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Dy. CIT, Central Circle-7 (2) , Mumbai Versus L.S. Developers C/o. Meenakshi Bazar Unit And Dy. CIT, Central Circle-7 (2) , Mumbai Versus Smt. Lata Deshmukh

2018 (1) TMI 322 - ITAT MUMBAI

Assessment u/s 153C - satisfaction recorded in the case of the searched person - Held that:- In the present case, it is undisputed that there is not satisfaction recorded in the case of the searched person, i.e., Shri Subhash Deshmukh that the incriminating materials seized belong to the assessee. The ld. Departmental Representative has also not disputed this proposition. Hence, though the satisfaction is there in the case of assessee, i.e., there is no such satisfaction in the case of searched .....

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oner of Income Tax (Appeals) for the concerned assessment years. The issues are common which read as under: 1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in quashing the notice issued u/s. 153C of the Act as well as the assessment order u/s. 143(3) r.w.s. 153C of the Act without appreciating the fact that the A.O. of the searched person and A.O. of the other person is the same and satisfaction note is recorded in the case of other person before as .....

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d. Commissioner of Income Tax (Appeals), the assessee raised issues relating to validity of notice as well as merits of the case. The ld. Commissioner of Income Tax (Appeals) quashed the assessment order for lacking jurisdiction as there was absence of satisfaction recorded by the Assessing Officer in the case of searched person in this case, i.e., Shri Suresh Deshmukh that any valuable or books of account seized in his case belongs to other person, i.e., the assessee. Hence, the ld. Commissione .....

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ubhash Deshmukh on 28.3.201 land notice u/s.153C was issued to the appellant on 13.8.2012 after lecording following reasons/satisfaction:- "Name : Lata Deshmukh (Proprietor of Shivam Wines) Address : Shop No.4, Goswami Niwas, Kokani Pada Kharar Village, Malad (E), Mumbai-400 097 Status : Individual PAN : AIUPD9121F Date : 13.08.2012 Reasons for invoking provisions of section 153C of the IT. Act. 1961 Consequent to the search action, during the course of assessment proceedings U/S.153A of th .....

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xure-1 as per panchanama dated 16-05-2011 are pertains to the assessee. Also, tho contents of page No.103 of Annexure-1 (loose paper file) as per panchanama dated 28-03-2011 is pertains to the assessee. I am therefore fully convinced and satisfied that this is a fit case for initiation of proceedings u/s.153C of the Act. Accordingly, notice u/s.153C is issued requiring the assessee to file return of income for A.Y. 2005-06 to 2010-11." The appellant had sought a copy of the satisfaction not .....

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Subhash Deshmukh was called for from the A.O. The A.O has sent the assessment records in the case of Subhash Peshmukh, the searched person, for A.Y, 2005-06 to 2011-12 and the same were perused. The common order sheet has been n;aintained for A.Yrs. 2005-06 to 2010-11 in the assessment folder for A.Y. 2010-11. Notice u/s.153A in the case of Shri.Subhash Deshmukh has been issued on 8.11.2011 and assessment order u/s.143(3) r.w.s. 153A was passed for A.Y. 2005-06 to A.Y. 2010-11 on 21.3.2013. How .....

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her than the searched person, then he shall handover the same to the A.O. having jurisdiction over the other person. It has been submitted that no such satisfaction has been recorded by the assessing officer in his capacity as the assessing officer of Subhash Deshmukh and hence the assessment is void ab initio. 5.3.4 In this regard, I find that there is a common A.O. for the case of Shri.Subhash Deskhmukh as well as Lata Deshmukh. The above said satisfaction has been recorded by the said A.O. in .....

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m the decision of the Hon'ble High Court of M.P. in the case of CIT vs. M/s Mechmen Bhopal dated 10.7.2015 (380 ITR 591), in which, after considering the decision of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears 362 ITR 673 (SC), it has been held as under :- "18. The concomitant of this conclusion, is that, the legal position as applicable to section 158BD regarding satisfaction in the first instance of the first Assessing Officer forwarding the items to the As .....

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person (other than the person referred to in section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in section 153A)." Similar decision has been given by the Hon'ble High Court of Allahabad in the case of CIT (Central) vs Gopi Apartment 365 ITR 0411 (All). Further, in the CBDT circular No.24/2015, it has been observed as under:- &qu .....

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sfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts." 5.3.5 In view of the above facts of the case and the decision/circular discussed in para 5.3.4 above, I am of the considered opinion that in the absence of any satisfaction recorded by the A.O., as per the provision .....

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s well as the Assessment Orders dated 22.3.2013 u/s.143(3) r.w.s. 153C for A.Y. 2005-06 to A.Y 2010-11 are quashed. This ground is allowed for all the six assessment years under appeal. 5.3.6 Since the assessment orders for A.Y. 2005-06 to A.Y. 2010-11 have been quashed, decision on other grounds raised by the appellant has become an academic exercise. Accordingly, these grounds are dismissed as infructuous for all the assessment years under appeal. 3.2 Similar order was passed by the ld. Commis .....

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1 land notice u/s.153C was issued to the appellant firm on 15.6.2012 after recording following reasons/satisfaction :- "Name : M/s. L. S. Developers Address : C/o.Meenakshi Bazar Limit Shankar Mandir, Ajinkya Colony Powai Naka.Satara-415001 Status : Firm PAN : AACFL6884B Date : 15.06.2012 Reasons for invoking provisions of section 153C of the IT. Act. 1961 Consequent to the search action, during the course of assessment proceedings U/S.153A of the Act in the case of Subhash Deshmukh, it was .....

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ngly, notice U/S.153C is issued requiring the assessee to file return of income for A.Y. 2005-06 to 2010-11." The appellant had sought a copy of the satisfaction note of the A.O. having jurisdiction over the searched person vide letter dated 9.2.2015 addressed to the A.O. In this regard, it is observed from the letter of the A.O. (DCIT, CC-7(2), Mumbai) dated 10.2.2015, addressed to the appellant firm that the above said satisfaction note was recorded by the A.O. in the case of M/s. L, S. D .....

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tisfaction note U/S.153C was found to have been recorded in the files of Shri. Subhash Deshmukh, as per the assessment records for A.Yrs. 2005-06 to 2011-12, submitted by the A.O. 5.3.2 The appellant has contended that section 153C of the Act requires that if the Assessing Officer of the searched person, from whom money, bullion, jewellery or other valuable article or thing or books of account or documents have been seized, is satisfied that any of such seized material belong to a person other t .....

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A.O. in the case of the other person i.e. M/s L. S. Developers before issue of notice U/S.153C of the Act. However, the said A.O. was required to first record a satisfaction in the case of Shri. Subhash Deshmukh that some seized valuables or books of account, found and seized from his premises, belong to the appellant i.e. M/s L. S. Developers and only thereafter, the A.O. could have assumed jurisdiction u/s.153C to issue notice and make assessment in the case of M/s L.S. Developers. This follo .....

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the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in section 153C belongs or belong .....

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- 3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s.1530 of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT. 4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satis .....

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of section 153C, in the case of the searched person i.e. Mr.Subhash Deshmukh that any valuable or books of account seized during search in his case belong to other person i.e. the appellant, the A.O. of the appellant firm could not assume jurisdiction to issue notice u/s.153C for the A.Yrs. 2005-06 to 2010-11. Therefore, issue of notice u/s.153C dated 15.6.2012 in the case of the appellant for A.Y. 2006-07 is found to be without jurisdiction. Accordingly, the notice u/s.153C as well as the Asse .....

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e ld. Counsel of the assessee submitted that this is a case of search and notice has been issued u/s. 153C of the I. T. Act. He claimed that search was conducted in the case of one Shri Subhash Deshmukh u/s. 132. Consequent to the search, notice u/s. 153C was issued to the assessee. The ld. Counsel of the assessee stated that as per the mandate of provisions of the Act before issue of notice u/s. 153C the Assessing Officer of the searched person should have recorded a satisfaction that any of su .....

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this fact. He submitted that identical issue was considered by ITAT, Nagpur Bench in the case of Zaidun Leeng Sdn Bhd Artefact Projects Ltd. (JV) vs. Dy. CIT (in ITA Nos.382 & 383/Nag/2014 vide order dated 22.03.2017), in which on similar issue the assessment order passed was held to be without jurisdiction. Hence, the ld. Counsel of the assessee pleaded that accordingly there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals). 7. Upon carefully consideration, I not .....

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assessment order has been held to be invalid, in the aforesaid tribunal decision. We may gainfully refer to the said decision as under: 9. We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that the satisfaction of the AO of the searched persons as envisaged u/s 1530 of the I.T. Act has not been recorded before initiating the proceedings against the assessee u/s 1530 of the Act which vitiates the entire impugned assessments. For this proposition, l .....

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ed party. That this makes it very clear that the appropriate satisfaction has not been recorded therein. He asserted that no satisfaction of seized documents being incriminating and/or belonging to the assessee is recorded by the AO of the searched person. Thus no valid notice u/s 153C is issued in the case of the assessee and assessment framed is bad in law and liable to be quashed. Learned counsel submitted that this proposition is duly supported by case laws cited above. 10. Further more lear .....

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ating to assessment year 2011-12. No document pertaining to the assessment years concerned in this case has been found. The documents relating to assessment year 2011-12 found are also not incriminating documents. They relate to transactions which were duly recorded in the regular books of accounts. Hence learned counsel submitted that the jurisdiction assumed in this case is invalid. For the proposition that dehorse any incriminating seized material, no addition is sustainable where assessments .....

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jects Ltd. were called for and examined. No satisfaction note whatsoever was found recorded in the case of the searched person. Neither any satisfaction was mentioned in the order sheets nor any satisfaction note was found in the file which was not numbered. The fact that no satisfaction note is there in the case of the searched person is also evident from the finding of the learned CIT(Appeals) in his appellate order reproduced herein above wherein he also has referred to the satisfaction note .....

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n 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 over such other person 3a[and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets .....

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ments or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person :] [Provided further that the Central Government may by rulesy made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous y .....

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r reassess his income. Thus it is manifest before handing over such documents to the AO of the other person a satisfaction has to be recorded by the AO of the searched persons, that money, bullion or jewellery, etc., found from the person searched belong to the 'other person1. Only when such 'satisfaction1 is recorded by the AO of the person searched and such documents or assets seized, etc., are handed over to the AO of the 'other person1, that the later AO acquires jurisdiction to .....

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rson1 to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the 'other person.' In the case of Anil Kumar & Ors. vs. UOI & Ors. Reported in 155 Taxman 659 (5C),the Hon'ble Apex Court observed that "A jurisdictional fact is a fact which must exist before a court, a tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existen .....

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iction which it otherwise does not possess. The existence of 'jurisdictional fact' is sine qua non for the exercise of power by a court of limited jurisdiction. As noted earlier section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wherefore are: (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132; (ii) the books of .....

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der s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the other persons. 14. Now in this regard the CBDT has also issued notification as under : "CIRCULAR NO. 24/2015 F.No.279/Misc.ll40 /2O15/IT J Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, 31 st December, 2015 Subject: Recording of satisfaction note un .....

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y the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BC. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BD of the Act; or (b) in the course of the assessment proceedings under section 158BD of the Act; or (c) immediately after the assessment proceedings are completed under s .....

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o in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required 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 judgement. Accordingly, the Boa .....

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rned records in the case of the searched persons as mentioned above it is evident that there is no such satisfaction that any bullion, jewellery, books of accounts, other documents etc. belonging to the assessee has been found and the same is being handed over to the AO of the assessee. Thus the absence of requisite satisfaction denudes the legality of jurisdiction in this case. Hence it has to be held that since proper satisfaction as envisaged u/s 153C has not been recorded, the assessments ar .....

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mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other .....

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h High Court decision in the case of CIT vs. Mechmen in ITA No. 44/2011, ITA No. 45/2011 & others vide order dated 10-07-2015. In this case the relevant exposition from the Hon'ble High Court is as under : Even for the purpose of Section 153C, the Assessing Officer before handing over the items to the Assessing Officer having jurisdiction must be "satisfied" that the items belongs or belong to the person other that the person referred to in Section 153A. That satisfaction of th .....

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ion at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A, being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A). Similarly, as there is no provision either express or implied (in the Act) to dispense .....

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e at the respective stages referred to in Section 153C. iii) Hon'ble Bombay High Court decision in the case of Director of Income Tax vs. M/s Ingram Micro (India) Exports Pte Ltd. in ITA No. 1337 of 2013 & Others vide order dated 29-04-2015. In this case it was expounded that as per provisions of section 153A and section 153C of the I.T. Act, proceedings can only be initiated after the AO arise at the satisfaction that the seized material pertains to other persons, namely, persons other .....

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Senior Counsel for the Revenue, that in light of the Circular No. 24/2015 dated 3ist December, 2015 issued by the Central Board of Direct Taxes on the subject "Recording of satisfaction note under Section 158BD/153C of the Act", these appeals are not pressed These appeals are, accordingly, dismissed as not pressed. 16. From the above case laws and CBDT Circular, it is evident that recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdi .....

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hat any seized material belonging to the assessee has been found which is incriminating in nature which is to be handed over to the AO of the assessee, the jurisdiction assumed in this case is illegal and the same deserves to be quashed. Accordingly in the background of the aforesaid discussion and precedent, in our considered opinion, the assessee deserve to succeed on this account and the assessments are liable to be quashed on account of lack of validity of jurisdiction. Accordingly we set as .....

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