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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Per Chandra Poojari, Accountant Member This appeal by the revenue is directed against the order of CIT(Appeals)-11, Bangalore for the assessment year 2010-11 on the following grounds:- “1. The Ld.CIT(A) erred in holding that notice u/s.153C is bad in law as the AO of the searched person has not recorded satisfaction note that the books of accounts/material belongs to the assessee. The Ld. CIT(A) failed to appreciate the fact that the same AO who assessed the searched person u/s.153A, before issue of notice u/s.153C has duly covered all the important aspects to assess the assessee u/s.153C while preparing satisfaction note.
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The Ld.CIT(A) has erred in holding that seized documents did not contain any receipts or payment or expenditure or transaction, the additions are estimated on the basis of enquiries conducted u/s.133A(5). But fact is that the material seize during the course of search was the basis for conducting enquiry u/s.133A(5), which was also mentioned in the assessment order. 3. The Ld.CIT(A) has failed to appreciate the fact that the assessee raised contention regarding the validity of the proceedings before the CIT(A) which is not permissible as the same had not been raised before the AO as per the decision in the case of M/s. Safety International Ltd., rendered by the Hon'ble Delhi High Court in 332 ITR 622.” 2. The facts of the issue are that there was search action caried out at the residence of assessee on 3.11.2010 on the basis of warrant issued in the case of B. Nagendra. Consequently, notice u/s. 153C was issued on 14.11.2011 calling for return of income for AY 2010-11. The assessee filed return of income within specified due date u/s. 139(1) of the Act on 14.1.2010 declaring total income of Rs.1,73,260 which included salary income of Rs.1,26,000 and interest on savings bank of Rs.1,42,264. The AO completed assessment u/s. 153C r.w.s. 143(3) of the Act on 22.3.2013 by determining total income at Rs.1,82,63,699 inter alia making the following additions:- Unexplained expenditure in marriage - Rs.53,34,268 Cash credits - Rs.40,00,000 Unexplained gifts - Rs.86,56,171 3. Against this, the assessee went in appeal before the CIT(Appeals) challenging the various additions made by the AO and also raising legal issue with regard to assumption of jurisdiction u/s. 153C of the Act. The CIT(Appeals) decided the issue of legality of assumption of jurisdiction u/s. 153C by observing that the notice u/s 153C was issued on 14-11-2011 in the case of the assessee and therefore, the relevant date for the purpose of ascertaining the pending assessments abating under the said Second
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Proviso u/s 153A(1) r.w. the First Proviso u/s 153C(1) is 14-11-2011. The return of income was filed on 14-10-2010 as mentioned in para 1 of page 1 of the impugned assessment order and accordingly, the last date for issue of notice u/s 143(2) of the Act has expired on 30-09-2011. As per the settled law, it was not a case where the assessment was pending on the date of initiation of search as per the said Provisos u/s 153A(1) & 153C(1) of the Act. The CIT(A) observed that the jurisdiction of the AO in respect of the assessments pending and abating is twofold - he retains the original jurisdiction to make additions to income declared on the basis of the books of accounts/ return in addition to the jurisdiction conferred on him u/s 153A/ 153C. However the jurisdiction, in respect of an assessment not abating, is confined to the undisclosed income indicated in the material unearthed during the search.
In view of the above also, the assessment was not pending and accordingly not abated. He was of the opinion that additions to income declared would be justified if there is some material indicating escapement of income, even if there was no seized document or asset, in respect of an assessment that has not abated.
Against this finding of the CIT(Appeals), the revenue is in appeal before us.
The ld. DR submitted that in this case there was a search in the case of B. Nagendra. Consequently, assessee’s premises was also searched and notice u/s. 153C was issued to the assessee and all the ingredients of section 153 were complied with. The AO recorded satisfaction that seized material belonging to assessee and proceedings u/s. 153C have been validly initiated. In case where the AO of a searched person and other person is the same, there could be one satisfaction note prepared by the AO, as he himself is the AO of searched person and AO of
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the other person, to whom the provisions o section 153C is applicable to frame assessment. The AO must be conscious and satisfied that the documents seized or recovered from the searched person belong to other person and in such a situation, the satisfaction note would be qua the other person and the requirement of handing over of seized documents from the searched persons would not be there; as he himself will be the AO of the searched person and the other person. He relied on the Supreme Court judgment in the case of Super Malls Pvt. Ltd. v. Pr. CIT,, (2020) 423 ITR 281 (SC) wherein on similar set of facts and circumstances, the Supreme Court exhaustively examined the provisions of CBDT Circular No.21/2015, the Supreme Court’s decision in the case of CIT v. Calcutta Knitwears (2014) 6 SCC 444; decision of Delhi High Court in the case of Pepsi Food Pvt. Ltd. v. ACIT, (2014) 367 ITR 112 (Del). He drew our attention to various findings of the Supreme Court in the case of Super Malls Pvt. Ltd. (supra) wherein it was held as follows:- “In terms of section 153C, when Assessing Officer of searched person and third person is same, it is sufficient by Assessing Officer to record in satisfaction note that documents seized from searched person belonged to other person and, there is no requirement of transmitting documents so seized from searched person.” 7. The ld. DR also relied on the decision of the Delhi High Court in the case of Ganpati Fincap Services Pvt. Ltd. v. CIT [2017] 82 taxmann.com 408 (Del) wherein it was held as under:- “Where Assessing Officer of searched person recorded that documents seized during search belonged to assessee, merely because he had not categorically stated that documents mentioned therein did not belong to searched person would not invalidate assumption of jurisdiction under section 153C in respect of assessee.”
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“Where proceeding under section 153C was initiated against assessee on basis of seized documents which could not be said to be non-incriminating on bare perusal and despite of being given several opportunities no submission on merits of case was made by assessee, assessment order passed under said section to make additions was justified.” 8. He also relied on the decision of Dr. K.M. Mehboob v. DCIT, 26 taxmann.com 54 (Kerala) wherein it was observed as follows:- “The scope of section 153C is such that assessment has to be strictly made only by the Assessing Officer before whom the assessee is regularly assessed because it is that officer who is familiar with the transactions, income and regular assessment of the assessee for the preceding years' and based on the same to consider the relevance of materials or documents received from another Assessing Officer after hearing the assessee to consider such materials or evidence for assessment. So much so, no enquiry or hearing or adjudication is contemplated by the Assessing Officer, who conducted the search of an assessee in which evidence or materials belonging to another assessee is obtained for transferring the file to the Assessing Officer before whom such other assessee is to be assessed. Even though transfer as contemplated under section 153C has to be made by the officer who conducted the search and who recovered books of account, materials or articles in the course of search of an assessee other than searched assessee, still it is open to such assessee to establish before his Assessing Officer that the opinion of the Assessing Officer transferring the materials or evidence or books of account or goods seized is wrong and that those do not belong to him. •In other words, the transfer of recovered books of account, evidence or materials is only a procedural formality to be complied with by the Assessing Officer who searched an assessee and recovered materials pertaining to another assessee, and the Assessing Officer who takes up assessment under section 153C against the latter will have full jurisdiction to appreciate evidentiary value of the books of account or materials or goods received from the other officer and proceed to make assessment in his own way. There is, therefore, no merit in the contention of
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the appellant that satisfaction is required to be recorded by the Assessing Officer, who conducted the search before transferring materials or articles or things found belonging to another assessee.” [Para 5] 9. Reliance was placed on the decision in the case of CIT, Thrissur v. St. Francis Clay Décor Tiles (2016) 385 ITR 624 (Kerala) it was observed that neither under section 132 or under section 153A, phraseology 'incriminating' is used by Parliament, therefore, any material unearthed during search operations or any statement made during course of search by assessee is a valuable piece of evidence in order to invoke section 153A.
Thus the ld. DR submitted that non-recording of satisfaction recorded by the AO of the searched person i.e., Sri B. Nagendra, will not render the proceedings initiated u/s. 153 of the Act as void ab initio and the decision of the CIT(Appeals) is not in accordance with law and ratio laid down by the various courts in the above judgments. According to him, there are valid seized material on the basis of which the AO of the searched person came to the conclusion that there was undisclosed income on the part of assessee. On that basis, he recorded satisfaction and issued notice u/s. 153C of the Act. The addition is also based on the seized material found during the course of search and the CIT(Appeals) erred in quashing the assessment in this case. Further, it was submitted by the ld. DR that in the judgment of the Supreme Court in the case of CIT v. Singhad Technical Education Society (2017) 397 ITR 344 (SC) it was held that there needs to be correlation between the seized documents to the assessment years for initiation of proceeding u/s. 153C for those assessment years. It is nowhere mentioned in the said judgment that addition to the undisclosed income should be only from the seized material. It only provides that seized material should belong to the third person
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(assessee) for the relevant assessment year, which is a condition precedent for initiating proceedings u/s. 153C and not for finalizing the assessment.
According to the ld. DR, the CIT(Appeals) has thus misdirected himself in not analysing the fact that the condition precedent for assumption of jurisdiction u/s. 153C by the AO of third party are :- a) Seized material must belong to the assessee ; b) Seized material must be incriminating and relate to the relevant assessment year. 12. According to him, both the conditions have been satisfied in this case and the CIT(A) committed a grave error in cancelling the assessment order on the legal issue. According to the ld. DR, the AO of the searched person rightly recorded satisfaction regarding undisclosed income of searched person and issued notice u/s. 153C of the Act and the judgment of the Supreme Court in Super Malls Pvt. Ltd. (supra) is directly applicable to assessee’s case and prayed to vacate the order of the CIT(Appeals) on the legal issue and restore the appeal to the CIT(Appeals) to decide the issue on merits with regard to additions made by the AO.
The ld. DR also relied on the order of the Tribunal in the case of ACIT v. Everglades, ITA No.347/Bang/2012 dated 23.7.2021 wherein it was held as under:- “14. We have examined the satisfaction note filed by the Department. From a perusal of the same, we find that the AO has recorded that the seized document referred to in the satisfaction note belongs to the assessee. The assessee has not denied this fact at any point of time. We may also point out that in the proceedings before the AO, CIT(A) and the Tribunal, the assessee never raised the issue with regard to non-existence of the required satisfaction for initiating proceedings under section 153C of the Act. As we have already seen the decision of the
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Hon’ble Supreme Court rendered in the case of Supermall Pvt. Ltd., (supra), settles the issue with regard to initiation of proceedings under section 153C of the Act. The aforesaid decision considers the earlier decision of the Supreme Court in the case of Calcutta Knit Wears (supra). The decision rendered by the Hon’ble Supreme Court therefore clarifies the legal position with regard to the initiation of proceedings under section 153C of the Act. The decision rendered by the Hon’ble jurisdictional High Court in the case of IBC Knowledge Park Pvt. Ltd.,(supra) should therefore be considered as overruled by implication, in cases where the AO of the searched person and the other person is one and the same. The decision rendered in the case of Singhad Education Society (supra) does not lay down that the documents seized should be incriminating and should disclose undisclosed income before a valid proceedings can be commenced under section 153C of the Act. We may mention that there is a difference between addition made on the basis of the documents found in the course of search and initiating proceedings under section 153C of the Act on the basis of documents found in the search. While it may be true that for making an addition under section 153C of the Act, the documents found in the course of search should be incriminating, there is no such requirement for initiating proceedings under section 153C of the Act. It is seen from the judgment of the Hon’ble Supreme Court in the case of Super Mall Pvt. Ltd.,(supra) that if in case the AO of the searched person and the other person is the same, it is sufficient if the AO notes in the satisfaction note that the documents seized from the searched person belonged to the other person. Once note says so, then the requirement of section 153C of the Act is fulfilled. In our opinion, the satisfaction note recorded by the AO and extracted in the earlier part of this order sufficiently complies with the satisfaction required for initiation of proceedings under section 153C of the Act. 15. The learned counsel for the Assessee has placed reliance on a decision of the ITAT Bangalore Bench in the case of Sree Lakshmi Venkateshwara Minerals Vs. DCIT (2021) 123 taxmann.com 255 (Bangalore-Trib) in support of his contention that the satisfaction note should spell out the nature of the seized document and how the same prima facie should reveal undisclosed income. We have perused the said decision and we
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find that in the aforesaid decision, additions were deleted on the ground that the same were not based on incriminating seized material found in the course of search. In paragraph-32 of the said order, the tribunal has made it very clear that the issue of validity of initiation of proceedings 153C of the Act is not being adjudicated. Moreover, the said case pertained to assessment years where the assessments stood concluded prior to the date of search, whereas in the present case, the assessment for the relevant AY was open assessment not having been concluded pursuant to the original return of income filed by the Assessee either by an order u/s.143(3) or by non issue of notice u/s.143(2) of the Act, within the time period prescribed for issue of such notice before the date of search. In this regard, we also notice that in the present case, the assessee filed return of income on 15.10.2007 and no order under section 143(3) of the Act was passed. The search in the case of Shri. N. Krishna based on which proceedings under section 153C of the Act were initiated against the assessee took place on 26.08.2008. The time limit for issue of notice under section 143(2) of the Act for Assessment Year 2007-08 was available to the AO till 30.09.2008. Since the search was conducted on 26.08.2008 in the case of Shri. N. Krishna, the proceedings against the assessee would not be hit by the proviso to section 153A of the Act and the proceedings can be initiated and additions can be made even in the absence of any incriminating material because such proceedings will be considered as abated proceedings in which scope of making additions will be much greater. For the reasons given above, we are of the view that the issue with regard to validity of initiation of proceedings under section 153C of the Act has to be held in favour of the Revenue. We are therefore of the view that the issue remanded by the Hon’ble High Court for consideration by this Tribunal has to be decided against the assessee and it is held that there existed proper satisfaction for the AO to proceed against the assessee under section 153C of the Act. The issue is accordingly decided in favour of the Department and against the assessee. 16. In the result, appeal by the Assessee is dismissed. ”
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On the other hand, the ld. AR submitted that the ld. DR has filed Written Submissions dated 14-9-2021, mainly relying on the decision of the Coordinate Bench of the Tribunal in the case of M/s. Everglades in ITA No.347/Bang/2012 in which it is held that seizure of incriminating material is not a pre-condition for assumption of jurisdiction u/s.153C of the Act. Reference is also made to the decision of the Hon'ble Supreme Court in the case of M/s. Super Malls (P.) Ltd.[2020] 115 taxmann.com 105 (SC), contending that the satisfaction was recorded by the assessing officer of the assessee who was also the assessing officer of the searched person at the relevant time. Hence the Respondent assessee is not disputing the following:- (a) The satisfaction Note recorded by the AO of the assessee- since the assessing officer of the searched person and the unsearched person is one and the same. (b) The absence of seizure of any incriminating material during the search. 15. It was submitted that the CIT(A) has recorded a categorical finding vide para 5.3 of the order that the addition was made estimating income on the basis of the enquiries conducted u/s.133A(5) of the Act, but not on the any seized material. The assessee had also taken the ground before the CIT(A) that the assessment had not abated and the addition, not based on any incremating seized material, was not sustainable. He submitted that the seized document would show that the same does not reveal any hidden or undisclosed income.
It is submitted that the search u/s. 132 was conducted in the case of B. Nagendra on 03-11-2010. The Notice u/s. 153C came to be issued on 09-04-2012 in the name of the assessee, and therefore the said date requires to be construed as the date of search in view of the Proviso u/s. 153C(1), read with the second Proviso to section 153A(1) of the Act. The
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return of income for the subject assessment year was filed on 14-10-2010 and accordingly, the last date to issue the Notice u/s. 143(2) expired on 30- 09-2011, prior to the said date of 09-04-2012. Hence it is submitted that the assessment had NOT ABATTED as on the date of search as per the said Proviso to section 153C(1) of the Act.
In the light of the fact that the assessment had not abated, it is submitted that the addition is unjustified and unsustainable as it is not based on any incriminating material found during the search. Reference is made to the decision of the Hon'ble Coordinate Bench in the case of Sree Lakshmi Venkateshwara Minerals (2021)123 taxmann.com 255(Bangalore- Trib), wherein, it is held that the addition, not based on any incriminating material found during the search, is not sustainable.
The ld. AR further submitted that In the case of Super Malls (P.) Ltd., (supra), the Satisfaction mate shows that: (a) During the search at the residence of Ved Prakash Bharti, Director of M/s. Super Malls (P.) Ltd., pen-drives were found and seized from his vehicle and the print-outs of the data contained therein revealed cash receipts for sale of shops/offices at M/s. Super Malls (P.) Ltd. (b) In the statement recorded during the search, Ved Prakash Bharti stated that these documents pertain to him and to M/s.Super Malls P Ltd., It may be noted that the searched person, Ved Prakash Bharti, who is also the Director of the unsearched person, M/s. Super Malls (P.) Ltd., has declared in the statement that the seized document 'belonged to' the assessee. The assessing officer of M/s.Super Malls (P.) Ltd., has, after referring to the said statement of Ved Prakash Bharati, also recorded his satisfaction that the seized documents belonged to the person other than the person referred to section 153A. 19. It is therefore submitted that as per the decision of the Hon'ble Supreme Court in the case of M/s. Super Malls (P.) Ltd., relied upon by the
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Revenue itself, the 'satisfaction note' recorded u/s.153C should clearly spell out the reasons/satisfaction of the assessing officer that the seized document belongs to the unsearched person and not the person referred to in section 153A. Hence it is submitted that the 'Satisfaction Note' recorded in the case of the assessee required to be examined applying the parameter laid down by the Hon'ble in this case i.e. M/s. Super Malls (P.) Ltd. (supra). It is submitted that a plain reading of the impugned 'Satisfaction Note' recorded in the case of the assessee shows that it does not meet the pre-condition – (i) it does not even record that the seized document belongs to unsearched person, T. H. Suresh Babu, and; (ii) since the Learned AO does not even state that the seized documents 'belong to' the unsearched person, there is no further basis for holding the seized documents as belonging to unsearched person. 20. He submitted that the Hon'ble Supreme Court in the case of M/s Calcutta Knitwears :2014] 43 taxmann.com 446 (SC) held that existence of cogent and demonstrating material is germane to the assessing officers' satisfaction in concluding that the seized documents "belong to" a person other than the searched person is necessary for initiation of action u/s 158BD. The ratio decidendi of this decision applies to the proceedings u/s 153C also, since sections 158BD & 153C are substantially pari materia`. The jurisdictional High Court in IBC Knowledge Park (P.) Ltd. [2016] 69 taxmann.com 108 (Karnataka), held holding that prima-facie satisfaction that seized assets/documents belong to the other person is a prerequisite for invoking section 153C of the Act.
The Hon'ble High Court of Delhi in the case of Pepsi Foods (P) Ltd.,(2014) 52 taxman.com 220 (Delhi) held that mere use or mention of word, 'satisfaction' or 'I am satisfied' in order or note would not meet
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requirement of concept of satisfaction as used in section 153C of the Act. The Hon'ble Supreme Court dismissed SLP of the department in its order in SLP 4659 of 2015, order dated; 04-12-2017 reported in (2018) 89 taxman.com 10 (SC).
The Hon'ble High Court of Delhi in Canyon Financial Services Ltd (2017) 84 taxman.com 71 (Delhi) held that the AO of the searched person had not proved that the seized document belonged to the assessee and not to the searched person. The Hon'ble High Court further held that the satisfaction note recorded by the assessing officer of the (unsearched person) and the assessing officer of the searched person were identically worded carbon copies, which has vitiated the proceedings u/s 153C. The Hon'ble Supreme Court dismissed the SLP of the Department in (2018) 90 taxman.com 169 (SC).
The ITAT, Bangalore, Bench 'B' in Senate [2016] 68 taxmann.com 223 (Bangalore-Trib.) held that there should be something in the satisfaction recorded by the AO of the searched person to indicate that the searched person had disclaimed the seized documents before reaching a conclusion/satisfaction that the documents do not belong to the searched person but to the other third person. In the 'Satisfaction Note' , the AO doesn't even say, 'I am satisfied' or 'belongs to the unsearched person'. Hence there NO COMPLIANCE with the law laid down by the Hon'ble Supreme Court, including the case of M/s Super Malls P Ltd, relied upon by the Revenue itself.
In the light of the above, it is submitted that the appeal of the revenue is liable to be dismissed.
We have heard both the parties and perused the material on record. The primary issue in this appeal is whether the action of the AO in
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assuming jurisdiction u/s. 153C of the Act is valid or not. For this purpose, we will go through the provisions of section 153A, 153B & 153C of the Act as follows:- Assessment in case of search or requisition. 153A. (1)] Notwithstanding anything contained in section 139, section 147, section 148 , section 149, section 151 and section 153 , in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) 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 or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this 72[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. Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;
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(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
Time-limit for completion of assessment under section 153A. 153B. (1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment,— (a) in respect of each assessment year falling within six assessment years referred to in clause (b) of 73 [sub- section (1) of] section 153A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed; (b) in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed : Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this sub-section or one year from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later: Explanation.—In computing the period of limitation for the purposes of this section,— (i) the period during which the assessment proceeding is stayed by an order or injunction of any court; or (ii) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on
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the day on which the assessee is required to furnish a report of such audit under that sub-section; or (iii) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee of being re-heard under the proviso to section 129; or (iv) in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded: Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in clause (a) or clause (b) of this 79 [sub-section] available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. (2) The authorisation referred to in clause (a) and clause (b) of sub-section (1) shall be deemed to have been executed,— (a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued; (b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer. 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 any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or
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requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :] 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 82[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 jurisdiction over such other person. (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 jurisdiction 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 jurisdiction 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.” 26. Now the controversy in this appeal is limited to applicability of section 153C of the Act. On a plain reading of the above provisions, it is clear that the provisions of section 153A, 153B & 153C of the Act lay down
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the scheme of assessment in the case of search and requisition u/s. 132 & 132A of the Act. The provisions of section 153A is with regard to searched person u/s. 132 of the Act where books of account or other documents or assets are requisition u/s. 132A of the Act after 31st May, 2003. The provisions of section 153B lay down the time limit for completion of assessment u/s. 153A. The provisions of section 153C provide that where AO is satisfied that any money, bullion, jewellery or other valuable or article or thing or books of account or documents seized are requisition belong to or belonged to person other than the person searched, the AO shall proceed against such other person by issuing notice and assess or re- assess the income of such other person.
From a bare reading of the provisions of sec.153C, it is crystal clear that the condition precedent for issue of notice u/s 153C is that money, bullion, jewellery or other valuable article or thing or books of account or document seized or requisitioned should belong to such person. If this requirement is not satisfied, recourse cannot be had to the provisions of sec.153C. The very same provisions had come for interpretation before the Hon'ble Delhi High Court in the case of Pepsi Foods (P.) Ltd. (367 ITR 112) wherein the Hon'ble Delhi High Court observed at page 117 as follows:— 'On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be "satisfied" that inter alia any document seized or requisitioned "belongs to" a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or re- assess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a
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clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is - after such satisfaction is arrived at -that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be 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". . . 'It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word "satisfaction" or the words "I am satisfied" in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any "satisfaction" of the kind required under Section 153C of the said Act.' 28. Further, the term ‘belonging to’ has been interpreted by the Hon’ble Supreme Court in the case of CWT v. Bishwanath Chatterjee [1976] 103
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ITR 536 and Nawab Sir Mir Osman Ali Khan v. CWT [1962] 162 ITR 888 wherein the Hon’ble Supreme Court in CWT v. Bishwanath Chatterjee has held as under :- “The expression "belong" has been defined as follows in the Oxford English Dictionary:— " To be the property or rightful possession of." So it is the property of a person, or that which is in his possession as of right, which is liable to wealth-tax. In other words, the liability to wealth-tax arises out of ownership of tie asset, and not otherwise. Mere possession, or joint possession, unaccompanied by the right to, or owner ship of property would therefore not bring the property within the definition of "net wealth" for it would not then he an asset "belonging" to the assessee.” 29. The Apex Court in Nawab Sir Mir Osman Ali Khan (162 ITR 888) has observed at page 899 as follows:- “28. In all these cases as was reiterated by the Calcutta High Court in S.B. (House & Land) (P.) Ltd. v. CIT [1979] 119 ITR 785 the question of ownership had to be considered only in the light of the particular facts of a case. The Patna High Court in Addl. CIT v. Sahay Properties & Investment Co. (P.) Ltd. [1983] 144 ITR 357 was concerned with the construction of the expression 'owner' in section 22. There, the assessee had paid the consideration in full and had been in exclusive and absolute possession of the property, and had been empowered to dispose of or even alienate the property. The assessee had the right to get the conveyance duly registered and executed in its favour, but had not exercised that option. The assessee was not entitled to say that because of its own default in having a deed registered in its name, the assessee was not the owner of the property. In the circumstances, it was held that the assessee must be deemed to be the owner of the property within the meaning of section 22 and was assessable as such on the income from the property.” 30. Again, the Hon'ble Delhi High Court in the case of Pepsico India Holdings (P.) Ltd. v. Asstt. CIT [2015] 370 ITR 295/228 Taxman 116 (Mag.)/[2014] 50 taxmann.com 299 following its earlier decision in the case
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of Pepsi Foods (P.) Ltd (supra) held that unless it is established that the documents in question do not belong to the searched person, the question of invoking the provisions of sec.153C of the Act does not arise. It was also held that unless searched person disclaims the documents as belonging to him, provisions of sec.153C do not get attracted. It is also further laid down that in the satisfaction note there should be something to indicate that the seized document do not belong to the searched person. The Hon'ble Delhi High Court held as follows:— 'Having set out the position in law in the decision of this Court in the case of Pepsi Foods Pvt. Ltd. (supra), it must be seen as to whether the Assessing Officer of the searched person (the Jaipuria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners. First of all we may point out, once again, that it is nobody's case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is that "where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A ...." In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they 'belong' to the person who holds the originals.
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Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise. Thirdly, we would also like to make it clear that the assessing officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". A registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it "belongs to" the vendor just because his name is mentioned in the document. In the converse case if the vendor's premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy "belongs to" the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to "belong to" the petitioner. In view of the foregoing discussion, we do not find that the ingredients of Section 153C of the said Act have been satisfied in this case. Consequently the notices dated 02.08.2013 issued under Section 153C of the said Act are quashed. Accordingly all proceedings pursuant thereto stand quashed.' 31. Similarly, the Hon'ble Gujarat High Court in the case of Vijaybhai N.Chandrani v. Asstt. CIT [2011] 333 ITR 436 held that even if there is a reference to the assessee in the seized documents, it does not mean that the assessee is the owner of those documents unless the revenue proves conclusively that the assessee is the owner of those documents. The Hon'ble Gujarat High Court held as follows:— "Thus a condition precedent for issuing notice under s. 153C and assessing or reassessing income of such other person, is that the
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money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, resort cannot be had to the provisions of s. 153C of the Act. Examining the facts of the present case in the light of the aforesaid statutory scheme, it is an admitted position as emerging from the record of the case, that the documents in question, namely the three loose papers recovered during the search proceedings do not belong to the petitioner. It may be that there is a reference to the petitioner in as much as his name is reflected in the list under the heading 'Samutkarsh Members Details' and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody's case that the said documents belong to the petitioner. It is not even the case of Revenue that the said three documents are in the handwriting of the petitioner. In the circumstances, when the condition precedent for issuance of notice is not fulfilled any action taken under s. 153C of the Act stands vitiated. " 32. The ratio that can be culled out from the above decisions is that unless revenue establishes that the assessee is the owner of the seized documents, provisions of sec.153C cannot be invoked. Even the Hon'ble Delhi High Court as well as the Hon'ble Gujarat High Courts held that merely because there is a reference to the name of the assessee in the seized documents, it does not mean that the assessee is the owner of those documents. In the satisfactory note recorded by the AO there should be something to indicate that the searched person had disclaimed those documents and therefore, AO of the searched person reached a conclusion or satisfaction that the documents do not belong to the searched person but other third person. The High Courts, even went to the extent of holding that possession of documents and possession of photo copies of documents are two separate things. It may be quite possible that photo copies may be belonging to the searched person and whereas the original may be owned by some other person.
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Further, the Hon'ble Supreme Court in M/s Calcutta Knitwears :2014] 43 taxmann.com 446 (SC) held that existence of cogent and demonstrating material is germane to the assessing officers' satisfaction in concluding that the seized documents "belong to" a person other than the searched person is necessary for initiation of action u/s 158BD. The ratio decidendi of this decision applies to the proceedings u/s 153C also, since sections 158BD & 153C are substantially pari materia`.
The Hon'ble High Court of Delhi in Canyon Financial Services Ltd (2017) 84 taxman.com 71 (Delhi) held that the AO of the searched person had not proved that the seized document belonged to the assessee and not to the searched person.
The ITAT, Bangalore, Bench 'B' in Senate [2016] 68 taxmann.com 223 (Bangalore-Trib.) held that there should be something in the satisfaction recorded by the AO of the searched person to indicate that the searched person had disclaimed the seized documents before reaching a conclusion/satisfaction that the documents do not belong to the searched person but to the other third person.
In CIT V. Sinhgad Technical Education Society, 397 ITR 344 (SC), where loose papers found and seized from residence of President of assessee, an educational institution, indicating capitation fees received by various institutions run by assessee did not establish co-relation document- wise with assessment years in question notice issued under section 153C had rightly been quashed and set aside by the Hon’ble Supreme Court.
Coming to the facts of the present case, the AO recorded the satisfaction in the case of assessee as follows:-
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“14.11.2011 A search action u/s. 132 was initiated in the case of Sri B. Nagendra and in connection with the same, the premises of Sri T.H. Suresh Babu, Laxmi Narasimha Swamy Nilaya, Near Railway Quarters, Bamboo Bazar, Siraguppa Road, Bellary was also searched and documents / assets were seized as per inventory A-1/THS annexed to the panchanama dated 03.11.2010 for the search conducted in the premises of Sri T.H. Suresh Babu, Laxmi Narasimha Swamy Nilaya, Near Railway Quarters, Bamboo Bazar, Siraguppa Road, Bellary. Hence, a notice calling for the returns of the income for the Asst. Year 2010-11 as envisaged u/s. 153C issued.”
As seen from the above, in the satisfaction note recorded by the AO there was no mention that he was satisfied about the undisclosed income belonging to the assessee on the basis of seized material as held by the Supreme Court in the case of Super Malls Pvt. Ltd. v. PCIT (supra) in terms of section 153C of the Act that where the AO of the searched person and the third person is the same, it is sufficient by the AO to record in the satisfaction note that the documents seized from the searched person belonged to other person and there is no requirement of transmitting documents so seized from searched person.
In the light of the above observations of the Supreme Court, if we go through the above order sheet entry of the AO of the searched person, we cannot make out a case that to whom the seized document marked as inventory A-1/THS belongs to and what is the undisclosed income related to assessee mentioned in it. Further, the AO does not even say “I am satisfied” or “belonged to unsearched person” i.e., the assessee. Hence there is no compliance with the provisions of law laid down by the Supreme Court in the case of Super Malls P. Ltd. (supra). Being so, in our opinion,
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there is no satisfaction recorded by the AO of the searched person to indicate that the searched person had disclaimed the seized document as it belonged to him before reaching the conclusion/satisfaction that document did not belong to searched person, but to other third person i.e., the present assessee. More so, in the present case, it is also brought on record by the assessee that the impugned addition was already subject matter of assessment in the case of Sri B. Sreeramulu and the expenditure relating to assessee’s marriage at Rs.101,96,322 has been disclosed in his capital account for the period ending 31.3.2010, copy of which is kept on record filed before this Tribunal on 3.3.2022. Hence, on the basis of the above order sheet entry, the assessment of present assessee has been reopened so as to frame the assessment u/s. 143(3) r.w.s. 153C of the Act. The AO who searched the premises of B. Nagendra on whose case warrant u/s. 132 was issued, has not recorded his satisfaction that documents found in the course of search of the premises of present assessee viz., T.H. Suresh Babu belonged to present assessee and AO has not recorded his satisfaction in his order sheet entry to this effect. As such, the mandatory requirement u/s. 153C of the Act in the facts and circumstances of the case have not been complied with. The satisfaction note in the form of order sheet entry by the AO of Sri B. Nagendra who was searched has not recorded the finding that the document seized belonged to Shri T.H. Suresh Babu. Being so, the requirement of section 153C of the Act has not been fulfilled. On these facts, we are in clear agreement with the view taken by the CIT(Appeals) in quashing the assessment framed u/s. 143(3) r.w.s. 153C of the Act and accordingly uphold the order of the ld. CIT(Appeals). The grounds taken by the revenue are dismissed.
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In the result, the appeal by the revenue is dismissed.
Pronounced in the open court on this 6th day of April, 2022.
Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 6th April, 2022.
/Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.