ACIT, NEW DELHI vs. M/S. VISION TOWN PLANNERS PVT. LTD., NOIDA

Before us, the ld. counsel submitted that the CBDT vide Circular No. 24/2015 dated 31.12.2015 had clarified that even if the Assessing Officer of the searched and the “other person” is one and the same then also he is required to record his satisfaction. The relevant Circular No.24/2015 is reproduced hereunder: CIRCULAR NO. 24/2015 F.No.279/Misc./140 /2015/ITJ New Delhi, 31st December, 2015

The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.2014(available in NJRS at 2014-LL-0312-51) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or (b) in the course of the assessment proceedings under section158BC of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."

Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts.

In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgement. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD /153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.

Thus, he submitted that the CBDT circular makes it very clear that even if the Assessing Officer of the search person and “other person” is the same, then in that situation also, Assessing Officer has to record two separate satisfactions and accordingly the order of the ld. CIT (A) is correct in the light of the CBDT Circular.

However, at the time of hearing it was pointed out to the Ld. counsel of the assessee as well as to the ld. CIT-DR that now there is decision of the Hon’ble Apex in case of Supermall Pvt. Ltd (423 ITR 281) wherein the Hon’ble Apex Court held that if AO of both searched person and other person is same, then one satisfaction note is in due compliance of the requirement of section 153C. In the case of assessee, it has been admitted by the Ld Counsel for the assessee that AO is same for the searched persons and assessee and even if satisfaction has been recorded by AO of assessee, then also it meets the requirement of law. Thus, this issue is covered against the assessee by the decision of Apex Court. Accordingly, the ground on which ld. CIT (A) has given his decision does not hold ground in the light of the judgment of Hon’ble Supreme Court.

Now in so far as the grounds raised by the assessee under Rule 27 as incorporated above, we find that the same are purely legal ground raising the very jurisdiction of the Assessing Officer u/s.153C, which is purely borne out from the assessment order as well as material placed on record and does not require any investigation of facts, therefore in view of the judgment of Hon’ble Supreme Court in the case of NTPC Ltd. vs. CIT as reported in (1998) 229 ITR 383 (SC). The grounds raised are admitted for adjudication.

Before us, ld. counsel has provided the copy of ‘satisfaction’ note and the documents relating to the assessee company by which jurisdiction has been acquired u/s.153C. He submitted that, it was only these documents which were forwarded to the Assessing Officer of the assessee upon which jurisdiction has been assumed u/s 153C. These documents were found from two premises, one from A-36 New Krishna Park, Tilak Nagar, Delhi which is the premises of Shri N K Jain, Company Secretary of BPTP Group and ex-director of the assessee Company; and another from 5th Floor, DCM Building 16, Barakhamba Road, New Delhi, which is office of BPTP Group. As per reply filed by AO before CIT(A) as mentioned in para 1 page 10 of CIT(A) order, the proceeding u/s 153C was initiated on the assessee company based on satisfaction recorded in case of Shri N K Jain, who was searched U/s 132 of the Act. From this reply of the AO it is very clear that only documents found from the premises of Shri N K Jain which are listed as Annexure A-1 to A-5 can be relied upon for the purpose of assessment U/s 153C of the Act, however in the satisfaction note provided by the AO, the documents found from the office premises of the BPTP group were also referred as Annexure 7. Though these documents are in the nature of Trial Balance and ledger accounts of the assessee company, which are duly recorded in the books of the assessee, however the same cannot be considered for the purpose of 153C jurisdiction as there is no finding from the AO of BPTP group about the documents belonging to the assessee company, which is first and foremost requirement for assuming jurisdiction U/s 153C of the Act.

The core issue which has been argued before us is;  Whether the document found from possession of Shri N.K. Jain belongs to the assessee company or not; and  Whether these are in nature of incriminating documents which can lead to any inference that any undisclosed income has escaped assessment or there is any element of undisclosed income so as to be roped in assessment under section 153C for the assessment year which is unabated.

For the sake of ready reference, ‘Satisfaction’ of Assessing Officer and the documents found from the premises of Shri N.K. Company Secretary of BPTP Group are incorporated hereunder:- “A search and seizure operation was carried at the business premises as well as the residential premises of BPTP group of cases on 07.12.2010 and was finally concluded on 05.02.2011. During the course of search and seizure operation at the various premises of BPTP group of cases following documents belonging to M/s. Vision Town Planners Pvt. Ltd. were found and seized.

It is an admitted fact that these are the only documents which were the basis and edifice for acquiring jurisdiction u/s.153C and there are no other documents which were found and seized. Before us, the ld. counsel submitted that from the bare perusal of all these documents it may be noted that Shri N K Jain who was the Company Secretary by profession was in possession of these Company law related documents of the assessee company in his professional capacity and accordingly these documents relate to him and not to the assessee company. Most of these documents are available in public domain and anybody by paying a nominal fee for inspection can download all these documents from the website of Ministry of Corporate Affairs (MCA). Most of these documents are copies of original. Further Section 132(4A)(i) clearly stipulates that when inter alia any document is found from the possession or control of any person in the course of a search, then it is presumed that such document belongs to such person. It is similarly provided in Section 292C (1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or "satisfaction" that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of "satisfaction". From plain reading of the satisfaction being recorded in this case there is no such reason discussed by the AO that the documents found from Shri N K Jain belongs to the assessee company. In fact, there are no documents on record to indicate any disclaimer by Shri N K Jain about these documents.

In this regard reliance was placed on the decision of Hon’ble Delhi High Court in case of:- i) Pepsico India Holding P Ltd Vs. PCIT (370 ITR 295) (Delhi); and ii) CIT Vs. RRJ Securities Ltd. (62 Taxmann.com 391). He submitted that the facts of the assessee company are quite similar to these cases and the finding of jurisdictional high Court is squarely applicable in this case as well. Since the document does not belong to the assessee company, proceedings u/s 153C cannot be initiated against the assessee company. Therefore, the assessment is without jurisdiction and null and void ab-initio.

In the second ground raised u/r 27, the assessee contends that the documents found are not in the nature of incriminating documents. These were all legal documents in compliance with the Company law provisions. None of the documents indicate any undisclosed income or expenses. In such case even if notice U/s 153C is issued, no addition can be made as the impugned assessment year is not an abated assessment year. Even documents found from the premises of BPTP group marked as annexure A-7 in the satisfaction note, are also in the nature of ledger accounts and Trial Balance from the audited books of the assessee company. Nowhere in the assessment order, has Assessing Officer referred these documents while making huge additions. The seized documents must be incriminating and must relate to the assessment years whose assessments are sought to be reopened. He submitted that now the decision of the Supreme Court in Sinhgad Technical Education Society (397 ITR 344) settles the issue and holds this to be an essential requirement. He also strongly relied upon the judgment of Hon’ble Jurisdictional High Court in cases of ARN Infrastructure India Ltd. (394 ITR 569)(Delhi), PCIT Vs Index Securities Pvt. Ltd. (86 Taxmann.com 84)(Delhi)

Ld. Counsel further submitted that, as expressly indicated under section 153C the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of section 153A. The concluded assessments cannot be interfered with under section 153A unless the incriminating material belonging to the assessee has been seized. This contention also get supported from the decision of Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla (380 ITR 573()(Delhi).

On the other hand, Ld CIT DR contented that all the documents found from the premises of Shri N K Jain in fact belongs to the assessee company and therefore, the AO has rightly invoked jurisdiction U/s 153C of the Act. Regarding incriminating documents, Ld CIT DR stated that the AO has given full finding and co-related the addition based on seized material found from the premises of S K Jain brothers, who are hawala operator. Therefore, it cannot be said that addition is not based on seized material. She also relied upon the decision of NRA Iron & steel P Ltd (412 ITR 611) and justified the addition made U/s 68 of the Act. She further contended that the word unabated does not find any place in the Act. As per Ld CIT DR, the impugned assessment was only processed U/s 143(1) of the Act hence cannot be treated as completed assessment as no assessment took place for this year.

We have heard the rival contentions and also perused the material referred to before us at the time of hearing on the legal issue raised before us. As per the records, the so called documents found stated to be relating to the assessee company were not found from any of the premises of BPTP Group except for Annexure 7, albeit from one of the premises of Shri N.K. Jain who was the Company Secretary of BPTP Group and also ex-director of the assessee company. From the perusal of the description of the documents as mentioned in Annexure A1 to Annexure A5 as mentioned above, all these documents are related to company law requirements, i.e., share certificates, memorandum of association, copy of resolution passed by Board Meeting of the assessee company, copy of notice given to the members for EGM along with explanatory notice, copy of the register of Members, register of share/debenture, transfer register of share application and allotment, etc, copy of share transfer forms, return of allotment, list of allottees, consent of shareholders, form no.22A, form no. 23, copy of extract of minutes, signed audited reports and balance sheet, profit and loss account, receipt of payment to ROC for inspection of public documents of the assessee company, form no. 32, appointment of Management and Directors and Secretaries, etc. and various other forms and letters, addressed to ROC. All these documents were found from Shri N.K. Jain in his professional capacity as he was the Company Secretary of the assessee company. None of these documents can be remotely inferred as incriminating which can remotely deduce that there is any element of undisclosed income or any income which has escaped assessment. Most of these documents are available in public domain and easily accessible to all which can be downloaded from website of Ministry of Corporate Affairs. In so far as documents mentioned in Annexure A-7 these are the ledger account of BPTP International Centre and other company in the books of Vision Town Planner Pvt. Ltd. from the period of 1.09.2005 to 31.3.2011 and ledger account, summary of bank account of the assessee as well as balance. In so far as all the documents mentioned in Annexure A1 to A5 as incorporated above nothing can be said to be belonging to the assessee except for one document mentioned in Annexure A7, i.e., ledger account that at best can be said to belong to assessee.

On scrutiny of documents and the nature of documents which are the basis for acquiring the jurisdiction and recording of ‘satisfaction’ u/s.153C, if analysed deeply, it cannot lead to a satisfaction that these documents belong to the assessee or it is capable of drawing any inference that there is any element of undisclosed income which can be held as incriminating. At best it may be reckoned as pertaining to Assessee Company. If the documents were found from the possession of Shri N.K. Jain, then presumption is that the documents belonged to the said persons from whose possession the same was found. There has to be some prima facie reason and cogent material that the seized documents does not belong to the searched person but to someone else. Any statutory record or Company Law requirement documents are found from the possession of the professional of the company that does not meant it is a document belonging to the assessee company which can extrapolate to as incriminating. Had there been any document found from searched person indicating that assessee company has arranged some bogus entry or rotated some undisclosed income or any such similar transaction and that document belong to the assessee, then of course Assessing Officer can reach to his satisfaction that undisclosed income for that assessment year needs to be assessed for the assessment years falling within 6 years of section 153C. Nowhere it has been brought on record that there is any statement or disclaimer by Shri N.K. Jain that these documents does not belong to him or pertain to him or based on these documents any adverse inference can be drawn that there is an element of any undisclosed income belonging to or pertained to the assessee.

The aforesaid judgment is quite akin to the present case also, because the nature of document found from Sri N.K. Jain who was professional as well as Company Secretary of the assessee was found to be possessing the documents which most of them are otherwise available in public domain, cannot be held that these documents belong to the assessee capable of inferring any undisclosed income. At least these documents should indicate element of income from any undisclosed source of funds.

Since AY 2010-11 is not an abated assessment, i.e., the assessment for Assessment Year 2010-11 had attained finality at the time of recording of the satisfaction, therefore, one has to see, whether these documents are in the nature of incriminating documents in order to warrant any addition on account of undisclosed income. The document which has been referred in the satisfaction note of the seized documents are all legal document in compliance with the company law and professional documents and as stated above, these documents does not indicate any undisclosed income or expenses. Even the ledger account and bank statement as mentioned in Annexure A-7 are duly disclosed in the audited accounts and nowhere is it indicating any undisclosed income not disclosed in the books of the assessee company or audited accounts. There is not a single document mentioned right from the Annexure A1 to Annexure A7 to point out that the share application money received by four companies were either non genuine or bogus or there is any material that these all are in the nature of accommodation entry.

Apart from that, one very important fact to be noted here is that nowhere in the assessment order the Assessing Officer has referred to these documents while making the additions u/s. 68 nor there is any adverse inference on any of these documents. In fact none of these documents are the basis for making the addition, rather, even the four letters which has been mentioned in the assessment order, i.e., letter written by the share applicants dated 29.10.2009, 13.08.2009, 5.9.2009 and 17.09.2009 though has not been mentioned in any of the seized Annexures are only referring to subscription of share application money by the subscribers to share capital. At one place at page 7, the ld. Assessing Officer has mentioned that Annexure A1 to A5 of party R-3 seized from the resident of Shri N.K. Jain reveal the modus operandi of financing for acquisition of property seven acres of Vision Town Pvt. Ltd., is far from correct, because the nature of documents mentioned in the Annexure A1 to A7 which have been incorporated above and also part of the satisfaction recorded, nowhere there is any reference of any such modus operandi of financing. If the Assessing Officer has made this allegation the he was required to specify such documents and bring out categorically that there was some document/s found from possession of N.K. Jain which remotely also indicated such modus operendi of financing of share application money or any entry provider was involved. In that case certainly Assessing Officer would have been justified in acquiring jurisdiction u/s 153C. Reference of some other search not related to the assessee in case of S.K. Jain will not justify any addition here. All these observations in the assessment order are not flowing either from the satisfaction note or from the seized documents. It is a well settled law that seized documents must be incriminating and must relate to assessment year whose assessment are sought to be reopened u/s.153C. This principle has been settled by the Hon’ble Supreme Court in the case of Sinhgad Technical Education Society (397 ITR 344) settles the issue and holds this to be an essential requirement. We also refer to the decision of Hon’ble Delhi High Court in case of CIT Vs. RRJ Securities Ltd. (62 Taxmann.com 391), wherein the Hon’ble High Court held as under: “Section 153 C only enables the Assessing Officer of a person other than the one searched, to investigate into the documents seized and/or the assets seized and ascertain that the same do not reflect any undisclosed income of the assessee (i.e., a person other than the one searched) for the relevant assessment years. If the seized money, bullion, jewellery or other valuable article or thing seized as handed over to the Assessing Officer of the assessee, are duly disclosed and reflected in the returns filed by the assessee, no further interference would be called for. Similarly, if the books of account/documents seized do not reflect any undisclosed income, the assessments already made cannot be interfered with. Merely because valuable articles and/or documents belonging to the assessee have been seized and handed over to the Assessing Officer of the assessee would not necessarily require the Assessing Officer to reopen the concluded assessments and reassess the income of the assessee. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the Assessing Officer after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the Assessing Officer to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an assessee before commencing an enquiry under section 153C, 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.”

Thus, we hold that the concluded assessment cannot be interfered unless there is incriminating material discovered from the seized documents belonging to the assessee, and no additions can be made where the assessments are framed u/s.153C for unabated year. The seized documents must at least clearly point out that there is some undisclosed income, which here in this case, even for the sake of repetition, it is reiterated that none of the documents are in the nature of incriminating material so as to warrant any additions.

In so far as the submissions made by ld. CIT-DR that the documents belongs to Assessee Company is contrary to the decision of jurisdictional High Court as referred to above. Secondly, regarding incriminating documents, Ld CIT DR could not rebut that in the assessment order, AO has not linked any of the documents found from the searched premises of BPTP group. However, she contended that AO has linked the addition with the documents found during the search action on S.K. Jain Brothers. At the outset, the documents found from S.K. Jain is neither the basis of satisfaction u/s 153C nor any material or information relating to the assessee company was found from the possession of searched person. It is relevant to note here that the proceeding U/s 153C has been initiated on the basis of search action on BPTP group and not on the basis of S K Jain Brothers. Therefore, the AO has to first justify the basis to investigate the issue of share capital based on documents found from BPTP group and if there is some indication of any undisclosed income based on the documents found from BPTP group then he/she can rely on the search finding of the other group. As held by the Hon’ble Delhi High Court in case of CIT Vs. RRJ Securities Ltd. (62 Taxmann.com 391) that the question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the Assessing Officer after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the Assessing Officer to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an assessee before commencing an enquiry under section 153C, 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 year. Ld CIT Dr failed to appreciate the fact that the verification of documents found from the premises of S K Jain brothers is part of further investigation on the matter which cannot be achieved without satisfying the condition that the seized material is in the nature of incriminating documents or not.

Regarding completed assessment for unabated assessment year, we are unable to agree to the proposition of Ld. CIT DR that only if assessment completed U/s 143(3) can only be treated as completed assessment. The language used in second proviso to section 153A refers that the pending assessment shall abate. Here the pending means the assessment year for which notice U/s 143(2) or 148 issued but assessment not completed. Therefore, the years for which no such notices issued within the time period allowed, the assessment will be treated as completed assessment. This position clearly laid down by the Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla (380 ITR 573)(Delhi), wherein it was held as under: “On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

As far as reliance on decision of Supreme Court in case of NRA Iron and Steel P Ltd. is concerned, the applicability of this decision is on merits/ quantum addition u/s 68 of the Act and not on the legal ground raised by the assessee company, hence the same is irrelevant while adjudicating legal issues.

In view of our observation and finding given hereinabove, we hold that firstly, none of the documents mentioned in the satisfaction note from Annexure A-1 to A-7 are incriminating in nature which can infer any undisclosed income relating to assessee-company for the Assessment Year 2010-11 nor there is any document which indicates that there is any bogus transaction regarding share application money received by the assessee during the year; secondly, the additions made by the Assessing Officer in the impugned assessment year has no reference to any seized document or material as mentioned in the satisfaction note which is the basis for acquiring jurisdiction u/s.153C and; lastly, the impugned assessment year was not pending as the assessment stood completed before the date of initiation of proceedings u/s.153C, therefore, without any incriminating material, no new addition can be made in the impugned assessment year.

In the result, the grounds raised by the assessee in Petition under Rule 27 are allowed and Revenue’s appeal is dismissed for the reasons given above. Above decision was announced on conclusion of Virtual Hearing in the presence of both the parties on 13/08/2021.