TMI Blog2018 (10) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... arched person should have recorded a satisfaction note that incriminating documents belonging to third person are found; the Assessing Officer, in his capacity as the Assessing Officer of Shri Sudhakar M. Shetty (searched person) has neither issued any satisfaction note nor handed over the documents to himself (in the capacity of Assessing Officer of the other person) by passing a handover note, thus, from this angle also, the assessee is having a good case in its favour, therefore, respectfully, following the aforesaid decisions from Hon’ble various High Courts, including Hon’ble jurisdictional High Court, we decide this issue, from this angle, in favour of the assessee. Recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdiction for the issue of notice u/s. 153C of the Act even if the Assessing Officer of the searched person and the assessee are same. It is abundantly clear from the records in the case of the searched person that there is no requisite satisfaction granting the Assessing Officer jurisdiction for issuing notice to the assessee u/s. 153C of the I.T. Act. For the purpose of Section 158BD recording of a satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution of capital asset to the partners or any other persons on registration of a firm a company, consequently, it does not make either party liable to tax u/s. 45. As relying on the decision from Hon’ble Apex Court in the case of Malabar Fisheries Co. Ltd. (1979 (9) TMI 1 - SUPREME COURT) was relied upon holding that when a conversion of a firm into a company takes place under the provisions of company Act, such conversion can be construed only as occasioned by operation of law and hence no controversy can arise on the application of this principle even for the purposes of capital gains under sections 45(4) of the Act. Thus, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) with respect to non-taxability u/s. 45(1) or 45(4) of the Act. Conversion of partnership firm into a company under chapter IX of the Companies Act, 1956, we are of the considered opinion that provisions of sections 45 r.w.s 112 of the Act is not attracted as the asset and liability of the erstwhile firm vested in the company as a whole and the interest of the partners was not reduced in any way nor any amount was paid separately to the firm or to the partners on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summarized as under:- That on the facts and circumstance of the case and the provisions of law, the assessment framed by the learned Assessing Officer and confirmed by the Commissioner of Income tax (Appeals) is against the statutory provisions of the Act and without complying the procedures prescribed u/s. 153C of the Income tax Act, 1961 and as such the assessment being bad in law and deserved to be quashed. That in the absence of incriminating material, no additions can be made by the Assessing Officer and no additions can be confirmed by the Commissioner of Income tax (Appeals) in respect of purchases in a case where assessment is completed u/s. 153C of the income tax act, 1961 and as such the additions are bad in law and deserve to be deleted. 2.1. In the aforesaid additional grounds, the assessee has challenged validity of issuance of notice u/s. 153C of the Income Tax Act, 1961 (hereinafter the Act). This additional legal ground has been raised for the first time before this Tribunal. The ld. counsel for the assessee contended that legal ground can be raised before this Tribunal for which reliance was placed upon the decision from Hon ble Apex Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee on the merits. 2.3 It is also noted that Hon ble jurisdictional High Court in DIT (IT) v. INGRAM MICRO (INDIA) EXPORTS (P.) LTD. [2015] 234 Taxman 464/60 taxmann.com 57 (Bom) observed/held as under:- After hearing both sides and perusing the relevant material including the impugned orders, we are of the view that there is much substance in the contention of Mr. Mistri. The additional ground was permitted and with regard to the validity of the proceedings under s. 153C as the Tribunal concluded that this issue or question goes to the root of the case. If it is answered either way, the matter would come to an end. The Tribunal has noted that the additional ground is the legal ground going to the root of the case. The AO did not allow inspection of the record to the assessee or its counsel and that is why they have raised additional ground about validity of the proceedings under s. 153C. That is about absence of any satisfaction being recorded by the officer who was assessing the search party. There is no dispute about the fact that the assessee was not searched and the search has been conducted in the case of Ingram Micro (India) Exports Pte. Ltd./T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for framing assessment under sec. 153-C of the Act; (ii) the Assessing Officer had not signed the manuscript of the assessment order as required under sec. 282A of the Act; (iii) no incriminating documents in respect of the assessee was found from the possession of persons covered under sec. 153A of the Act, no new facts outside the record of the authorities below is required to be considered. In other words, the question of law raised above is arising from the facts which are on record in the assessment proceedings. When there is no need to consider the new facts outside the record for the adjudication of the above issue and undisputedly when those issues are necessary to consider to correctly assess the tax liability of an assessee, as per the ratios held down by the Hon ble Supreme Court in the case of NTPC, there is no reason why such a question should not be allowed to be raised. 2.5 In the case of CIT v. Singhad Technical Education Society (Civil Appeal Nos.11081 to 11083 of 2017) order dated 29/08/2017, the Hon ble Apex Court held/observed as under:- 18. The Tribunal permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 2.6 Now, we shall deal with the legal issue, raised by the assessee. The crux of the argument is that while issuing the notice u/s. 153C of the Act, the provisions of section 153A r.w.s. 153C and the conditions enshrined therein has not been complied with by the Assessing Officer of the other person, other than searched person. The Ld. Counsel invited our attention to the conditions laid down in the aforesaid provision. On the other hand, the Ld. CIT-DR contended that the conditions mentioned in the sections has been duly complied with by the Ld. Assessing Officer. 2.7 We have considered the rival submissions and perused the material available on record. The facts in brief are that a search and seizure action u/s. 132(1) of the Act was carried on 22/09/2011 at the residential premises of Shri Sudhakar M. Shetty, partner of the firm. As per the Revenue, various incriminating documents found and seized. As per the assessee, one document, neither incriminating nor belonging to the assessee was found. On the basis of said document, the Ld. Assessing Officer issued notice u/s. 153C of the Income tax Act, 1961 in the case of the assessee right from the assessment year 2006-07 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 year in which search is conducted or requisition is made 19[and for the relevant assessment year or years as referred to in sub-section (1) of section 153A] except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year- (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) ofsection 143 has expire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abated under the second proviso), specify the class or classes of cases 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 year in which search is conducted or requisition is made 11[and for the relevant assessment year or years]: 11[Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless- (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1.-For the purposes of this sub-section, the expression rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is satisfied that such seized material is having a bearing on determination of such other person. It is further noted that the other conditions required is that firstly there should be a search action and secondly during course of such search incriminating documents, which belongs to other person should be found and the Assessing Officer of such person should have recorded a satisfaction that incriminating documents belonging to third person has been found. The provision is summarized as under:- i. The Assessing Officer of searched person should have recorded a satisfaction note that incriminating documents belonging to third person are found; ii. The Assessing Officer of searched person should handover the satisfaction note and documents belonging to other person to the Assessing Officer of the other person; iii. The Assessing Officer of the other person can then issue notices u/s. 153C of the preceding six assessment years from the date on which such documents are received from the Assessing Officer of searched person. 2.11 We have perused the record and find that there is no dispute that a search action had taken place at the residential premises of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agar Avenue, Plot No. 54B, Junction of S.V.Road and Lallubhai Park, Andheri (W), Mumbai - 400 058. iii. The said letter is neither containing nor revealing any commercial transaction. The said letter contains the details of total number of hutments, total number of eligible hutment dwellers, total number of participants and % of the participants under the various co-operative housing societies mentioned in the said letter. Hence, the said letter is not incriminating in nature. iv. The said M/s. Skylark Build (Proprietorship firm of Shri Dilip Hate) is still in existence and continuing under PAN No. AAAPH4943F. v. The said letter is related to assessment year 2004-05, which becomes time barred on the date of search. 2.13 All the above facts shows that the alleged document is neither belonging to the assessee nor incriminating in nature. The assessee has filed an affidavit duly executed by the partner of the assessee firm and which is self speaking one. The relevant affidavit is appearing in the paper books filed in connection with the following appeals: Appeal No 4370/M/15 3237/M/15 4371/M/15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 27th Jan., 2010 written by the petitioner to RGEPL. As far as the latter document is concerned, it is a letter written by the petitioner to RGEPL and, therefore, should be treated as a document belonging to RGEPL and not to the petitioner. Whether it may or may not be related to the petitioner is not relevant since the amendment to s. 153C of the Act in that regard was prospective w.e.f. 1st June, 2015 i.e. subsequent to the date of preparation of the satisfaction note in the present case. 14. The decision in Pepsico India Holding (P.) Ltd. v. Asstt. CIT (supra) which interpreted s. 153C of the Act, as it stood prior to its amendment, explained that the expression belongs to should not be confused with the expression relates to . One of the instances cited in the said decision was a registered sale deed, copies of which could be available both with the vendor and the vendee. The copy available with the vendee could not be said to belong to the vendor and vice versa. 15. In Principal CIT v. Nikki Drugs Chemicals Ltd. (supra), the searched person was SVP Builders India Ltd. The photocopy of documents, the original of which were with the assessee in that case, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts should belong to the person other than the searched person. 2.19 In the case of Smt. Rekhaben Thakkar v. Asstt. CIT [2015] 155 ITD 54/61 taxmann.com 60 (Ahd. - Trib.) (Refer Page No. 38 to 44 of Cases relied upon by the Assessee Part 1) 8. We have carefully considered the arguments of both the sides and perused the material placed before us. Sec. 153C of the IT Act, 1961 reads as under : 153C. (1) Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, where the AO 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 s. 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of s. 153A. 9. From the above, it is evident that action under s. 153C can be taken in respect of any other person than the person se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been categorically observed by the Supreme Court that the above position of law laid down by the Gujarat High Court is correct. 9. Consequently, this Court rejects the contention of the learned counsel for the Revenue that even prior to 1st June, 2015 at the stage of initiation of proceedings under s. 153C of the Act, it is sufficient if the seized document pertained to the other person and it is not necessary to show that the seized material belonged to the other person. This legal position has been explained by this Court in its recent decision dt. 10th July 2017 in Writ Petn. (Civil) No. 3241 of 2015 (Canyon Financial Services Ltd. v. ITO) [reported at (2017) 155 DTR (Del) 73-Ed.]. 2.21 Likewise, in Dy.CIT v. Qualitron Commodities (P.) Ltd. [2015] 553/54 taxmann.com 295 iv. (Refer Page No. 251 to 260 of Cases relied upon by the Assessee Part 2). The Hon ble Delhi High Court held as under:- 13. Having gone through the decisions relied upon, we find that the Hon ble Delhi High Court in the case of Pepsi Foods (P) Ltd. (cited supra) after discussing the issue in detail has been pleased to come to the conclusion that in the satisfaction note apart from sayin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered sale deed for example belongs to the purchaser of the property although it obviously relates to or again refers to vendor. In this example, if the purchaser s premises are searched and registered with 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 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, undersigned leaves of cheque books and the copy of the supply and loan agreement can be said to belong to the petitioner. With these observations the Hon ble High Court was pleased to hold that the ingredients of s. 153C of the Act have not been satisfied. Consequently notices issued under s. 153C were quashed. 15. Similar are the facts of the present case before us. The documents seized during the course of search and seizure proceedings from the Raj Darbar Group have been referred as relating to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court also agreed with the decision of the Gujarat High Court in Kamleshbhai Dharamshibhai Patel (supra) to the extent it held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in s. 153A of the Act. The Supreme Court observed : This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. 28.5 The above categorical pronouncement of the Supreme Court cannot, by any stretch of imagination, be termed as obiter as has been suggested by Mr. Manchanda. Even the obiter dicta of the Supreme Court is binding on this Court. 29. The search in the case before the Supreme Court was prior to 1st June, 2015. Apart from the fact the Supreme Court approved the above decision of the Gujarat High Court holding that the seized documents should belong to the other person, the legal position in this regard where the search has taken place prior to 1st June, 2015 has been settled by the decision of this Court in Pepsico I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for a period of five months in 2010. In the first place, they do not relate to the assessment years for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating. Even for the assessment year to which they related, i.e. asst. yr. 2011-12, the AO finalised the assessment at the returned income qua each assessee without making any additions on the basis of those documents. Consequently even the second essential requirement for assumption of jurisdiction under s. 153C of the Act was not met in the case of the two assessees. 2.23 We observe that Hon ble Delhi High Court in Pepsi Foods (P.) Ltd. v. Asstt. CIT [2014] 52 taxmann.com 220/[2015] 231 Taxman 58 (Refer Page Nos. 601 to 608 of Cases relied upon by the Assessee Part 3) held as under:- 11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the AO is satisfied that it is a fit case for issuance of a notice under s. 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 AO. Mere use or mention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case and in law, the Tribunal was justified in ignoring crucial evidence and surrounding circumstances and proceeding to interpret Section 153C of the Act, narrowly and mechanically, and deleting the additions made under Section 69C of the Act both on merits and point of law ? 3. The undisputed facts before us are that in search and seizure action under Section 132 of the Act was carried out in case of Jay Corporation group, its employees and close associates who were involved in the process of acquiring land. Mr.Dilip Dherai was managing and handling land acquisition on behalf of Jay Corporation group. During the course of search, certain documents were found in possession of Mr.Dilip Dherai on the basis of which the Assessing Officer after recording satisfaction under Section 153C of the Act proceeded to initiate proceedings in respect of both respondents - assessees before us. 4. The Tribunal by the impugned order found that the documents seized from possession of Mr. Dilip Dherai did not belong to the assessee. Consequently, it held that the Assessing Officer did not have jurisdiction to initiate proceedings under Section 153C of the Act, as at the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11] 333 ITR 436 which records that the condition precedent for issuing notice under Section 153C of the Act is that the document found during search proceedings should belong to assessee to whom notice is issued under Section 153C of the Act. It was fairly pointed out to us by Mr.Mistry, the learned Senior Counsel for the respondent-assessee that the above decision was reversed by the Supreme Court in CIT v. Vijaybhai N. Chandrani [2013] 357 ITR 713/217 Taxman 138/35 taxmann.com 580. However, we find that the Apex Court reversed the view of Gujarat High Court on the ground that efficacious alternative remedy was available to the petitioner to raise its objections before the authorities under the Act. Therefore, the Gujarat High Court should not have exercised its extra ordinary writ jurisdiction to entertain the petition. However, the Apex Court also clarified that it was not expressing any opinion of the correctness or otherwise of construction placed by the High Court on Section 153C of the Act. The Revenue has not pointed out any reason why the construction put on Section 153C of the Act by Gujarat High Court is not correct/appropriate. We find that in any case our Court has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid case, a search and seizure action was carried out under section 132 of the Act in the case of Jay Corporation group and one Mr. Dilip Dherai, employee of the assessee company was involved in process of acquiring land. Proceedings under section 153C of the Act were initiated against such employee. The Hon ble High Court considered the factual aspects and then arrived at a particular conclusion. The Hon ble High Court concluded that in terms of section 153C of the Act, the proceedings could only be initiated against the party, if the documents seized during search, first should be found to be belonging to that party and that should be incriminating. Identical is the situation in the case before us, because, the document so found firstly should be from the possession of the assessee and more important is, it should relate to the assessee and it should be incriminating. The Revenue has not produced any evidence in its support, therefore, we find force in the argument of the Ld. counsel for the assessee. 2.26 The second condition is that the document should be incriminating in nature. If this document is analyzed, this document neither reveals any commercial transaction nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these are two different assessees and therefore the AO has to carry out the dual exercise first as the AO of the person searched in which he has to record the satisfaction, during the course of assessment proceedings of the person searched. We concur with the said view of the Co-ordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in s. 153C which is found during the search under s. 132, which are seized or requisitioned belong to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged under s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a sine qua non to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of s. 153C. We could not find any mention of any seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 (supra); All Cargo Global Logistics v. Addl.CIT (supra); SKS Ispat and Power Limited v. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) (supra) as well as the judgment of the Hon ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645) (supra), copies of which are placed on record. On perusal of the said decisions, we find they are relevant for the proposition that when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law . In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows : 12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s. 68 and section 14A of the Act based on the accounted transactions. The instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating. Even for the assessment year to which they related, i.e. asst. yr. 2011-12, the AO finalised the assessment at the returned income qua each assessee without making any additions on the basis of those documents. Consequently, even the second essential requirement for assumption of jurisdiction under s. 153C of the Act was not met in the case of the two assessees. 2.30 In the case of CIT v. RRJ Securities Ltd. [2016] 380 ITR 612/[2015] 62 taxmann.com 391, the Hon ble Court held as under:- 34. In SSP Aviation (supra), this Court had noted the difference between the provisions of s. 158BD of the Act and the provisions of s. 153C. Whereas s. 158BD referred to the satisfaction of an AO with regard to any undisclosed income belonging to a person other than the searched person, s. 153C(1) of the Act in contrast referred merely to the AO being satisfied that assets/documents seized during a search belonged to a person other than one searched. It is, thus, clear that it was not necessary for the AO, at the stage of recording the satisfaction under s. 153C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed income of an assessee before commencing an enquiry under s. 153C of the Act, it would be impermissible for him to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the assessee for the relevant assessment years. 37. As expressly indicated under s. 153C of the Act, the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of s. 153A of the Act. The concluded assessments cannot be interfered with under s. 153A of the Act unless the incriminating material belonging to the assessee has been seized. 38. As indicated above, in the present case, the documents seized had no relevance or bearing on the income of the assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of s. 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under s. 153C of the Act. 2.31 In view of above cited decision, it is clear that incrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther person and not by the Assessing Officer in a capacity of searched person. This can be proved on account of following reasons:- (a) Name and PAN of the assessee are mentioned on the top of the reasons and not the name of Shri Sudhakar M. Shetty, in whose case the search had taken place. (b) Nothing is mentioned either about handover of the documents by the Assessing Officer or receiving of documents by the Assessing Officer of the assessee. (c) Again and again, the word assessee is used which is the assessee only. (d) In para 3, it was mentioned that I am satisfied that documents seized as above belong to the assessee also shows that this reasons are recorded by the Assessing Officer in his capacity as a Assessing Officer of the assessee and not by him in his capacity as Assessing Officer of searched person. (e) The Assessing Officer of the searched person cannot say and write that Issue notice u/s. 153C . On the other hand, only the Assessing Officer of other person, other than Assessing Officer of searched person can say and write Issue notice u/s. 153C 2.35 The above facts reflects that neither satisfaction note was issued by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Income tax Appellate Tribunal. The relevant satisfactory note is reproduced herewith which is similar to in the assessee s case. SATISFACTION NOTE Proceedings u/s. 153C of the Income tax Act, 1961 for assessment years 2005-06 to 2010-11 in the case of Zaidun Leeng SON BHD Artefact Projects (JV) 54/3, Chhatrapati Nagar Square, Wardha Road, Nagpur (AAAAZ0129L) During the course of search and seizure/survey operations in the case of M/s. Artefact Project Ltd. Group of cases of Nagpur on 10.03.2011, the following material was seized/impounded. Annexure - B-1/6, seized/impounded during the course of action on the residential/office premises of M/s. Artefact Projects Ltd. Group of cases of assessee. I am satisfied that the above seized/impounded material belongs to Zaidum Leeng SDN BHD Artefact Projects (JV), 54/3, Chhatrapati Nagar square, Wardha Road, Nagpur (AAAAZO129L). Therefore, notice u/s. 153C of the I.T. Act, 1961 are being issued for Assessment years 2005-06 to 2010-11 in the case of assessee. Nagpur, Sd/ (ANOOP SINGH) Date : 16/02/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is settled proposition of law that proceedings under section 153C of LT. Act, 1961 can be initiated in respect to person other than searched only if incriminating material belonging to such person has been found and seized from the premises of person searched. No incriminating documents found at the person searched being M/s. Artefact Projects Ltd. no valid proceedings under section 153C of IT Act, 1961 could have been initiated in the case of assessee. (F) The satisfaction notice as observed in the file of assessee refers to documents seized from the residence/office premises of M/s. Artefact Project Ltd. group of cases for issue of notice u/s. 153C of IT Act, 1961. It is observed that it is no satisfaction in terms of provision of section 153C of IT Act, 1961 mandatorily required to be recorded by AO. of person searched i.e. M/s. Artefact Project Ltd. It is specifically asserted that no satisfaction of seized documents belonging to assessee is recorded by AO. of person searched. Thus no valid notice u/s. 153C of LT. Act 1961 is issued in case of assessee and assessment framed is bad in law and liable to be cancelled. (G) A bare discussion made in the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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, learned counsel submitted that the addition has not been made on the basis of seized material. In this regard, learned counsel submitted that the assessments in all these cases have been completed earlier. Hence, in the absence of incriminating material found during the search, no addition is sustainable u/s. 153C. Learned counsel further submitted that no incriminating document was found during search. He submitted that the documents seized which have been compiled in the paper book were documents relating 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 have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion precedent for the AO of the other person 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. v. 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-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency s power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction 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, sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person. 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 158BO of the Act and therefore, the above guidelines of the Hon ble SC, apply to proceedings u/s. 153C 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 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 Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BO/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court. 15. From the above CBDT notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 than the person referred to in Section 153A. That satisfaction of the concerned Assessing Officer is a sine qua non. The consequences flowing from the action to be taken on the basis of such information handed over to the Assessing Officer having jurisdiction, for the assessee, who is a person other than the person referred to in Section 153A, is drastic - of assessment or reassessment of his income falling within six assessment years. 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 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 conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the AO jurisdiction for issuing notice to the assessee u/s. 153C of the I.T. Act. No satisfaction note whatsoever is found in the case of the searched person, namely, M/s. Artefact Projects Ltd. In absence of any satisfaction note in the case of M/s. Artefact Projects Ltd. that 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 aside the orders of the learned CIT(Appeals) on this aspect of jurisdiction and quash the assessments by holding that requisite satisfaction was not recorded before issue of notice u/s. 153C. 2.38 If the aforesaid decision is analyzed, wherein CBDT Circular and the decision from Hon ble Bombay High Court in the case of Ingram Micro (India) Exports (P.) Ltd. (supra) has been considered, it was held that recording ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar to note recorded by the Assessing Officer of the present assessee. The Tribunal further observed/held as under:- 13. From the above, it is evident that the satisfaction is recorded in the case of Smt. Rekhaben K. Thakkar, proprietor of M/s. Durga Finance. Thus, the satisfaction is recorded in the case of the person other than the person searched. As we have already mentioned that as per s. 153C, the AO of the person searched should be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents belong to a person other than the person searched. Admittedly, in this case, the satisfaction is recorded not by the AO of the person searched but by the AO of the person to whom such document claimed to be belonging. It was contended by the learned counsel that since the AO of the person searched as well as the AO of such other person is the same; therefore, the satisfaction recorded by the AO should be considered as the proper compliance of s. 153C. We are unable to agree with this view of the learned Departmental Representative. Even if the AO assessing the person searched as well as other person whose assets, books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 153C, has mentioned on scrutiny of the documents so seized, it is noticed that certain documents were found to be pertaining to the above assessee . Thus, even as per AO, who recorded the satisfaction for issue of notice under s. 153C, the document i.e., the undated cheque was pertaining to the assessee and not belonging to the assessee. The decision of the Hon ble jurisdictional High Court relied upon by the learned CIT-Departmental Representative is on different facts. In the above case, the assessee sold certain land to the company named S . Subsequently, during the course of search at the premises of S , certain documents including the sale deed as well as an agreement between the tenant and the assessee was found. The agreement between the assessee and the tenant was relating to the vacation of the plot of land on certain payment made by the assessee. Their Lordships of the jurisdictional High Court have held agreement between tenants of the petitioner would certainly satisfy the requirement of s. 153C of the Act. Thus, the agreement between the tenant and the petitioner found from S was held to be belonging to the assessee because it was not belonging to the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding for recording of such satisfaction by the AO of the person searched. As the money, bullion, jewellery, books of account or documents, etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person searched and to the others and thus, handed over to the concerned AOs of the person searched and others for making assessment. As it is only the AO of the person searched who can reach a conclusion that some of the documents etc. do not belong to the person searched but to some other person, the legislature has provided for recording of such satisfaction by the AO of the person searched. It is not permissible under the law to require the AO of the other person to record such satisfaction by the AO. 17. As regards the other argument of the ld. DR that since the AO of both the persons searched an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r decision on the first legal issue, there is no need to espouse the other grounds taken by the assessee dealing with other legal issues or merits. 28. In the result, the appeal is allowed. 2.42 The Delhi Bench of the Tribunal in the case of Super Malls (P.) Ltd. v. Dy. CIT [2017] 88 taxmann.com 373 held as under:- 14. From the plain reading of the above notings, it is crystal clear that no satisfaction was recorded by the AO in the case of the searched person, the only satisfaction was recorded in the case of the person other than the searched person i.e., the assessee. The contents of the reasons recorded by the AO in the case of the assessee which has been incorporated by the learned CIT (A) at pp. Nos. 7 and 8 of the impugned order are as under : Reasons/satisfaction note for taking up the case of M/s. Super Malls (P) Ltd., Sector-12, HUDA, Karnal, Regd., Office at 51-Transport Centre, Punjabi Bagh, New Delhi under s. 153C of the IT Act, 1961. The jurisdiction of this case has been assigned to this office under s. 127 of IT Act, 1961 by the worthy CIT-III, New Delhi vide order F.No. CITIII/Del/Centralization/2012-13/2455, dt. 15th Jan., 2013. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot as the AO of the searched person. In the instant case, the AO in order-sheet entry dt. 22nd Feb., 2013 has mentioned that notice under s. 153C is issued after recording reasons but the AO of the searched person is not empowered to issue the notice to the person other than the searched person. In our opinion, even if the AO of the assessee and the searched person is the same, satisfaction must be recorded by the AO of searched person. In this regard, the Hon ble jurisdictional High Court in the case of Principal CIT v. Aakash Arogya Mandir (P) Ltd. (supra) (copy of which is placed at pp. Nos. 1 to 6 of the assessee s paper book) held in para 8 as under : 8. The Revenue has not placed any material to dispute the factual finding of the Tribunal that the requirement of the law explained by this Court in Pepsi Foods regarding the recording of satisfaction by the AO even in respect of the searched person was not fulfilled. Consequently, the fact that it was the same AO both for the searched person and the assessee makes no difference to the consequence of non-compliance with the legal requirement regarding the recording of satisfaction. The Court also agrees with the Tribunal th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was evident from the satisfaction note that apart from saying that the documents belonged to the assessee and that the AO was satisfied that it was a fit case for issuance of a notice under s. 153C, there was nothing which would indicate how the presumptions which were to be normally raised had been rebutted by the AO. 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 of the concept of satisfaction as used in s. 153C. The satisfaction note itself must display the reasons or basis for the conclusion that the AO of the person in respect of whom the search was conducted is satisfied that the seized documents belonged to another person. On going through the contents of the satisfaction note, no satisfaction of the kind required under s. 153C could be discerned. Thus, the very first step prior to the issuance of a notice under s. 153C had not been fulfilled. Inasmuch as this condition precedent had not been met, the notices under s. 153C were liable to be quashed. 17. In the present case, as we have already noted in the former part of this order that no satisfaction has been recorded in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idelines of the Hon ble SC, apply to proceedings u/s. 153C 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 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 Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BO/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court. 2.44 In view of above circular, it is clear that Several Hon ble 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income tax, Mumbai. On the other hand, the Ld. CIT-DR defended the addition made by the Ld. Assessing Officer. 2.46 We have considered the rival submissions and perused the material available on record. The following table shows the quantum of purchase made from both type of suppliers in respective assessment year for which the Assessing Officer has made the additions: S.N. ASSESSMENT YEAR Purchases where confirmation could not be filed. Alleged Hawala Purchases Total 1 2008-2009 1,84,80,257 1,35,29,342 3,20,09,599 2 2009-2010 1,23,00,071 66,06,020 1,89,06,091 3 2010-2011 18,58,439 51,55,132 70,13,571 In respect of additions made on account of those purchases, where confirmation could not be filed during the course of assessment proceedings, the Commissioner of Income tax (Appeals) have deleted the additions as the confirmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny enquiry in respect of these parties. This is evident from reading para 10.2 on page no. 12 of his order for the assessment year 2008-09 and similar observations were made in other assessment years also. We are reproducing the same para which read as under :- 10.2 To ascertain the genuineness of the purchases made by the assessee, the assessee was directed to provide the list of all purchase parties, with names, addresses and VAT TIN, from whom it had made purchases of construction material during the year. This data was reconciled with the data in possession of this office and the established bogus parties were identified from the books of the assessee. Such parties were admitted bogus billers and no further investigation was required in a considered opinion. They had also provided bogus bills of the assessee during the year. To the extent of these bills, the assessee had inflated its cost of construction. From the reading of above para, it is clear that the Assessing Officer has not deemed it fit to make further investigation and accepted the opinion of the Sales Tax Department as final. The Assessing Officer has not provided the copy of the statement/affidavit m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shtra Vat Department. Apparently names of all these 14 parties are appearing therein. further these parties have been investigation by the directorate of income tax (Investigation), Mumbai and in several cases search/survey action had been carried out and statements etc. were recorded, wherein apparently, these parties confirmed about providing accommodation entries. without any real transaction of sales and purchase. During the course of assessment proceedings or during the course of appellate proceedings the assessee had any credible evidence in support of its claim that purchases from these parties were genuine. The assessee has only made a general explanation that materials from these parties were actually purchased and were used in construction. However on reliance evidence in this regard has been furnished .In fact even confirmation from such parties have not been submitted. There is no evidence to suggest that material from these parties was actually received on the project site of the assessee and was used for construction of the building. In he circumstances the claim of the assessee that purchases from parties were genuine, cannot be accepted by any stretch of imagination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the Assessing Officer not to reduce ₹ 1,82,73,257/- (AY-2008-09), ₹ 1,21,43,430/- (Assessment Year 2009-10), ₹ 18,58,439/- and further the addition of ₹ 3,28,95,595/- made as short term capital gain on transfer of WIP on the building under construction (Assessment Year 2010-11), ₹ 14,10,00,000/- within the provisions of section 45(4) of the Act holding that the reconstitution of the firm by relinquishing the right of old partners to new partners does not fall within the purview of section 45(4) of the Act (Assessment Year 2011-12) from closing work in progress (WIP) of the project under construction whereas the Assessing Officer reduced the WIP as the assessee had bogus purchases to inflate the closing WIP (Assessment Year 2008-09). 3.2 The Ld. CIT-DR advanced arguments, which are identical to the ground raised in the respective appeal. Whereas, the ld. Counsel for the assessee, defended the conclusion arrived at in the impugned order. 3.3 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that a search action had taken place at the residential premises of Shri Sudhakar M. Shetty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated the reconstitution of partnership firm liable to tax u/s. 45(4). The Commissioner of Income tax (Appeals) has deleted the said additions on the basis of judicial pronouncement. The Revenue has preferred appeal against such deletion. 3.4 During the course of arguments before this Tribunal, the learned CIT-DR has relied upon the decision of the Assessing Officer whereas the Ld. AR has relied upon the decision of the Commissioner of Income tax (Appeals). Apart from this, the AR has also argued that the assessee has challenged the assessment orders and notices issued u/s. 153C in its own appeal filed for the above assessment years. The assessee has also contended that as no incriminating documents were found during the course of search, no addition can be made in the assessment order passed u/s. 153C of the Act. A detailed submission along with related judgments was also filed while submitting the detailed explanation in respect of appeals filed by the assessee. For the sake of convenience, we are showing the assessment year wise respective paras where the Assessing Officer and the Commissioner of Income tax (Appeals) has dealt with the respective additions/deletion in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties has been mentioned at page-16 (ITA No.3586/Mum/2015) and consequent addition was made. The detailed submissions of the assessee vide letter dated 22/09/2014 were considered, wherein, the copies of the accounts of the concerned parties, bills for purchase of the materials, proof of payment through cheque were furnished by claiming that the purchases were genuine. In para-19 of the impugned order, it has been mentioned that the assessee was provided only 14-15 days time to respond to the various queries raised by the Assessing Officer. The assessee submitted its reply vide letter dated 11/03/2014. The Ld. Commissioner of Income Tax (Appeal) granted part relief to the assessee, which is under challenge by the Revenue. On perusal of records, confirmation by the parties vide letter dated 04/02/2015 along with other details, we are satisfied that the Ld. Commissioner of Income Tax (Appeal) justifiably granted relief to the assessee. The genuineness of the transactions was found to be in the light of the bona-fide reasons and there is uncontroverted finding that these parties were not part of the Hawala Dealers. Thus, we find no merit in the appeals of the Revenue, consequently, dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. The facts, in brief, are that the case was mentioned in the cross objection filed by the assessee. A search action had taken place at the residential premises of Shri Sudhakar M. Shetty, Director of the assessee company, on 22nd September, 2011. One document, neither incriminating nor belonging to the assessee was found. On the basis of said document, the Assessing Officer has issued notice u/s. 153C of the Income tax Act, 1961 in the case of the assessee for the assessment year 2011-12. The Assessing Officer has passed the order for the assessment year 2011-12. Considering the totality of facts, so far as, the jurisdictional issue u/s. 153C is concerned, in the light of the foregoing discussion, the case of the assessee is covered in favour of the assessee as we have made an elaborate discussion in earlier paras of this order. We have already admitted the legal issue in view of various decisions including the decision from Hon ble Apex Court in the case of National Thermal Power Co. Ltd. (supra) along with other decisions. For the sake of brevity, the same is not being repeated and may be read as part and partial of this order. So far as the reasons for issuance of noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset by way of distribution of capital assets on the dissolution of a firm is chargeable to tax as income of the firm in a previous year in which the transfer takes place and for the purposes of Section 48, the fair market value of the asset on the date of such transfer is deemed to be the full value of the consideration received or accruing as a result of the transfer. Section 48 deals with mode of computation. It, inter alia, lays down that the income chargeable under the head Capital gains shall be computed by deducting from the full value of the consideration, the expenditure incurred in connection with the transfer and the cost of acquisition of the asset. Therefore, under Section 45(4), two conditions are required to be satisfied viz. transfer by way of distribution of capital assets and secondly, such transfer should be on dissolution of the firm or otherwise. Once these two conditions are satisfied then, in that event, for the purposes of computation of capital gains under Section 48, the market value on the date of the transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer. 6. Now, according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed amount as per the priority like payment of taxes to the Government, BMC etc., payment to unsecured creditors etc. This difference is very important. This difference is amply brought out conceptually in the judgment of the Supreme Court in the case of Malabar Fisheries Co.v. CIT [1979] 120 ITR 49 2 Taxman 409. In the present case, therefore, we are of the view that Section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied. In the circumstances, the latter part of Section 45(4), which refers to computation of capital gains under Section 48 by treating fair market value of the asset on the date of transfer, does not arise. 4.5 The Hon ble jurisdictional High Court further analyzed section 45(1) of the Act and held as under:- 6. As stated above, in this case we are concerned with the assessment year 1996-97. Therefore, in this case, we are not concerned with clause (xiii) inserted by Finance (No. 2) Act, 1998 in Section 47 under which it is provided that where a Firm is succeeded by a company in the business carried on by it as a result of sale or otherwise, of any capital assets, then such transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and interest in the capital assets qua the Firm. We do not find any merit in this argument. In the present case, we are concerned with a Partnership Firm being treated as a company under the statutory provisions of Part IX of the Companies Act. In such cases, the Company succeeds the Firm. Generally, in the case of a transfer of a capital asset, two important ingredients are : existence of a party and a counterparty and, secondly, incoming consideration qua the transferor. In our view, when a Firm is treated as a Company, the said two conditions are not attracted. There is no conveyance of the property executable in favour of the Limited Company. It is no doubt true that all properties of the Firm vests in the Limited Company on the Firm being treated as a Company under Part IX of the Companies Act, but that vesting is not consequent or incidental to a transfer. It is a statutory vesting of properties in the Company as the Firm is treated as a Limited Company. On vesting of all the properties statutorily in the Company, the cloak given to the Firm is replaced by a different cloak and the same Firm is now treated as a Company, after a given date. In the circumstances, in our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession full value of the consideration cannot be construed as having a reference to the market value of the asset transferred and that the said expression only means the full value of the things received by the transferor in exchange of the capital asset transferred by him. In the circumstances, even if we were to proceed on the basis that vesting in the company under Part IX constituted transfer under Section 45(1), still the assessee ought to succeed because the Firm can be assessed only if the full value of the consideration is received by the Firm or if it accrues to the Firm. In the present case, the Company had allotted shares to the Partners of the erstwhile Firm, but that was in proportion to the capital of the Partners in the erstwhile Firm. That allotment of shares had no correlation with the vesting of the properties in the Limited Company under Part IX of the Act. Lastly, Section 45(1) and Section 45(4) are mutually exclusive. Under Section 45(4) in cases of transfer by way of distribution and where such transfer is as a result of dissolution, the department is certainly entitled to take the full market value of the asset as full value of consideration provided there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed only as occasioned by operation of law and hence no controversy can arise on the application of this principle even for the purposes of capital gains under sections 45(4) of the Act. Thus, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) with respect to non-taxability u/s. 45(1) or 45(4) of the Act. 5. So far as applicability of section 47(xiii) r.w.s. 47A(3) of the Act is concerned, it is our bounded duty to examine the aforesaid sections, therefore, the same are reproduced hereunder:- 47. Nothing contained in section 45 shall apply to the following transfers :- (i) any distribution of capital assets on the total or partial partition of a Hindu undivided family; (ii) [***] (iii) any transfer of a capital asset under a gift or will or an irrevocable trust : Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under any Employees Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamated foreign company, if- (A) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and (B) such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated; (vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company; (vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if- (a) the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated : Provided that the provisions of sections 391 to 39463 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause; (vica) any transfer in a business reorganisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an company issued outside India, by a non-resident to another non-resident;] Following clause (viiab) shall be inserted after clause (viiaa) of section 47 by the Finance Act, 2018, w.e.f. 1-4-2019 : (viiab) any transfer of a capital asset, being- (a) bond or Global Depository Receipt referred to in sub-section (1) of section 115AC; or (b) rupee denominated bond of an Indian company; or (c) derivative, made by a non-resident on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency. Explanation.-For the purposes of this clause,- (a) International Financial Services Centre shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); (b) recognised stock exchange shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43; (c) derivative shall have the meaning assigned to it in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (viib) any transfer of a capital asset, being a Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 (42 of 1956); (xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by its workers co-operative : Provided that such transfer is made during the period commencing from the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, net worth shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); (xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conversion become the assets and liabilities of the limited liability partnership; (b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion; (c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership; (d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion; (e) the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; 68[***] 68a[(ea) the total value of the assets as appearing in the books of account of the company in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igned to it in the Explanation to clause (23FC) of section 10; (xviii) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund: Provided that the consolidation is of two or more schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund. Explanation.-For the purposes of this clause,- (a) consolidated scheme means the scheme with which the consolidating scheme merges or which is formed as a result of such merger; (b) consolidating scheme means the scheme of a mutual fund which merges under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (c) equity oriented fund shall have the meaning assigned to it in clause (38) of section 10; (d) mutual fund means a mutual fund specified under clause (23D) of section 10; 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to be the income chargeable under the head Capital gains of the previous year in which such shares are transferred. (3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with. (4) Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the shareholder of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objections (para-22 of the impugned order) raised by the Ld. Assessing Officer, submissions of the assessee and incorporation of the firm vide incorporation certificate dated 12/08/2010 issued by ROC from which it is abundantly clear that the assessee company i..e. M/s. Skylark Buildcon Pvt. Ltd. was incorporated under chapter IX of the Companies Act, 1956, which is further fortified by the MOA of the assessee company and fixed share capital of all the partners of the earst while firm, which has been dealt with in para-24 onwards of the impugned order. The share holding on the date of conversion etc has been dealt with in para 28 onwards of the impugned order. This stand of the Ld. Commissioner of Income Tax (Appeal) is fortified by the decision from Hon ble Apex Court in the case of Malabar Fisheries Company Ltd. (supra), wherein, it was held/observed as under:- These appeals by special leave raise an interesting question of law whether the distribution of assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the expression otherwise transferred occurring in s. 34(3)(b) of the I.T. Act, 1961, having regard to the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals holding that the case fell within the principle laid down by this court in the case of CIT v. Dewas Cine Corporation [1968] 68 ITR 240 (SC) and that there was no question of any sale or transfer within the meaning of s. 34(3)(b) in a transaction involving the adjustment of the rights of the partners of a dissolved firm. At the instance of the revenue, the Tribunal referred two questions of law to the High Court for its opinion, namely : (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that there was no question of sale and that it was only an adjustment of the mutual rights of the partners and that the provisions of section 34(3) were not applicable ? (2) Whether, on the facts and in the circumstances of the case, there was a transfer of assets within the meaning of the words otherwise transferred , occurring in section 34(3)(b) of the Income-tax Act ? The High Court answered the second question in the affirmative and against the assessee and, in view of that answer, declined to answer the first question as being unnecessary. The High Court took the view that this court s decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital assets or extinguishment of any rights therein. In any case, he contended that in every case dissolution must be anterior in point of time to the distribution that takes place after making accounts and discharging all debts and liabilities and as such there is no transfer of any assets by the assessee (i.e., the dissolved firm) to any person as contemplated by s. 34(3)(b), but all that happens is that upon dissolution and upon making up of accounts and discharge of liabilities it is the erstwhile partners who mutually adjust their rights and it is by way of adjustment of such rights that distribution, division or allotment of assets takes place. He, therefore, urged that s. 34(3)(b) was inapplicable to the case. On the other hand, counsel for the revenue pressed the High Court s view for our acceptance. He urged that the question has to be considered under the 1961 Act in the light of the definition of transfer contained in s. 2(47) which includes within its scope even extinguishment of rights in capital assets . According to him, during the continuance of the partnership, the machinery undoubtedly belonged to the firm, the firm as a separate taxable entity got t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of s. 34(3)(b) it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied: (a) that the ship, machinery or plant must have been sold or otherwise transferred, (b) that such a sale or transfer must be by the assessee, and (c) that the same must be before the expiry of 8 years from the end of the previous year in which it was acquired or installed. It is only when these three conditions are satisfied that any allowance made under s. 33 shall be deemed to have been wrongly made and the ITO acting under s. 155(5) will be entitled to withdraw such allowance. Further, s. 2(47) gives an artificial extended meaning to the expression transfer , for, it not merely includes transactions of sale and exchange which, in ordinary parlance, would mean transfers but also relinquishment or extinguishment of rights which are ordinarily not included in that concept. The question is whether the distribution, division or allotment of assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the words otherwise transferred occurring in s. 34(3)(b) of the Act, regard being had to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court held that those expressions when used in s. 10(2)(vii) and the second proviso thereto must be understood in their ordinary meaning and that sale according to its ordinary meaning meant a transfer of property for a price. This court further enunciated the proposition that the distribution of surplus upon dissolution of a partnership after discharging its debts and obligations was always by way of adjustment of rights of partners in the assets of the partnership and did not amount to a transfer much less for a price. It is significant to note that the question of raising a balancing charge against the dissolved firm, a separate taxable entity which had been allowed depreciation in the earlier years, was considered by this court and this court took the view that no balancing charge arose against the firm inasmuch as no sale or transfer was involved in the transaction of distribution of the assets to erstwhile partners of the firm consequent upon its dissolution. In Bankey Lal Vaidya s case [1971] 79 ITR 594 (SC), the concept of distribution of assets to the partners of a firm consequent upon its dissolution was considered in the context of the charge on capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners to whom it was allotted in the distribution of assets, and, therefore, the transaction so far as the firm is concerned amounts to a transfer of assets under s. 2(47). The question is how far is it correct to say that in law the firm as such has rights in the partnership assets liable to extinguishment upon dissolution? It is well known that commercial men and accountants on the one hand and lawyers on the other have different notions respecting the nature of the firm and this difference between the mercantile view and the legal view has been explained in Lindley on Partnership, 12th edn., at pages 27 and 28,thus : Partners are called collectively a firm. Merchants and lawyers have different notions respecting the nature of a firm. Commercial men and accountants are apt to look upon a firm in the light in which lawyers look upon a corporation, i. e., as a body distinct from the members composing it, and having rights and obligations distinct from those of its members. Hence, in keeping partnership accounts, the firm is made debtor to each partner for what he brings into the common stock, and each partner is made debtor to the firm for all that he takes out of that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for the debts and losses of the business. Further, it is true that partnership property is regarded as belonging to the firm, but that is only for the purpose of distinguishing the same from the separate property of the partners. But, in law the partnership property is jointly owned by all the partners composing the firm. In Lindley on Partnership, at page 359, the following statement of law occurs : The expressions partnership property, partnership stock, partnership assets, joint stock, and joint estate, are used indiscriminately to denote everything to which the firm, or in other words all the partners composing it, can be considered to be entitled as such. Again at page 375, the following statement of law occurs : In the absence of a special agreement to that effect, all the members of an ordinary partnership are interested in the whole of the partnership property, but it is not quite clear whether they are interested therein as tenants in common, or as joint tenants without benefit of survivorship, if indeed there is any difference between the two. It follows from this community of interest that no partner has a right to take any portion of the partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnised in more than one way (ss. 14 and 15 of the Partnership Act) but only as that which is joint estate of all the partners as distinguished from the separate estate of any of them, and not as belonging to a body distinct in law from its members. In Addanki Narayanappa v. Bhaskara Krishnappa [1966] 3 SCR 400; AIR 1966 SC 1300, this court, after quoting with approval the aforementioned passages occurring in Lindley on Partnership, 12th edn., made the following observations in the context of partners rights during the subsistence as well as upon the dissolution of a firm (p. 1303) : No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the counsel for the revenue and that is that the second condition required to be satisfied for attracting s. 34(3)(b) cannot be said to have been satisfied in the case. It is necessary that the sale or transfer of assets must be by the assessee to a person. Now every dissolution must in point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of assets effected by a deed takes place eo instanti with the dissolution or that it is effected by the dissolved firm. In the result, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the company to the public ? It answered the first part of the question in the affirmative and in favour of the revenue and the second part in the negative and against the revenue. As regards the third question, the High Court opined that on the facts and in the circumstances of the case, the capital gains should have been computed at ₹ 27,04,772. Aggrieved by this decision the Commissioner of the Income-tax has brought Civil Appeal No. 1452 of 1969 and the assessee has brought Civil Appeal No. 1502 of 1969. The only contentions urged in the assessee s appeal were that, on the facts and in the circumstances of the case, proceedings under section 34(1)(a) have not been validly initiated and to the facts of this case section 12B is not attracted. In the appeal by the Commissioner, the question for decision is what is the correct amount that has to be brought to tax under section 12B as capital gains. The counsel for the revenue did not contest the conclusion of the High Court that, on the facts and in the circumstances of the case, no capital gains within the meaning of section 12B could be said to have arisen by the admission of the company as a partner of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners or their nominees of twenty-five thousand redeemable cumulative preference shares of Rupees one hundred each credited for all purposes as fully paid up. One other document that came into existence on the same day, viz., February 28, 1947, is the deed of partnership. That day the assessee-firm was reconstituted and a new partnership came into existence. The new partnership consisted of five partners, viz., (1) The company ; (2) A. C. Gladstone ; (3) S. D. Gladstone ; (4) T. S. Gladstone and (5) Glendye Limited. In this new partnership the Company had 99 per cent. Share in its profits. The remaining four partners had only 1/4th per cent. share each in the profits of the new partnership. Before proceeding further, it is necessary to mention that the company was previously a private limited company. In 1946, the company applied to the Examiner of Capital Issues for permission to convert itself into a public limited company and sell its shares at a premium. Originally, the proposal of the company was to sell its shares of the face value of ₹ 100 to the public at a premium of ₹ 145 to ₹ 175 and its preferential shares of the face ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed In the present case all that we have to see is whether the Income-tax Officer had reason to believe that the assessee had not disclosed fully and truly all the material facts necessary for its assessment for the assessment year in question. The scope of the expression failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment .. has been examined by this court in several decisions. The leading case on the subject is Calcutta Discount Co. Ltd. v. Income- tax Officer, Companies District-I, Calcutta *. Therein this court by majority held that to confer jurisdiction under section 34 to issue notice in respect of an assessment beyond a period of four years, but within a period of eight years, from the end of the relevant year, two conditions have to be satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l inferences have ultimately to be drawn. It was not for anybody else-far less the assessee-to tell the assessing authority what inferences whether of facts or of law should be drawn. If there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards the primary facts which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether those grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts is not open to the court s investigation. In other words, all that is necessary to give jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts. The rule laid down in Calcutta Discount Co. s case * was reiterated by this court in Commissioner of Income-tax v. Hemchand Kar **. The same view was again expressed by this court in Commissioner of Income-tax v. Bhanji Lavji *** as well as in Commissioner of Income-tax v. Burlop Dealers Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision relating to capital gains is found in section 12B. We shall now read the relevant portion of that provision : 12B. (1) The tax shall be payable by an assessee under the head Capital gains in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. [The provisos to sub-section (1) are not relevant for our present purpose]. Sub-section (2) of section 12B says : The amount of a capital gains shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely : (i) expenditure incurred solely in connection with such sale, exchange, relinquishment or transfer ; (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any addition or alterations thereto, but excluding any expenditure in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal as well as by the High Court. The first question for decision is whether the first proviso to section 12B is attracted to the facts of the present case. The sale with which we are concerned in this case took place on February 28, 1947. Section 12B was incorporated into the Act with effect from April 1, 1947. That being so at the time the sale transaction took place section 12B was not a part of the Act. Hence, there is no basis for saying that the transfer was effected with the object of avoidance or reduction of the liability of the assessee , see Commissioner of Income-tax v. George Henderson and Co. Ltd. * Hence, the question for decision is whether the facts of this case fall within the scope of section 12B(1) read with sub-section (2) of that section. We have earlier seen that the Income-tax Officer in computing the total capital gains had taken into consideration the capital gains said to have been earned as a result of the sale of the shares and securities as well as the goodwill. The Appellate Assistant Commissioner in his order did not say anything specific about any capital gains earned as a result of the sale of the goodwill. The Tribunal re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment made by the members to enable them to carry on their business as a company rather than as a firm and no profits in the commercial sense were made thereby; the transfer of the assets of the firm to the company was, therefore, not a sale. The same view was taken by the Calcutta High Court in Commissioner of Income-tax v. Mugneeram Bangur and Co. ** This court in Commissioner of Income-tax v. B. M. Kharwar *** held that the observations in Sir Kikabhai Premchand s case # to the effect that in revenue cases regard must be had to the substance of the transaction rather than its mere form cannot be read as throwing any doubt on the principle that the true legal relation arising from a transaction alone determines the taxability of a receipt arising from the transaction. The observation in question was considered as casual and that the same was not necessary for the purpose of the case. In Kharwar s case ***, this court also disapproved the decisions in Sir Homi Mehta s Executors case ##, Rogers Co s case * and Mugneeram Bangur Co s case **. Therein, this court ruled that it is now well settled that the taxing authorities are not entitled, in determining whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce value of the shares allotted. On the other hand, a person carrying on business may agree with a company floated by him that the assets belonging to him shall be transferred to the company for a certain money consideration and that in satisfaction of the liability to pay the money consideration shares of certain face value shall be allotted to the transferor. In such a case, there are in truth two transactions, one transaction of sale and the other a contract under which the shares are accepted in satisfaction of the liability to pay the price. The fact that as a result of the transfer of the shares of the company to the assessee firm, the latter obtained considerable profits, will not alter the true nature of the transaction-See the decision of this court in Chittoor Motor Transport Co. (P.) Ltd. v. Income-tax Officer, Chittoor **. For the reasons above stated, we have no hesitation in coming to the conclusion that the transaction evidenced by the agreement for sale between the company and the assessee was a sale. Now let us see what is the impact of section 12B(2) on that transaction ? Under that provision, the amount of capital gains has to be computed after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfer, may be deemed to be the full value of the consideration. To give rise to this fiction the two conditions of the first proviso are : (1) that the transferor was directly or indirectly connected with the transferee, and (2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B(2) applies and the Income-tax Officer must take into account the full value of the consideration for the transfer. It may be noted that in that case the market value of the shares which were allotted at ₹ 136 per share was ₹ 620 per share. Applying the priciples enunciated in that decision we think that the full value of the sale price received by the assessee was only rupees seventy five lakhs. That being so, the capital gains made by the company were ₹ 27,04,772 as held by the High Court. In the result both these appeals fail and they are dismissed with costs. 5.4 In another case, in Sunil Sidharthbhai v. CIT [1985] 156 ITR 509/23 Taxman 14W (SC), the Hon ble Apex Court observed held as under:- This and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital contribution, the cost of acquisition of the shares to the assessee being ₹ 1,49,819 and the market value of the shares being ₹ 1,60,279 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was a transfer within the meaning of clause (47) of section 2 of the Income-tax Act, 1961, of the shares contributed by the assessee as capital to the partnership firm in which he was a partner ? In Civil Appeal No. 1777 of 1981, the appellant was a partner in a registered partnership firm, Messrs. Rajka, of which the other partner was his wife. The partnership was constituted under an agreement dated February 25, 1973. The partnership deed recited that the partnership business had commenced on January 1, 1973, that it was a partnership at will and further provided that the assessee would initially contribute ₹ 9,000 in cash to the share capital of the firm and his wife would contribute ₹ 1,000 in cash. It was provided that when any addition to the capital was required for the purposes of the partnership, the partners would contribute such additional capital from time to time. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulting in Capital gains chargeable to tax ? (2) If the, reply to question No. (1) is in favour of the Revenue, whether the Tribunal erred in not considering whether the transfer is with or without consideration ? By a common judgment dated April 30, 1981/May 1, and 4, 1981, the High Court answered the questions in favour of the Revenue and against the assessee. Section 45 of the Income-tax Act, 1961, provides: 45. (1) Any profits or gains arising from the transfer of I capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54C and 54D, be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 Of the Act provides : 48. The income chargeable under the head Capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the capital asset and the cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not involve a sale of the property. The High Court referred to section 14 of the Indian Partnership Act, 1932, and observed (p. 533): When a partnership is formed for the first time and one of the members of the partnership brings into the firm assets, they become the property of the firm, not by any transfer, but by the very intention of the parties evinced in the agreement between them to treat such property belonging to one or more of the members of the partnership is that of the firm. The view that when a partner hands over a business asset to a partnership firm as his contribution to its capital, he cannot be said to have effected a sale was also taken by the Allahabad High Court in Dr. Kackkar v. CIT [1973] 92 ITR 87, the Kerala High Court in (CIT v. Kunhammed [1974] 94 ITR 179 and by the Madras High Court in CIT v. Abdul Khader Motor and Lorry Service [1978] 112 ITR 360. We find no difficulty in accepting that proposition. But while the transaction may not amount to a sale, can it be described as a transfer of some other kind ? Illustrations of other kinds of transfer are, provided by clause (47) of section 2 of the Income-tax Act, which defines the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence., the partnership property will vest in all the partner, and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own, Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to L share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clause (i), (ii) and (iii) of clause (b) of section 48. The position was later in the same judgement as follows 1304): The whole concept Of partnership is to entry upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer to the erstwhile partners. What the partner gets upon dissolution or upon retirement is the realisation of a pre-existing right or interest. It is nothing strange in the law that a right or interest should exist in praesenti but its realisation or exercise should be postponed. Therefore, what was the exclusive interest of a partner in his personal asset is, upon its introduction into the partnership firm as his share to the partnership capital, transformed into an interest shared with the, other partners in that asset. Qua that asset, there is a shared interest. During the subsistence of the partnership, the of the interest of each partner qua that asset cannot be isolated or carved out from the value of the partner s interest in the totality of the partnership assets. And in regard to the latter, the value will be represented by his share in the not assets on the dissolution of the firm or upon the partner s retirement. Learned counsel for the assessee has attempted to draw an analogy between the position arising when a personal asset is brought by a partner into a partnership as his contribution to the partnership capital and that which arises when, on dissolution of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The view does not spring from the consideration that there is Do transfer, the view is that no document of transfer is required and that, therefore, registration is unnecessary. The Patna High Court reiterated that view in Sudhansu Kanta v. Manindra Nath, AIR 1965 Pat 144. Accordingly, we hold that when the assessee brought the shares of the limited companies into the partnership firm as his contribution to its capital, there was a transfer of a capital asset within the meaning of the terms of section 45 of the Income-tax Act. In this view of the matter, we agree with the conclusion reached by the Kerala High Court in A. Abdul Rahim, Travancore Confectionery Works v. CIT [1977] 110 ITR 595 [FB], the Karnataka High Court in Addl. CIT v. M. A. J. Vasanaik [1979] 116 ITR 110 and by the Gujarat High Court in the judgment under appeal. The second question is, whether the assessee can be said to have received any consideration as that expression is understood in the scheme of capital gains under the Income-tax Act. In CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, this court observed that the charging section and the computation provisions under each head of income consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether. The third contention of the learned counsel for the assessee is that no profit or gain can be said to arise to a partner when he brings his personal asset into a partnership firm is his contribution to its capital. It is urged that the capital gains chargeable under section 45 are real capital gains computed on the ordinary principles of commercial accounting and that the capital gains must be embedded in the capital asset. In Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC), the appellant held by way of investment some ordinary shares in a limited company. An offer was made by the company to her by which she was entitled to apply for an equal number of new ordinary shares at a premium with an option of either taking the shares or renouncing them in favour of others. The appellant renounced her rights to all the shares and realised ₹ 45,262.50. When this amount was sought to be wholly taxed as a capital gain, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of liabilities and prior charges. When his personal asset merges into the capital of the partnership firm, a corresponding credit entry is made in the partner s capital account in the books of the partnership firm, but that entry is made merely for the purpose of adjusting the rights of the partners inter se when the partnership is dissolved or the partner retires. It evidences no debt due by the firm to the partner. Indeed, the capital represented by the notional entry to the credit of the partner s account may be completely wiped out by losses which may be subsequently incurred by the firm, even in the very accounting year in which the capital account is credited. Having regard to the nature and quality of the consideration which the partner may be said to acquire on introducing his personal asset into the partnership firm as his contribution to its capital, it cannot be said that any income or gain arises or accrues to the assessee in the true commercial sense which a businessman would understand as real income or gain. An objection has been taken by the learned counsel for the respondent to this submission being, raised before us because, it is said, the question h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for, in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth. In the result, the questions which arise in these appeals are answered as follows : 1. There was a transfer of the shares when the made them over to the partnership firm as his capital contribution. 2. When the assessee transferred his shares to the partnership firm, he received no consideration within the meaning of section 48 of the Income-tax Act, 1961, nor did any profit or gain accrue to him for the purpose of section 45 of the Income-tax Act, 1961. These answers are given by us subject to the reservations made by us in the preceding paragraph. The appeals are partly allowed and there is no order as to costs. 5.5 It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . FAA in para 31 and 32 (page-46 and 47) of the impugned order. Identically, the Delhi Bench of the Tribunal in Krishna Electrical Industries v. Dy. CIT [2004] 4 SOT 143 observed as under:- 3.1 The brief facts of the case are that the assessee filed its return on 31st Oct., 1993, declaring an income of ₹ 11.52 lakhs. The assessee was carrying on the business of manufacturing and trading of power cable. The firm was originally constituted in 1968-69. The constitution of the firm was changed from time to time, as some of the partners were retired and joined. During the year under consideration, the firm got itself converted into a company under the name and style of KEI. Industries Ltd. This conversion was made as limited company under Chapter IX of the Companies Act. As a result of the formula of the aforesaid company, the business of the firm with all its assets and liabilities got automatically vested in the company. Before conversion into company, the firm revalued its land and factory building, which was adopted at ₹ 80 lakhs and ₹ 10 lakhs, respectively, based upon the valuation report of the registered valuer. However, the assessee-firm did not charge de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considered and then the conclusion was arrived at that this is not a case of transfer. The CIT (A) has considered that whether the firm can be registered as a limited company under Chapter IX of the Companies Act, and what is the scope of meaning of s. 575 of the Companies Act and what is the meaning of the word transfer under the provisions of ss. 2(47) and 54(5) (sic) of the Act, and what is the legal position before insertion of s. 45(4) of the IT Act and whether automatic vesting of the assets and liabilities in the new company will amount to transfer of asset, and what is the scope of s. 45(4) of the Act that whether distribution of assets is a must. After discussing all these provisions of law in detail and placing reliance on various case law, reported in E.I.D. Parry Ltd. v. CIT (1988) 98 CTR (Mad) 49: (1988) 174 ITR 11(Mad) and in the case of Maharajadhiraj Sir Kameshwar Singh v. CIT (1963) 48 ITR 483(Pat), the CIT (A) held that there is no transfer of capital asset from the firm to the company and, therefore, the provisions of R s. 112 of the IT Act r/w s. 45(4) cannot be applied, and accordingly it was held that the AO wrongly brought the amount to capital gain. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has discussed the issue in regard to transfer of property and one of the findings of the Hon ble apex Court is that if there was a transfer of shares but the person has got no consideration within the meaning of s. 48, then in that case no profit or gain accrued to him for the purpose of s. 45 of the Act. It was further observed by the Hon ble Court that where the entire bundle of rights from the transferor has been made and rights of the transferor have not reduced, then in that case also provisions of s. 45 are not applicable. However, it has been observed by the apex Court that if the rights of the person are reduced in transferring the assets to another person, then of course it tantamounts to transfer of interest. 3.6 In the present case, undisputedly the assets and liabilities of the erstwhile firm were converted into company as a whole and all the partners of the firm were allotted shares of the company in equal proportion which was in the firm. Therefore, the interest of the partners was not reduced in any way, neither R any amount was paid separately to the firm or the partners on account of goodwill or on account of revaluation of assets. Therefore, the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and more firms becoming limited companies. It also indicates the difference between transfer and transmission. Basically, when a firm is treated as a company under Part IX, it is a case similar to transmission. This is amply made clear by cl. (xiii) to s. 47, which states that where a firm is succeeded by a company in the business, the transaction shall not be treated as a transfer. The expression transfer of a capital asset in s. 45(1) is required to be r/w s. 2(47)(ii) which states that transfer in relation to a capital asset shall include extinguishment of any rights therein. In certain cases of reconstitution of firms and introduction of new partners, there is a resultant extinguishment of the rights in the capital assets proportionately. In order to get over this controversy and keeping in mind the object of encouraging firms being treated as companies, the controversy is resolved by the legislature by introducing cl. (xiii) in s. 47 w.e.f. 1st April, 1999. When a partnership firm is treated as a company under the statutory provisions of Part IX of the Companies Act, the company succeeds the firm. Generally, in the case of a transfer of a capital asset, two important in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in proportion to the capital of the partners in the erstwhile firm. That allotment of shares had no correlation with the vesting of the properties in the limited company under Part IX of the Act. If one reads s. 45(1) with s. 48, it is clear that the former is a charging section and if that section is applicable, the computation has to be done under s. 48, which only refers to deductions from full value of consideration received or accruing. Sec. 48 does not empower the AO to take market value as full value of consideration as in the case of s. 45(4). In the circumstances, even if one were to hold that vesting amounts to transfer, the computation is not possible because full consideration cannot be construed to mean market value of the asset transferred. The legislature, in its wisdom, has amended only s. 45(4) by which the market value of the asset on the date of the transfer is deemed to be the full value of consideration. However, such amendment is not there in s. 45(1). In the circumstances, neither s. 45(1) nor s. 45(4) stands attracted. CIT Anr. v. George Henderson Co. Ltd. (1967) 66 ITR 622(SC) and CIT v. Gillanders Arbuthnot Co. 1973 CTR (SC) 136: (1973) 87 ITR 407 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Shetty (ITA Nos.2908, 2909, 215, 2910 and 2911/Mum/2015) and Cross objections filed by the assessee (C.O. Nos. 210 to 213/Mum/2016 and C.O. 269/Mum2016). 7.1 During hearing, the Ld. CIT-DR contended that the appeal of the Revenue in ITA No.2908 to 2911/Mum/2015 are barred by limitation by 38 days, therefore, the delay may be condoned. The Ld. Counsel for the assessee, opposed condonation of delay by contending that the Revenue is expected to explain the delay of each day. 7.2 So far as, condonation of delay is concerned, we have considered the rival submissions and perused the material available on record. In view of the assertions made by the ld. respective counsel, so far as, condonation of delay is concerned no doubt filing of an appeal is a right granted under the statute to the assessee and is not an automatic privilege, therefore, the assessee is expected to be vigilant in adhering to the manner and mode in which the appeals are to be filed in terms of the relevant provisions of the Act. Nevertheless, a liberal approach has to be adopted by the appellate authorities, where delay has occurred for bona-fide reasons on the part of the assessee or the Revenue in filing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the others courts in the hierarchy. 7.4 Furthermore, the Hon ble Supreme Court in the case of Vedabai Alia Vaijayanatabai Baburao Patil (supra) held that the court has to exercise the discretion on the facts of each case keeping in mind that in construing the expression sufficient cause , the principle of advancing substantial justice is of prime importance. The court held that the expression sufficient cause should receive liberal construction. 7.5 The decision of the Tribunal in People Infocom (P.) Ltd. v. CIT (ITA No.210/Mum/2013) order dated 19/05/2016, M/s. Neutron Services Centre (P.) Ltd. v. ITO (ITA No.1180/Mum/2012) order dated 18/02/2016, Shri Saidatta Coop-. Credit Society Ltd. v. ITO (ITA No.2379/Mum/2015) order dated 15/01/2016 and Mr. Nikunj Barot (Prop. Enigma) v. ITO (ITA No.4887/Mum/2015) order dated 06/01/2016, wherein, substantial delay was condoned, supports the case of the present assessee. Having made the aforesaid observation and various decisions discussed hereinabove, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier paras of this order, wherein, the delay in the appeals of the Revenue was condoned, the delay in the present cross objection is also condoned. 10.1 So far as, the merits of the appeal (ITA NO.4615/Mum/2015) is concerned, the direction to the Assessing Officer to delete the addition on account of bogus purchases has been challenged. During the course of arguments, the learned CIT-DR has relied upon the order of the Assessing Officer whereas the AR has relied upon the order of the Commissioner of Income tax (Appeals). Apart from this, the learned CIT-DR argued that as the matter in earlier years was remitted back to the file of CIT (A) as decided by the Hon ble Income tax Appellate Tribunal and hence this matter may also be remitted back to CIT (A). The AR on the other hand objected for remitting the matter back to CIT (A) on the plea that on merits, the CIT (A) has already decided the matter on the basis of facts and evidence on records. In the present appeal, no additions have been made on account of Hawala purchases whereas in those appeals additions had been made on account of Hawala purchases. Secondly, the issues involved in this appeal are totally different as compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee along with details was forwarded to the Assessing Officer vide letter dated 22/09/2014 (para-5 of the impugned order) for examination of facts. The Ld. Assessing Officer vide report dated 16/12/2014 filed his comments. The submission of the assessee with respect to non-issuance of notice u/s. 143(2) and the submission dated 10/06/2014 of the assessee has been considered by the Ld. Commissioner of Income Tax (Appeal). 10.4 We have considered the rival submissions and perused the material available on record. Before adverting further, we deem it appropriate to consider various decisions from Hon ble High Courts/Hon ble Apex Court, so that we can reach to a fair conclusion. The Hon ble Gujarat High Court in Sanjay Oilcakes Industries v. CIT [2009] 316 ITR 274 (Guj.) held as under:- 11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings:- 8.3. We have considered the rival submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law. In the aforesaid case, the Hon ble High Court accepted that the apparent sellers, who issued the said bills were not traceable and the goods received from parties other than the persons, who had issued the bills for such goods. The purchases were shown to have been made by making payments, through banking channel and thus the apparent s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed. 10.6 Likewise, the Hon ble Gujarat High Court in CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498/219 Taxman 145/40 taxmann.com 22 (Guj.) held/observed as under:- 6. As is apparent from the facts noted hereinabove, the Commissioner (Appeals) after appreciating the evidence on record has found that the assessee had in fact made the purchases and, hence, the Assessing Officer was not justified in disallowing the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be at a particular sum or at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition can stand. The Commissioner (Appeals) took note of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no case of actual inflation of rates and deleted the addition. 12. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had made purchases from MMTC at the prevailing market rates and that MMTC had incurred certain expenditure in engaging personnel in the office and other operations and would make some income from the entire exercise. In the circumstances, the purchases made by the assessee from MMTC would not be hit by the provisions of section 40A(2) of the Act. 13. Thus, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee. 15. The Tribunal, in the impugned order, has noted that the cost of crane was never claimed by the assessee in the return of income. Before the Tribunal, the assessee produced the evidence that the crane in question was registered with the RTO and the same was wholly and exclusively used for the purposes of its business. The Tribunal, therefore, held that the Commissioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon. 16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not come, the assessee should not suffer. However, on behalf of the Revenue, it was urged that detailed inquiries were made and thereafter the conclusion was reached. The Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion. On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO. 2.3 Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010-dated 13.11.2013). Authrorised representative (AR) contended that payments made by the assessee were supported by the banker s statement, that goods received by the assessee from the supplie was part of closing stock, that the transporter had admitted the transportation of goods to the site. He relied upon the case of Babula Borana (282 ITR 251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171) delivered by the Hon ble Bombay High Court. 2.4 We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good startin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of ₹ 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of ₹ 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal. 10.11 In the aforesaid case, the Hon ble jurisdictional High Court has made an elaborate discussion and affirmed the finding of the Tribunal, wherein, the addition was deleted. The factual finding recorded by the Ld. Commissioner of Income Tax (Appeal) (para-22), page-22 is reproduced hereunder:- 22. I have considered the facts of the case, submissions and contentions of appellant, as also the order of the AO. It appears that the addition of ₹ 2439,83,334/- has been made by the AO, only on the basis of statement Shri Sudhakar Shetty dated 23/9/2011, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orroborate the addition of ₹ 24.39 crores. In fact, time and again, the Courts have emphasized that the additions be made on the basis of material available on record and not simply on the basis of a statement given by the assessee. This issue has also been emphasized by the CBDT vide instruction dated 10/3/2003, reproduced hereinabove, as also in subsequent clarifications issued later, that additions in search/survey cases should be based on evidence gathered during the course of such actions. Further, various case laws relied upon by the assessee, namely Paul Mathews Sons v. CIT 263 ITR 101 (Ker.), CIT v. S. Khader Khan Son (2008) 214 CTR 589 (Mad.), DCIT v. Premsons (2010) 130 TTJ 159 (Mumbai); CIT v. Dhingra Metal Works (2010) 236 CTR 621 (Del.) and others support the contention of the assessee that such addition could not be made without sufficient evidence against the assessee. In the circumstances, I hold that the above addition has been made by the AO without sufficient basis and is, therefore, not sustainable in law. The same is, therefore, directed to be deleted. The AO is, however, free to consider this amount of ₹ 24,39,83,334/-inappropriate hands, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroborated with material available on record. This issue has been emphasized by CBDT Instruction dated 10/03/2003 mentioned in the impugned order and subsequent clarification issued from time to time that the addition in search and survey cases should be based on evidences gathered during such actions. This view find support from the decision in the case of Paul Mathews Sons v. CIT [2003] 263 ITR 101/129 Taxman 416 (Ker.), CIT v. S. Kadar Khan Sons [2008] 300 ITR 157 (Mad.), Dy. CIT v. Prem Sons [2010] 130 TTJ 159 (Mum.) and CIT v. Dhingra Metal Works [2011] 196 Taxman 488 (Delhi). The Hon ble Kerala High Court in the case of Paul Mathews Sons (supra) held as under:- 2. The assessee is a contractor. The assessment was completed under Section 143(3) of the IT Act for the asst. yr. 1998-99 on 7th Feb.. 2001 fixing the income at ₹ 10,08,090. For the asst. yr. 1999-2000 the assessment was completed on 8th Parch, 2001, fixing the income at ₹ 13,81,760, and for the asst. yr. 2000-2001 the assessment was completed on 8th March, 2001, fixing the income at ₹ 13,18,660. There was a survey operation under Section 133A of the IT Act on 23rd Jan., 2001, and a statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome offered for assessment and income finally assessed. 3. However, the CIT rejected the above contention as according to him, these are factually incorrect. According to him, the income declared at the time of survey amounting to ₹ 43 lakhs was in addition to the income already assessed for the three years under consideration. According to the CIT, this was offered as additional income on investment and expenditure and credits which were not reflected in the books of account and was out of the business activity of the assessee. According to him, it cannot be clubbed with the capital gain which is not out of business activity of the assessee. Hence, excluding the capital gains for the three years the income assessed under the head business or profession came to ₹ 24,17,774, only as against the disclosed income of ₹ 43 lakhs. Hence, according to the CIT, the additional income disclosed for each year should have been taken into account separately while making the assessment. Hence, he set aside the assessment and directed the AO to reframe the assessment afresh taking into consideration the omissions/mistakes pointed out. The assessee, aggrieved thereby, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and circumstances as according to the assessee, the twin conditions required for invoking the said provision has not been satisfied in this case. It is also contended that the ITO has applied his mind and that only after discussions with the assessee and his representatives and after satisfying that what is offered is reasonable income that the AO accepted the offer made by the assessee while making the additions and completing the assessments. It is also contended that the ITO has no jurisdiction to take any sworn statement in the course of the survey under Section 133A of the IT Act and as such any statement so taken has no evidentiary value and is non est and is not binding on the appellant. 8. According to the learned counsel P.G.K. Warriyar, appearing on behalf of the appellant, even the Board cannot issue specific directions to dispose of a case in a particular manner even under Section 119 of the IT Act whereas in the present case, the CIT while invoking Section 263 of the IT Act on completion of the income-tax assessment has exceeded his jurisdiction virtually directing the AO to reframe the assessment in a particular manner. He also drew a distinction bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managing partner of the assessee-firm during the course of survey by the ITO under Section 133A of the IT Act. Section 133A of the IT Act, deals with the power of survey which reads as follows : 133A Power of Survey--(1) Notwithstanding anything contained in any other provision of this Act, an, IT authority may enter : (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, or (c) any place in respect of which he is authorised for the purposes of this section by such IT authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession-- (i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and various materials gathered in the survey and after considering the offer made by the assessee that the ITO has exercised a judicial discretion in the matter while completing the assessment. According to the learned counsel for the assessee Section 263 of the IT Act enables the CIT to call for and examine the records only when he considers that any order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. According to him, the order passed by the AO is not erroneous nor prejudicial to the interest of the Revenue and the twin conditions for invoking the power under Section 263 is not satisfied. 13. We have perused the statement made by the managing partner of the assessee during the course of the survey. According to the CIT, the assessee has stated during the course of survey to question No. 13 that there were unaccounted investments in properties and suppression of receipts and inflation of expenses and has offered an additional income of ₹ 43 lakhs (Rs. 13 lakhs for the asst. yr. 1998-99. ₹ 10 lakhs for the year 1999-2000 and ₹ 20 lakhs for 2000-2001). While completing the assessment, the AO did not take this asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have cooperated with the Department. According to the assessee, there is no difference between the income offered for assessment and income finally assessed. The CIT, however, did not accept the above contention. According to him, the income declared at the time of survey amounting to ₹ 43 lakhs is the additional income i.e., in excess of the income already declared for the three years. He has referred to the answer to question No. 13 of the statement dt. 23rd Jan., 2001, for this purpose. According to him, if the capital gain for all the three years are taken out, the income assessed under the head business or profession comes to ₹ 24,17,774 as against the disclosed income of ₹ 43 lakhs. This is the basis on which he has invoked his powers under Section 263 of the IT Act. 15. Question No. 13 referred to above and the answer thereto are extracted hereunder: On. No. 13 : As per the material found at your premises and the admissions made in this sworn statements there are various omissions and shortcomings on your part. With all these infirmities how do you propose to settle your tax matters ? Ans : I do admit that we have not disclosed our true i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, subsequent to the survey, the case was posted several times and the AO had discussions with the appellant and its representatives. Finally, since the AO could not determine the true and correct profits of the appellant on the basis of the books of accounts and other materials which came to his notice during the course of the survey, the AO, during the assessment proceedings, agreed for adopting the income at 8 per cent of the total contract receipts and the appellant had also agreed vide their letter dt. 6th Feb., 2001, addressed to the AO for the same. According to him, the appellant is having 20 lorries and the estimated income thereon is worked out in accordance with the provisions of Section 44AE even if Section 44A is not applicable to the appellant, the total income that could be estimated will be ₹ 4,80,000 per year and the estimate agreed at 8 per cent of the turnover for all the years is almost double this amount. Thus, the estimate at 8 per cent is reasonable and the AO has exercised his powers vested in him in a judicious manner while completing the assessment. Thus, according to him, Section 263 was not available to him to be invoked in this case since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 19 lakhs was also telescoped in the income already disclosed. In the statement in the course of survey, the managing partner only stated that an amount of ₹ 19 lakhs was introduced towards advance for sale of land to Pappu and Esthappan confirmed only six lakhs. It was on this basis that the balance of Re. 13 lakhs were offered for the asst. yr. 1998-99. That was confirmed by Pappu and Esthappan as ₹ 6 lakhs was found to be a mistake and the assessment orders in their case were also produced. The ITO also verified the above aspects. Therefore, the assumption that what was offered in the statement of 43 lakhs is in addition to what has been assessed and on the basis that the statement has got evidentiary value is erroneous. The materials collected during the course of survey has been borne in mind by the AO who was well aware of the evidentiary value of the statement. At the same time, such survey conducted unearthed certain income and the ITO rightly, on the basis of the accounts and offer made and the admissions made before him, came to the conclusion that what was offered in the written offer made by the assessee is reasonable. According to us the alleged admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterests of the Revenue. The phrase prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue, for example when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. 20. In the decision Smt. Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC) the apex Court considered the meaning of the word prejudicial to the interest of the Revenue . It was held that : Where an assessee is assessed on an income voluntarily returned, it is not prejudicial to the interests of the Revenue only if it is found that the assessment was made on the basis that the income had been earned by the assessee which was assessable. Where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve reasons, we hold that the CIT was not justified in law in invoking the powers under Section 263 of the IT Act as the twin conditions precedent to exercise the power has not been satisfied in this case. Besides the decision is also erroneous. Hence, we set aside the order of the Tribunal and the CIT and confirm the order of the ITO. We answer the question in the affirmative i.e., in favour of the assessee and against the Revenue. 10.13 Likewise Hon ble Delhi High Court in the case of Dhingra Metal Work (supra) held as under:- 2. Briefly stated the relevant facts of the present case are that on 14th Sept., 2004, a survey under s. 133A of the Act was conducted on the respondent-assessee s business premises. During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, respondent-assessee surrendered an amount of ₹ 99,50,000 and offered the same for the purposes of taxation. The additional income offered included a sum of ₹ 45,00,000 on account of excess stock found during the course of survey and offered by one of the partners of the respondent-assessee as additional income. 3. The answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be given. Vide letter dt. 29th Nov., 2004, the reconciliation of stock of the assessee and its associated concern M/s. DMW was given which has not been controverted by AO. Thereafter, the issue remained silent and only during the course of assessment, AO took up the same. The assessee s statement during the course of survey is not binding as evidence more so when it is given in the eventuality of non-availability of ready explanation. It has not been held the assessee had no explanation to offer; addition has been made only on survey statement. From the record, it clearly emerges that both the concerns are independent entities separately assessed under income-tax and various other Departments. Both are registered under various laws including excise and maintain statutory record of excise, stock registers books of account are duly audited. With all these facts present on record, addition cannot be made ignoring the reconciliation and evidence filed by assessee and relying only on a statement which was given due to non-availability of ready explanation. The assessee immediately thereafter furnished correct stock statement which have not been controverted by the AO. In view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset. (3) An IT authority acting under this section may, (i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom, (ia) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him : Provided that such IT authority shall not (a) impound any books of account or other documents except after recording his reasons for so doing; or (b) retain in his custody any such books of account or other documents for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief CIT or Director General therefor, as the case may be, (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him, (iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. (4) An IT authority acting under this section shall, on no account, remove or caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer should have been authorised to administer, oath and to record sworn statement. This would also be apparent from s. 132(4) of the Act. The said section is reproduced hereinbelow : 132. Search and seizure. ... (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian IT Act, 1922 (11 of 1922) or under this Act. Explanation. For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian IT Act, 1922 (11 of 1922), or under this Act. (emphasis, italicized in print, supplied) 12. From the aforesaid, it is apparent that while s. 132(4) of the Act specifically authoriz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, namely, M/s. D.M.W (P) Ltd., we are of the opinion that the AO could not have made the aforesaid addition solely on the basis of the statement made on behalf of the respondent-assessee during the course of survey. 17. In view of the aforesaid, present appeal being bereft of merit, is dismissed. 10.14 Hon ble Kerala High Court in Paul Mathews Sons (supra), considering the decision from Hon ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 and Smt. Tradevi Aggarwal v. CIT [1973] 88 ITR 323 (SC) held that the statement elicited during the survey operation had no evidentiary value. Likewise, the Hon ble Delhi High Court in D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case and in law, Ld the CIT (A) erred in deleting the additions of ₹ 28,65,044/- made on account of cash siphoned off from the M/s. Skylark Build by booking bogus purchase in the hand of Firm. 2. On the facts and in the circumstances of the case and in law, Ld the CIT (A) erred in deleting the additions of ₹ 4,72,21,107/- made on account of cash siphoned off from the M/s. Skylark Build by booking bogus purchase wherein M/s. Skylark Build is a member along with Oberoi Group and assessee is partner in M/s. Skylark Build. 3. On the facts and in the circumstance of the case and in law, the Ld. CIT (A) erred in deleting the additions of ₹ 1,21,60,00,000/- made by AO u/s. 28(v) of the IT Act on account that M/s. Skylark Build created a goodwill without any ground and credited the same among the capital of the partners on the liability side according to their share ratio which was ₹ 1,21,60,00,000/- in assessee s case 4. The appellant crave to leave, to add, to amend and/or alter any of the grounds of appeal, if need be. For the Assessment year 2011-12 1. Whether on the facts and circumstances of the case and in law, L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 30/01/2012 stated that the disclosure made of ₹ 50 crores may be considered in the hands of M/s. Oasis Reality (AOP), which is a joint venture of Sahana Group and Oberai Group. Subsequent to search, the Ld. Assessing Officer issued notice on 10/09/2012, u/s. 153A of the Act, and in response thereto, the assessee declared income of ₹ 85,51,860/- in its return filed on 20/03/2013. The Ld. Assessing Officer, while completing the assessment, assessed at an amount of ₹ 1,30,75,921/- as income from other sources in the hands of the assessee on the ground that cash has been generated out of bogus bills booked by the firm M/s. Skylark Build, where the assessee is a partner and that such cash had come and was misappropriated by the partners. Finally, the assessment was completed vide order dated 24/03/2014 at an income of ₹ 2,19,27,700/- by passing an order u/s. 143(3) r.w.s. 153A of the Act. 12.1 On appeal before the Ld. Commissioner of Income Tax (Appeals), the assessee challenged the addition and consequent passing of order u/s. 153A of the Act without finding any incriminating documents. Plea was also raised that no pending assessment or reassessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First Appellate Authority is affirmed, resulting into dismissal of appeal filed by the Revenue. 12.2 Now, we shall take up the cross objection 207 to 209/Mum/2016, wherein, following grounds have been raised. (A) There were no pending assessment or reassessment proceedings for the impugned year and accordingly the assessment had abated (B) There was no incriminating material which was found during the course of search proceedings (C) Since the assessment or reassessment had not abated, the Assessing Officer could have made additions only on the basis of the material available and not on the basis of presumption, inferences and alleged practice. 12.3 The crux of the argument advanced on behalf of the assessee as mentioned in his written submissions. The Ld. CIT-DR defended the addition made by the Ld. Assessing Officer. 12.4 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that a search action was carried out by the Revenue at the residential premises of Shri Sudhakar M. Shetty, on 22nd September, 2011. As the search had taken place, the case was selected for scrutiny as required under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. Since this requirement under s. 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of s. 153C of the Act. Para 9 of the order of the Tribunal reveals that the Tribunal had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to asst. yr. 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of asst. yrs. 2000-01 and 2001-02 was even time-barred. 12.5 In another case of Ideal Appliances Co. (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Considering the legal propositions place before us by the assessee s counsel, we are of the opinion, such assessments or additions are unsustainable in law. 9. From the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground, the assessee succeeds and rest of the grounds are dismissed as academic. Following the aforesaid decision and the ratio laid down therein, we are of the view that it is a settled proposition of law that in the absence of any incriminating material found during the search, no addition can be sustained. Thus, the cross objections of the assessee are allowed. 13. Since, we have allowed the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Whether on the facts and circumstances of the case and in law, Ld the CIT (A) was justified in directing the AO to delete the additions of ₹ 53,99,682/- made on account of cash siphoned off from the AOP M/s. Oasis Realty by booking bogus purchase in the hand of AOP. 4. The appellant crave to leave, to add, to amend and/or alter any of the grounds of appeal, if need be. For the Assessment year 2012-13 3. Whether on the facts and circumstances of the case and in law, Ld the CIT (A) was justified in directing the AO to delete the additions of ₹ 63,55,294/- made on account of cash siphoned off from the AOP M/s. Oasis Realty by booking bogus purchase in the hand of AOP. 4. The appellant crave to leave, to add, to amend and/or alter any of the grounds of appeal, if need be. 14.1 The assessee has also filed cross appeal for Assessment Year 2012-13 (ITA No. 2451/Mum/2015). The assessee has raised the following grounds:- 1. That the learned CIT (Appeals)-52 has erred in law as well as under the facts of the case in holding that the notice issued under section 148 of the Income tax Act 1961 is valid in law. 2. That the learned CIT (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT (A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 8.. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits. 14.5 Likew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an additional ground, but to answer it. It is only to enable it to answer it that it relied on the settled principles and the judgment of the Hon ble Supreme Court in the case of Manish Maheshwari v. Asstt. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC). It is only to enable the Tribunal to refer to the settled principles and for re-enforcing its conclusion that this judgment is referred. 14.6 Likewise in Jasjit Singh (supra). It was held as under:- 6 Having gone through the above cited decision, we come to the conclusion that the whole purpose of preferring the appeal and cross objections and raising new ground for the first time before the appellate authority is to correctly assess the tax liability of an assessee. When we consider the present case under the above back ground, we find that there is no dispute that for deciding the issue raised before the ITAT in the cross objections regarding validity of the assessment order on the basis that (i) the Assessing Officer had not recorded satisfaction while proceeding for framing assessment under sec. 153-C of the Act; (ii) the Assessing Officer had not signed the manuscript of the assessment order as required under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the ITO. The Tribunal also refused the appellant s application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court. The Supreme Court held as under : 5. In CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), a three Judge Bench of this Court discussed the scope of s. 31(3)(a) of the IT Act, 1922 which is almost identical to s. 251(1)(a). The Court held as under : If an appeal lies, s. 31 of the Act describes the powers of the AAC in such an appeal. Under s. 31(3)(a) in disposing of such an appeal the AAC may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under cl. (b) thereof he may set aside the assessment and direct the ITO to make a fresh assessment. The AAC has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the ITO. He can do what the ITO can do and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. Since this requirement under s. 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of s. 153C of the Act. Para 9 of the order of the Tribunal reveals that the Tribunal had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to asst. yr. 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of asst. yrs. 2000-01 and 2001-02 was even time-barred. 19. We, thus, find that the Tribunal rightly perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer shall - (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess 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 is made. 15.1 Thus, as per Section 153A(1)(b), the Assessing Officer is empowered to assess or reassess the total income of the six assessment years immediately preceding the assessment year relevant to the assessment year in which search is conducted. Thus, in other words, he has to assess the year under search and six preceding years. As per proviso to Section 153C, for the purpose of Section 153C, the date of receiving the books of account or documents shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Section 153C, the date of receiving the books of account would be the date of search and, therefore, the notice under Section 153C could not have been issued for AY 2001-02 and 2002-03. Accordingly, the issue of notice under Section 153C was barred by limitation and consequently, the assessment for these two years is non-est and void ab-initio. It was held by the Hon ble Income tax Appellate Tribunal as under : 5. We have heard the arguments of both the sides and perused relevant material placed before us. The relevant facts as mentioned by the Assessing Officer in paragraph 1 and 2 of the assessment order read as under :- Search seizure action u/s. 132 of the Income Tax Act was carried out on R.L. Group on 13/12/2005. This operation was carried out at Premises No. B-265, Derawala Nagar, Delhi. This premise belongs to Sh. Ram Lal Bhatia Partner of M/s. R.L. Allied Industries. At this premise, certain documents were found and seized. Out of this, Pages of Annexure A-1 to A-3, A-7 to A-9, A-15 to A-18 and A-21 to A-24 belong to M/s. R L Allied Industries. 2. In this case the seized material pertaining to M/s. R.L. Allied Industries was received on 12/03/2009 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess 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 is made. 8. Thus, as per Section 153A(1)(b), the Assessing Officer is empowered to assess or reassess the total income of the six assessment years immediately preceding the assessment year relevant to the assessment year in which search is conducted. Thus, in other words, he has to assess the search year and six preceding years. As per proviso to Section 153C, for the purpose of Section 153C, the date of receiving the books of account or documents shall be considered the date of search. Therefore, with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal held as under:- 30. On careful consideration of above submissions, we observed that in the recent decision of Tribunal E Bench Mumbai in the case of SKS Ispat Power Ltd. v. Dy. CIT in ITA No. 8746/Mum/2010 and other appeals the order dt. 7th May, 2014, we observe that the issue of limitation prescribed under s. 153(1) of the Act has been decided by following the decision of Tribunal, Delhi H Bench, in the case of V.K. Fiscal Services (P) Ltd. v. Dy. CIT (supra) in favour of the assessee with following observations and conclusions : 15. We also find that the CIT (A) made a reference to the incriminating material, which yielded disclosure of some undisclosed income. But, on perusal of the documents, we find that the CIT (A) entered into an error zone and the disclosure is only ₹ 5 crores in this case and the same relates to the lands deals. In principle, this disclosure has nothing do with the impugned additions under s. 68 or 14A of the Act. In the instant case, specific to the assessee, no incriminating material with the details was referred either in the assessment order or in the order of the CIT (A) for making the impugned additions. As per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of the assessee to the present AO, no assessment or reassessment was pending. When no assessment has abated, the question of making any addition or making disallowance which is not based on only material found during the search is bad in law. 31. In view of above decision and as per letter and spirit of s. 153(1) of the Act, we are inclined to hold that since in this case satisfaction was recorded on 5th July, 2010 and notice under s. 153C was issued on 6th July, 2010, the only conclusion that can be drawn is that the AO of such other person other than searched has taken over the possession of the seized document on 5th July, 2010. Accordingly, as per s. 153A(1) of the Act, the AO can issue a notice under s. 153A of the Act for the previous year in which the search is conducted and for the purpose of s. 153C of the Act on the date on which the document is handed over to the AO of the person other than the searched person for six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition or handing over of document or material is made. In the case in hand, the relevant date of handing over may ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uter hard disc containing soft copies of working papers, balance sheets and data for income-tax filings, were seized during the search. The Assessing Officer of the searched persons recorded a Satisfaction note on 8th September, 2010 to the effect that the documents seized and the data contained in the hard disc belonged to the assessee and, hence, s. 153C was invocable. On the aforesaid basis, proceedings were initiated under s. 153C and a notice dated 8th September, 2010 for the assessment years 2003-04 to 2008-09 was issued to the assessee. The Tribunal, after considering various issues and judicial pronouncements held as under:- 24. As discussed hereinbefore, in terms of proviso to s. 153C of the Act, a reference to the date of the search under the second proviso to s. 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said assessee. Further proceedings, by virtue of s. 153C(1) of the Act, would have to be in accordance with s. 153A of the Act and the reference to the date of search would have to be construed as the referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 2004-05 were outside the scope of s. 153C of the Act and the AO had no jurisdiction to make an assessment of the assessee s income for that year. 15.6 In the light of the ratio laid down in the aforesaid cases, in the case of the assessee six assessment years would be preceding to assessment year 2014-15 (i.e the previous year in which jurisdiction was transferred to the Assessing Officer i.e. on 5th March, 2014 and the satisfaction note was also recorded on 13th March, 2014 (whether valid or not). Hence, six preceding assessment years will be 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 2013-14. As the present assessment year under appeal is falling within six assessment years, the assessment should have passed u/s. 153C of the Act and not u/s. 147 of the Act. This make the notice issued u/s. 148 and the assessment order passed on that basis as bad ab-inito. Our view find support from the ratio laid down in CIT v. Arun Kumar Kapoor [2011] 16 taxmann.com 373/[2012] 50 SOT 87 (Asr.). In this case, the facts of the case is that of one M/s. Today Homes Infrastructure (P.) Ltd. A search action had taken place on 28th March, 2006 during the course of which certain incriminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, where the Assessing Officer is satisfied that any money, bullion 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 s. 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 and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of s. 153A. 8. On a perusal of the above provisions, it would be clear that the provisions of s. 153C of the Act were applicable, which supersedes the applicability of provisions of ss. 147 and 148 of the Act. As we have already noted hereinabove that the documents were seized during the search under s. 132 of the Act and the same were sent to the assessee s Assessing Officer at Amritsar by the officer at Delhi in our view, the learned CIT (A) has correctly observed that only the provision in which any assessment could be made against the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef that there was escapement of assessment of taxable income. The Assessing Officer had received information that a search seizure operation under sec. 132 of the Act was carried out by the Director of Income-tax (Inv.) on 06.09.2011 on the Rockland Group of Cases. After going through the information received as well as the documents available in the office of the Assessing Officer, the Assessing Officer found that Rockland Hospital Ltd. had issued sweat equity shares without any amount being paid as consideration to the directors/employees/professionals. In this chain, the assessee had also received sweat equity shares without any consideration. The Assessing Officer initiated the reassessment proceedings on 8.7.2013 and in response to the notice issued under sec. 148, the assessee filed his reply on 11.3.2013. Thereafter, the assessment was framed under sec. 147/143(3) of the Act. The Commissioner of Income tax (Appeals) upheld the order of the Assessing Officer. Then matter was carried to Hon ble Income tax Appellate Tribunal, wherein, it was held as under:- 7. On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KN Driveshafts (I) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 (SC). In the light of the foregoing discussion and judicial pronouncements discussed hereinabove, it can be concluded that the notice issued u/s. 148 and assessment order passed under section 143(3) r.w.s. 147 have failed all litmus test. As the notice u/s. 148 itself has no leg to stand, thus, the order passed by the Assessing Officer, on the basis of such notice, is ab-initio bad in law. 17. Now, we shall take up the cross objections of the assessee (C.O. 205, 206/Mum/2016 and C.O. 176/Mum/2017), wherein, following grounds have been raised. That the learned Commissioner of Income tax (Appeals) has erred in law as well as under the circumstances of the case in not deciding the issue that the assessing officer has erred in making the additions without finding indiscriminating documents. (A) There were no pending assessment or reassessment proceedings for the impugned year and accordingly the assessment had abated (B) There was no incriminating material which was found during the course of search proceedings (C) Since the assessment or reassessment had not abated, the Assessing Officer could hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises of aforesaid person i.e. Shri Sudhakar M. Shetty, marked as Annexure-A This annexure A is a loose paper file, containing page 1 to 55. In this file, page no. 27 to 48, is deed of purchase dated 28th October, 2004 entered into between the assessee and one M/s. Suru Consultants Pvt. Ltd for a consideration of ₹ 2,25,00,000/-. Similarly, page no. 1 to 16 of the Annexure is an agreement for development dated 15.10.2004 entered into between M/s. Anand Associates and the assessee for a consideration of ₹ 5.21 Crores. Similarly, during the course of search on 18th January, 2007 at the premises of the assessee, loose papers of annexure A-9 containing ledger account of M/s. Anand Associates as appearing in the books of accounts of the assessee was seized. (Refer Paper Book page number 42 43). The said transactions as appearing in the said ledger shows payment of ₹ 5.21 crores to M/s. Anand Associates, being consideration mentioned in the agreement found and seized during the current search at the premises of Shri Sudhakar M. Shetty. Similarly, during the course of search on 18th January, 2007 at the premises of the assessee, loose papers of annexure A-9 containin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for issuance of notice u/s. 153C by the Assessing Officer of the other person, other than the search person. i. There should be a search action; ii. The documents found during the course of such search action be incriminating one and should belong to other person; iii. The Assessing Officer of searched person should have recorded a satisfaction note that incriminating documents belonging to third person are found; iv. The Assessing Officer of searched person should handover the satisfaction note and documents belonging to other person to the Assessing Officer of the other person; v. The Assessing Officer of the other person can then issue notices u/s. 153C of the preceding six assessment years from the date on which such documents are received from the Assessing Officer of searched person. 17.6 We note that if all the above conditions are fulfilled then only notice issued u/s. 153C of the Act will be a valid notice. There is no dispute that a search action had taken place at the residential premises of Shri Sudhakar M. Shetty, who is partner of assessee firm. Hence conditions no. (i) is complied with. The real problem starts with condition no. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under s. 153C was invalid. 18.1 The next decision relied upon by the Ld. counsel for the assessee is Satkar Roadlines Pvt. Ltd. (supra), wherein, it was held/observed as under:- 19. In the light of the case law cited above and on a reading of ss. 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Co-ordinate Bench of this Tribunal in the case of DSL Properties (P) Ltd. v. Dy. CIT 33 taxmann.com 420 vide para 15 has held that if the AO is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the AO of such other person, he has to issue the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered that any exercise of power under s. 153C has catastrophic effect on the party against whom proceedings are reopened for scrutiny for six assessment years. So the raiding party has to apply its mind at least to prima facie satisfy itself that the documents seized have a nexus with income. Any arbitrary exercise of power which is unbridled is a sworn enemy of the Art. 14 of the Constitution and such exercise of power would offend the right to privacy and rule of law which is a basic feature of the Constitution. Therefore, the officers conducting the search while seizing the documents has to exercise the said powers with extreme care and caution; and seizure must be used with circumspection. The Hon ble apex Court and the Hon ble Delhi High Court in N.K. Textile Mills v. CIT (1966) 62 ITR 58 (Del), has frowned upon the practice of indiscriminate seizure paving way for reopening of assessments which finally will fall in case it is not incriminating and will be an exercise of futility. 23. In the result, all the appeals preferred by the Revenue are dismissed and the cross-objections filed by the assessee are allowed. 18.2 As regards condition no. (iii) that the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessee, and I am. satisfied that document seized as above belong to the assessee, who is covered within the conditions laid down in the act. Hence in order to assess, the total income of this year, which falls within the period specified in provisions of section 153A(b), notice u/s. 153C is to be issued to the assessee. 4. Issue notice u/s. 153C. Deputy Commissioner of Income Tax, Central Circle - 29, Mumbai 19.1 On perusal of aforesaid reasons, it emerges that the reasons so recorded are recorded by the Assessing Officer in his capacity of other person and not by the Assessing Officer in a capacity of searched person. This can be proved on account of following reasons :- (a) Name and PAN of the assessee are mentioned on the top of the reasons and not the name of Shri Sudhakar M. Shetty, in whose case the search had taken place. (b) Nothing is mentioned either about handover of the documents by the Assessing Officer or receiving of documents by the Assessing Officer of the assessee. (c) Again and again, the word assessee is used which the assessee only. (d) In para 3, it was mentioned that I am satisfied that documents seized a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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