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2019 (7) TMI 530

..... Ltd. [2016 (5) TMI 372 - KARNATAKA HIGH COURT] is impliedly approved by the Hon’ble Apex Court in the case of CIT Vs. Sinhgad Technical Educaiton Society [2017 (8) TMI 1298 - SUPREME COURT] as the Hon’ble Apex Court took the view that proceedings under section 153C of the Act can be initiated only in respect of those Assessment Years for which there is incriminating seized material which prima facie represent undisclosed income. Revenue put forth the proposition that the learned CIT(A) ought to have sustained even those additions based on material, not relied upon to invoke proceedings u/s 153C and that the CIT(A) ought to have exercised his co-terminus powers to do so. After due consideration thereof, we are unable to concur with this proposition; in as much as the CIT(A) could not have proceeded further in sustaining those additions for the reasons that the invoking of the provisions of section 153C in the case on hand has no legs to stand on and the entire proceedings is void-ab-initio. In this view of the matter, we are of the opinion that the CIT(A) has rightly cancelled the orders of assessment for Assessment Years 2008-09, 2011-12 and 2012-13. Consequently, groun .....

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..... H. B. Sudarshan, notices under section 153C of the Act were issued, inter alia, to the assessee for Assessment Years 2008-09, 2011-12 and 2012-13, on 15.09.2014 requiring her to file returns of income. The assessee filed Returns of income for these Assessment Years on 17.12.2014 and the assessments were concluded under section 143(3) r.w.s. 153C of the Act vide orders dated 30.03.2015. The CIT(A)- 11, Bangalore, in orders dated 24.11.2017 cancelled the orders of assessment for Assessment Year 2008-09, 2011-12 and 2012-13 as being void-ab-initio. 3. Aggrieved by the separate orders of CIT(A)-11, Bangalore, dated 24.11.2017 for Assessment Years 2008-09, 2011-12 and 2012-13, Revenue has preferred these appeals before the Tribunal raising the following grounds:- 3.1 Assessment Year 2008-09 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the order of Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. when the assessee has participated in the proceedings and had not challenged issue of notices as decided by Delhi High Court in the case of CIT Vs Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in t .....

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..... rendered in 1998 however, the same has been overridden by provision of Information Technology Act 2000 and Section 2(22AA) of the I.T. Act and Section 292C of the IT Act. 3.3 Assessment Year 2012-13 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the order of Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. when the assessee has participated in the proceedings and had not challenged issue of notices as decided by Delhi High Court in the case of CIT Vs Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in the case of Shri Vijyabhai N Chandrani in 357 ITR 713. 2. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain to third person and terms it a condition precedent to initiate proceeding and not for finalization of assessment. 3. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in deleting additions of a sum of ₹ 43,04,115 .....

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..... tion 153 of the Act need not be based on incriminating material, but can be done even on the basis of material which is not incriminating. The learned DR thirdly contended that the CIT(A), whose powers are co-terminus with that of the AO, while considering the issue of jurisdiction, ought to have considered the orders of assessment in totality and not merely confined himself to material which formed the basis of initiation of proceedings under section 153C of the Act and done whatever is required to strengthen the orders of assessment. In this regard, the learned DR, inter alia, placed reliance on the decisions of the Hon ble Delhi High Court in the case of CIT Vs. Safetag International Pvt. Ltd., in 332 ITR 622 (Del.) and of the Hon ble Apex Court in the case of CIT Vs. Singhad Technical Education Society C.A. No.11080 of 2017 and others dated 29.08.2017. 4.2 Per contra, in response to the above contentions of the Revenue, the learned AR for the assessee submitted that firstly, there was no requirement of law that the assessee must first object to the assumption of jurisdiction by AO under section 153C of the Act for the same issue to be taken up in appellate proceedings. The issu .....

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..... f the Act against the assessee. The assessee was provided with copies of the documents seized which formed the basis for invoking the provisions under section 153C of the Act. The assessee challenged the notice issued thereunder before the Hon ble Gujarat High Court by way of a writ petition, on the ground that the seized documents did not belong to him. The Hon ble High Court in its order quashed the notice. Revenue filed an appeal before the Hon ble Apex Court, which held that the assessee ought to have objected to the notice before the AO and follow due process of law as he had alternate remedy and ought not to have filed the writ before exhausting the alternate remedy available to him. In that view of the matter, the Hon ble Apex Court set aside the judgment of the Hon ble High Court. In our humble view, the above case does not help Revenue as the same cannot be applied to the facts of the case on hand; which are distinctly quite different. In the case on hand, the assessee has challenged the jurisdiction before the CIT(A) after completion of assessment proceedings and has followed the due process of law. There is no dispute that the seized material belong to the assessee in th .....

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..... there is no requirement for recording two separate satisfactions. This decision, in our humble view, is not applicable to the issue before us in the case on hand. (x) Rajesh Sunderdas Vaswani Vs. ACIT in (76 taxmann.com 311) (Guj. HC) The Hon ble High Court held on the facts therein that the AO of the Person Searched had indeed recorded a satisfaction that the seized material did not belong to the person searched but to the other person . This decision is not applicable to the issue before us in the case on hand. (xi) Raymond Woolen Mills Ltd., Vs. CIT (236 ITR 34) (SC) This decision was rendered in respect of the sufficiency and adequacy of the reasons recorded for re-opening assessment under section 147 of the Act and therefore in our humble view, would not be applicable to the issue of dispute in the case on hand. (xii) Ganapati Fin Cap Services Pvt. Ltd., Vs. CIT (WP(c) 525/2015 and others) (Del. HC) where the Hon ble High Court held that when the AO for the person searched and the other person is one and the same, there is no requirement for recording two separate satisfactions. This decision, in our humble view, is not applicable to the issue before us in the case on hand. 4. .....

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..... that the reasoning of the Tribunal to be logical and valid and that it had correctly admitted the ground and dealt with the same on merits as well. Thus, it is clear that the Hon ble Apex Court has decided this issue in favour of the assessee and against the Revenue, thereby giving a finality to this issue. 4.5.2 On the proposition put forth by Revenue that the satisfaction recorded by the AO is in order and that there is no requirement in law that the satisfaction arrived at to initiate proceedings under section 153C of the Act must be based on incriminating material and can be initiated even on the basis of material, which is not incriminating in nature, the learned AR has relied on the following judicial pronouncements:- (i) CIT Vs. IBC Knowledge Park (P) Ltd., in 385 ITR 346 (Kar) In this case, before the Hon ble jurisdictional High Court of Karnataka, the issue for consideration and adjudication was whether the Bangalore Bench of the Tribunal was right in holding that it was not necessary to record a satisfaction note to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that the detec .....

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..... merely confined himself to material which formed the basis of initiation of proceedings under section 153 of the Act and should have done whatever was required to strengthen the order of assessment, the learned AR contended as under:- It is contended that the CIT(A) had to necessarily consider and decide the question of jurisdiction at the threshold / outset of proceedings and if the same was found to be in order, he could proceed to consider and adjudicate upon the additions made to the income of the assessee. It is submitted that, based on the facts, the CIT(A) realized that his hands were tied on the issue of assumption of jurisdiction under section 153C of the Act because the material relied upon to invoke proceedings under section 153C of the Act were not incriminating and did not prima facie indicate undisclosed income and nor were any additions made based on these seized materials. It is further submitted that the CIT(A) also must have realized that the material based on which additions were made in the orders of assessment are not the same material relied upon to arrive at a satisfaction to invoke the proceedings for assumption of jurisdiction under section 153C of the Act .....

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..... Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in the case of Shri Vijyabhai N Chandrani in 357 ITR 713. 4.7.2 The Hon ble Apex Court in the case of CIT Vs. Sinhgad Education Society in C. A. No.11080 of 2017 arising out of SLP (C) N:2527 of 2015 has categorically held that an assessee is not precluded from raising the issue of jurisdiction, merely because it did not object to the same during assessment proceedings and participating therein, as the issue was purely a legal issue and could be raised at any time in the course of appellate proceedings. In our view, the Hon ble Apex Court in the aforesaid decision in the case of CIT Vs. Sinhgad Education Society has clearly decided this issue in favour of the assessee and against Revenue. Consequently, ground No.1 raised by the Revenue for Assessment Years 2008-09, 2011-12 and 2012-13 is dismissed. 4.8 Ground No.2 4.8.1 2. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain .....

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..... of section 153C of the Act in the case on hand has no legs to stand on and the entire proceedings is void-ab-initio. In this view of the matter, we are of the opinion that the CIT(A) has rightly cancelled the orders of assessment for Assessment Years 2008-09, 2011-12 and 2012-13. Consequently, ground Nos. 1 and 2 of Revenue s appeals for Assessment Years 2008-09, 2011-12 and 2012-13 are dismissed. 5. Assessment Year 2008-09 5.1 As regards Assessment Year 2008-09, there is one other issue, though academic in nature as the same was not raised by Revenue in the grounds of appeal; but was argued by the learned DR during the course of hearing. The issue argued was that the CIT(A) had erred in upholding the ground raised by the assessee that the initiation of proceedings for Assessment Year 2008-09 was barred by limitation in view of the proviso to section 153C of the Act. 5.2 After due consideration of the contentions put forth, we find that Assessment Year 2008-09 is outside the ambit of the provisions of section 153C of the Act in view of the proviso thereto. We are inclined to concur with the argument put forth by the assessee that in the event the initiation of proceedings under sec .....

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..... the following grounds:- 9.1 Assessment Year 2008-09 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the order of Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. when the assessee has participated in the proceedings and had not challenged issue of notices as decided by Delhi High Court in the case of CIT Vs Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in the case of Shri Vijyabhai N Chandrani in 357 ITR 713. 2. Whether on the facts an.d the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain to third person and terms it a condition precedent to initiate proceeding and not for finalization of assessment. 3. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in deleting protective additions of a sum of ₹ 1,08,26,400/- ; on account of miscellaneous receipts based on seized CD whereas Gujarat High Court in 140 ITR 517 settled that protective assessm .....

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..... ting the ground of validity of digital evidence based on VC Shukla case rendered in 1998 however, the same has been overridden by provision of Information Technology Act 2000 and Section 2(22AA) of the I.T. Act and Section 292C of the IT Act. 9.3 Assessment Year 2010-11 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the order of Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. when the assessee has participated in the proceedings and had not challenged issue of notices as decided by Delhi High Court in the case of CIT Vs Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in the case of Shri Vijyabhai N Chandrani in 357 ITR 713. 2. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain to third person and terms it a condition precedent to initiate proceeding and not for finalization of assessment. 3. Whether on the facts and the circumstances of the case, the Ld .....

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..... wever, the same has been overridden by provision of Information Technology Act 2000 and Section 2(22AA) of the I.T. Act and Section 292C of the IT Act. 9.5 Assessment Year 2012-13 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the order of Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. when the assessee has participated in the proceedings and had not challenged issue of notices as decided by Delhi High Court in the case of CIT Vs Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in the case of Shri Vijyabhai N Chandrani in 357 ITR 713. 2. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain to third person and terms it a condition precedent to initiate proceeding and not for finalization of assessment. 3. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in deleting protective additions of a sum of ₹ 1,06,97,067/- , on .....

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..... uired to strengthen the orders of assessment. In this regard, the learned DR, inter alia, placed reliance on the decisions of the Hon ble Delhi High Court in the case of CIT Vs. Safetag International Pvt. Ltd., in 332 ITR 622 (Del.) and of the Hon ble Apex Court in the case of CIT Vs. Singhad Technical Education Society C.A. No.11080 of 2017 and others dated 29.08.2017. 10.2 Per contra, in response to the above contentions of the Revenue, the learned AR for the assessee submitted that firstly, there was no requirement of law that the assessee must first object to the assumption of jurisdiction by AO under section 153C of the Act for the same issue to be taken up in appellate proceedings. The issue of assumption of jurisdiction involves purely a question of law and the assessee is in no way precluded from raising this issue / question before an appellate authority even if the same is not raised before the AO and the assessee has participated in the assessment proceedings. Secondly, according to the learned AR, the CIT(A) has rightly decided the issue of jurisdiction by relying on the decision of the Hon ble Karnataka High Court in the case of IBC Knowledge Park (P) Ltd., in 385 ITR .....

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..... to have objected to the notice before the AO and follow due process of law as he had alternate remedy and ought not to have filed the writ before exhausting the alternate remedy available to him. In that view of the matter, the Hon ble Apex Court set aside the judgment of the Hon ble High Court. In our humble view, the above case does not help Revenue as the same cannot be applied to the facts of the case on hand; which are distinctly quite different. In the case on hand, the assessee has challenged the jurisdiction before the CIT(A) after completion of assessment proceedings and has followed the due process of law. There is no dispute that the seized material belong to the assessee in the case on hand. The subject matter of dispute is whether the said seized material, not being incriminating in nature, can be the basis for invoking the provisions under section 153C of the Act. (ii) CIT Vs. Safetag International Pvt. Ltd., in 332 ITR 622 (Delhi). In this case, the Hon ble Delhi High Court held that the Tribunal / ITAT was not correct in remanding the proceedings to the AO when the assessee had not asked the AO for the reasons recorded for initiating proceedings under section 147 o .....

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..... he case on hand. (xi) Raymond Woolen Mills Ltd., Vs. CIT (236 ITR 34) (SC) This decision was rendered in respect of the sufficiency and adequacy of the reasons recorded for re-opening assessment under section 147 of the Act and therefore in our humble view, would not be applicable to the issue of dispute in the case on hand. (xii) Ganapati Fin Cap Services Pvt. Ltd., Vs. CIT (WP(c) 525/2015 and others) (Del. HC) where the Hon ble High Court held that when the AO for the person searched and the other person is one and the same, there is no requirement for recording two separate satisfactions. This decision, in our humble view, is not applicable to the issue before us in the case on hand. 10.4.2 On the issue that the satisfaction recorded by the AO is in order and that there is no requirement in law that the satisfaction arrived at to initiate proceedings under section 153C of the Act must be based on incriminating material, but can be done even on the basis of material which is not incriminating in nature, the learned DR placed reliance on the following judicial pronouncement. (ii) SSP Aviation Ltd., Vs. DCIT in 346 ITR 176 (Del. HC). In a writ filed by the assessee, the Hon ble Del .....

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..... der section 153C of the Act must be based on incriminating material and can be initiated even on the basis of material, which is not incriminating in nature, the learned AR has relied on the following judicial pronouncements:- (i) CIT Vs. IBC Knowledge Park (P) Ltd., in 385 ITR 346 (Kar) In this case, before the Hon ble jurisdictional High Court of Karnataka, the issue for consideration and adjudication was whether the Bangalore Bench of the Tribunal was right in holding that it was not necessary to record a satisfaction note to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that the detection of seized material leading to an inference of undisclosed income is a sine qua non for invocation of section 153C of the Act . After considering the decision of the Hon ble Apex Court in the cases of Manish Maheshwari Vs. ACIT (289 ITR 341) and CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 and other judgments of the Hon ble Apex Court and other Hon ble High Courts; including the case of SSP Aviations Ltd., Vs. DCIT (2012) 20 taxmann.com 214 (Delhi) which supports the Revenue and on consideration of .....

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..... ncome of the assessee. It is submitted that, based on the facts, the CIT(A) realized that his hands were tied on the issue of assumption of jurisdiction under section 153C of the Act because the material relied upon to invoke proceedings under section 153C of the Act were not incriminating and did not prima facie indicate undisclosed income and nor were any additions made based on these seized materials. It is further submitted that the CIT(A) also must have realized that the material based on which additions were made in the orders of assessment are not the same material relied upon to arrive at a satisfaction to invoke the proceedings for assumption of jurisdiction under section 153C of the Act. It is also contended that the CIT(A) had no choice / option but to cancel the orders of assessment as he was bound by the judgment of the Hon ble Karnataka High Court in the case of IBC Knowledge Park (P) Ltd., (supra). According to the learned AR, the CIT(A) could not have strengthened the orders of assessment, despite the fact that his powers are co-terminus with that of the AO, as the very proceedings, initiated under section 153C of the Act was void-ab-initio and he had no powers to r .....

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..... purely a legal issue and could be raised at any time in the course of appellate proceedings. In our view, the Hon ble Apex Court in the aforesaid decision in the case of CIT Vs. Sinhgad Education Society has clearly decided this issue in favour of the assessee and against Revenue. Consequently, ground No.1 raised by the Revenue for Assessment Years 2008-09 to 2012-13 is dismissed. 10.8 Ground No.2 10.8.1 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain to third person and terms it a condition precedent to initiate proceeding and not for finalization of assessment. 10.8.2 It is an undisputed facts that the following two seized material were the only seized material that formed the basis for initiation of proceedings under section 153C of the Act in the case on hand:- (i) A/HBS/10, Page 15 - Lease Agreement entered into by the assessee with one Somegowda; (ii) A/HBS/10, Page 34 - Share allotment certificate issued in favour of the assessee by .....

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..... emic in nature as the same was not raised by Revenue in the grounds of appeal, but was argued by the learned DR during the course of hearing. The issue argued was that the CIT(A) had erred in upholding the ground raised by the assessee that the initiation of proceedings for Assessment Year 2008-09 was barred by limitation in view of the proviso to section 153C of the Act. 11.2 After due consideration of the contentions put forth, we find that Assessment Year 2008-09 is outside the ambit of the provisions of section 153C of the Act in view of the proviso thereto. We are inclined to concur with the argument put forth by the assessee that in the event the initiation of proceedings under section 153C of the Act is found to be in order, the year of search in the case on hand is to be reckoned as Assessment Year 2015-16 as the satisfaction to initiate proceedings under section 153C of the Act was arrived on 15.09.2014 and the six Assessment Years immediately preceding the same would commence from Assessment Year 2009-10 and end with Assessment Year 2014-15. In these circumstances, Assessment Year 2008-09 is outside the ambit of section 153C of the Act in the case on hand. In coming to th .....

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