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M/s Bermaco Energy Ltd. Versus The Dy. Commissioner of Income Tax, CC-47, Mumbai

Assessment u/s 153C r.w.s. 143(3) - assessment framed not based on any incriminating material/document - Held that:- Notice u/s 143(2) became time barred as on 30.11.2007, whereas search took place much later on 31.10-2009. Therefore, it follows that as on the date of search, there was no pending assessment. Subsequently, the A.O. initiated proceedings under s. 153A and in the assessment completed under s. 143(3) r.w.s 153A without any incriminating material found during the course of search and .....

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or in the balance sheet for the year ending 31-03-2006 is disclosed in the return of income as evidence by the audited accounts and which has not been abated, the amount of loan cannot be added. Accordingly, we reverse the orders of CIT(A) as well as that of the AO and delete the addition made by the AO. This jurisdictional issue of the assessee’s appeal is allowed. - ITA No. 4309/Mum/2014 - Dated:- 13-9-2017 - SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Shri JP Bai .....

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ion of the AO in issuing notice under section 153C and completing assessment u/s 153C r.w.s. 143(3) of the Act and not holding the same as bad in law even though the assessment framed is not based on any incriminating material/document. The assessee has also raised the issue of satisfaction. For this assessee has raised following ground No. 1 to 3: - 1. The learned CIT(A) has erred in law and in facts in not holding that the notice issued u/s. 153C and the consequential assessment are bad in law .....

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and residential premises of M/s Flemingo and Bermaco group of companies as well as their directors on 31-10-2009. During the course of search unaccounted cash, incriminating documents, assets etc. were found and seized. The assessee is one of the group companies and consequent to search and seizure action, a notice under section 153C of the Act was issued on 12-04-2010. The notice under section 153C of the Act was issued for the reason that incriminating material relating to assessee was found d .....

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ent has not abated in term of second proviso to section 153C of the Act. The assessee along with original return of income filed complete audited accounts wherein the unsecured loan of ₹ 1.50 crore is clearly depicted. The AO during the course of assessment proceedings under section 153C r.w.s. 143(2) of the Act required the assessee to explain the unsecured loans and in the absence of explanation he added the same as unexplained cash credits under section 68 of the Act. Aggrieved, assesse .....

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by the appellant during the hearing proceedings and the rejoinder to the remand report. In this group of cases, a search & seizure action u/s.132(1) of the Act was carried out on 31.10.2009 and Shri Viren Ahuja who is the promoter director of the group had admitted undisclosed income u/s.132(4) of the Act. Appellant is a closely connected case wherein the affairs of the appellant are also controlled and managed by Shri Viren Ahuja. Since the case of the appellant was also centralized along .....

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the A.O having jurisdiction over such other person and that A.O shall proceed against such other person and issue notices to such other person so as to assess or reassess income of such other person in accordance with the provisions of section 153A of the Act. The books of account and documents seized in this group are in the custody of the same officer who has jurisdiction over the persons subjected to search & seizure proceedings and also over the appellant against whom proceedings uls.153 .....

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prima facie decision to initiate proceedings u/s 153C of the Act. Initiation of proceedings u/s.153C of the Act is only the first step in the process of enquiry to establish any undisclosed income attributable to any other person referred to in section 153C of the Act. In this case, the A.O has followed the due process of enquiry and investigation and the conclusions arrived at are supported by the findings in the assessment order. 7.1 Quantification of undisclosed income or discovery of undisc .....

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ch. Whereas in this case, seized material such as trial balance, profit and loss account, balance sheet, details of unsecured loan, ledger account in the books of account of MJs.Bermaco Energy Ltd. etc. cannot be said to be only pertaining and not belonging to the appellant The appellant is the owner of the books of account and the document seized and therefore, the said books of account and the document belong to it. The appellant's books of account and document and the loose sheets belongi .....

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been seized and are handed over to the A.O In this case, the A.O of 153A person and the A of 153C person are one and the same. It is also seen that the A 0 has duly recorded reasons for arriving at his satisfaction to show that the above books of account and documents belong to the appellant. At this stage, it is sufficient that the A.O merely records satisfaction with reference to the ownership of the books of account / documents and there is no need for him to establish that the books of acco .....

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ionale behind the issue of notice u/s. 1 53C of the Act have been described in detail in the case of SSP Aviation Ltd. referred supra which is reproduced as under: The judgment of this court in Saraya Industries Ltd. (2008) 306 ITR 189 (Delhi) was relied upon by Mr. Bajpai, in support of his contention that the seizure of the document must be of such nature that even closed assessments for six years could be reopened and this requirement postulates that the provisions of Section 153C can be set .....

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of the appropriate person S It is aimed at ensuring that income does not escape assessment in the hands of any other person merely because he has not been searched under Section 132 of the Act. It is only a first step to the enquiry, which is to follow. The Assessing Officer who has reached the satisfaction that the document relates to a person other than the searched person can do nothing except to forward the document to the Assessing Officer having jurisdiction over the other person and there .....

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document has been accounted for, additions will be accordingly made after following the procedure prescribed by law and after giving adequate opportunity of being heard to such other person. That, in sum and substance, is the position. It will be seen that whereas section 1588D refers to the satisfaction of the Assessing Officer that any gundisclosed income belongs to any person other than the searched person. section 153C(1) in contrast refers merely to the satisfaction of the Assessing Office .....

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ich according to the satisfaction reached by the Assessing Officer, belongs to a person other than the searched person. It is necessary to notice the difference between the two provisions in order to deal with the contention put forward by the learned counsel for the petitioner that the seizure itself is invalid or illegal on the ground that there could not have been any satisfaction before issuing the warrant of authorization under section 132 of the Act that the petitioner had earned undisclos .....

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lization and audit of accounts was after the date of the search. The accounts for the year ended March 31, 2009, now relied upon by the petitioner, were finalized after the search on January 5, 2009. Seizure has to be judged in the perspective and the facts known and within the knowledge when it was made. On that date, the Revenue was riot in a position to know whether any income from the transaction had been disclosed by the petitioner in its books of account for the year ended March 31, 2009. .....

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is seized, which does not belong to the searched person but is seen to belong to any other person, the procedure stated therein should be followed. Therefore, nothing is to be gained from saying that the pre-conditions mentioned in clauses (a), (b) and (c) of subsection (1) of section 132 have not been satisfied vis-a-vis the petitioner so as to confer legality upon the seizure of the documents in question. In our opinion, it is not necessary for the Revenue authorities to have masons to believ .....

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hed person reaches the satisfaction that the document belongs to a person other than the searched person, it is not necessary for him to also reach a firm conclusion/opinion that the document shows undisclosed income belonging to such other person. That is a matter for enquiry, which is to be conducted in the manner prescribed by section 153C. The fact that the procedure envisaged by section 153C is somewhat cumbersome and that the person other than the searched person is put to some inconvenien .....

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of assessment records, it is seen that the satisfaction note in this case is a separate loose sheet and it is kept in a separate folder including the satisfaction note of other cases in the group. I am of the opinion that it does not matter whether the satisfaction note is kept in a separate folder or in the assessment records of the searched person. It is learnt from the A.O that since joint warrant of authorization was issued in the case of 153A persons, there was difficulty in choosing a par .....

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books of account is not genuine and this lead the A.O to raise a question regarding the genuineness of the same in terms of section 68 of the Act. In the light of the above factual information and the other materials in possession of the A.O, it is hereby held that initiation of proceedings u/s.153C of the Act and assuming the jurisdiction by the NO in terms of section 153C of the Act in respect of the appellant are valid. Accordingly, the ground nos.1 & 3 are hereby dismissed. Aggrieved, a .....

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nexplained cash credit of ₹ 1.50 crores and that information was also noted by the AO from the audited accounts of the assessee and the addition is not based on any incriminating material found during the course of search. The learned Counsel for the assessee stated that the assessment for AY 2006-07 was completed and no assessment has been abated as the period for issuance of notice under section 143(2) elapsed on 30-09-2007 whereas, search took place on 31-10-2009. The learned Counsel fo .....

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ai-74) in which all pages belongs to the assessee i.e. M/s Bermaco Energy Ltd. Apart from this in annexure No. A-21 page No.1 to 5 as ledger accounts in the books of the assessee. These documents belongs to the assessee and this evident from documents (for sample some of the copies are attached). Further, the undersign is attaching the copy of the satisfaction note recoded by the AO to initiate search assessment proceedings under section 153 read with section 143(3) of the Act. 5. The learned Co .....

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Mumbai. The assessee was connected with the Flemingo/Bermaco Group of cases arid the directors who were covered u/s. 153A of the search company were also involved in the above company. Further during the course of search action the following incriminating documents were found and seized which had great bearing in the assessments covered u/s. 153A of the Bermaco Group Companies. 1) Annexure A/15 :- This annexure contains 16 pages containing final accounts of M/s. Bermaco Energy Ltd. 2) Annexure .....

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bai 6. The learned Counsel for the assessee after reading these documents referred to page 82 to 104 wherein 16 loose papers was seized by the departments and which pertains to AY 2009-10 but this particular loan of IFSL Limited of ₹ 1.50 crores pertain to AY 2006-07. Actually, according to the learned Counsel, this loan is carry forward from AY 2006-07 and no seized document relating to AY 2006-07 was seized by the Revenue. According to him, it means that no seized material pertain to AY .....

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ord and also copy of ROC return filed on 31-03-2011 which is enclosed at pages 67 to 69 of assessee s paper book. The learned Counsel for the assessee argued that web report of ROC clearly reveals that the IFSL has filed its return for FY 2008-09 which was revised on 07-09-2012 and IFSL has filed its Form No. of 23ACA for FY ending 31-03-2011. Even the permanent account No. of the IFSL given by the assessee i.e. AAACI4383H. The learned Counsel for the assessee in view of the above facts argued t .....

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nal jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of six assessment years separately. It was further held that in cases of abated assessment where addition to income that has already been assessed, assessment u/s 153A or 153C of the Act will be made on the basis of incriminating material i.e. books of account, other documents, assets etc. found in the course of search but not produced in the course of original assessment or undisclose .....

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f this, the learned CIT DR stated that on the basis of assumption of jurisdiction, the AO rightly framed the assessment based on incriminating material under section 153C of the Act. The AO has rightly assumed jurisdiction on the basis of incriminating material even during the course of search, he argued. 8. We have heard the rival contentions and gone through the facts and circumstances of the case. The above facts are undisputed that the Revenue has seized the alleged incriminating material co .....

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papers of trial balance including copy of accounts of various parties for the AY 2008-09. These papers are actually tallied and compared with the books of account by the assessee and by the AO and found nothing incriminating in the same, rather the addition is based on the audited accounts of the assessee which is already enclosed in the regular return of income of the assessee and assessment for the same has already attained finality. In view of these facts, we are of the view that these paper .....

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. (supra), wherein considering the judgment of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics 137 ITD 287(SB) (Mum), considered this issue that, whether there is scope of assessment u/s. 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? Hon'ble High Court held that on a plain reading of section 153 of the Act it becomes clear that on initiation of .....

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edings pending in appeal, revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal, revision or rectification pending against final assessments would not abate. Therefore, Hon'ble High Court rejected the arguments of the Revenue that on initiation of proceedings u/s. 153A of the Act, the reassessment final for assessment years covered u/s. 153A of the Act stands abated. Only the pending assessments get re .....

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s as under: - 31. We, therefore, hold that the Special Bench's understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under:- The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiat .....

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e 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. Thes .....

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t no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is .....

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ined in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other. Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under subsection (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment .....

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not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search. The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a per .....

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ch would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word incriminating document . Clauses (a) and (b) of section 132(1) employ the words books of account or other documents . For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account. Havin .....

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vision in 153A as it exists and read it alongside the provision contained in section 132(1). The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is shall and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess t .....

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also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B. The q .....

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ssment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: - a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the bas .....

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