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2016 (5) TMI 1127 - ITAT AGRA

2016 (5) TMI 1127 - ITAT AGRA - TMI - Validity of assessment under section 153C - addition made under section 69A on account of unexplained gift received by the assessee - Held that:- In the absence of the recording of satisfaction by the AO of the searched person before initiating proceedings against third person u/s 153C, the condition of section 153C has not been satisfied in the present case and there is no jurisdiction to sustain the proceeding under section 153C initiated by the authoritie .....

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Mehrotra A. M. Both the appeals filed by the assessee are against separate orders of Ld. CIT(A)-I Agra dt. 15/02/2013 for the assessment year 2002-03 & 2003-04. 2. In both the appeals the assessee has challenged the initiation of proceedings under section 153C of the Act, as no paper, documents or any adverse material relating to the impugned Assessment Year were found during search . The assessee has also on merits challenged the order of the Ld. CIT(A) in confirming the addition of ₹ .....

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section 153C read with section 153A were initiated in the case of the assessee on 02/07/2009 and assessment completed under section 153A read with section 143(3) after making addition on account of income from House Property amounting to ₹ 77,433/- and income under section 69A of ₹ 1,00,000/-to the returned income of the assessee of ₹ 1,75,900/- in Assessment year 2002-03 and addition of ₹ 77,433/- on account of Income from House Property and ₹ 4,98,551/- u/s 69A of .....

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rces and the search was conducted at the Residence 92-Surya,Nagar Agra and the Panchnama was issued in the name of her husband, father-in-law and brothers of her husband. No adverse or incriminating material relating to her was found as a result of search, which could be made the basis for the Assessing Officer to have satisfaction that any income relating to the assessee had been unearthed during search. The assessee further pleaded that no satisfaction had been recorded for initiating proceedi .....

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e search and declared the same in her return of income for AY 2008-09. The Ld. CIT(A) further held that the assessing officer who assessed the persons searched and found the cash and jewellery belonging to the assessee was the same Assessing Officer who assessed the assessee also and therefore the satisfaction cannot be questioned in this case. Ld. CIT(A) therefore held that the AO being satisfied was legally bound to proceed against the assessee and issue notice to assessee or reassess her inco .....

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Vs. Rajesh Javeri Stock Brokers pvt. Ltd. (2007) 161 Taxman 316 (SC) and therefore the issue of regular assessment for the impugned year had not reached finality. Therefore the Ld. CIT(A) held that the assessment or reassessment of the total income of the assessee for the impugned AY could be done as per the first proviso to section 153A(1)dealing with all matters including those issues also which relate to regular assessment and material, evidences etc. found during search relating to undisclos .....

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de under section 69A. 4. Aggrieved by the same the assessee filed the present appeal before us. 5. Ground No. 1 raised by the assessee is against the validity of proceedings under section 153C. Ld. AR reiterated the submissions made before the Ld. CIT(A) below and submitted that no search had been conducted in the case of the assessee under section 132 of the Act and therefore the proceedings have been conducted under section 153C of the Act. Ld. AR submitted that since no incriminating material .....

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bad in law. Further the ld. AR drew our attention to the order passed by Hon ble ITAT , Agra in the case of the assessee in succeeding four years i.e; 2004-05 to 2007-08 wherein it was held that the conditions of section 153C had not been satisfied and for this reason the orders had been set aside and the proceedings under section 153C had been quashed vide order dt. 31/05/2013. During the course of hearing before us, the Ld. DR was asked to file satisfaction note of the AO. Further time was ex .....

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he present case have been conducted under section 153C of the Act. It has also been admitted before us that there was no satisfaction recorded by the AO before initiating proceedings under section 153C of the Act. The Ld. DR contended that the AO of the searched person was not required to record any satisfaction since the searched person and the assessee were assessed by the same officer. We find no merit in the contention of the Revenue. The recording of satisfaction by the AO of the searched p .....

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ch person if he is satisfied that these materials have a bearing on the determination of the total income of such person for the years or years mentioned in section 153A. The satisfaction of the AO of the searched person is significant since it has sever consequences on the third person. Therefore courts have held that satisfaction should be recorded by the AO in writing. It is thus not only that the AO of the searched persons should be satisfied but the satisfaction should be recorded in writin .....

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i Apartments (2014) 365 ITR 411(All) has extensively dealt with this issue, and has held that initiation of proceedings against a third person u/s 153C is dependent upon a satisfaction being recorded in writing by the AO of the searched person, even if the AO of both are the same. The Hon ble High Court held at para 25-30 & 33-36 of its order as follows : 25. A bare perusal of the provision contained in section 153C of the Income- Tax Act leaves no doubt that, as is provided under section 15 .....

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nded over to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. 26. Thus, there are two stages: (1) The first stage comprises a search and seizure operation under section 132 or proceeding under section 132A against a person, who may be referred addition the searched perso .....

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ents, etc., are to be handed over to the Assessing Officer having jurisdiction over such other person . (2) The second stage commences from the recording of such satisfaction by the Assessing Officer of the searched person followed by handing over of all the requisite documents, etc., to the Assessing Officer of such other person , thereafter followed by issuance of the notice of the proceedings under section 153C read with section 153A against such other person . 27. The initiation of proceedin .....

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is required, the recording of satisfaction is a must, as, that is the foundation, upon which the subsequent proceedings against the other person are initiated. The handing over of documents, etc., in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory. 29. In this regard, the ratio of the judgment of the Supreme Court in the case of CIT vs. Calcutta Knitwears (supra), as noted above, clearly applies to the proceedings un .....

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finding recorded on the foundation of the material available. In this regard, reference may be made to the pronouncements in the case of CIT v. Radhey Shyam Bansal [2011] 337 ITR 217 (Delhi) and the Division Bench judgment of this court in the case of CIT vs. Classic Enterprises [2013] 358 ITR 465 (All). 33. In the instant case, a categorical finding has been recorded by the Commissioner of Income-tax(Appeals) and the Income-tax Appellate Tribunal that there is no material showing the recording .....

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satisfaction alleged to be recorded by the Assessing Officer was not available. 34. In view of the legal position, as already discussed above and the admitted factual position as aforesaid, we are unable to accept the contentions of Sri Agrawal. 35. We are also of the view that the plea, which is being raised in this appeal, was not raised in the grounds of appeal before the Income-tax Appellate Tribunal, however, even otherwise such plea does not have any merit. 36. The contention of Sri Agrawa .....

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is a machinery provision has interpreted the same. In the light of the interpretation given by it and in view of the ratio laid down therein, the contention of Sri Agrawal does not hold ground. A clear and plain reading of section 153C leaves no doubt that recording of satisfaction by the Assessing Officer of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched). Moreover we find that on identical set of facts the Hon ble IT .....

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153C of the IT Act making addition of ₹ 77,433/- on account of determination of Annual Letting Value u/s 23(4) of the IT Act of the property at 7% of investments. The determination of Annual Letting Value is only on notional basis and for that, no incriminating material was found against the assessee. No material is produced before us to prove that the AO in the case of person searched was satisfied that any money, bullion, jewellery or other valuable articles or things or books of account .....

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ld. DR did not produce any satisfaction note u/s. 153C or any material before us to show if any such satisfaction as required u/s. 153C was recorded by the AO in the case of person searched. No material is produced in reference to the above requirement. No material is also produced before us to show that the books of account or documents or assets seized had been handed over to the AO having jurisdiction over such other person. In the absence of any material produced before us, we find the cont .....

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nual Letting Value was determined. Therefore, conditions of section 153C as noted above are not satisfied in this case. Considering the above discussion in the light of our order in the case of M/s. Global Estates (supra), we do not find any justification to sustain the proceedings u/s.153C initiated by the authorities below against the assessee. We, accordingly, set aside the orders of the authorities below and quash the proceedings u/s 153C of the IT Act. Therefore, all the additions made in t .....

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recording of satisfaction note u/s 153C/158BD to be withdrawn / not pressed. The CBDT Circular No. 24/2015 dt. 31/12/2015 is reproduced hereunder: 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 satisfaction note under section 158BD/153C of the Act - reg. The issue of recording of satisfaction for the purposes of section 158BD/I53C has been sub .....

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held that "the satisfaction note could be prepared at any of the following stages: (a) at the lime 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. " 3. Several high Courts have held that the provisions of section 153C of .....

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