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2016 (11) TMI 530 - ITAT BANGALORE

2016 (11) TMI 530 - ITAT BANGALORE - TMI - Validity of assessment u/s 153C - absence of satisfaction - Held that:- No satisfaction was recorded by the AO in his capacity as AO of the searched person because it is seen that the so-called satisfaction note prepared by the AO is in his capacity as AO of assessee, although he happens to be the AO of the searched persons also, it could not be shown by the revenue that any satisfaction note was prepared by him as AO of searched persons and therefore, .....

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mber Appellant by : Shri Mayank Jain & Madhur Jain, Advocates Respondent by : Ms. Neera Malhotra, CIT(DR) & Shri S. Praveen S., DCIT, CC, 1(3) ORDER Per Bench All these 7 appeals are filed by the assessee which are directed against a combined order of ld. CIT(Appeals)-VI, Bangalore dated 25.8.2014 for the assessment years 2005-06 to 2011-12. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. Apart from raising vario .....

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per the provisions of section 153C of the I.T. Act, the AO of the searched person has to record satisfaction and only after that, the AO of any other person can initiate proceedings u/s. 153C against such other person. In support of this contention, he placed reliance on the Tribunal s order rendered in the case of Shri Vinod Kumar Chaurasia v. ACIT in ITA No.245 to 251/LKW/2012 dated 10.12.2014. He submitted a copy of this Tribunal s order and pointed out that in this order, the Tribunal has co .....

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uka is same i.e., Shri Shivanand H Kalakeri, DCIT, Central Circle 1(3), Bangalore and as per the satisfaction note enclosed with the written submissions, a satisfaction was recorded on 14.12.2012 by the same AO and therefore, the requirements of section 153C are satisfied and there is no infirmity in assuming of jurisdiction u/s. 153C by the AO of the assessee. He also submitted that copy of assessment order in both those cases of searched persons is also enclosed with the said written submissio .....

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an Reddy was found on the basis of which satisfaction was recorded for initiating proceedings U/S 153C in the case of the assessee. On perusal of the order sheet recording satisfaction note before issuance of notice u/s 153C of the I.T Act for A.Ys 205-06 to 2011-12, it is noted that the following premises were covered u/s 132 of the LT Act: (a) Shri K. Raghavacharyalu, at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. (b) Smt. G.Renuka, at "Rishikes", No.36, Goldsmith Stree .....

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A which are brought into statute w.e.f 1-6-2003. 2. Secondly, the facts in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) are different from that of the assessee as the officer of the person covered under provisions of Section 158BC was different from the officer of the person covered under provisions of Section 158BD and therefore the issue of "transmission of records" (refer Para 39) came up before the Hon'ble Court and consequently the issue of the "who shoul .....

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e case of the assesse for the following reasons: (i) as the assessments of the assessee are completed under different provisions of the statute as they which relate to the new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. (ii) The assessing officer of the person covered under provisions of Section 153 A is the same as the officer of the person covered under provisions of Section 153C and ,therefore, there is NO issue of " .....

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n 153BC being the same as the officer of the person covered under provisions of Section 153 BD is not examined by the Hon'ble Supreme Court in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). (v) It is humbly submitted that judgments must be read as a whole and observations in judgments should be considered in the context in which they are made and in the light of questions that were before the court. In CIT v. Sun Engineering Works Pvt. Ltd.(198 ITR 297) the Supreme Court obse .....

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rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. This has been reiterated by the Hon'ble Supreme Court in its decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). 4. Therefore, in view of the fact that assessing officer of the person covered under provisions of Section 153 A being the same as the officer of the person covered under provisions of Section 153 C and the assessing officer hav .....

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o 2010-11) A search u/s. 132 was conducted on 25/10/2010 in the case of Mr K. Raghvacharyulu at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. During the course of the search, following documents/books of account belonging to Sri Gali Janardhana Reddy were seized and the contents are explained in brief as below- RB/1 Page No.2 This page contains application filed by Mr G Janardhana Reddy before the Returning Officer while contesting for the election to the Member of Legislative Counci .....

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case of Smt G Renuka at 'Rishikesh' #36, Goldsmith Street, Bellary on 25-10-2010. During the course of the search, following documents/books of account belonging to Sri Gali Janardhana Reddy were seized and the contents are explained in brief as below- RN/1 Pages 179-181. These pages contain trial balance of Gali Janardhana Reddy for F.Y.2009-10. RN/1 Pages 184-185. These pages contain trial balance of Gali Janardhana Reddy for F.Y.2009-10 RN/1 Pages 129 to 139. These pages contain sale .....

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14.12.2012 Central Circle 1(3), Bangalore." 7. We find that as per satisfaction note dated 14.12.2012, satisfaction note has been recorded by Shri Shivanand H. Kalakeri, DCIT, Central Circle 1(3), Bangalore and as per the copy of the two assessment orders for AY 2005-06 u/s. 153A dated 27.3.2013 and 30.3.2013 in the case of Shri K. Raghavacharyalu and Smt. G. Renuka respectively, the AO is the same person with the same designation and hence, this is the admitted position that the AO of asse .....

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ssee and not in his capacity as AO of searched persons, because if satisfaction note is recorded by the AO of the searched person, it cannot be said in the said satisfaction note that Issue notice u/s. 153C of the Income-tax Act , because such notice u/s. 153C of the Act is not required to be issued in the case of searched person, but in the case of the other person i.e., the present assessee. In our considered opinion, even if the AO of assessee and the searched person is one and the same, then .....

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Tribunal rendered in the case of CIT v. M/s. Gopi Apartment in ITA No.60 of 2014. The relevant portion of the judgment of the Hon ble Allahabad High Court rendered in the case of CIT v. M/s. Gopi Apartment has been reproduced by the Tribunal in that case on pages 5 & 6 of that order and the same is reproduced hereinbelow for the sake of ready reference:- 5. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, we f .....

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ng the course of hearing, various opportunities were afforded to the Revenue to place some evidence in order to demonstrate that before initiating proceedings under section 153C of the Act against the assessee, satisfaction was recorded by the Assessing Officer of the searched person that incriminating material found during the course of search in fact relate to the assessee. But nothing has been placed on record by the Revenue. Moreover, from the orders of the lower authorities, it is apparent .....

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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). The relevant observations of the jurisdictional High Court are extracted hereunder:- "We have heard Sri Bharat Ji Agrawal, learned senior counsel assisted by Sri Ashok Kumar, learned counsel for appellant and Sri Ashish Bansal, learned counsel for res .....

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. The satisfaction subsequently recorded in the assessment order in respect of the 'other person' was sufficient compliance of provisions of Section 153C, which, in any case, was procedural in nature. The A.O. of both the proceedings, being the same, he was neither required to handover the documents to another Assessing Officer nor he had to record any satisfaction for the purpose of any other Assessing Officer since same Assessing Officer of the same designation is having jurisdiction o .....

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ds of Gopi Apartments. Sri Agrawal also contended that by the Finance Act, 2003, Amendment in Section 153A w.e.f. 01.06.2003 was made and Sections 153A and 153C were added in place of Sections 153BC and 153BD. Section 158BC is equivalent to Section 153A and Section 158BD is equivalent to Section 153C. He also contended that the reliance placed by the I.T.A.T. upon the judgment of the Supreme Court in Manish Maheshwari (supra) was misplaced and the case, at hand, was squarely covered by the Divis .....

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tion was recorded by the Assessing Officer of the 'searched person' prior to initiation of such proceedings against respondent assessee as was mandatory. He invited the attention of the court to the specific finding recorded by the learned C.I.T. (Appeals), as upheld by the I.T.A.T., based on the admission by the A.O. before it, which has already been taken note of by us in the earlier part of the judgment. Sri Bansal relied upon a recent judgment of the Apex Court in the case of Commiss .....

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tanding 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 shall be handed over to the Assessing Officer having jurisdiction o .....

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reads as under: "158BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall pro .....

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alls for our consideration and decision in all these appeals is: at what stage of the proceedings under Chapter XIV-B does the assessing authority require to record his satisfaction for issuing a notice under Section 158BD of the Income Tax Act, 1961 ('the Act' for short)." After considering the rival contentions, relevant provisions of the Income Tax Act and the authorities on the subject, their Lordships held as under: "41. We would certainly say that before initiating procee .....

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he 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 dur .....

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ssessing 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. 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 officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the foll .....

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er Section 158BD of the Act, therefore, the Tribunal and the High Court were justified in setting aside the orders of assessment and the orders passed by the first appellate authority. We do not intend to examine the aforesaid contention canvassed by the learned counsel since we are remanding the matters to the High Court for consideration of the individual cases herein in light of the observations made by us on the scope and possible interpretation of Section 158BD of the Act. 46. With these ob .....

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e perusal of the provision contained in Section 153C of the I.T. Act leaves no doubt that, as is provided under Section 158BD, where the Assessing Officer, while proceeding under Section 153A against a person who has been subjected to search and seizure under Section 132(1) or has been proceeded under Section 132A, 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 th .....

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under Section 132 or proceeding under Section 132A against a person, who may be referred as 'the searched person'. Based on such search and seizure, assessment proceedings are initiated against the 'searched person' under Section 153A. At the time of initiation of such proceedings against the 'searched person' or during the assessment proceedings against him or even after the completion of the assessment proceedings against him, the Assessing Officer of such a 'searc .....

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9;, thereafter followed by issuance of the notice of the proceedings under Section 153C read with section 153A against such 'other person'. The initiation of proceedings against 'such other person' are dependant upon a satisfaction being recorded. Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the 'searched person', or even during the assessment proceedings against him or even after completion of the same, but bef .....

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is still required and in fact it is mandatory. In this regard, the ratio of the judgment of the Supreme Court in the case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana (supra), as noted above, clearly applies to the proceedings under Section 153C also. The 'satisfaction' has to be in writing and can be gathered from the assessment order passed in respect of the 'searched person', if it is so mentioned/ recorded or from any other order, note or record mai .....

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ion Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises reported in (2013) 358 ITR 465 (Allahabad). In the case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax and another, (2007) 289 ITR 341 (SC) , their Lordships had the occasion to consider the provisions of Sections 158BC and 158BD and held that the conditions precedent for taking recourse to a block assessment in terms of Section 158BC and 158BD (i) were as under: "(i) Satisfaction must be recorded .....

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, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act." The ratio of the judgment in Manish Maheshwari's case also applies to the provisions of Section 153C and to the facts of this case. In the instant case, a categorical finding has been recorded by the C.I.T. (Appeals) and the I.T .....

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ation, recording of such satisfaction alleged to be recorded by the Assessing Officer was not available. 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. We are also of the view that plea, which is being raised in this appeal, was not raised in the grounds of appeal before the I.T.A.T., however, even otherwise such plea does not have any merit. The contention of Sri Agrawal that Secti .....

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chinery 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). A specific query was put to Sri Agrawal as to whether, on the basis of .....

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C.I.T. Vs. Classic Enterprises (supra) far from helping his cause goes against him. We have already relied upon the said judgment to explain the concept of 'satisfaction' under Section 153C, which is required to be recorded in writing. However, on the other issues, the said judgment is distinguishable for the reason that in the said case, the Assessing Officer had recorded his 'satisfaction' and after recording the satisfaction on the subject matter on 02.08.2006 handed over the .....

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iating proceedings under section 153C of the Act against the assessee and the impugned issue is squarely covered by the aforesaid judgment of the jurisdictional High Court. We, therefore, have no hesitation in holding that since the assessment was framed consequent to the proceedings initiated under section 153C of the Act, without recording satisfaction by the Assessing Officer of the searched person, the assessment is bad in law and deserves to be quashed. We accordingly set aside the order of .....

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