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Adarsh Kumar Versus DCIT, Central Circle-19, New Delhi

2017 (11) TMI 909 - ITAT DELHI

Notice issued under section 153C - “satisfaction note” has not been recorded by the AO in his capacity as AO of the “searched person” - whether there is no satisfaction that documents “belonging to” the assessee were found? - Held that:- Assessing Officer in the capacity of the searched person only examines the records seized and come to the conclusion as to which of the such money, bullion jewellery or documents belongs to the searched person and to the others. The legislature has provided for .....

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s advanced by the Revenue are rejected. We further find that the Central Board of Direct Taxes (CBDT), who is the Apex Body controlling the Administration of the Income Tax Department, in the aforesaid Circular has clearly directed the officers of the Department either not to file appeals or to withdraw the appeals where satisfaction note is not recorded by the Assessing Officer in the capacity of searched person. In such circumstances, advancing of above arguments are futile and wastage of reso .....

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r person” can be the basis for initiation of proceedings u/s 153C of the Act. - We quash the proceeding initiated under section 153C of the Act on the ground that satisfaction note was not recorded by the Assessing Officer in the capacity of Assessing Officer of searched person and in any case since there is no satisfaction recorded of any seized documents being “belonging to” the assessee, hence, the other grounds on merits challenging the additions have become academic, which do not requi .....

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-10, 2010-11 & 2011-12 respectively. The issues involved in these appeals are common and identical and therefore, these were heard together and adjudicated by this consolidated order for the sale of convenience and brevity, by dealing with assessment year 2009-10 on the following common grounds, except the difference in the figures. 1. On the facts and circumstances of the case and in law, the notice under section 153C issued in this case is illegal and without jurisdiction and Commissioner .....

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d cash salary. The appellant craves leave to add one or more ground of appeal or to alter / modify the existing ground before or at the time of hearing of appeal. The aforesaid grounds are without prejudice to each other. 2. The brief facts of the case are that the assessee is an individual who during the year under consideration derived income from salary , house property and other sources . A search and seizure operation u/s. 132 of the Income Tax Act, 1961 was conducted by the Investigation W .....

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sh. Aggrieved with the assessment order, the assessee filed appeal before Ld. Commissioner of Income Tax(A) and challenged the validity of the proceedings u/s 153C of the Act as well as the additions made by the AO. The Ld. CIT(A) vide his order dated 09.06.2015 has dismissed the ground of the assessee related to the validity of proceedings u/s. 153C of the Act. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. 3. In the ground No.1, the assessee has challeng .....

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ents thereof are reproduced as under :- Search and seizure operation u/s 132(1) of Income Tax Act, 1961 was carried out in the cases of iEnergizer IT Services Pvt. Ltd., iServices Pvt. Ltd., Granada Services Pvt. Ltd and ienergizer India Pvt. Ltd. on 22.03.2012. On the basis of this search, proceedings u/s 153C of Income Tax Act, 1961, were initiated against the appellant by issue of notice dated 26.11.2013 u/s 153C on the basis of a satisfaction note dated 26.11.2013 itself. The notice issued u .....

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action that document (s) belonging to the assessee was found and seized during the course of search. 3. That there has been no handing over of the seized documents as required u/s 153C before initiation of proceedings under that section. The brief arguments in respect of each of the above broad heads is being given hereunder :- 1. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no satisfaction as required u/s 153C of the Act has been recorded by the assessing officer of .....

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cer in his capacity as assessing officer of searched person . In the absence of such satisfaction, the proceedings initiated u/s 153C are without jurisdiction. In the appellant s case, the so called satisfaction note has been recorded by the assessing officer in his capacity as assessing officer of the assessee (i.e. a person other than a searched person) and not in his capacity as assessing officer of a searched person. This is evident from the following :- I. In the satisfaction note, it has n .....

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person other than the searched person. The A.O. of the searched person is not empowered to issue notice u/s 153C or to give direction for issue of notice u/s 153C. This authority of issue / giving direction for issue of notice u/s 153C lies solely with the assessing officer of the other person . As can be seen from the last line of the so called satisfaction note the A.O. has mentioned that _ Quote _ _ _ Therefore, to assess undisclosed income of Sh.Adarsh Aggarwal proceedings u/s 153C of the In .....

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sessment and who can issue / give direction for issue of notice u/s 153C as has been given in the satisfaction note. 1.1 This issue is no more res-integra. There are now plethora of judgments where it has been held that satisfaction note u/s 153C has to be mandatorily recorded by the assessing officer of the searched person (even when the A.O. of the searched person and the A.O. of the other person happens to be the same). Some of the judgments are as under :- Pr. CIT v Aakash Arogya Mandir Pvt. .....

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sfaction was recorded by the assessing officer of the searched person. Thereafter, the revenue went in appeal before the Hon ble High Court of Delhi ( P. R. Commissioner of Income Tax, Central-II) vs. Aakash Arogya Mandir Pvt. Ltd.) wherein the Hon ble High Court, while dismissing the appeal of the Revenue, held as under :- 8. The Revenue has not placed any material to dispute the factual finding of the ITAT that the requirement of the law explained by this Court in Pepsi Foods regarding the rec .....

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f law arises for determination. The appeal are dismissed. 1.3 The Delhi Bench of ITAT in the case of ACIT v JNSW Infracon Pvt. Ltd. 2017(6) TMI 174- ITAT Delhi vide its decision dated 31.05.2017 has held that even if, the assessing officer of the searched person and other person are same, the satisfaction u/s 153C has to be recorded by the assessing officer in his capacity as assessing officer of Other Person. 1.4 Similar decision has been by Delhi Bench of ITAT in the case of Victory Accommodat .....

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by the department with regard to recording of satisfaction note u/s 158BD / 153C should be withdrawn / not pressed if it does not meet the guidelines laid down by the Apex Court. In view of the above it is submitted that the notice u/s 153C issued by the A.O. is without jurisdiction and is bad-in-law. The said notice is liable to be quashed and accordingly the assessment order passed on the foundation of the such notice is also liable to be quashed. 2. That the notice issued u/s 153C is bad-in- .....

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erson other than the person referred to in section 153A.The first pre-requisite of invocation of provisions of section 153C is that there must be satisfaction by the assessing officer of searched person that documents found and seized during the course of search belongs to other person against whom notice u/s 153C is proposed to be issued. As per provisions of section 132(4A)(i), presumption is that document belongs to such person from whose possession, the document is seized. Therefore the A.O. .....

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in the possession or control of any person in the course of a search, it may be presumed- (i) That such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; ** ** ** Provision of section 292C(1)(i) 292C. (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 or su .....

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d or requisitioned belongs to a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of Section 153A. Therefore, before a .....

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t the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal .....

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the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word satisfaction or the words I am satisfied in the order or the note would not meet the requirement o .....

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y first step prior to the issuance of a notice under Section153C of the said Act has not been fulfilled. Inasmuch as this condition precedent has not been met, the notices under Section 153C are liable to be quashed. It is ordered accordingly. The writ petitions are allowed as above. There shall be no order as to costs. 2.2 The head note of judgement in the case of Pepsico India Holdings (P.) Ltd. v ACIT [2014] 50 taxmann.com 299 (Delhi) is as under :- Section 153C of the Income-tax Act, 1961 - .....

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who holds originals; unless it is established that documents in question, whether they be photocopies or originals, do not belong to searched person, question of invoking section 153C does not arise - Held, yes [Paras 14 and 15] [In favour of assessee] In the present case of the appellant, in the satisfaction note recorded u/s 153C there is no rebuttal that seized documents do not belong to the searched person. As a matter of fact the A.O. has not even mentioned that any document seized during .....

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gnored at the alter of suspicion. The Revenue has to strictly comply with Section 153C of the Act. We are of the view that non satisfaction of the condition precedent viz. the seized document must belong to the respondent - assessee is a jurisdictional issue and non satisfaction thereof would make the entire proceedings taken thereunder null and void. The issue of Section 69C of the Act can only arise for consideration if the proceedings under Section 153C of the Act are upheld. Therefore, in th .....

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Delhihas held that seized documents had to be shown to belong to the other person and not merely pertaining to such other person. The Hon ble court held that amendment to section 153C by including the documents pertaining to has been given prospective effect from 1st June 2015. In view of the above, it is submitted that in the so-called satisfaction note since the assessing officer has no where recorded any satisfaction about any seized document being belonging to the appellant, the proceedings .....

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cuments being belonging to that other person ) but also handover of the seized documents from the A.O. of the other person . This requirement cannot be dispensed with even when the assessing officer of the searched person and of the other person is same. In the present case of the appellant, there has been no such handing over of the alleged seized documents. Therefore, the proceedings initiated u/s 153C are without jurisdiction and bad-in-law. 3.1 On the other hand, the Ld. CIT(DR) has stated t .....

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(P) Ltd. v CIT, - CIT v Super Malls (P) Ltd. - PCIT v Nau Nidhi Overseas Pvt. Ltd. - KamleshbhaiDharamshibhai Patel v CIT - Rajesh Sunderdas Vaswani v ACIT - SSP Aviation Ltd v DCIT - CIT v Classic Enterprises - Savesh Kumar Agarwal v Union of India The assessee in Ground of Appeal 1 has alleged that the notice under section 153 C issued in this case is illegal, without jurisdiction and CIT(A) erred in not holding so. The Revenue submits that the notice under section 153 C and the consequent ass .....

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nature of incriminating documents. Seized material catalogued as FO-101 A-16 & FO- 10/AA-2 seized from premises of Mis Granada Services (P) Ltd, Ms iEnergizer IT Services (P) Ltd & iServices India (P) Ltd reflected as payments of salary to the assessee during the said years. The assessee was required to explain the said receipts. No response filed by assessee. Hence, treated as unexplained cash income by AO. AO Observation The AO in Para 1/assessment Order has recorded that in the cours .....

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ment of income of any other person.- (1) Notwithstanding 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 ov .....

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ss or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The Revenue reiterates that the provisions of section 153A unambiguously state that 153(1) Notwithstanding anything contained in section 139, section 147, section .....

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sment year relevant to the previous year in which such search is conducted or requisition made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. From a bare reading of the provisions of 153 A & 153C it is clear that the basic pre-requisite to issue notice under section 153C is that the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or .....

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round was taken before CIT(A) as well. The CIT(A) in this regard recorded a pertinent finding that reads as under: It is seen that the AO initiated the proceedings u/s 153C after duly recording the satisfaction note. The AO of the searched person and the other person (appellant) is the same. Therefore, there is no substance in the contention of the appellant that the AD recorded satisfaction in the capacity of the AO of the searched person. Further, the satisfaction note clearly referred to the .....

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ts provisions under section 153A/ 153C to assess the 'total income' of the assessee which includes undisclosed income. Reliance placed on following judgements: 1. PCIT Vs Sheetal International Pvt Ltd (2017-TIOL-1355-HCDEL- IT) (Copy Enclosed) where Hon'ble Delhi High Court held that proceedings u/s 153C cannot be invalidated, merely because the AO of the searched who was also that of the Assessee, did not record a separate satisfaction note. 2. PC IT Vs Instronics Ltd [2017182taxman .....

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hat where Assessing Officer of searched person recorded that documents seized during search belonged to assessee, merely because he had not categorically stated that documents mentioned therein did not belong to searched person would not invalidate assumption of jurisdiction under section 153C in respect of assessee. Where proceeding under section 153C was initiated against assessee on basis of seized documents which could not be said to be non- incriminating on bare perusal and despite of being .....

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it as invalid on hyper technical ground of incorrect terminology used in said note. Satisfaction note recorded u/s 153C in respect of the assessee, being the third party, could not be said to be invalid on a hyper technical ground by interpreting the expression belonging to too literally. 5. PCIT Vs MIs Nau Nidh Overseas Pvt Ltd. (ITA No.58/2017) (Copy Enclosed) where Hon'ble Delhi High Court held that satisfaction recorded by the Officer issuing notice u/s 153C is sufficient if the AO of th .....

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ssee for purpose of section 153C 7. Rajesh Sunderdas Vaswani Vs ACIT {[2016] 76 taxmann.com 311 (Gujaratl} (Copy Enclosed where Hon'ble Gujarat High Court held that where Assessing Officer of search person recorded that document found during search was copy of a ledger of books of account of assessee company which evidenced certain cheque payments as well as cash payments to a company by assessee, there was prima facie material to suggest that satisfaction as per section 153C was duly record .....

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ust reflect any undisclosed income. 9. CIT Vs Classic Enterprises (35 taxmann.com 244, 219 Taxman 237, 358 ITR 465, 268 CTR 364) (Copy Enclosed) where Hon'ble Allahabad High Court held that where after search at business premises of assessee-firm and its partner, books of account were handed over to concerned Assessing Officer, who after recording satisfaction issued notice under section 153C and completed assessment under section 153C/143(3), assessment was in accordance with law 10. Savesh .....

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in stock books, Assessing Officer on receiving satisfaction note could still proceed under section 153A against assessee to find out source of income. No Evidence filed to rebut the truth of receipt of salary in cash Despite repeated opportunities given by the AD and also the CIT(A), the assesse did not produce any evidence to disprove the case of the AO. The Supreme Court has held that the parties must lead evidence during the course of assessment proceedings ( Keshav Mills & Co Ltd 56 ITR .....

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xing statute is to be strictly construed and there is no equity in a taxing statute. The Income Tax Act is a self-contained code, and provides machinery for imposing and collecting tax, obtaining reliefs and appeals against improper orders etc. While tax law is a part of the general law, it has got its own distinct features. There are some special provisions which are attracted while interpreting tax laws. The need of interpretation arises only when the words used in the statute are on their own .....

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sed in their technical meaning if they have acquired one, or otherwise in their ordinary meaning, and the second is that the phrases and sentences are to be construed according to the rules of grammar. Krishi Utpadan Mandi Samiti vs. UOI (2004) 267 ITR 460 (All.) Pure, simple and grammatical sense of language used by Legislature is best way of understanding as to what Legislature intended. Coal Mines Officers' Association of India v. UOI (2004) 266 ITR 429 (Cal.) If the language of the statu .....

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(Born)]. It is not permissible to construe any provision of a statute, much less a taxing provision, by reading into it more words than its contains. CIT vs: Vadilal Lallubhai [(1972) 86 ITR 2 (SC)] Literal construction means that there is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. ICAI vs. Price Waterhouse, (1997) 90 Compo Case 113, 140, 141 (SC) State of West Bengal vs. Scene Seven P. Ltd. AIR 2000 SC 3089, 309 .....

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ed law that a taxation statute in particular has to be strictly construed and there is no equity in a taxing provision. H.H. Lakshmi Bai v/s. CIT [(1994) 206 ITR 688, 691 (SC)]. The subject is not to be taxed without clear words for that purpose ..... CIT vs. Provident Inv. Co. Ltd. (1954) 32 ITR 190 (SC) J.K. Steel Ltd. vs, UOI AIR 1970 SC 1173 CIT vs. Indo Oceanic Shipping Co. Ltd. (2001) 247 ITR 247 (Bom) Hansraj & Sons vs. State of J & K (2002) 6 SCC 227, 237-39 In A.V. Fernandez vIs .....

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imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. In the light of the written and oral submissions made during course of hearing, the appeals of the assessee may be dismissed and the issue decided in favour of Revenue. 4. We have heard both the parties and perused the relevant records, written submissions of both parties and also the impugned order passed by the Ld. CIT(A). We find that the fi .....

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stant case. In view of the issue of satisfaction recorded by incorrect AO raised in the submission of the Ld. counsel, it is worthwhile to refer the section 153C(1) of the Act at the material time as under: 153C. Assessment of income of any other person.- (1) Notwithstanding 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 o .....

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4.1 After careful perusal of the above provisions, it is evident that where the Assessing Officer of the searched person is satisfied that any money, bullion, jewellery, books of accounts or other documents etc. belong to a person other than the person searched, then such assets or documents etc. shall be handed over to the AO of the other person and the AO should proceed against such other person to assess or reassess the income of the other person . Thus, according to the provision, before han .....

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her person. It transpires from the provision that recording of satisfaction by the Assessing Officer of the person searched is a condition precedent for the Assessing Officer of the other person to acquire jurisdiction and unless jurisdictional condition is satisfied, there can be no question of making assessment or reassessment in the case of such other person. 4.2 We further note that prior to the introduction of section 153C of the Act, under the scheme of block assessment for such cases, the .....

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Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly. 4.3 On reading of the aforesaid provisions, it is clear that when the AO of the person searched is satisfied that undisclosed income belongs to any person other than the person searched, then the books of accounts and other documents etc. are to be handed over to the Assessing Officer having jurisdict .....

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In section 158BD, it is the undisclosed income which should belongs to the other person, whereas in section 153C, it is the material which should belongs to other person. 4.5 We further find that the issue of recording satisfaction and framing assessment under section 158BD of the Act came up for consideration before the Hon ble Supreme Court of India in the case of CIT Vs. Calcutta Knitwear (Supra) wherein, the Hon ble Supreme Court has held that for the purpose of section 158BD of the Act the .....

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on ble Supreme Court will apply to the provision of section 153C as well. 4.7 We further find that the CBDT has also issued its Circular No. 24/2015, dated 31st December, 2015, in view of the aforesaid judgment of the Hon ble Supreme Court in the case of Calcutta Knitwears (supra), which reads 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 in its .....

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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 the Act are substantial similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guideli .....

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equired to record his satisfaction as has been held by the Courts. 5. 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. 4.8 We note that in the other decisions of the Hon ble .....

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he other person is same, even then the satisfaction has to be recorded by the AO in his capacity as AO of searched person. 4.9 We also note that when the Assessing Officer of the searched person and Assessing Officer of the other person are different, then it can easily be discern, that satisfaction has been recorded by which Assessing Officer. But the difficulty arises when the Assessing Officer of the searched person and Assessing Officer of other person is same and he has not recorded under w .....

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the end of the satisfaction note it has been mentioned that Therefore, to assessee undisclosed income of Shri Adarsh Agarwal, proceedings u/s 153C of the Act needs to be initiated. 4.11 However, the settled position of law is that so far as the assessing officer of the searched person is concerned, he has to only record a satisfaction that documents seized belong or belongs to other person. The assessing officer in his capacity as assessing officer of searched person is not concerned with initi .....

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s capacity as assessing officer of searched person has not been fulfilled. 4.12 We further find that Ld. CIT(DR) has submitted that technicalities and irregularities, which do not occasion in failure of justice should not be allowed to defeat the end of justice and the entire proceeding conducted by the Revenue cannot be held illegal, without jurisdiction. 4.13 Though, we agree in principle that technicalities should not come in the way of dispensation of justice but the issue of lack of jurisdi .....

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mines the records seized and come to the conclusion as to which of the such money, bullion jewellery or documents belongs to the searched person and to the others. The legislature has provided for recording of such satisfaction by the Assessing Officer of the person searched and thus the Assessing Officer cannot be allowed to record satisfaction in the capacity of Assessing Officer of other person. In our opinion no assessment or other proceeding can be lawfully taken up and completed unless the .....

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w the appeals where satisfaction note is not recorded by the Assessing Officer in the capacity of searched person. In such circumstances, advancing of above arguments are futile and wastage of resources of the Income Tax Department. 4.14 With regard to second alternate contention of the assessee that no documents belong to the assessee was found and there is no satisfaction recorded that any document belonging to the assessee was found during the search, it is seen that in the satisfaction note, .....

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mendment has been given prospective effect from 1st June 2015. Thus prior to June 2015, the seized documents had to be mandatorily shown to be belonging to the other person and not merely pertaining to or relating to such other person . The documents referred to in the satisfaction note , even if they pertain / relates to the assessee have not been shown to be belonging to the appellant and there is no such satisfaction recorded. Accordingly the requirement of recording satisfaction that seized .....

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another by A.O. of other person . The Hon ble Court held that satisfaction note has to be recorded by as A.O. of searched person and this is a sine die non-for triggering the proceedings against the other person u/s 153C of the Act. Thus, these case law are in fact, in favour of the assessee since the satisfaction note in the case of assessee has been recorded by A.O. as assessing officer of assessee and not as assessing officer of searched person . 4.16 Further, in the case of CIT v Super Malls .....

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