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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Per Amarjit Singh (AM): The present appeal filed by the assesse is directed against the order passed by the ld. CIT(A)-49, Mumbai dated 24.08.2022 for A.Y. 2014-15. The assesse has raised the following grounds before us:
“1. Whether on the facts and circumstances of the case and in law, the Learned CIT(A) is justified in deleting the addition made of Rs.1,45,13,697 in the order passed w's 153C of the Act holding that no incriminating material was found during the course of search action
Whether on the facts and circumstances of case and in law, the Learned CIT(A) is justified in deleting the addition of Rs.1,45,13,697 in the order passed w/s 153C of the Act and not applies the ratio of decision of Andhra Pradesh High Court in case of Gopallal Bhadruka 253 CTR 80 wherein it is clearly held that "by virtue of section 158B-I the various provisions of Chapter XIV-B are made inapplicable to proceedings under section 153A/153C The effect of this is that while the provisions of Chapter XIV-B limit the inquiry by the Assessing Officer to those materials found during the search and seizure operation, no such P a g e | 2 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal limitation is found in so far as section 1534/153C is concerned Therefore, it follows that for the purposes of section 153A/153C the Assessing Officer can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee.”
Fact in brief is that return of income declaring total income of Rs.28,76,630/- was filed on 31.07.2014. A search action u/s 132 of the Act was conducted in the cases of Lotus/Kamdhenu/Green Valley Groups and their associate and also at the residence of the directors of the group companies on 09.10.2014. On the basis of evidences and materials gathered in the search action, a notice u/s 153C of the Act was issued in the case of the assessee for the year under consideration on 26.09.2016. Thereafter the issue was completed u/s 143(3) r.w.s 153C of the Act on 28.12.2016. In the assessment order the A.O has made an addition of Rs.1,45,13,697/- on account of disallowing the claim of long term capital gain claimed as exempt.
The assessee has filed the appeal before the ld. CIT(A). The ld. CIT(A) after following the various judicial pronouncements held that no incriminating material was found during the course of search action, therefore, addition made in the case of the assesse was deleted. The relevant operating part of the decision of ld. CIT(A) is reproduced as under: “6.3.1 I have duly considered the facts of the case, have carefully gone through the assessment order, remand report received from the ld. AO and the satisfaction note recorded for issue of notice u/s 153C in the case of the assessee. 6.3.2 Vide Ground No.1, the assessee has raised multiple arguments, claiming that the learned AO did not have juri iction to pass the impugned order and that in any case, he did not have the juri iction to make the impugned addition in the assessment order, which is not abated. The assessee submitted that the cash and jewellery found and seized during the course of search were seized from his residence and from his own lockers, and, therefore, it cannot be said to be evidence found during the course of search conducted in the case of 'other person', so as to assume juri iction uls.153C of the Act 6.3.3 The assessee also submitted that he was provided only the reasons
P a g e | 3 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal recorded by the AO for issue of notice u/s 153C, whereas the reasons recorded by the AO of the searched person was not provided. 6.3.4 The assessee further submitted that it is evident from the reasons. recorded itself that the only assets which were found as pertaining to the assessee were the cash amounting to Rs.11,36,500/- and some jewellery found from his residence and his locker. There was no other incriminating material found during the course of the search and no such evidences have also been referred to in the reasons recorded or the assessment order, and, therefore, the addition made in the assessment order on account of denying the claim of benefit of exemption from tax of long-term capital gain was without juri iction, as it was not based on any incriminating material found during the course of the search. 6.3.5 In this regard, the assessee has placed reliance on several judicial decisions, including the decisions in the cases of CIT v. Kabul Chawla (2016) 380 ITR 573 (Del)and CITVs, Sinhgad Technical Education Society (2017) 84 taxmann.com 290 (SC). In the submissions made subsequent to the remand report, the assessee submitted that the contention of the learned AO in para 4 of the remand report that the share transaction carried out in the scrip of M/s. Luminate Technologies Ltd Was reason behind the initiation of proceedings Vs.153C is completely devoid of the reasons. recorded as annexed to the remand report itself. 6.3.6 The first contention of the assesse is that the AO has recorded only one satisfaction and the Satisfaction recorded by the AO in the case of the person in whose case search was conducted has not been provided to the assessee. In this regard, it is evident that the whole group was centralized with Dy. CIT, Central Circle-7(3), Mumbai, and as such, the AO for both the searched person and the assessee was same. Hence, the contention of the assessee in this regard, is not meritorious as the AO of the 'searched person' and the other person' was same. Thus, the AO was only required to record one satisfaction as held by the Hon'ble Apex Court in the case of Super Malls (P.) Ltd. Vs Pr.CIT-8, New Delhi [2020] 115 taxmann.com 105 (SC). Since, there is no dispute about the material fact that the AO had recorded a satisfaction note as AO of the ‘other person’ and a copy of the same was also provided to the assessee, the requirement for assumption of juri iction u/s 153C has been met. This argument of the assessee is, therefore, untenable in light of the decision of Hon'ble Apex Court as referred to above. 6.3.7 Another contention of the assessee is that the assets mentioned in the satisfaction note were found from the premises of the assessee itself, which could not have been the basis for issue of notice u/s.153C of the Act. In this regard, it is pertinent to note that no search was conducted in the case of the assessee. It is clearly mentioned in the satisfaction note that the warrant of authorization was in the case of companies naming M/s. Lotus Estate and Hospitality Ltd. and M/s Lotus Logistics and Developers P Ltd. The residence of the assessee was covered in the capacity of Director of the said company naming M/s. Lotus Estate and Hospitality Ltd. The premises from where the impugned assets were seized was searched by way of warrant of authorization issued in the names of the companies, validity of which has never been challenged by the assessee. It is also not in dispute that those assets belonged to the assessee. During the course of appellate proceedings, the assessee, vide a notice dated 01.04.2022, was asked to clarify that if any warrant of P a g e | 4 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal authorization issued in his name, in response to which the assessee admitted that no warrant of authorization was issued in his name. I find that this issue is squarely covered by the decision of Juri ictional High Court in the case of Bansilal B. Raison & Sons vs ACIT Central Circle-l. Nashik [2019] 101 taxmann.com 20 (Bombay), wherein the Hon'ble High Court has held that in order to issue notice under sub-section (1) of section 153A, there must be initiation of search in case of noticee. Satisfaction in the Case of the assessee Was recorded on the basis of evidences and the documents found and seized in the case of companies, which without any doubt or dispute are separate entities Since, there is no dispute about the fact that no search was initiated in the case of the assessee, it is, ex facie evident that as a consequence of finding of assets belonging to the assessee, the AO was required to issue notice under section 153C of the Act for the impugned Assessment Year. under section 1630 of the Act for the impugned 6.3. 8. The Coordinate Bench of the Mumbai Tribunal in the case of JCIT v. Latika V. Waman [01 SOT 535 (Mum)], held that all the persons who are found at place of search are not automatically covered by action u/s. 132 of the Act. The notice. u/s. 158BC cannot be issued on a person who is not belonged to search. In the case of Smt. Nasreen Yusuf Dhanani v. ACIT (24 SOT 31), the Coordinate Bench of Tribunal held as under: - “Chapter XIV-B is a special procedure for making assessment of search cases These provisions of block assessment come into picture only as a result of search action carried out under s. 132. On reading the provisions of s. 132(1), it is clear that the section is person specific and not premises specific as argued by the Departmental Representative. The primary target for conducting a search action is the person who is in possession of any undisclosed income and upon consequence of the same the search party can enter and search any building, place, vessel, vehicle or aircraft where the undisclosed assets or incriminating documents are likely to be found in relation to such person.” (emphasis supplied) 6.3.9 In view of above discussion and various judicial pronouncements referred to above, it is clear that when there is no search warrant issued there cannot be an assessment u/s 153A of the Act. The Assessing Officer has, therefore, rightly assumed juri iction under section 153C of the Act. 6.3.10 The third contention of the assessee is that the learned AO did not have juri iction to make addition by denying the claim of exemption in respect of long-term capital gain without having support of any material found during the course of search. On perusal of the assessment order, it is found that the learned AO has noted that there was an information received from the Investigation Wing that the Investigation Directorate of Kolkata had carried out a country-wide investigation to unearth the organized racket of generating bogus entries of long-term capital gain claimed to be exempt from taxation. The AO has discussed the modus operandi of the same as discussed in the investigation report of the Investigation Wing. On the basis of the same, it was held that the assessee has generated bogus long-term capital gain by way of sale of th3 shares of a company. M/s. Luminaire Technologies Ltd. The financials of the said company were analyzed in the assessment order and it was concluded that the transaction of the assessee was not genuine, and accordingly, the long-term capital gain claimed by the assessee was held as P a g e | 5 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal bogus and the sale proceeds claimed to have been received from sale of the shares being Rs.1,45,13,697 were added to the total income of the assessee, 6.3.11 On perusal of the assessment order, it is found that the learned AO has not referred to any evidence found during the course of search while making this addition. The aforesaid report of the Investigation wing was evidently received separately and there is nothing found during the course of search operation referred to in the assessment order or remand report to support the addition made on account of denying the benefit of exemption as to the impugned transactions in the nature of long term capital gains. 6.3.12 Further, it is evident from the satisfaction note that the findings of the search pertaining to the assessee were cash amounting to Rs.11,36,500/- and some jewellery, and, therefore, there is nothing in the satisfaction note recorded for issue of notice u/s 153C of the Act, which could be said to be incriminating and pertaining to the AY under reference, so as to form an opinion that the long- term capital gain claimed by the assessee was not genuine. The assessee placed reliance on the decision of Hon'ble Apex Court in the case of CIT v, Sinhgad Technical Education Society [2017] 84 taxmann.com 290 (SC)to support its arguments that since the cash and jewellery found during the course of search conducted on 09/12/2014, did not pertain to the Assessment Year under reference being AY 2014 15 (EY 2013-14), no assessment could have been made u/s 153C for the year under reference and no addition could have been made on account of LTCG without having support of any incriminating material found during the course of search. It was his submission that in the case of assessee, there is no such application of mind as to what is the material based on which the AO came to the conclusion that the seized material in the search belonged to assessee or as to how such material were incriminating in nature. His submissions were that the satisfaction note must speak on how such a satisfaction was arrived at by the AO. According to him, in the present case, the satisfaction recorded by the AO does not confirm to the requirements of a valid satisfaction for invoking the provisions of section 153C of the Act for the year under reference. 6.3.13 It was submitted that the very initiation of proceedings u/s.153C without recording proper satisfaction as contemplated in law, will make the entire proceedings void ab initio and, therefore the assessment order for the Assessment Year under reference should be annulled. In this regard, it is pertinent to note that the Hon'ble Madras High Court- the case of CIT J. Chandrasekhar (HUF) (2011) 338 ITR 61 (Mad.) held as under: “On the search conducted in the case of A and group on November 25, 2003, material pertaining to "on-money payment paid to the assessee in respect of property purchased from the assessee were seized. Based on that, the Assessing Officer issued notice under section 153C of the Income-tax Act, 1961, and reworked the capital gains. The Commissioner (Appeals) and the Tribunal held that the notice under section 153C was not valid. On appeal to the High Court: Held, dismissing the appeals, that the Assessing Officer did not have the benefit of the seized material while issuing the notice under section 153C. In the light of the fact that the Revenue did not produce any material to show that the materials were available at the hands of the Assessing Officer at the time of Issuing notice, the Tribunal rightly came to the conclusion that he assumption of juri iction under section 153C was not valid.”
P a g e | 6 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal
14 Further to the above, this very issue was considered by the Hon'ble Bombay High Court in the case of Sinhgad Technical Education Society Commissioner of Income-tax-III, Pune [2015] 63 taxmann.com 14 (Bombay), which was affirmed by the Hon'ble Apex Court in the aforesaid order, has held as below:
“6. The tribunal allowed parties to raise an additional ground and reply to it, namely about validity of notice under section 153C of the Act. After referring to the language of notice under section 153C as it stood then, the tribunal found that the satisfaction of the Assessing Officer ought to be in terms of this provision and particularly sub- section (1) thereof, therefore, should be satisfied that any money, bullion, jewellery or other valuable articles or thing or books of account or documents seized or requisitioned belong or belongs to person other than the person referred to in section 153A of the Act and that is how he can handover the same or seized documents to the Assessing Officer having juri iction. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document-wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating Information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the statute to 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 and therefore the satisfaction which is recorded in the satisfaction note-is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefore are to be found in paragraph and 10 of the impugned order. If certain items pertain to assessment Year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material diving information are specific and to all assessment years. The tribunal has found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific Incriminating Information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions,
P a g e | 7 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon.” 6.3.15 The Hon'ble Apex Court, while upholding the aforesaid order of the Hon'ble Bombay High Court, in Commissioner of Income Tax Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) has also categorically held that it is a Juri ictional requirement for invoking section 153C of the Act that the incriminating material should pertain to that particular year in which it is sought to be invoked. The relevant findings of the Hon'ble Apex court beginning from para 15 of the order is as under:
“15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e Assessment Year 1999- 2000 to Assessment Year 2006-07 As noted above, Insofar as Assessment Year 1999-2000 is concerned same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned. It was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered, by notice under Section 1530 of the Act There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment.
In these appeals, qua the aforesaid four Assessment Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153C 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.
First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the juri iction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground.
The ITAT permitted this additional ground by giving a reason that it was a juri ictional 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 flection 1530 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 P a g e | 8 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 1530 of the Act is essential for assessment under that provision, it becomes a juri ictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 1630 of the Act, Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 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 Assosament Years 2000-01 and 2001-02 was even time barred.
We, thus, find that the AT 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." 6.3.16 Besides, in the case of ACIT, Central Circle-09 vs AnushFinlease& Construction (P.) Ltd.(2019) 104 taxmann.com 205 (Delhi Trib.), it has been reiterated that not only the document found during the course of search should be incriminating in nature, but must also relate to the assessment year whose assessments are sought to be reopened, the findings of the Hon'ble Tribunal is reproduced as below:
“5. We have carefully considered the submissions of both the sides and perused the material placed before us. We find that in paragraph 8, learned CIT (A) has recorded the finding "The document found and seized in course of search u/s. 132 included audited balance sheet, inclusive of the financial statements of the appellant company for the year ended on 31.03.2009. This document pertains to the Assessment Year 2009-10". Again, in paragraph 10.2, he discussed those facts and also reproduced the satisfaction recorded by the Assessing Officer of M/s. Jagat Projects Ltd. The same is reproduced for ready reference:- “10.2 As per the satisfaction note recorded by the Assessing Officer, proceedings u/s. 153C was taken on the basis of the document found and seized i.e. audit report and financial accounts for the year ended on 31.03.2009 from the searched premises of Jagat group, specifically from the premises of M/s. Jagat Agro Commodities Pvt. Ltd and M/s. Jagat Projects Ltd. on 14.09.2010, I have called for the assessment folders in the case of M/s. Jagat Commodities Pvt. Ltd. and M/s. Jagat Projects Ltd., relevant to the assessment year 2011-12, the financial year in which the search took place and perused them. In the file of M/s Jagat Projects Ltd., the Assessing Officer recorded a satisfaction note on 11.02.2013 before transferring the said note to the file of the appellant which is extracted and given below: "During the course of assessment proceedings in the case of M/s. Jagat Agro Commodities Pvt.Ltd. and M/s. Jagat Projects Ltd. It P a g e | 9 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal was noticed that during search and seizure operation u/s, 132 of the I.T. Act, 1961, undertaken on 14.09.2010 in the case of M/s. Jagat Agro Commodities Pvt.Ltd. and M/s. Jagat Projects Ltd. at 802, Amba Deep Building, K.G. Marg, New Delhi, Audit Report inclusive of financial accounts for the year ended on 31.03.2009 were found and seized by the search party J-5. The seized documents appears at Page No.190 to 206 of Annexure A-9 and belongs to Ms. Anush Finlease & Construction Pvt. Ltd.
The case of M/s. AnushFinlease& Construction Pvt. Ltd. has been centralized to this Circle vide letter F.No.CIT- I/Centralisation/2011-12/2100 dated 17.11.2011. 3. I am, therefore, satisfied that the documents, referred to above belong to M/s. AnushFinlease& Construction Pvt Ltd warranting action u/s. 153C in this case.
Thus, it is not in dispute that the only material on the basis of which proceedings u/s 153C were initiated was the audited balance sheet and financial statements of the assessee for the year ended on 31st March, 2009. That Hon'ble Juri ictional High Court has considered identical issue in the case of Index Securities (P) Ltd. (supra) and held as under:- “30. In the present case, the documents seized were the trial balance and balance sheets of the two Assessees for the period 1st April to 13th September 2010 (for ISRPL) and 1st April to 4th September 2010 (for VSIPL). Both sets of documents were seized not from the respective Assessees but from the searched person i.e. Jagat Agro Commodities (P) Ltd. In other words, although the said documents might 'pertain' to the Assessees, they did not belong to them. Therefore, one essential juri ictional requirement to justify the assumption of juri iction under Section 153 C of the Act was not met in the case of the two Assessees.
As regards the second juri ictional requirement viz., that the seized documents must be incriminating and must relate to the AYS whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Tax-III, Pune v Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del) and ARN Infrastructure India Limited v. ACIT [2017] 394 ITR 569 (Delhi) also hold that in order to justify the assumption of juri iction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the AYS whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment."
That in paragraph 31 above, their Lordships have pointed out the document must be incriminating and it must relate to the assessment year whose assessments are sought to be reopened in this case,
P a g e | 10 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal admittedly, the document was relating to assessment year 2009-10 while the assessment reopened is for 2010-11. Therefore, the requirement that the document should relate to the assessment year sought to be reopened is not fulfilled. Moreover, how the audited balance sheet and financial statements of the assessee are incriminating material has also not been proved in view of the above, we are of the opinion that on the facts of the assessee’s case, the above decision of Hon'ble Juri ictional High Court would be squarely applicable
Respectfully following the same, we quash the initiation of proceedings u/s 1536 and consequentially, the impugned assessment order is also quashed Once the assessment order itself has been quashed the Revenue's appeal does not survive for adjudication." 6.3.17 In this regard, it is also pertinent to note that Hon'ble Kolkata ITAT has held in the case of Trishul Hi-Tech Industries vs. DCIT-2014-TIOL-862-ITAT-KOL that where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such assessment years cannot be disturbed under Section 153C of the Act. It is clear that the provisions of Section 153C of the Act cannot be invoked automatically in respect of any assessment year unless there exist incriminating documents for that previous year. 6.3.18 In this regard, it is pertinent to refer to the decision of Hon'ble Delhi ITAT in the case of Green Range Farm (P) Ltd in ITA No.5365/Del/2014; date of order 13.07.2018, wherein it was held that documents having no bearing on the determination of income and on the basis of which no addition also is made in assessment framed u/s 153C of the Act, the Initiation of proceedings u/s 153C of the Act basis such documents is bad in law. The relevant findings in this regard at para 17 & 18 of the order is as under:
“17. In the case of Index Securities (P) Ltd. (supra) cited by the Id. counsel for the assessee, a similar issue relating to validity of juri iction assumed by the Assessing Officer u/s. 153C had come up for consideration before the Hon'ble Delhi High Court and it was held that by their Lordships by relying on the decision of the Hon'ble Supreme Court in the case of Sinhgad Technical Education Society (supra) as well as their own decision in the case of RRJ Securities (supra) and ARN Infrastructure India Ltd. v, Asstt. CIT [2017] 81 taxmann.com 266/394 ITR 569 (Delhi) that in order to justify the assumption-of juri iction u/s. 153C of the Act, the documents seized must be incriminating In the said case, it was contended like in the present case on behalf of the Revenue that the requirement of having incriminating material found during the course of search was to be met only during the assessment and not for initiation of proceedings u/s 153C. The Hon'ble Delhi High Court, however, found this contention raised on behalf of the Revenue to be futile by observing that the satisfaction note forms the basis of initiating the proceedings u/s. 153C of the Act. In the said case, two seized documents were referred to in the satisfaction note and since the Assessing Officer had finalized the assessment without making any addition on the basis of the said documents, it was held by the Hon'ble Delhi High Court that the said documents could not be said to be incriminating and consequently the essential requirement for assumption of juri iction u/s 153C was not met it is pertinent to note here that the assessment years involved in the case of index Securities (P) Ltd. (supra)
P a g e | 11 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal were 2007-08 to 2011-12 And the notices u/s 1530 were issued on 13.02.2013. 18. As already discussed, both the seized documents belonging to the assesse in the present case as relied upon by the Assessing Officer in the satisfaction note were not having any bearing on the determination of the income of the assessee for the year under consideration. As a matter of fact, not only no addition on the basis of the said documents was made by the Assessing Officer in the assessment completed u/s. 153C/143(3), but even there was no reference whatsoever to the said documents in the said assessment. If this undisputed factual position is considered in the light of the ratio laid down by the Hon'ble Delhi High Court in the case of RRJ Securities Ltd. (supra) and Index Securities (P.) Ltd. (supra), we find merit in the contention of the Id. counsel for the assessee that the juri ictional requirement for initiating proceedings u/s. 153C in the case of the assessee was not satisfied. The initiation of proceedings u/s. 153C in the case of the assessee thus was bad in law and the assessment made by the Assessing Officer u/s. 153C/143(3) in pursuance thereof is liable to be cancelled being invalid. We order accordingly and allow the additional ground raised by the assessee. 6.3.19 Coming to the facts of the extent case, it is found that the ld. AO has recorded a common satisfaction for six assessment years and only reference there in is that of cash and jewellery found during the course of Search without any reference of the particular assessment year to which it belonged to. The search was conducted during FY 2014-15, which pertained to AY 2015-16 and it is not even the case of the id. AO that the cash and jewellery referred to in the satisfaction note pertained to or was assessable during AY 2014-15. No addition was made in respect of these assets during the year under reference. Hence, in the light of the decision of Hon'ble Bombay High Court in the case Sinhgad Technical Education Society (supra). affirmed by the Hon'ble Apex Court, it is evident that the id. AO did not have juri iction to assess income of the assessee for the year under reference u/s 153C on the basis of the satisfaction note recorded by him as reproduced previously. 6.3.20 I find that even in the remand report, the learned AO has not brought anything further on record, whereas the contention of the Id. AO made through the remand report that the assessment proceedings u/s 153C was initiated for the reason that the ass tee was found to be indulging in generating bogus LTCG found to be incorrect in view of the satisfaction note recorded for issue of notice u 53C, as reproduced previously. In the remand report. Ld. AO has referred to a statement of the assessee, Shri Satish Agarwal, recorded us 132(4)of the Act on 10/10/2014, recorded during the course of search. On perusal of this statement it is, however, found that the statement is in respect of transactions of the companies he was associated with and there is no reference of his own transactions including the impugned transaction in shares resulting in LTCG. In fact, the addition made in the impugned assessment order is not based upon any seized/incriminating material at all. In this regard, it is pertinent to note that Hon'ble Delhi High Court in the case of CIT vs Harjeev Aggarwal, 241 Taxman 199(Delhi) have held that even statements recorded under Section 132(4) of the Act do not by themselves constitute incriminating material. This position was reiterated by Hon'ble Delhi High Court in the case of Pr. CIT Vs. Best Infrastructure (India) Pvt. Ltd., 397 ITR 182 (Delhi), in order dated 01.08.2017. In this regard, it is also pertinent to note that the statements
P a g e | 12 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal recorded during the course of search would certainly constitute incriminating material/ evidence if such statement is relatable to the evidence or material found during the course of search, and in that circumstances the same could certainly be used as evidence in any proceedings under the Act, as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make an assessment u/s 153A/153C for the assessment years which had attained finality and which are un-abated. In this case, however, since this statement even though recorded during the course of search, has no reference of any evidence found during the course of search pertaining to the assessee and has even no reference of the impugned transactions, it cannot be held as incriminating material found during the course of search for the purpose of assessment in the case of the assossee as to the impugned addition on account of denying the benefit of LTCG as claimed. Furthermore, as mentioned previously, even this statement does not have anything so as to form an opinion that the long-term capital gain claimed by the assessee was not genuine. Thus, it is evident that the learned AO has failed to bring on record any incriminating material found during the course of search to support the impugned addition either in the assessmentorder or in the remand report, despite having been provided with sufficient opportunities. 6.3.21 As mentioned previously, in this case, the return of income was filed on 31/07/2014 and the same was processed u/s 143(1) of the Act. As per the assessment order, the notice u/s 153C was issued, on 26.09.2016 whereas the satisfaction note for issuing of the same is dated 18.03.2016. Hence, the time limitfor issuing of notice u/s.143(2) of the Act had already expired on the date of handing over of the seized material, which is 18.03.2016,the date of recording of satisfaction for issue of notice u/s 153C, since the AO has recorded only one satisfaction. Before proceeding to consider this issue, it is pertinent to refer to the provisions of section 153C of the Act which is as follows. "Assessment of Income of any other person. 153C. [(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:- (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates 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 juri iction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the 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:
P a g e | 13 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal 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 having juri iction over such other person. Provided further that the Central Government may by rules made by it and published in the Official Gazette specify the class or classes of cases in respect of such other person, 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 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 juri iction 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) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having juri iction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A (emphasis added) Hence, it is apparent from perusal of first proviso to section 153C(1) of the Act that the date of initiation of search has been substituted by date of handing over of seized material for the purpose to determine the years of abatement of assessment proceedings as provided in Second Proviso to Section 153A, which is as below: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or yours referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
P a g e | 14 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal 6.3.22 While considering an issue of similar Import, the Hon'ble ITAT Delhi in the case of Inlay Marketing Private "view of above decision ang31) has held that: “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.” 6.3.23 Further, the Hon'ble ITAT Delhi in the case of Lairy Distributors Pvt. Ltd. (74 com 122) Held: “Admittedly the Assessing Officer of the other person recorded satisfaction for initiation of proceedings and issuance of notice under section 153C on 9-9-2013 and when the CIT-DR could not assist about the receiving of documents etc. by the Assessing Officer of the other person the date of recording satisfaction i.e., 9-9-2013 is treated as date of receiving documents etc. 6.3.24 In the case of DSL Properties (P.) Ltd. v. Dy. CIT [2013] 60 SOT 88/33 taxmann.com 420 (Delhi-Trib.), It was held that; As per proviso to Section 1530, the date of search is to be substituted by the date of receiving the books of account or documents or assets seized by the Assessing Officer having juri iction over such other person. Learned DR has stated that since the Assessing Officer of the person searched and the Assessing Officer of such other person was the same, no handing over or taking over of the document was required That Section 153C(1) and its proviso have to be read together in a harmonious manner. While interpreting Section 153C, we have already held that for initiating valid Juri iction under Section 153C, even if the Assessing Officer of the person searched and the Assessing Officer of such other person is the same, he has to first record the satisfaction in the file of the person searched and thereafter, such note alongwith the seized document/books of account is to be placed in the file of such other person The date on which this exercise is done would be considered as the date of receiving the backs of account or document by the Assessing Officer having juri iction over such other person. Though while examining the facts of the assessee's case we have arrived at the conclusion that no such exercise has been property carried out and therefore initiation of proceedings under Section 153C itself is invalid, however since both the parties have argued the issue of period of limitation also, we deem it proper to adjudicate the same. Since to this case satisfaction is recorded on 21st June, 2010 and notice Under Section 153C is also issued on the same date, then only conclusion that can be drawn that the Assessing Officer of such other person has taken over the possession of seized document on 21st June, 2010.” 6.3.25 In the case of ACIT Vs Ankit Nivesh & Management Pvt. Ltd. (ITAT Delhi) IT.As. No.4051, 4052/DE/2017, date of judgment 18.06.2021 also it was held that in absence of any specific date of handing over of material in the P a g e | 15 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal satisfaction note, the date of recording of satisfaction will be taken to be the date of handing over the material. 6.3.26 It is, therefore, evident from the above that the second proviso to Section: 153A(1) specifies that any assessment or reassessment falling with the period of six Assessment Years pending on the date of initiation of search under section 132 or requisition of books under section 132A, as the case may be, shall abate. Whereas, it is apparent from perusal of first proviso to section 153C(1) of the Act that the 'date of handing over of seized material' has to be taken as 'date of Initiation of search for the purpose of determination of the years of abatement of assessment proceedings as provided in Second Proviso to Section 153A Since, the same as per the satisfaction note in this case is 18.03.2016, the assessment for the year under reference was an un-abated assessment. On this issue the Special Bench of Hon'ble Mumbai ITAT in the case of All Cargo Global Logistics Ltd vs DCIT(supra), has also observed as under:
Thus, question No.1 before us is answered as under 1. In assessments that are abated, the AO retains the original juri iction as well as Juri iction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately.
In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (1) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. 6.3.27 It has been categorically observed in the above-mentioned judgment that only the pending proceedings, as on the date of search shall abate meaning thereby that the completed proceedings attain finality. Hence, since, the proceedings for the year under reference had not abated and the time limit for issue of notice u/s 143(2) of the Act for the said assessment year had already expired, the AO was empowered only to make additions based on the Incriminating material found and seized during the course of search operation This view has been upheld in various judicial pronouncements. 6.3.28 The Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation [374 ITR 645], has held that when the assessment has attained finality, then the AO while passing the independent assessment order u/s 153A of the Act can't disturb the assessment reassessment order which has attained finality, unless the materials gathered the course of the proceedings us 132 of the Act establish that the relief granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of search operation. In the case referred, supra, the Hon'ble Bombay High Court has upheld the following observations of Hon'ble ITAT:- “i. On a plain reading of Section 153A of the Income-tax Act, it becomes clear that on initiation of the proceedings under Section 153A, it is only the assessment / reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated
P a g e | 16 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal and not the assessments/reassessments already finalized for those assessment years covered under Section 153A of the Act.
By a circular No. 8 of 2003 dated 18-9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under Section 153A, the proceeding pending in appeal, revision or rectification proceedings against finalised assessment reassessment shall not abate. It is only assessments/reassessments do not abate, the appeal revision or rectification pending because the finalised against finalised assessment/reassessments would not abate.
Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/reassessments finalised for the assessment years covered under Section 153A of the Income-tax Act stand abated cannot be accepted Similarly on annulment of assessment made under Section 153A(1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1). 6.3.29 Further, upon perusal of SLP No. 18560 of 2015 dated 12/10/2015 admitted by Hon'ble Supreme Court against the decision of Hon'ble Bombay High Court rendered in CIT Vs. Continental Warehousing Corporation [supra], it is found that Hon'ble Apex Court has only admitted SLP against the ruling of the Hon'ble Bombay High Court. 6.3.30 In this regard, it is also pertinent to note that Hon'ble Juri ictional High Court in the case of PCIT v. Dhananjay International Ltd. [2020] 114 taxmann.com 317 (Bom.) has reiterated its earlier findings with following findings "
Revenue has challenged the judgment of the Income Tax Appellate Tribunal ("the Tribunal for short) (arising following question for our consideration:- Whether on the facts and circumstances of the case and in law, the Tribunal was justified in deleting the additions made u/s 68 on account of share application money in the assessments u/s 153c r/w S. 143(3) on the ground that in the absence of any incriminating material found during search, additions made in the assessed income are unsustainable in law?"
The question framed itself clearly brings out the controversy that the additions made by the Assessing Officer were deleted by the Income Tax Appellate Tribunal on the ground that during the search, no incriminating material was found to support such additions. This issue is squarely covered by the judgment of this Court in the case CIT v. Continental Warehousing Corpn. (Nhava Sheva) Ltd. [2015] 58 faxmann.com 78/232 Taxman 270/374 ITR 645 and CIT v. Gurinder Singh Bawa [2017] 79 taxmann.com 398/[2016] 386 ITR 483 (Bom.).
In view of the above, all the appeals are dismissed.” Although, SLP filed against this order has also been granted, it is seen that the Hon'ble Apex Court has not stayed or suspended the operation of the aforesaid
P a g e | 17 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal decisions of the Hon'ble Bombay High Court in any manner and therefore, at the moment, the decision of juri ictional High Court is binding. 6.3.31 A similar view has been taken by the Hon'ble Bombay High Court (Nagpur Bench) in case of Murli Agro Products Ltd Vs. CIT 49 Taxman.com 172in ITA No 36 of 2009, wherein it has been held that on Initiation of proceedings U/s. 153A, it is only the assessment proceedings that are pending on the date of conducting search U/s. 132 or making requisition U/s. 132A of the Act that stand abated and not the assessments already finalized. The relevant excerpts of the judgment are reproduced hereunder:-
What Section 153A contemplates is that, notwithstanding the regular provisions for assessment reassessment contained in the IT Act, where search is conducted under Section 132 or requisition is made under Section 132A on or after 31/5/2003 In the case of any person, the Assessing Officer shall issue notice to such person requiring him to furnish return of income within the time stipulated therein, in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made and thereafter assess or reassess the total income for those assessment years. The second proviso to Section 153A provides for abatement of assessment/reassessment proceedings which are pending on the date of search/requisition. Section 153A(2) provides that when the assessment made under Section 153A(1) annulled the assessment or reassessment that stood abated shall stand revived.
Thus on a plain reading of Sec. 153A of the Act, it becomes clear that 153A on initiation of proceedings under Section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessment/reassessments already finalized for those assessment years covered under Section 153A of the Act. By a circular No.8 of 2003 dated 18-9- 2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on Initiation of proceedings under Section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalized assessment/reassessment shall not abate. It is only because, the finalized assessments/reassessments do not abate, the appeal, revision or rectification pending against finalized assessments/reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/reassessments finalized for the assessment years covered under Section 153A of the Income-tax Act stand abated cannot be accepted. Similarly on annulment of assessment made under Section 153A(1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1).
In the present case, as contended by Shri Mani, learned counsel for the assessee, the assessment for the assessment year 1998-99 was finalized on 29-12-2000 and search was conducted thereafter on 3- 122003. Therefore, in the facts of the present case initiation of P a g e | 18 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal proceedings under Section 153A would not affect the assessment finalized on 29-12-2000. 3. Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section 80HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-12-2000 would attain finality. In such a case, the A.O. while passing the independent assessment order under Section 153A read with Section 143(3) of the IT. Act could not have disturbed the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under Section 153A of the Income-tax Act establish that the reliefs granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings.
In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under Section 80 HHC was erroneous. In such a case, the A.O while passing the assessment order under Section 153A-read with Section 143(3) could not have disturbed the assessment order finalised on 29.12 2000 relating to Section 80 HHC deduction and consequently the CT could not have invoked juri iction under Section 263 of the Act.” In the above-mentioned judgment, the Hon'ble Bombay High Court has held that no addition can be made in respect of assessments which have become final, if no incriminating material is found during the course of Search It has been held that once the original assessment, has attained finality, then the Assessing Officer while passing the assessment order Us: 153A 143(3) cannot disturb the assessment/ reassessment order which bad attained finality, unless the material gathered during the course of the search proceedings establishes something contrary to it. If there is nothing on record to suggest that any incriminating material was unearthed during the search, the AO, while passing order U/s. 153A r.w.s. 143(3) cannot disturb the original assessment order passed U/s. 143(3) of the Act. This view was upheld in another decision of the Hon'ble Bombay High Court in CIT v. Gurinder Singh Bawa[2016] 386 ITR 483/[2017] 79 taxmann.com 398. 6.3.32 The aforesaid findings are fortified by the decision of the Hon'ble Delhi High Court in CIT Central-III vs. Kabul Chawla,380 ITR 573(Del). The Hon'ble Delhi High Court in the case of Pr. CIT vs. Lata Jain (ITA 274 and 276 of 2016), considering the ratio laid down in the case of CIT vs. Kabul Chawla [2016] 380 ITR 573, has held that section 153A assessment cannot be made for the assessment years in which incriminating material is not recovered even though incriminating material may be recovered for other years in the block of 6 years. 6.3.33 The Hon'ble Delhi High Court in the case of Pr. CIT vs. Meeta Gutgutia [2017-TIOL-1000-HC-DEL-IT), has affirmed the view that no addition can be made for a particular assessment year without there being an incriminating material that relates to the said assessment year which would justify such an addition. The Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax, Central IT, New Delhi Vs. Meeta Gutgutia [2018] 96 taxmann.com 468 (SC)has dismissed the SLP in the case and thus upheld the decision of P a g e | 19 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal Hon'ble Delhi High Court that invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year. As noted by the Hon'ble Delhi High Court in the case of MeetaGutgutia (supra). 6.3.34 The Hon'ble Calcutta High Court in CIT vs Veerprabhu Marketing Ltd. reported in (2016) 73 taxmann.com149 (Cal) also held as under- “We agree with the view expressed by the Delhi High Court that incriminating material is pre-requisite before power could have been exercised u/s 153C r.w.Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD. CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed.” 6.3.35 Reference may also be made to the decision of the Hon'ble Delhi High Court in the case of Pr. CIT vs. Kurule Paper Mills P. Ltd. [2016] 380ITR 571 (Delhi). TAX DEPARTMENT which is squarely applicable to the facts of this case as referred to as follows:- “1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 ('ACT') on bogus share capital. But, the issue was whether there was any incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act.
The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that "no Incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO. Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital.
As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination.
The appeal is, accordingly, dismissed (emphasis added) It is noted that the Department had filed a Special Leave Petition in S.L.P (C) No 34554 of 2015before the Hon'ble Apex Court against the above judgment of the Delhi High Court, which has since been dismissed. The relevant extracts reported in 380 ITR (st) 64-Edis as follows:
P a g e | 20 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal “Their Lordships Madan B. Lokur and SA Bobde JJ dismissed the Department's special leave petition against the judgment dated July 06,2015 of the Delhi High Court in 1. TA No 369 p/2015, whereby the High Court held that no substantial question of law arose since there was a factual finding, that no Incriminating evidence related to share capital issued was found during the course of search and that the assessing officer was not justified in invoking section 68 of the Act for the purpose of making additions on account of share capital.” 6.3.36 I find that several other High Courts have also come to a similar conclusion either by following Kabul Chawla (supra) or otherwise. This includes the decisions of the Hon'ble Gujarat High Court in Pr. CIT v. Soumya Construction (P.) Ltd. [2016] 387 ITR 529/[2017] 81 taxmann.com-292 (Guj.); Pr. CIT v. Devangi alias Rupa [Tax Appeal Nos. 54, 55 to 57 of 2017, dated 2-2- 2017]; the Hon'ble Karnataka High Court in CIT v. IBC Knowledge Park (P.) Ltd. [2016] 385 ITR 346/69 taxmann.com 108 (Kar.); the Hon'ble Kalkata High Court in Pr. CIT v. Salasar Stock Broking Ltd. [GA No. 1929 of 2016, dated 24-8-2016]. In MeetaGutgutia (supra) the entire gamut of the case law had been analysed and the legal position was reiterated that unless there is incriminating material qua each of the AYS in which additions are sought to be made, pursuant to search and seizure operation, the assumption of juri iction under Section 153A of the Act would be vitiated in law. 6.3.37 The Hon'ble Delhi High Court in a recent decision in the case of PCIT, Central-3 vs Allied Perfumers (P.) Ltd. [2021] 124 taxmann.com 358 (Delhi) has reiterated the aforesaid position of law with following findings:
“12. We have duly considered the contentions advance by Mr. Maratha, however, are unable to agree with him. The ITAT, after perusing the relevant records, including the orders passed by the Revenue Authorities, observed as follows:
“10. We find that the additions made by the AO are beyond the scope of section 153C of the Income-tax Act, 1961, because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assossoe, leave alone the question of any incriminating material for the year under appeal. We also find that the case laws cited by the Ld. CIT(DR) are not relevant to the present case. Therefore, in our considered opinion, the action of the AO is based upon conjectures and surmises and hence, the additions made is not sustainable in the eyes of law, because this issue in dispute is now no more res-integra, In view of the decision dated 29-8-2017 of the Hon'ble Supreme Court of India in the case of Commissioner of Income Tax-III, Puno v. Sinhgad Technical Educational Society reported in (2017) 84 taxmann.com 290 (SC) as well as the decisions of the Hon'ble Delhi High Court passed in the case Commissioner of Income-tax v. Kabul Chawla reported (2016) 380 ITR 573 (Del) and in the case of Principal Commissioner of Income- tax (Central)-2 v. Index Securities (P) Ltd.
P a g e | 21 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal
Respectfully following the precedent as aforesaid, as aforesaid, we quash the assessment made u/s 153C/143(3) of the IT Act, 1961 and decide the legal issue in favour of the Assessee and accordingly, allow the Cross Objection filed by the assessee.
Following the consistent view taken in the assessment year 2001- 02 in the Assessee's Cross objection, as aforesaid, the another Cross objection filed by the Assessee relating to assessment years 2002-03 also stand allowed.” (Emphasis Supplied)
Upon reading of the aforesaid extracted portion of the impugned order, it is clearly discernible that the ITAT has given a finding of fact that the assessments make no reference to the seized material or any other material for the years under consideration that was found during the course of search, in the case of the assessee. Mr. Maratha is also unable to point out any incriminating material related to the assessee which could justify the action of the Revenue. Merely because a satisfaction note has been recorded, cannot lead us to reach to this conclusion, especially when the Revenue has not fad any foundation to support their contention. In the factual background as explained above, the assumption of juri iction under section 153C cannot b sustained in view of the decision of this Court in the case of Kabul Chawla (supra)." 6.3.38 Hon'ble Delhi High Court in a recent decision in the case of Vikas Telecom Ltd. Vs PCIT (2022] 135 taxmann.com 362 (Delhi) has held as below:
“5. We find no merit in the submissions made by the learned counsel for the appellant. Both, the learned CIT (Appeals) as also the learned ITAT, have found that the Assessing Officer has not made use of any seized documents while making additions to the total income of the respondent under section 88 of the Act. The finding of the learned ITAT in this regard is reproduced hereinbelow. “9. We further observe that the learned Assessing Officer while farming the assessment order has not referred to any seized documents belonging to the assessee found during the course a search proceedings in the remand proceedings the learned Assessing Officer has also submitted that no any incriminating materials have been referred to while framing the assessment order. A perusal of the seized documents and their description revealed that the seized documents mentioned in the satisfaction note do not relate to the accommodation entry transactions The case is relied by the learned Departmental Representative are not applicable in the present facts of the case and the learned DR could not bring any cogent material for justifying the order of the Assessing Officer. There was no pending assessment for the assessment year 2003-04 at the time of search. Therefore, in our considered opinion, no addition could be made u/s 153C of the Act without reference of any incriminating material found in the course of search......
P a g e | 22 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal
In the instant case, it is an admitted fact that no incriminating material belonging to the assessee was also found during the search, based on which the impugned addition could have been made in the assessment order u/s. 153C. We also do not find any reference to any such material found during the search which led the Assessing Officer to make the impugned addition. The assessment order does not outline any details of the documents which were belonging to the assessee and were seized in the search dated 31-7-2008 so as to acquire the Juri iction to reopen the assessment u/s 153C of the Act. Therefore, in view of the decision rendered by Hon'ble juri ictional High Court in the case of CIT v. Kabul Chawla (supra), in our opinion, no addition can be made in proceedings u/s. 153C in case of completed assessment. The learned Department Representative could not be able to controvert the contention of the assessee that no assessment was pending for the impugned year for abatement, as the time for making any scrutiny assessment u/s. 143(3) stood expired on 31- 12- 2005. The Id. DR also failed to adduce any incriminating material found in the search leading to the impugned addition.”
This Court in its order dated 19-2-2020 directed the appellant to file an affidavit disclosing whether any of the books and papers seized relating to the respondent is relevant to the additions made by the Assessing Officer under Section 68 of the Act while passing the assessment order dated 22.12.2010. The relevant extract from the order is as under:
“2. During the course of submissions, Mr Hussain, Sr. Standing counsel placed before us a copy of the satisfaction note for proceedings under section 153C of the Income-tax act, 1961 which discloses that various books and papers were found and seized relating to M/s Vikas Telecom Ltd. during the search and seizure operation conducted on Raj Darbar Group of cases on 31-7-2008. The books and papers seized relating to assessee M/s Vikas Telecome Ltd. have been enlisted in the said note
We direct the Appellant to file an affidavit disclosing whether any of the books and papers seized relating to the assessed/Ms Vikas Telecome Ltd. is relevant to the additions made by the Assessing Officer under section 68 of the Income-tax Act while passing the assessment order dated 22-12-2010. The relevant documents should also be placed on record.”
Today, the learned counsel for the appellant has placed before us the instructions received by him from the Deputy Commissioner of Income- Tax, Central Circle-1(3). Bengaluru vide communication dated 26-8- 2020, which records as under: “On perusal of assessment records and the available seized material, it is observed that the additions amounting to Rs.3,32,00,000/- were made u/s 68 of the IT Act in the said assessment year. The Assessing officer has used the extensive enquiries made by the Investigating wing, Kolkata as the basis for the said additions. On perusal of the seized material, it is seen that the material referred to in the Satisfaction note does not P a g e | 23 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal pertains to AY 2003-04 in most cases. It is further seen from the records that no seized material or statement has been relied upon by the AO while making the addition and that the addition was made when conditions of section 68 of the Act were not fulfilled during the post search proceedings and during the proceedings before the AO."
In view of the above admission, the appeal is squarely covered by the judgment of this Court in Kabul Chawla (supra).
Accordingly, we find no merit in the present appeal. The same is dismissed.” 6.3.39 In view of the aforesaid detailed discussion and respectfully following the judicial precedents as discussed previously, including those of the Hon'ble Apex court and the Hon'ble juri ictional High Court, I am construed to hold that in this case the AO did not have juri iction to make additions/disallowances which are not based on any incriminating material found during the course of search. 6.3.40 As discussed in detail previously, the assessment order has no reference of any evidence/material found during the course of search to support the impugned addition, neither there is any reference of any such material in the reasons recorded for initiation of proceedings u/s 153C. Moreover, even subsequently, the id AO failed to bring any such material on record even during the remand proceedings to support the impugned addition. Hence, since the addition made by the Id. AO by denying the claim of exemption in respect of long-term capital gain on sale of shares, is not based on any incriminating material. found during the course of search conducted u/s 132 of the Act the same is held as assessed without juri iction and hence, the addition made in this manner is directed to be deleted. Ground No. 1 of the appeal is accordingly PARTLY ALLOWED.”
During the course of appellate proceedings before us the ld. D.R has supported the order of the AO. The ld. D.R has placed reliance on the decision of Gopal Lal Bhadruka Vs. DCIT (2012) 27 taxmann.com 167 (AP) On the other hand, the ld. Counsel contended that issue contested in the appeal by the revenue is covered in favour of the assesse by the decision of Hon’ble Supreme Court in the case of CIT Vs. Sinhgad Technical Education Society (2017) 84 taxmann.com 290 (SC). The ld. Counsel also placed reliance on the various judicial pronouncements as per the copy of orders placed in the paper book in the following cases:
CIT v/s Sinhgad Technical Education Society (2015) 63 taxmann.com 14 (Bombay HC)
P a g e | 24 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal
PCIT vs Index Securities (P) Ltd (2017) 86 taxmann.com 84 (Delhi HC)
CIT v/s Veerprabhu Marketing Ltd (2016) 73 taxmann.com 149 (Calcutta HC)
ARN Infrastructure India Ltd v/s ACIT(2017) 81 taxmann com 260 (Delhi HC)
CIT v/s RRJ Securities Ltd (2015) 62 taxmann.com 391 (Delhi HC)
DCIT v/s Shri Khimji Karamshi Patel [ITA No 3039,3117 & 4038/Mum/2019 (Mumbai ITAT))
Shri Atul Barot v/s DCIT [ITA No 2889/Mum/2011 & 2890/Mum/2011 & 2891/Mum/2011 (Mumbai ITAT) (Distinguishing the case of Gopal Lal
PCIT v/s Vikas Telecom Ltd. 135 taxmann.com 362 (Delhi HC)
PCIT v/s Allied Perfumes (P) Ltd. 124 taxmann.com 358 (Delhi HC)
The ld. Counsel further submitted that decision of Hon’ble High Court of Andhra Pradesh in the case of Gopal Lal Bhadruka Vs. DCIT as referred by the ld. D.R has been distinguished by the ITAT, Mumbai in the case of Shri Atul Bharat Vs. DCIT vide ITA No. 2889/Mum/2011 and 2890/Mum/2011 and 2891/Mum/2011 which was adjudicated in favour of the assessee. The ld. Counsel also submitted that even during the course of remand proceedings the AO could not identify the seized material on the basis of which the aforesaid addition was made in the case of the assessee.
Heard both the sides and perused the material on record. It is undisputed fact that during the course of search and seizure action no incriminating material was found and seized on the basis of which impugned addition was made by the A.O. The only assets which were found as pertaining to the assesse were the cash amounting to Rs.11,36,500/- and some jewellery found from his residence and his locker. However, there was no other incriminating material found during the course of search and no such evidences have been referred in the assessment order. The ld. CIT(A) has also called remand report from the A.O to clarify whether the addition made in the case of the P a g e | 25 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal assessee was based on any document/evidence found during the courses of search. However, the A.O in his report vide letter dated 07.01.2022 addressed to CIT(A)-49 has not specified any particular incriminating material except stating the copy of satisfaction note and copy of statement of Shri Satish Agarwal as discussed supra in this order. It is also noticed that statement of the assessee on record u/s 132(4) of the Act on 10.10.2014 was in respect of transaction of the company and there was no reference of the own transactions of the assessee. However, there was no any reference to any seized material except the statement recorded u/s 132(4) of the Act pertaining to the transaction of the company as mentioned in the remand report. With the assistance of the ld. Representatives we have perused the decision of Hon’ble Supreme Court in the case of CIT Vs. Sinhgad Technical Education Society (2017) 84 taxmann.com 290 (SC) relied upon by the ld. Counsel wherein held that as per provision of Sec. 153C, incriminating material seized had to pertain to assessment year in question. In the case of the assessee the A.O failed to substantiate any incriminating material found and seized pertaining to the year under consideration, therefore, we do not find any reason to interfere in the decision of the ld. CIT(A) based on various judicial pronouncements, as reproduced supra in this order. Therefore, all the ground of appeal of the revenue stand dismissed.
In the result, the appeal of the revenue stand dismissed. Order pronounced in the open court on 20.04.2023 (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 20.04.2023 Rohit: PS
P a g e | 26 DCIT, CC-6(3) Vs. Satish Jagannath Aggarwal
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि //// आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt.