TMI Blog2016 (10) TMI 1378X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 - SUPREME COURT] are applicable and therefore, respectfully following these judgments, we hold that in the present case, notice issued by the AO u/s. 153C of the I.T. Act deserves to be quashed - Decided in favour of assessee. - ITA No. 1451 to 1457(Bang) 2014 - - - Dated:- 18-10-2016 - SHRI S.K. YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER For the Assessee : Shri Mayank Jain Shri Madhur Jain Advocates For the Revenue : Ms. Neera Malhotra, CIT Shri Praveen S., DCIT Central Circle 1 (3) ORDER PER BENCH: All these seven appeals are filed by the assessee directed against the combined order of learned CIT (A) VI, Bangalore dated 25.08.2014 for A. Ys. 2005 06 to 2011 12. 2. All these appeals were heard together and are being disposed of by this common order for the sake of convenience. 3. In all these appeals, the assessee has objected to the validity of the assessment order passed u/s 153C read with section 144 of the I. T. Act. In course of hearing of these appeals, on 27.06.2016, it is noted by the bench as noted in the order sheet of that day that the learned counsel for the assessee has raised a serious objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3), Bangalore along with the Paper Book containing the copies of the seized material and statements of the transporters to whom payments made were reflected in the books of accounts, which were denied by these transporters in the statements recorded. The A.O in his report has dealt with the following points discussed during the course of hearing on 26/08/2016 : a) Note on 1st Proviso to Section 153C (Refer pg. 2 3 of report of DCIT) In the Section 153A reference to date/year of search occurs 3 times viz. 153A(l)(b) which mandates the 6 years which have to be compulsorily assessed. 2nd proviso to Section 153A(l), which governs the abatement of pending proceedings. 3rd proviso to Section 153A(1), which provides exemption for compulsory assessment in certain notified class of cases. The 1st proviso to Section 153C makes a direct reference ONLY to 2nd proviso to Section 153A. 2nd proviso to Section 153A deals only with the issue of abatement of pending assessment proceedings. As has been rightly pointed out by DCIT in his report the interpretation resorted to by the assessee will lead to absurd situations. For example, if the the transfer of records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at significance which establishes the close association of these 2 individuals with the appellant and the close connection was admitted by these 2 individuals and , therefore, important documents pertaining to appellant were found from the premises of these 2 individuals: 1. Smt. G. Renuka is a Chartered Accountant by profession. Her 4irm/s G.Renuka Co. is the Chartered Accountant for the entire Janardhan Reddy Group. 2. Shri K.Raghavacharyulu is an Advocate by profession and he is handling all the legal matters for the appellant. This is evident from the Power of Attorney filed by the assessee in favour of Smt G Renuka Co for representing her during the earlier assessment proceedings (Page 12 of Paper Book). The agreement dated 26.12.2005 between Aruna and Pawan cannot be said to be not belonging to the assessee, being party to transaction. Therefore, agreement dated 26.12.2005 alone is a sufficient satisfaction for initiation for 153C proceedings. IV. CASE LAWS (A) For the assessments completed u/s 153C there is no requirement u/s 153 C(1) that the assessing officer should also be satisfied that the incriminating documents should conclusively establish tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding of satisfaction and at what point of time the satisfaction should be recorded was also considered . In this context the Hon'ble court stated that the satisfaction can be recorded at any of the 3 stages - (1) At the time of initiation of proceedings u/s 158BC, (2) along with the proceedings u/s 158BC and (3) immediately after concluding the proceedings u/s 158BC. 3. The aforesaid decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) is NOT applicable to the case of the assesse for the following reasons: (i) as the assessments of the asssessee are completed under different provisions of the statute as they relate to the new search assessment procedure as contained under sections 153A to 153C which are brought into statute w.e.f 1-6-2003. (ii) The assessing officer of the person covered under provisions of Section 153 A is the same as the officer of the person covered under provisions of Section 153C and, therefore, there is NO issue of transmission of records . Copies of assessment orders in the cases of Shri K. Raghavacharyalu and Smt. G.Renuka are enclosed to establish that the assessments are completed by the same assessing officer i.e Shri Shivanand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ld. DR of revenue dated 10.08.2016. The same is as under:- During the course of hearing held on 03.08.2016 the Hon'ble Bench had directed for production of search records of the assesses in whose case search u/s 132 was conducted and seized material pertaining to Shri Gali Janardhan Reddy was found on the basis of which satisfaction was recorded for initiating proceedings U/S 153C in the case of the assessee. On perusal of the order sheet recording satisfaction note before issuance of notice u/s 153C of the I.T Act for A.Ys 205-06 to 2011-12, it is noted that the following premises were covered u/s 132 of the LT Act: (a) Shri K. Raghavacharyalu, at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. (b) Smt. G.Renuka, at Rishikes , No.36, Goldsmith Street, Bellary. DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT Vs CALCUTTA KNITWEARS 43 taxmann.com 446 (SC) 1. Firstly, the decision of Hon'ble Supreme Court in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) , which is rendered in connection with search assessments under Chapter XIV-B (sections 158B to 158BI), which are different provisions compared to assessments of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered in the context in which they are made and in the light of questions that were before the court. In CIT v. Sun Engineering Works Pvt. Ltd.(198 ITR 297) the Supreme Court observed: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. This has been reiterated by the Hon'ble Supreme Court in its decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). 4. Therefore, in view of the fact that assessing officer of the person covered under provisions of Section 153 A being the same as the officer of the person covered under provisions of Section 153 C and the assessing officer having recorded the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charyulu and Smt G Renuka. Issue notice u/s. 153C of the Income tax Act, 1961. Sd/- (SHIVANAND H KALAKERI) Date: 14.12.2012 Deputy Commissioner of Incometax, Central Circle 1(3), Bangalore. 3. We find that as per satisfaction note dated 14.12.2012, satisfaction note has been recorded by Shri Shivanand H. Kalakeri, DCIT, Central Circle 1(3), Bangalore and as per the copy of the two assessment orders for AY 2005-06 u/s. 153A dated 27.3.2013 and 30.3.2013 in the case of Shri K. Raghavacharyalu and Smt. G. Renuka respectively, the AO is the same person with the same designation and hence, this is the admitted position that the AO of assessee and of the searched persons is one and the same person and satisfaction note has been recorded by him on 14.12.2012 before issue of notice u/s. 153C of the I.T. Act. In the same satisfaction note, he has noted in the last that Issue notice u/s. 153C of the Income Tax Act, 1961. This last line of the satisfaction note proves beyond doubt that such satisfaction note has been recorded by the same Officer who is the AO of assessee as well as of the searched persons in his capacity as AO of assessee and not in his capacity as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue. Moreover, from the orders of the lower authorities, it is apparent that satisfaction was not recorded by the Assessing Officer of the searched person before initiating proceedings under section 153C of the Act. Now the question arises whether in the absence of satisfaction recorded by the Assessing Officer of the searched person, the assessment framed under section 153C of the Act, is sustainable in the eyes of law? This question was answered by the Hon'ble jurisdictional High Court in the case of CIT (Central) vs. M/s Gopi Apartment (supra) by holding that 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). The relevant observations of the jurisdictional High Court are extracted hereunder:- We have heard Sri Bharat Ji Agrawal, learned senior counsel assisted by Sri Ashok Kumar, learned counsel for appellant and Sri Ashish Bansal, learned counsel for respondent assessee and have perused the records. The contention of Sri Agrawal is two fold. Firstly, he contends that in the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer of the 'searched person' prior to initiation of such proceedings against respondent assessee as was mandatory. He invited the attention of the court to the specific finding recorded by the learned C.I.T. (Appeals), as upheld by the I.T.A.T., based on the admission by the A.O. before it, which has already been taken note of by us in the earlier part of the judgment. Sri Bansal relied upon a recent judgment of the Apex Court in the case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana passed in Civil Appeal No.3958 of 2014 decided on 12.03.2014 in support of his contention. Apart from the arguments, as noted above, no other argument was raised by the learned counsel for either of the parties nor any other judgment was cited before us in support of their respective contentions. The relevant provision in the instant case, i.e. Section 153C is as under: 153C. Assessment of income of any other person. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een subjected to search and seizure under Section 132(1) or has been proceeded under Section 132A, 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 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. Thus, there are two stages: (1) The first stage comprises of a search and seizure operation under Section 132 or proceeding under Section 132A against a person, who may be referred as 'the searched person'. Based on such search and seizure, assessment proceedings are initiated against the 'searched person' under Section 153A. At the time of initiation of such proceedings against the 'searched person' or during the assessment proceedings against him or even after the completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g recorded on the foundation of the material available. In this regard, reference may be made to the pronouncements in the case of C.I.T. Vs. Radhey Shyam Bansal, (2011) 337 ITR 217 (Delhi) and the Division Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises reported in (2013) 358 ITR 465 (Allahabad). In the case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax and another, (2007) 289 ITR 341 (SC) , their Lordships had the occasion to consider the provisions of Sections 158BC and 158BD and held that the conditions precedent for taking recourse to a block assessment in terms of Section 158BC and 158BD (i) were as under: (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. 11. The conditions precedent for invoking the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings against the other person (not searched). A specific query was put to Sri Agrawal as to whether, on the basis of the material collected during the search and seizure operation or during the assessment, proceedings against the 'searched person' or thereafter, any proceeding could be initiated against the 'other person' under any other provision of the Income Tax Act, he categorically replied that except Section 153C, there was no other provision under which action could be initiated against him. The reliance placed by Sri Agrawal upon the Division Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises (supra) far from helping his cause goes against him. We have already relied upon the said judgment to explain the concept of 'satisfaction' under Section 153C, which is required to be recorded in writing. However, on the other issues, the said judgment is distinguishable for the reason that in the said case, the Assessing Officer had recorded his 'satisfaction' and after recording the satisfaction on the subject matter on 02.08.2006 handed over the books of account and seized material, thus, the issue, which falls for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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