisfaction that there is an undisclosed income, which had been traced where a person was searched under Section 132 of the Act or books of accounts, other documents or valuable assets are requisitioned under Section 132A of the Act, the Hon'ble Supreme Court opined as under: "We would certainly say that before initiating proceedings under section 158BD of the Act , the Assessing Officer who has initiated proceedings for completion of the assessments under section 158BC of .....

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long 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 the stage of the assessment proceedings. It does not mean that after completion of the assessment, the Assessing Officer cannot prepare the sat .....

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han the searched person. Further Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under Section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after January 1, 1997. The said section does neither provide for nor impose any restrictions or conditions on the period of limitation for preparation of .....

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inst 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." In that case, the Hon'ble Supreme Court remanded the matters to the concerned High Court for consideration of the individual cases in light of observations made above on the scope and interpretation of Section 158BD of the Act. (b) In Co .....

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any incriminating documents having been found, the same accounts of the assessee were reassessed by making further investigations, which was impermissible, as the same would amount to reopening of a concluded assessment, without there being any additional material found at the time of search. Otherwise, it would give the Revenue a second opportunity to reopen a concluded assessment, which is impermissible in law. Merely because a search is conducted in the premises of the assessee, would not en .....

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eel (India), Jodhpur vs. Assistant Commissioner of Income-tax [(2013) 36 taxmann.com 523 (Rajasthan)], it was held that no doubt the Assessing Officer is free to disturb income, expenditure or deduction de hors any incriminating material, while making an assessment under Section 153A of the Act. But in the context of a search, Section 153A to 153C cannot be interpreted to be a "further innings" for the Assessing Officer and/or the assessee beyond the provisions of Sections 139 (return .....

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(Delhi), the Delhi High Court has held that (i) once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately proceeding the previous year relevant to the assessment year in which the search takes place. (ii) Assessment and re-assessments pending on the date of the search shall abate. The total income for such assessme .....

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ssessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although Section 153A 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 Assessing Officer 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 assess .....

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he original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the finding of the search and any other material existing or brought on record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of doc .....

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. 53. Learned counsel for the Revenue has relied upon the following citations in support of his contentions: (a) In Kamleshbhai Dharamshibhai Patel vs. CIT [(2013) 31 Taxmann.com 50 (Gujarat)], on considering Section 153C of the Act, it was observed that the said section begins with a non obstante clause. Requirements for assuming jurisdiction under Section 153C (1) are, that the Assessing Officer is satisfied that any valuable assets or books of account or document seized or requisitioned belon .....

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court rejected the argument that during assessment under Section 153A additions had to be restricted or limited to incriminating material only, found during course of search. (c) In Savesh Kumar Agarwal vs. Union of India ((2013) 35 Taxmann.com 85 (Allahabad)], the question considered was whether on receipt of satisfaction note, the Assessing Officer had not found anything adverse against the assessee and seized goods having been released in favour of the assessee, notice could be issued under S .....

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d) In Dr. K.M. Mehaboob vs. DCIT [(2012) 26 Taxmann.com 54 (Kerala)], it was held that unlike under Section 158BD, for transferring a file under Section 153C, there is no need to examine whether the books of accounts or other evidence or materials seized in the course of search of an assessee represents or proves undisclosed income of another assessee. On the other hand, for transferring the file to the Assessing Officer of such other assessee, all that is required to be considered is whether th .....

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efore another Officer, and if so, to transfer the file to such other Officer for his consideration and for passing orders, whether assessment or penalty or such other order permissible under the Act by that Officer. (e) In Canara Housing Developnment Co. vs. D.C.I.T. [(2015)] 274 CTR 122 (Kar.)], a Division Bench of this court in the said case noted that in the course of search, incriminating material leading to undisclosed income being seized, held that the block assessment roped in only the un .....

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isclosed in the earlier return or which is not unearthed during the search, in order to find out what is the total income of each year and then pass assessment order. (f) Similarly, in Gopal Lal Badruka vs. DCIT [(2012) 346 ITR 106], the search revealed incriminating material and undisclosed income. (g) in SSP Aviation Ltd. vs. DCIT [(2012) 20 Taxmann.com 214 (Delhi)], the observations of the court were in light of the fact that incriminating material had been found. (h) In CIT vs. Anil Kumar Bh .....

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g material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, .....

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third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CBDT has also issued circular dated 31.12.2015 vide No.24/2015.The relevant extract of the circular for ready reference can be extracted as under: "The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation. 2. The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears .....

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e 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 are completed under section 158BC of the Act of the searched person." 2. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefo .....

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e and the same, then also he is required to record his satisfaction as has been held by the Courts. 4. 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. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court." As per the afore .....

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ecorded that documents or valuable assets found in the course of search showed undisclosed income. In view of the aforesaid discussion, we do not think that such can be the correct position of law. 56. Further, in the judgments referred to by the learned counsel for the Revenue, where incriminating material leading to undisclosed income of another assessee was detected in a search operation, in those cases, reopening of the concluded assessment have taken place. There has been no single decision .....

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