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TMI Blog2025 (2) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the proceedings initiated under Section 153C of the Income Tax Act, 1961 on the ground that no incriminating material was found during the search pertaining to the AYs in which the additions have been made?" 3. For purposes of sketching a brief backdrop in which the appeal has come to be laid before us, we bear in consideration the following facts. A survey action under Section 133A of the Act is stated to have been conducted by the Investigation Wing on 20 November 2007 on the business premises of one Mr. Suresh Kumar Gupta. The appellants would allege that Mr. Gupta, a chartered accountant by profession was controlling various companies without having any sufficient infrastructure or means for running a tangible business. They also appear to have borne in consideration a statement of Mr. Gupta recorded in the course of the survey in which he is stated to have admitted that the various companies controlled by him do not undertake any actual business activities and are only used "to issue accommodation entries". On the basis of the above, the appellants came to conclude that Mr. Gupta was "an established Entry Operator". 4. The search is also stated to have led to the unearth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mr. Menon thus sought to ground his submissions on the addition of the expression "pertains to" in Section 153C of the Act by virtue of Finance Act, 2015. He would thus submit that the provisional "Balance Sheet" of Ridgeview would satisfy the requirement of belongs or pertains to as appearing in Section 153C. In view of the above, it was his contention that since the provisional Balance Sheet bore the name of the assessee, Ridgeview, the same was liable to be taken into consideration, since it would qualify the pre-requisite of material belonging or pertaining to a non searched entity being found. 9. Mr. Menon, also submitted that at the time when the search was conducted, it was the unamended regime of Section 153C of the Act which applied and there was, thus, no occasion for the AO of the non-searched entity to record any satisfaction as is contemplated under Section 153C of the Act as it stands today. In view of the statutory construct which existed at the relevant time, according to Mr. Menon, it was the satisfaction of the AO of the searched person alone which would have driven an assessment under Section 153C of the Act. That AO, learned counsel pointed out, would have at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that notice under Section 153-C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153-C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee. xxxx xxxx xxxx 17. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153-C of the Act, incriminating material which was seized had to pertain 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 Section 153-C 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 Section 153-C of the Act. Para 9 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income. These returns were accepted by the assessing officer, however, in respect of Assessment Year 2007-08 there was a significant difference in the pattern of assessment for this year also, the return was filed for Nil income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for Assessment Year 2007-08. Thus, the receipt of Rs 44 crores as deposit in the previous year relevant to Assessment Year 2008-09 and later on became subject-matter of the writ petition before the Delhi High Court. That was challenging the validity of notice under Section 153-C read with Section 153-A. In dealing with such situation and the peculiar facts that the Delhi High Court upheld the satisfaction and the Delhi High Court found that the machinery provided under Section 153-C read with Section 153-A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer having jurisdiction over the other person and thereafter it is for the Assessing Officer having jurisdiction over the other person to follow the procedure prescribed by section 153A in an attempt to ensure that the income reflected by the document has been accounted for by such other person. If he is so satisfied after obtaining the returns from such other person for the six assessment years, the proceedings will have to be closed. If the returns filed by the other person for the period of six years does not show that the income reflected in the document has been accounted for, additions will be accordingly made after following the procedure prescribed by law and after giving adequate opportunity of being heard to such other person. That, in sum and substance, is the position. 18. A reference to section 158BD of the Act, which falls under Chapter XIV-B, may be of some use. This section provided for assessment of the undisclosed income by any person other than the person searched under section 132. It applies to search conducted prior to May 31, 2003. It provided as follows: "Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner, were finalized after the search on January 5, 2009. Seizure has to judged in the perspective and the facts known and within the knowledge when it was made. On that date, the Revenue was not in a position to know whether any income from the transaction had been disclosed by the petitioner in its books of account for the year ended March 31, 2009. In the very nature of things, the warrant of authorization of the search under section 132 could not have been issued on the footing that there was undisclosed income in the case of the petitioner simply because action under section 132 was taken not against the petitioner, but against the Puri group of companies. Section 153C postulates that while conducting the search on the person in whose name the search warrant is issued under section 132, some valuable article or books of account or document is seized, which does not belong to the searched person but is seen to belong to any other person, the procedure stated therein should be followed. Therefore, nothing is to be gained from saying that the pre-conditions mentioned in clauses (a), (b) and (c) of sub-section (1) of section 132 have not been satisfied vis-a-vis the petitioner so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be reopened under section 153C of the Act. In our view, the concluded assessments cannot be interfered with mechanically and solely for the reason that a document belonging to the assessee, which has no bearing on the assessments of the assessee for the years preceding the search, was seized from the possession of the searched persons. 34. In SSP Aviation (supra), this court had noted the difference between the provisions of section 158BD of the Act and the provisions of section 153C. Whereas section 158BD referred to the satisfaction of an Assessing Officer with regard to any "undisclosed income" belonging to a person other than the searched person, section 153C (1) of the Act in contrast referred merely to the Assessing Officer 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 Assessing Officer, at the stage of recording the satisfaction under section 153C to come to a conclusion that the seized assets which belong to another person represent any undisclosed income. If the Assessing Officer of a searched person is satisfied that an asset/documents seized belong to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of an assessee before commencing an enquiry under section 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." 15. While it is true that under the unamended Section 153C, only the AO of the searched person was to record its satisfaction of a document or material belonging to a third person having been discovered and consequently transmit the same to the AO of the non-searched entity, the initiation of assessment under Section 153C against the non-searched entity was never intended to be automated or an inevitable fallout. As was lucidly explained in RRJ Securities, it was still incumbent upon the AO of the third party to examine that material and evaluate whether the same had been duly disclosed and factored in the returns which had been submitted. The AO under the unamended regime was entitled to set Section 153C in motion only if it were prima facie of the opinion that the material represented or was likely to be demonstrative of concealment of income or "undisclosed income" as the RRJ Securities Court explained. 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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