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2016 (5) TMI 1018 - ITAT AHMEDABAD

2016 (5) TMI 1018 - ITAT AHMEDABAD - TMI - Validity of assessment u/s 153C - Satisfaction note to initiate proceeding u/s. 153C r.w.s.153A - Held that:- There is no material placed on record before us that the Assessing Officer had kept the case files of the searched party and that of the assessee together before drawing the impugned satisfaction note. It is made clear that the Revenue’s contention based on Kolkata bench decision of the tribunal puts a heavy onus on the department to positively .....

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clude in view of the above stated legal position, board’s circular and our discussion hereinabove that the Assessing Officer has not recorded a valid satisfaction before initiating section 153C proceedings in question. The impugned assessment is accordingly quashed. - Decided in favour of assessee - IT(SS)A Nos.01, 02 & 03/Ahd/2011, IT(SS)A Nos.89, 90 & 91/Ahd/2011, C.O. Nos.56, 57 & 58/Ahd/2011 - Dated:- 22-4-2016 - SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER For .....

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e respectively. First assessment year 2005-06 involves assessee s appeal IT(SS)A No.01/Ahd/2011. Next assessment year 2006-07 contains assessee s appeal IT(SS)A No.02/Ahd/2011 and C.O. No.56/Ahd/2011. The latter has been filed in Revenue s cross appeal IT(SS)A No.89/Ahd/2011. Third assessment year 2007-08 comprises of Revenue s appeal IT(SS)A No.90/Ahd/2011 and assessee s C.O. No.57/Ahd/2011 therein. Last assessment year 2008-09 has got assessee s appeal IT(SS)A No.03/Ahd/2011 and C.O. No.58/Ahd .....

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ts against addition of ₹ 63,26,507/- in the nature of suppressed income earned through M/s. Kunvarji Commodities Private Limited. Next is assessment year 2006- 07. The assessee s Appeal IT(SS)A No.02/Ahd/2011 raises two similar grounds in preceding assessment year. The only difference is in the relevant figure of alleged suppressed income coming to ₹ 1,11,30,886/-. The revenue in its appeal IT(SS)A No.89/Ahd/2011 pleads solitary substantive grievance for reviving addition of ₹ .....

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he assessee s C.O. No.57/Ahd/2011 seeks to quash section 153C initiated by the Assessing Officer and upheld in the lower appellate order. Last assessment year is 2008-09. First comes assessee s appeal IT(SS)A no.03/Ahd/2011 inter alia assailing legality of section 153C proceedings and seeking to delete suppressed profits addition of ₹ 38,94,648/- on merits. The Revenue s cross appeal IT(SS)A No.91/Ahd/2011 is against the lower appellate order deleting suppressed profit addition of ₹ .....

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objections stand admitted for adjudication. 4. We called all these cases together for hearing. Learned representatives are in agreement that assessee s appals/cross objections raise a common fundamental question testing legality of initiation of impugned section 153C proceedings in the four impugned assessment years. They state that this legal question goes to root of the matter in all cases. We take up assessee s appeal IT(SS)A No.01/Ahd/2011 for assessment year 2005-06 as the lead case in thes .....

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e. The same culminated in issuance of section 153C notice dated 23.07.2009. The assessee filed return on 23.08.2009 stating income of ₹ 1,32,400/-. The Assessing Officer took up scrutiny. He inter alia noticed assessee s action of allegedly misusing client code facility and observed that the same resulted in suppression of income/profits of ₹ 63,26,507/- not offered in the books of account. This amount stood added as assessee s income in assessment order dated 29.12.2009. 6. The asse .....

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to hold that above stated incriminating material annexure-55, 64 to 65 belongs to assessee only thereby rejecting assessee s legal plea. 7. This leaves the assessee aggrieved. 8. Learned authorised representative opens up assessee s arguments. We are taken to the satisfaction note relevant for initiation of the impugned section 153C proceedings reading as under :- Satisfaction note to initiate proceeding u/s. 153C r.w.s.153A of the IT Act in the case of Mr. Shailesh R. Daxini A search u/s 132 of .....

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tion form of Mr. Sailesh R. Daxini in which relevant details have been provided by Sailesh R. Daxini including his signed photograph. This document has been signed by Sailesh R. Daxini at different pages. Page 76 to 83 are the copy of bank statement of Central Bank of India of Sailesh R. Daxini. Page 85 is the copy of PAN card of the assessee. From the above it is clear that the said documents belong to Shri Shailesh R. Daxini, for which I am satisfied. Further, annexure A-64 and A-65 are seized .....

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done by taking over loss of other persons as well as transferring their profit to other persons and thereby the assessee has evaded payment of taxes. This has resulted in escapement of income assessable to tax. From the above it is clear that the said documents belong to Mr. Shailesh R. Daxini for which I am satisfied. Therefore, in view of the provision of Sec.153C (1) r.w.s.153A of the I.T. Act I am satisfied that proceedings u/s.153C r.w.s, 153A is required to be initiated in this case. Acco .....

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sessee. It is further stated that the assessee filed RTI application as well seeking to confirm as to whether the Assessing Officer had recorded any satisfaction in case of the above stated searched assessee under section 153C. We are informed that the department has furnished the above extracted satisfaction only to have been entered for the purpose of initiating the impugned proceedings. The assessee accordingly contends that this course of action adopted by the Assessing Officer is not sustai .....

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E ACT. Assessee : Shri Upendra N. Patel, Shri Lalit M. Patel & Shri Champak M. Patel A search and seizure action in the Jayraj Group was carried out u/s.132 (1) on 19 12.2001. Certain incriminating documents pertaining to Shri Upendra N.Patel, Shri Lalit M.Patel & Shri Champak M.Patel has been seized, which have not been accounted for in his regular books of accounts. The seized documents show that Shri Lalit M.Patel and Shri Champak M.Patel have acquired rights in the landed property of .....

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unaccounted demand draft of ₹ 1 crore to the Court Receiver appointed by the Hon'ble High Court of Mumbai. Shri Jayesh Dave entered into a Court Settlement Decree on 30.09.2000 with Shri Upendra N.Patel, Shri Lalit M.Patel & Shri Champak M.Patel for ceding their rights in the land of M/s.HEMPL and they received 1,20,000 Sq.ft of land of M/s.HEMPL. The Sale Deed was executed in the name of Shri Upendra N.Patel only for ₹ 5.60 lacs only, which was much below the market rate. He .....

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SINHA) Dy. Commissioner of Income Tax Central Cir.1, Baroda. Date : 23.02.2004 8. The learned counsel for the assessee has challenged the validity of the initiation of the proceedings under Section 158BD mainly on two counts - (i) that the proceedings were initiated after completion of the assessment in the case of Jayaraj Group of cases and (ii) during the assessment proceedings of Jayraj Group no satisfaction was recorded by the AO of Jayaraj Group but reasons was recorded by the AO of the ass .....

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as the AO for Jayaraj Group of cases as well as the assessee. He also submitted that notice under Section 158BD was duly issued before the completion of the assessment under Section 158BC read with section 263, in the Jayraj Group of cases. 9. We have heard both the parties and perused the material placed before us. The provisions of section 158BD has been considered by the Hon ble Apex court in the case of Manish Maheshwari (supra). At Page No.348 of the report, Their Lordships held as under: T .....

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the conditions precedent wherefor are : (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 perso .....

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arious Courts and examined in detail the conditions which are to be satisfied before the issue of notice under Section 158BD. The Special Bench held as under: Section 158BD provides for assumption of jurisdiction to make a block assessment in the case of a person not searched and against whom no proceedings have been initiated. It cannot be said that such jurisdiction can be assumed without recording satisfaction. It has tote noted that the proceedings under section 158BC are against the person .....

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aid section states that if the Assessing Officer is satisfied that the undisclosed income belongs to the other person, then he shall hand over the seized material so as to enable the second Assessing Officer to make a block assessment in a similar manner and that is not possible if the satisfaction is not recorded. And this can be recorded only and only in the course of the section 158BC proceeding and nowhere else. It is the Assessing Officer assessing the person searched who goes, through the .....

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er the other person. All these findings have to be recorded after an honest appreciation of the seized material with an objective mind and there has to be a record reflecting such findings on the basis of which alone the other Assessing Officer can assume jurisdiction to proceed against the other person and it is this record which forms the 'note of satisfaction' or the 'record of satisfaction . In such circumstance, the recording of such satisfaction is impliedly to be done in the c .....

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fficer examining the material in the case of the person searched and he will have to find out whether there is any undisclosed income at all unearthed which again can only be in the course of such proceeding. After finding that there is undisclosed income, he will have to give a finding as to whether such income belongs to the person searched and this too has to be in the course of the said proceeding only. If he finds that any or all of such income belongs to a person not searched, then he has .....

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examine the facts of the assessee s case in the light of the above decision of the Hon ble Apex Court and the Special Bench of the ITAT. As per the decision of the Hon ble Apex Court, before the issue of notice under section 158BD, satisfaction must be recorded by the AO of the person searched, that the undisclosed income belongs to the person other than the person searched and then books of accounts or other documents seized has to be handed over to the AO of the person to whom the undisclosed .....

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we have reproduced the satisfaction note in para-7 above. 12. From the satisfaction note, it seems that it is recorded by the AO of the assessee and not the AO of Jayraj Group of cases. This inference of ours is on the following basis: i) Heading of the note is Reasons for issue of Notice u/s.158BD of the Act . Thus, it is the reasons recorded by the AO before the issue of notice under Section 158BD. Obviously, the reason is recorded by the AO who issued the notice under Section 158BD. It seems .....

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he assessee would have been Jayraj Group of cases and not as Shri Upendra N. Patel, Shri Lalit M. Patel & Shri Champak M. Patel. iii) In the first line of the satisfaction note, the AO has menioned the Search and seizure action in the Jayraj group of cases was carried out under Section 132(1) on 19-12-2001 . If the satisfaction note was recorded by the AO of Jayraj group of cases, he would have mentioned a search and seizure action has taken place in the case of the assessee. iv) At the end .....

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to Shri Upendra N. Patel, Shri Lalit M. Patel & Shri Champak M. Patel were found. The same are being forwarded to their AO for taking action under Section 158BD in their cases. In view of the above, we are of the opinion that the satisfaction was recorded by the AO of the assessee and not by the AO of the person searched. As per the decision of the Hon ble Apex Court in the case of Manish Maheshwari (supra) as well as Special Bench decision in the case of Majoj Aggarwal (suipra), the satisf .....

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t the order under Section 263 was passed with regard to some finding pertaining to undisclosed income of the assessee viz. Shri Lalit M. Patel. In the fresh assessment order passed in pursuance of Section 263 also there is no mention with regard to undisclosed income, if any belonged to Shri Lalit M. Patel. 14. In view of the totality of the above facts, we are of the opinion that the reasons recorded for issue of notice under Section 158BD by the AO of the assessee cannot be said to be valid sa .....

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ssued under section 158BD is also quashed. Learned authorised representative accordingly submits that the Assessing Officer has erred in taking recourse to above stated satisfaction note as the triggering point for initiation of section 153C proceedings under challenge. 10. We afforded ample opportunity to the learned departmental representative for defending legality of the impugned proceedings. These case files were part heard on 10.03.2016. We directed the Revenue to produce the relevant sati .....

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rdingly supposed to have all the relevant information as to in whose case the impugned incriminating material is to be used for the purpose of assessing undisclosed income based on the alleged incriminating material. Learned departmental representative files on record decision of another bench in ITA Nos.1832 to 1834/Kol/2014 in the case of KPC Medical College & Hospital vs. DCIT decided on 24.06.2015 observing as under :- 16. There is built-in fallacy in the arguments of the ld. counsel for .....

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th the fact of cash found during the course of search and buttressed by the Managing Director (Finance) of the KPC Group of companies, visualized that cash belonged to the assessee, he immediately took a piece of paper and recorded his satisfaction that the money belongs to the assessee, therefore notice under section 153C is to be issued in the case of assessee. The question is, where this paper was placed by him? Whether in the order sheet entries of Shri Bhaskar Ghosh s assessment proceedings .....

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t is placed in some other cupboard in his room by the AO then, there cannot be any satisfaction, we fail to appreciate that technical approach at the end of assessee. The law does not require the manner and the procedure of keeping the files. The section only requires that a satisfaction be recorded and it should be during the period propounded by Hon ble S.C. in Calcutta Knitwears, that has been recorded in the present case. It is available on page 74 of the Paper Book. The second scenario can .....

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satisfaction after noticing that both assessee s case files were on the same table as under :- 20. As far as the judgments relied upon by the ld. counsel for the assessee are concerned, we have considered them and they are distinguishable on facts. The emphasis of the ld. counsel for the assessee was on the decision of ITAT in the case of Tanvir Collections (P) Ltd. vs. ACIT 54 taxmann.com 379 (Delhi-Trib). In this case the ITAT has dealt with a similar situation, where the AO was happened to be .....

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us of this fact but we have dealt with the facts in the present case and observed that satisfaction was recorded by the AO while scrutinizing the papers of the searched person. It is very difficult to create a distinction to find out when such satisfaction was recorded when files of both the assessees are lying open upon the table of A.O. The ITAT, Delhi Bench had drawn inference on the basis of facts available in that case. It had not interpreted any provision. We have considered this aspect un .....

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ucted on 25.03.2008 in case of M/s. Kunvarji Commodities Brokers Pvt. Ltd. There is further no issue that the DCIT Central Circle 1(1) is the common assessing authority in case of both the assessees. The legal position envisaged under section 153C of the Act is very clear that the Assessing Officer of the searched assessee has to satisfy himself that any money, bullion, jewellery or other valuable articles etc. belongs to some other persons and not the searched assessee. This has to be followed .....

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f Manish Maheshwari vs. ACIT (2007) 289 ITR 341 (SC) holds that such a satisfaction is indeed mandatory. We deem it appropriate to observe that this case dealt with block assessment scheme under section 158BD of the Act as it existed in the erstwhile avatar under Chapter XIV-B of the Act. The same stands repealed by newly inserted sections 153A to 153C by the Finance Act 2003. It comes to our notice that the Central Board of Direct Taxes has issued its Circular No.24 of 2015 already accepting th .....

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observe in this factual and legal backdrop that an Assessing Officer has to mandatorily follow the above stated dual satisfaction exercise before initiating section 153C proceedings. We find that neither the jurisdictional tribunal s decision nor that of Kolkata bench (supra) deviate from this principle. The former deals with a situation wherein the department carried out a search in case M/s. Jairaj group, followed by Assessing Officer s action recording satisfaction forming basis for initiati .....

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le. It is therefore clear to us that there is no distinction on legal principle of the satisfaction precondition before initiation of section 153C proceedings in both these decisions. The latter decision is of the view that the timing of this satisfaction being recorded in case of searched assessee and third party is purely a factual issue. We deem it appropriate to observe that there is no mutual contradiction so far as ratio of these tribunal s decisions is concerned. 13. We take note of our d .....

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tled law. The Revenue on the other hand makes out a case that the Assessing Officer s satisfaction has come only after careful examination of the above stated incriminating material being examined together in the cases of M/s. Kunvarji as well as the assessee. We find no reason to agree with this contention. As observed by the learned co-ordinate bench in Lalit Kumar M. Patel s case, the Assessing Officer in the impugned satisfaction mentions only assessee s name on top of the satisfaction note .....

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