TMI Blog2021 (11) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... datory and it has to precede the initiation of proceedings against the other person (not searched). If we look into the satisfaction note in the file of the searched person namely, Model Construction Pvt. Ltd. It is abundantly clear that there is no recording of satisfaction by the Assessing Officer that the document seized during the search at the premises of Model Construction Pvt. Ltd. Belongs to the assessee and were incriminating in nature. In our view, unless there is a recovery of the document belonging to the other person, section 153C of the Act cannot trigger. In the present case there is neither the recording of satisfaction by the AO of the searched person that the documents belong to the other person nor there is any finding that the documents so found were incriminating in nature. In our view a detailed scheme has been provided for initiation of Section 153C i.e. first there would be a satisfaction in the file of the AO of the searched person and thereafter transmission of the file along with the incriminating document to the AO of the other person and thereafter recording of satisfaction by the AO of the other person and issuance of notice u/s.153C of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vern the disposal of six appeals filed by the revenue for the assessment years 2007-2008 to 2012-2013 and five cross objections filed by the assessee arising out of the above appeals filed by the Revenue. 2. First we shall take up the appeals of the Revenue in IT(SS)A Nos.23 to 27/PAN/2015 in case of the assessee-Shri Edgar Braz Afonso along with the cross objections (CO Nos.91 to 95/PAN/2016) filed by the assessee. For the sake of convenience, the facts and grounds mentioned in the appeal of revenue in IT(SS)A No.23/PAN/2015 for A.Y.2007-2008 are taken to be considered, wherein the grounds mentioned as under :- 1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of deemed dividend under section 2(22)(e) of the I.T. Act. 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting fresh evidence and not giving opportunity to the Assessing Officer as per sub-rule (3) to Rule 46A of IT Rules, 1962 . 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the amount of ₹ 81,51,723 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and there being no such finding in the case of this Respondent /Cross Objector, the entire assessment fails as being null and void, ab initio. 4. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the order of assessment passed by the learned assessing officer is bad in law as the mandatory conditions to invoke the jurisdiction u/s. 153C of the Income-tax Act, 1961 did not exist or having not been complied with and consequently the assessment made is bad in law for want of requisite jurisdiction. 5. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the initiation of proceedings u/s 153 C the consequent order of assessment passed by the learned assessing officer is bad in law as the assessments u/s 153 A could not have been made legally in the hands of the person searched, namely M/s. Model Constructions Pvt. Ltd, and consequently no legal and valid satisfaction could be drawn u/s 153 C in the case of the Respondent /Cross Objector. 6. Without Prejudice the Respondent / Cross Objector denies himself liable to be assessed over and above the total income reported by the Respondent / Cross Objector of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them filed detailed responses submitting how according to them, the provisions of Section 2(22)(e) of the Act were not at all attracted in the facts and circumstances of the case. 6. The AO vide assessment order dated 31.03.2014 however, held that the amounts reflected in the books of the said firm as payable to the company were like loans and advances and accordingly, directed that the same be treated as deemed dividend u/s.2(22)(e) of the Act. These amounts were added to the income of the assessees Peter Vaz and Edgar Afonso and brought to additional tax. 7. Aggrieved by the assessment order dated 31.03.2014, the assessees Peter Vaz and Edgar Afonso appealed to the CIT(A). By order dated 28.07.2015, the CIT(A) allowed the appeals and held that the amounts reflected in the books of the said firm could not ne treated as deemed dividend u/s.2(22)(e) of the Act. Accordingly, the assessment orders dated 31.03.2014 made by the AO were set aside. 8. Aggrieved thereby, the revenue preferred appeal before the Tribunal. During the pendency of the appeals, the assesses requested the ACIT to furnish them a copy of satisfaction for issuance of notice u/s.153C of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the IT Act. At the same time, we make it clear that all contentions of all parties, including, other contentions raised in these appeals are expressly kept open and may not be deemed to have been decided by us one way or other. The only reason we have not adverted to the other issues is that if the jurisdictional issue is ultimately upheld by the ITAT, then it may not be necessary to decide the other issues. 53. The parties to now appear before the ITAT on 26th April 2021 at 11.00 a.m. and file authenticated copy of this order. We request the ITAT to dispose of such appeals as expeditiously as possible by granting a full opportunity to both the assessees as well as the Revenue. 10. Now, the above appeals have been listed for hearing before us for deciding the issues as per the direction of the Hon ble jurisdictional High Court, mentioned in paragraph 52 supra of the High Court s order and the jurisdictional grounds reproduced hereinabove. 11. Ld. DR for the revenue had filed consolidated paper book in respect of the assessee on 01.09.2021 and at page 4 of the paper book the order sheet was placed which is as under :- F.No. DCIT/C-l(l)/PNJ/2021-22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Afonso for the same assessment years. Further, no satisfaction notes from the assessing officer for forwarding of information in the current cases for initiation of proceedings u/s 153C are available on records. I am furnishing herewith the certified copies of following documents for submission before the Hon'ble ITAT Pune: 1. Copy of the order Sheet in the case of Mr Edgar B Afonso for AY 2006-07 to 2011-12. Copy of the seized documents vide Exhibit no. A/EBA/01 [this has been inadvertently mentioned as A/EBA/10 in the order sheet. However, as seen from seizure annexure A/EBA dtd.31.01.2012 it s item 01 (copy of the annexure is attached for immediate reference)] 3. Copy of the Cash seizure panchanama dtd. 31.01.2012 in support of cash seizure mentioned in order sheet. 12. The ld.DR had also produced the order sheet (satisfaction note) in the case of Edgar Braz Afonso to the following effect :- ORDER SHEET Shri Edgar Braz Afonso During the course of search seizure u/s.132 conducted in the case of M/s Models Construction Pvt. Ltd. On 31.01.2012, documents belonging to Shri Edgar Afonso were seized vide A/EBA/10, so also am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te as there is neither a reference of seized material nor there is a reference of PAN number nor there is a reference of reasons for initiating the proceedings u/s.153C of the Act. Further, it was also the contention that there is no satisfaction recorded by the AO that the document seized namely A/EBA/10 belongs to the other person , namely, the assessee before us. Thirdly ld. AR had filed the Chart tabulating the nature character and the name of the person to whom the documents belonged in respect of the assessee and the above said documents were duly inventorised and it was the submission of the ld. AR that none of the document belongs to the assessee. Further, he had also drawn our attention that the document seized do not belong to the assessee and are not relevant for the purposes of making the assessment. 19. Lastly, it was submitted that the AO had not made any addition on the basis of the seized document, which is clear from the assessment order. The ld. AR had also filed the written submissions in support of the above contentions which is to be following effect :- We refer to our earlier paper book dated 24/09/2021 and would like to submit as below: 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the jurisdiction to assess u/s 153C of the Income Tax Act 1961, has to be initiated from the file of the AO of the person searched and assessed u/s 153A, wherein the AO has to record his satisfaction as to money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A. After recording his satisfaction the AO has to transfer the documents to the jurisdictional AO. 2) Whether the satisfaction recorded describes the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A. As per the paper-book submitted by the department ld DR, there is no description of any document pertaining to the assesee except one document of cash seizure of ₹ 3.00 lacs. The documents of FD receipts are of Smt. Vanda Afonso and some other persons. The referred document of the assessee has been duly explained and accepted by the department during the proceedings. We rely upon the Madeeha Enterprises v/s A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Hon ble apex court and the view taken by this tribunal we hold that notice issued u/s 153C without having incriminating material cannot survive, accordingly quashed. 4) Whether the additions made by the AO in his order passed u/s 153C of the IT Act, are made based on the incriminating documents. There are no additions made by the AO relying upon the documents noted by the AO to arrive at his satisfaction. Additions made by the AO are u/s 2(22)(e) (Deemed Dividend), which has arise out of regular books of accounts of the person searched. As such the books of accounts of the person searched do not qualify to be documents of other person. We rely upon, in the matter of Assistant Commissioner of Income Tax VS Rangoli Buildtech (P) Ltd [TS-7546-ITAT-2020(Delhi)-O] IN THE ITAT OF DELHI, where it was held that We find, the Hon ble Delhi High Court in the case of NS Software (supra) has held that failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the note issued under it vitiates the assessment. We find the Hon ble Delhi High Court in the case of Pepsico (supra) has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed 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 section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A] : Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act but also u/s.153C of the Act. 24. For issuance of a notice under section 153A/ 153C of the Act by the learned assessing officer, there should be a satisfaction as regard to an inference of liability be recorded and upon such satisfaction the learned assessing officer can proceed to issue notice under section 153A/153C of the Act. Further, the learned assessing officer has to arrive at a satisfaction as regard to the inference of liability based on the incriminating materials that the assessee has certain undisclosed income which has escaped assessment. Reference may be made to the decision of the Hon ble Karnataka High Court in the case of CIT Vs. IBC Knowledge Park [P] Ltd., reported in 385 ITR 346. The relevant portions of the decision of the Hon ble Court are at page 367 368 at para 49 50 of the reported judgement: 49. On a conjoint reading of the aforesaid provisions, it becomes clear that a search can take place only when a concerned officer has information and reason to believe that any person is in possession of any valuable assets which has not been or would not be disclosed under the Act. In such a case, a search can take place. Following the search, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return is filed beyond the time limit, but before search, as long as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. 25. From the above observations of the Hon ble High Court reproduced above it is clear that only upon a valid search and upon certain incriminating materials are detected, the notice under section 153A/ 153C of the Act can be issued. Further, the Hon ble Court has also held that when particulars of income is declared in the return is already available, such income cannot form part of undisclosed income and assessment is justified only on the basis of evidences found during search and the materials or information relatable thereto. Thus, as per the ratio of the decision of the Hon ble High Court of Karnataka if and only if any incriminating materials are found and seized during the course of a valid search then and then only notice under section 153A/ 153C of the Act can be issued. The notices issued under section 153A/ 153C of the Act cannot be issued without recording the satisfaction as regard to the inference of liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Years 2000-01 and 2001-02 was even time barred. 19) We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. 27. From the reading of the above noted legal principle enunciated by various courts it is abundantly clear that; a) The Assessing Officer of the searched person is required to record a satisfaction that the document seized during the search belongs to the other person and are incriminating in nature; b) That the Assessing Officer after recording his satisfaction in his file, shall transfer , his satisfaction note along with the material seized to the Assessing Officer of the Assessing Officer having the jurisdiction over the other person . c) The Assessing Officer of the other person shall record the satisfaction in his file and the reasons for coming to the conclusion that the documents seized were incriminating in nature and the assessee has not disclosed the income in the previous years on account of searched documents and thereafter the Assessing Officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then, - [(a) The Assessing Officer shall, (i) In respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997 serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) In respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142, setting forth his total income including the undisclosed income for the block period: Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided further that a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interpretation is the rule of strict interpretation which provides that where the words of the statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule (Swedish Match AB v. Securities and Exchange Board, India, AIR 2004 SC 4219, CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC)). 24. We may gainfully refer to The Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 at 71 which involved the Finance (No. 2) Act 1915 which imposed excess profits duty on trade or businesses commenced after the outbreak of the First World War in 1914. By subjecting the legislation to a strict literal interpretation, Rowlatt J. held that the Finance (No. 2) Act 1915, in isolation, did not apply to businesses that commenced after the outbreak of war in 1914 and observed as follows: the principle in favour of a strict literal approach simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Sita Ram Agarwal, AIR 2003 SC 1543, Bhaiji v. Sub-Divisional Officer, Thandla, 2003(1) SCC 692, J.P. Bansal v. State of Rajasthan and Anr., AIR 2003 SC 1405, State of Jharkhand and Anr. v. Govind Singh : JT 2004(10) SC 349, Jinia Keotin v. K.S. Manjhi, 2003 (1) SCC 730, Shiv Shakti Co-operative Housing Society v. Swaraj Developers, AIR 2003 SC 2434, Grasim Industries Limited v. Collector of Customs, 2002 (4) SCC 297 and Union of India v. Hamsoli Devi, 2002 (7) SCC 273) 28. The Australian High Court in Federal Commissioner of Taxation v. Westraders Pty Ltd, (1980) 144 CLR 55 considered the scope of Section 36A of the Income Tax Assessment Act, 1936(Cth), which on a literal interpretation allowed the taxpayer to make a profit and still claim a loss for tax purposes. The Commissioner argued the taxpayer s conduct amounted to a tax avoidance scheme and should therefore be disallowed under Section 260 of the Income Tax Assessment Act, 1936(Cth). The Court held that under a literal interpretation Section 36A could apply to allow the taxpayer to claim a loss. Barwick CJ, speaking for the majority relied on the decision in Inland Revenue Commissioners v. Westminster (Duke), [1936 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on laid down in Inland Revenue Commissioner case (supra), observed that a court should not be over zealous in searching ambiguities or obscurities in words which are plain. 32. In Prakash Nath Khanna v. C.I.T., 2004 (9) SCC 686, this Court has explained that the language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what it has said. Assuming there is a defect or an omission in the words used by the legislature, the Court cannot correct or make up the deficiency. Where the legislative intent is clear from the language, the Court should give effect to it (Delhi Financial Corporation v. Rajiv Anand, 2004 (11) SCC 625; Government of Andhra Pradesh v. Road Rollers Owners Welfare Association, 2004(6) SCC 210). 33. In B. Premanand and Ors.v. Mohan Koikal and Ors.,(2011)4 SCC 266 this Court has observed as follows: 32. The literal rule of interpretation really means that there should be no interpretation. In other words, we should read the statute as it is, without distorting or twisting its language. 33. We may mention here that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery workable. 21. In J. Srinivasa Rao (supra), this Court noticed the decisions of this Court in Gursahai Saigal v.Commissioner of Income-tax, Punjab, [1963] 1 ITR 48(SC) and Ispat Industries Ltd. v. Commissioner of Customs, Mumbai, 2006(202)ELT561(SC).In Gursahai Saigal (supra), the question which fell for consideration before this Court was construction of the machinery provisions vis- -vis the charging provisions. Schedule appended to the Motor Vehicles Act is not machinery provision. It is a part of the charging provision. By giving a plain meaning to the Schedule appended to the Act, the machinery provision does not become unworkable. It did not prevent the clear intention of the legislature from being defeated. It can be given an appropriate meaning. 36. A reference to the observations of this Court in J.K. Synthetics Limited and Birla Cement Works and another v. Commercial Taxes Officer and another,(1994) 4 SCC 276 would be apposite: 13. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32A of the Act. Under Section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD of the Act, the other provisions of XIV-B shall apply. 39. The opening words of Section 158BD of the Act are that the assessing officer must be satisfied that undisclosed income belongs to any other person other than the person with respect to whom a search was made under Section 132 of the Act or a requisition of books were made under Section 132A of the Act and thereafter, transmit the records for assessment of such other person. Therefore, the short question that falls for our consideration and decision is at what stage of the proceedings should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 42. Further, Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after 01.01.1997. The said section does neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation the satisfaction note under Section 158BD and consequent issuance of notice to the other person. 43. In the lead case, the assessing officer had prepared a satisfaction note on 15.07.2005 though the assessment proceedings in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial and disclosures of the person with whom the articles or assets are found and not in respect of the person to whom they belong. In this regard reliance can be placed in the case of Savesh Kumar Agarwal v. Union of India, (2013) 353 ITR 26 (All). The procedure to be adopted for initiating proceedings under section 153A against a person who has not been searched, has been prescribed in the provisions of section 153C wherein a situation, the Assessing Officer having the jurisdiction over the other person is different from the Assessing Officer having jurisdiction over the person in respect of whom the search has been conducted. Before notice can be issued under section 153C, the Assessing Officer has to be satisfied that undisclosed income found during search operations belongs to the third person. A clear and plain reading of section 153C leaves no doubt that recording of satisfaction by the Assessing Officer of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched). 30. Now, if we look into the satisfaction note in the file of the searched person namely, Model Construction Pvt. Ltd. It is abundantly clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sheet (satisfaction) as neither the description of the document were mentioned nor how those document leads to evasion or concealment of non-disclosure of income by the assessee in all these years. 33. In our view, the Assessing Officer besides recording the abovesaid is also required to mention the document received by him pertains to which assessment year and how it is incriminating. 34. As mentioned hereinabove, on our direction, the ld. DR had produced the incriminating document pertaining to the assessee namely Peter Vaz, we have requested the parties to file Index of documents along with the dates so that it can be identified whether any document pertaining to the assessment years were recovered during the course of search, belonging to the assessee or not. The list of the documents provides as under :- SUMMARY OF SEIZED MATERIALS IN THE CASE OF EDGAR BRAZ AFONSO AS PER PAPER-BOOK SUBMITED BY Ld DR. PAPER BK. SR.NO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/29/2010 27 Vanda Afonso 6-Year NSC Certificate 1000 3/29/2010 28 Vanda Afonso 6-Year NSC Certificate 1000 3/29/2010 29 Maria W. Dias Corp Bank -TDR - Front page 111863 12/22/2005 30 Maria W. Dias Corp Bank -TDR - back page NA 6/14/2013 31 Carla Maria Hilda Afonso Corp Bank -TDR - Front page 46463 10/19/2005 32 Carla Maria Hilda Afonso Corp Bank -TDR - back page NA 6/14/2013 33 Carla Maria Hilda Afonso Corp Bank -TDR - Front page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 Ruth Afonso HDFC -FD 213527.21 12/31/2011 35. From the perusal of the above said table, it is clear that none of the document belongs to the assessee before us, and, therefore, it cannot be said to be relevant or incriminating in nature. 36. We may also like to point out that as confirmed by the ld. CITDR that none of the additions were made by the AO on the basis of the seized document and were only made u/s.2(22)(e) of the Act as is clear, from the grounds of appeal raised by the revenue before the ITAT, which were not pertaining to the seized document. 37. In terms of the directions of the Hon ble High Court, we hereby decide the verification of the jurisdictional parameter for initiation of proceedings u/s.153C of the Act in favour of the assessee and against the revenue. 38. In the result, all the appeals of the revenue i.e. IT(SS)A Nos.23 to 27/PAN/2015 ITA No.413/PAN/2015 are dismissed, whereas the cross objections filed by the assessee i.e. CO Nos.91 to 95/PAN/2016 are allowed. Order pronounced in the open court on 07/10/ 2021. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
