TMI Blog2018 (4) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the mandatory provisions of Sections 142 (2) or 143 (2). This legislative design is taken further by Section 153 (2) (a) to (c) which are relatable to the satisfaction under Section 153C (1) notice, i.e. that if notice for pending assessments have not been issued, to take further proceedings, and the time has lapsed, the only condition when they can be taken forward, is if the satisfaction with respect materials seized are relatable to the assessee is through application of mind and not a mechanical one - Decided against revenue - ITA 791/2017 - - - Dated:- 18-4-2018 - MR. S. RAVINDRA BHAT AND MR. A.K. CHAWLA JJ. Appellant Through: Sh. Zoheb Hossain, Sr. Standing Counsel, for Revenue. Respondent Through: Sh. Sudesh Garg, Advocate. MR. S. RAVINDRA BHAT I. FACTS 1. This appeal has been filed under Section 260A of the Income Tax Act, 1961 ( the Act ) for the Assessment Year (AY) 2009-10 against order dated 28.02.2017 of the Income Tax Appellate Tribunal ( ITAT hereafter). The question of law framed for this appeal is as follows: Did the Income Tax Appellate Tribunal (ITAT) fall into error in quashing the assessment on the ground that it was not bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), inter alia, held: Whether the seized documents were incriminating in nature could not be determined before conducting proceedings under Section 153C because the Ld. AO had never conducted any scrutiny assessments of the Assessee Firm. The initiation of proceedings under Section 153C was proper, and there was no obligation upon the Ld. AO to exhaustively list all the documents or reasons for his satisfaction in the note. For AY 2009-10, proceedings under Section 143(3) had been completed, and no notice under Section 153C was issued. The Assessee Firm participated in the proceedings under Section 153C without raising an objection before the Ld. AO. 4. The CIT (A) s order was challenged before the ITAT by both parties. By the impugned order, the ITAT held that proceedings under Section 153C were void ab initio and quashed them. For so concluding, it inter alia held: The satisfaction note under Section 153C was defective because it did not provide the reasoning employed by the Ld. AO to conclude that the seized material belonged to the Assessee Firm. Moreover, the AO for Sh. Narendra Kumar Aggarwal did not record a separate satisfaction note as require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 153C to the assessee. He also relied on the Indore Bench (of ITAT) in Deputy Commissioner of Income Tax v. Sushil Kumar Jain (2010 127 ITD 264). It was also urged that the ITAT should not have permitted the assessee to argue new aspects and points that were not urged and, therefore, not considered by the lower revenue authorities, including the CIT (A). 7. Learned counsel for the assessee, Mr. Sudesh Garg defended the impugned order and urged three broad submissions. He urged, firstly that the AO s decision did not outline any details of the documents which were seized on 31.07.2008. These documents were never shown to the assessee, and, therefore, it was unable to rebut any assumptions, for lack of opportunity. Counsel argued that the initiation of proceedings was unjustified because the seized material did not incriminate the assessee. The additions made by the AO are based on returns filed under Section 139, and they have no relation to the seized material. It was lastly urged that the AO failed to record a specific finding that the material seized belonged to the assessee. The satisfaction note was prepared in a mechanical manner without any application of mind b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pertinent to mention here that notice under s. 153A requiring the assessee to file return for such is, generally, not to be issued for the previous year of search or requisition precisely for the reason that the assessee is required to file return for such previous year of search in normal course and, in case of failure of the assessee to do so, the AO can issue notice under s. 142(1) of the Act to file the return under s. 139(4). Thus, absence of requirement of issue of notice under s. 153A for the year of search, in our opinion, does not result into an inference that assessment of previous year of search is to be made as per the normal provisions of the Act, specially when state of provisions of s. 153A is not different from scope of provisions of s. 143 for making assessment of total income of such year. We may further add that, in case, any notice under s. 153A is issued in case of such previous year, the same should be construed as issued under s. 142(1) as the scope object of these two provisions on the aspect of requiring the assessee to file the return is same. Even otherwise, under the new scheme, total income has to be computed as per the normal provisions of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t extract from the case is as follows: 13. The first and foremost step for initiation of proceedings under Section 153C of the Act is for the AO of the searched person to be satisfied that the assets or documents seized belong to the Assessee (being a person other than the searched person). The AO of the Assessee, on receiving the documents and the assets seized, would have jurisdiction to commence proceedings under Section 153C of the Act. The AO of the searched person is not required to examine whether the assets or documents seized reflect undisclosed income. All that is required for him is to satisfy himself that the assets or documents do not belong to the searched person but to another person. Thereafter, the AO has to transfer the seized assets/documents to the AO having jurisdiction of the Assessee to whom such assets/documents belong. Section 153C(1) of the Act clearly postulates that once the AO of a person, other than the one searched, has received the assets or the documents, he is to issue a notice to assess/re-assess the income of such person - that is, the Assessee other than the person searched - in accordance with provisions of Section 153A of the Act. ** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the AO should provide clear and cogent reasons which explain why the seized material belongs to somebody else. The relevant extract from the case is as follows: 6. 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 presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or satisfaction that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of satisfaction . ******************** ************* 11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the expression belongs to with the expressions relates to or refers to . A registered sale deed, for example, belongs to the purchaser of the property although it obviously relates to or refers to the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it belongs to the vendor just because his name is mentioned in the document. In the converse case if the vendor s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy belongs to the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to belong to the petitioner. 15. Principal Commissioner of Income Tax v Nikki Drugs Chemicals Pvt. Ltd. [2015] 64 taxmann.com 309 (Delhi), was a case where Court held that separate satisfaction notes must be recorded even if the Assessing Officer of the person from whose premises the document is seized is the same as the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been stayed. 18. While the ledger account extract may be relevant for AY 2010-11, it cannot be said to be incriminating material warranting re-opening of the assessment. The return originally filed by the Petitioner for the said AY 2010-11 was picked up for scrutiny and finalised by an assessment order under Section 143 (3) of the Act. The payments of commission to RGEPL to the tune of ₹ 4.95 crores as reflected in the ledger account was already disclosed in the Petitioner's accounts which were examined while finalising the regular assessment. Therefore, the ledger account could not have led the AO to be satisfied that any income had escaped assessment for the AY 2010-11. 19. The net result is that neither of the documents mentioned in the Satisfaction Note could have formed a valid basis for the AO to initiate proceedings against the Petitioner under Section 153 C of the Act for AY 2010-11 or any of the other years as proposed. Analysis and Conclusions 17. In this appeal, the scope of controversy between the revenue and the assessee has been narrowed down to a single question of law. At this stage, we are only concerned with whether the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the satisfaction note was prepared i.e. 23.07.2010. Even for assessment years 2005 to 2009 for which the Assessee Firm had already filed returns, the revenue did not initiate any proceedings till the Assessee Firm filed its return for AY 2009-10 as NIL. If the Ld. AO had initiated proceedings for reassessment of returns filed for assessment years 2005 to 2009 under Section 153C before the filing of returns for AY 2009-10, it would have been plausible that the satisfaction note was only relevant for assessment years 2005 to 2009 and that the proceedings for AY 2009-10 were solely carried out under Section 142 and 143. However, in the present case, since the notice under Section 142(1) was issued on the same day as the satisfaction note, it is very difficult to sever them from each other. 20. After holding that the assessment for AY 2009-10 was conducted pursuant to Section 143(3) read with Section 153C, it is now necessary to determine whether the satisfaction note in the present case is valid. The satisfaction note recorded by the Ld. AO reads as follows: 23.07.2010 A search and operation was conducted on Raj Darbar Group of cases on 31.07.2008. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been let out to Price Waterhouse group on a eleven-years-ninemonths Leave License agreement. In the said partnership deed, there is no mention of anyone paying towards goodwill etc. to the retiring partner in spite of the appellant owning such valuable property which earns huge income. The retiring partner M/s Tarsi Properties Private Ltd has surrendered its share in the firm without any consideration to a 'Related Party' i.e. its own main shareholder/Director/member of the 'Rajdurbar Group'. The transaction is between the related parties and one of them is shown to be retiring without any consideration. The retiring party is the person who had in fact brought/borrowed the initial amount used for making payments to the hitherto actual owners of the property. Under the Income Tax Act, partnership deed is an important document that determines the expenses like salary and interest payable to the partners. Further there are restrictions on the interest and remuneration payable to partners. The appellant has charged interest on borrowed funds to its P L account. There is, thus, a clear case of a transaction reflected in the document belonging to the appellant which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd found the satisfaction note under Section 153C to be inadequate based on the following grounds: 3.4.2 The perusal of the satisfaction note clearly indicates that the action under Section 153C of the Act was not based on the correct legal foundations. The following may kindly be noted:- i. Ld. AO didn't even indicate how vaguely referred documents in the satisfaction note were found to be belonging to the assessee within the meaning of section 153C of the Act. ii. No mention of any documents belonging to the appellant in the assessment order ultimately passed under section 153C lead to the conclusion that these documents had no relevance or belongingness to the assessee. iii. Ld. AO doesn't even for record's sake record satisfaction for initiating valid proceedings under section 153C except in the heading. iv. There is no recording/ reference about the contents of these documents allegedly pertaining to the appellant. Even in the assessment order, no such mention has been made. This indicates how irrelevant those assumed documents were to the assessment of the appellant. v. No satisfaction note has been recorded by the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the previous years, the rule in Commissioner of Income Tax v Kabul Chawla 380 ITR 573 (Del), i.e., that in the absence of any incriminating materials, the previous years assessments cannot be disturbed, applies. 24. In the present case, therefore, the failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the notice issued under it, vitiates the assessments. As far as the pending assessment year is concerned, the return was filed on 29.09.2009. No notice in terms of Section 143 (2) had been issued to the assessee, and the time provided by law had expired by the time its AO received the papers from the searched party. Notice issued, necessarily, in terms of Section 153C (2) had to be in the light of the satisfaction that the books of account or materials seized are relevant (i.e. ..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 seized or requisitioned have a bearin ..... 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