NALIN VYAS (THROUGH LEGAL HEIR BRIJESH VYAS),VIRAR vs. ITO 4 (3), THANE

From a perusal of the legal ground it reveals that assessee is assailing the action of the assessee’s AO [ITO ward 4(3) Thane] to usurp jurisdiction under section153C of the Act, without having a valid satisfaction note from the searched person’s AO [DCIT-CC-2(1)] which spells out that the assets found and seized [from the searched A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas premises/M/s Navjeevan Trust] belongs to the assessee as required by pre-amended section 153C of the Act (i.e, prior to amendment 01.06.2015).

For AY 2010-11 it is noted that an additional ground has also been raised by the assessee. That this assessment year (AY. 2010-11) does not fall in the ken of section 153C of the Act because as per the second proviso to Section 153C of the Act, the date to be reckoned [for determining six (6) preceding assessment years for the purpose of assessment u/s 153A of the Act] is the handing over of the seized documents of the third party (i.e. assessee in this case) along with satisfaction note to the assessee’s AO which should be adopted in contra-distinction to the case of an assessee who has been searched wherein date of search determines the six preceding years falling under assessment u/s 153A of the Act; And since the handing over of the seized documents along with satisfaction note in respect of the present assessee by DCIT-CC-2(1) to assessee’s AO [ITO-4(3)] happened on 15.03.2017 i.e. (AY. 2017-18). In such an event, as per the second proviso to Section 153C of the Act, the AO of assessee [ITO-Ward 4(3),Thane] is empowered u/s 153C of the Act to assess/re-assess the assessment of six years preceding AY. 2017-18. And when reckoned from AY. 2017-18 (since documents handed over on 15.03.2017), AY 2010-11 is the seventh (7) assessment year. And therefore according to assessee, the AO erred in framing the assessment u/s 153C of the Act for AY 2010-11 despite the assessment year not falling in the ken of section 153C of the Act. A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas 5. Be that as it may, we will look into the first legal issue raised by assessee i.e regarding the validity of the satisfaction note prepared by the AO [DCIT, CC-2(1)] which is found placed at page no. 8 of the P.B. We need to examine whether the satisfaction note satisfies the requirement of law or not [for all the three assessment years i.e. AY. 2010-11, 2011-12 & 2012-13]; and here we observe that if it is found that the satisfaction note for even one assessment year satisfies the requisite satisfaction as per law, then the first stage as envisaged under section 153C of the Act will be satisfied. With this observation, we would like to examine the legal issue raised by the assessee as to whether the ITO, Ward 4(3) (assessee’s AO) had the requisite jurisdiction to initiate and then frame assessment u/s 153C of the Act for AY 2010-11, AY 2011-12 and AY 2012-13. For doing that let us have a look at Section153C of the Act and for that it would be relevant to cull out the relevant provisions of Sec. 153C i.e pre-amended (i.e applicable prior to 01.06.2015) and also the post-amended (i.e applicable w.e.f 01.06.2015). The relevant extract of which reads as under: “ Assessment of income of any other person. (i). Sec. 153C (as was available on the statute upto 31.05.2015) i.e pre-amended: Section. 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 document seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person...........” A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas “(ii). Section. 153C (as is available on the statute w.e.f 01.06.2015) i.e post- amended Section 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 jurisdiction over such other person.......................”[Emphasis given by us]

In order to adjudicate the legal issue raised by the assessee first we have to examine the satisfaction note prepared by the AO of the searched person (M/s. Navjeevan Trust i.e. DCIT, CC-2(1)] dated 03.03.2017 which reads as under: - “Satisfaction note regarding initiation of proceedings u/s 153C in the case of Shri Nalin J Vyas Prop. M/s. Brijesh Enterprises, PAN: ACWPV5128Q Warrant u/s 132(1) was issued by the Investigation Wing was executed on 27.10.2014. Following the dictum of provisions of Section 153A(1)(a), the notices u/s 153A were issued for assessment years 2009-10 to AY. 2014-15 requiring M/s. Navjeevan Charitable Trust, to furnish returns for the said years. The materials seized the search proceedings was verified and scrutinized. This exercise reveals that the page no. A-1/154 to 156 and A-2/45 which were found and seized in the premises of M/s. Navjeevan Charitable Trust marked Annexure-A- 1/154 to 156 and A-2/45 belongs to Shri Nalin J. Vyas Prop. M/s. Brijesh Enterprises, with transaction amount of Rs.2,48,81,200/- and Rs.1,45,000/- respectively made during FY. 2010-11 relevant AY. 2011-12. Accordingly, copy of the aforementioned seized document is handed over the Assessing Officer i.e. ITO 4(3), Thane having jurisdiction over Shri Nalin J. Vyas Prop. M/s. Brijesh Enterprises for necessary action u/s 153C of the Income Tax Act. (Suhas J. Mistry) Dy. Commissioner of Income Tax Central Circle-2(1), Mumbai. Date:03.03.2017 A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas 7. From a perusal of the satisfaction note dated 03.03.2017, by the DCIT-CC-2(1) (AO of M/s Navjeevan Trust/Searched party) reveals that pursuant to execution of search warrant on 27.10.2014 at the premises of M/s. Navjeevan Trust, he (AO) had issued notice u/s 153A to M/s. Navjeevan Trust to furnish return for AY 2009-10 to AY 2014- 15, and he had verified and scrutinized the material seized during search proceedings which revealed that page numbers A-1/154 to 156 at A-2/45 belongs to assessee (Shri Nalin J. Vyas who was proprietor of M/s. Brijesh Enterprises) with whom transaction were made amounting to Rs.2,48,81,200/- and Rs.1,45,000/- relevant for AY 2011-12. After recording the aforesaid facts, he handed over the copy of the documents (A-1/154 to 156 & A-2/45) to AO of assessee [ITO- 4(3), Thane] who had jurisdiction over the assessee for necessary action u/s 153C of the Act. 8. Thereafter, the AO of assessee [ITO-4(3) Thane] recorded his satisfaction on 30.03.2017 which is reproduced as under: - “Satisfaction Note regarding initiation of proceedings u/s, 153c in the case of ‘Nalin J Vyas, (PAN-ACWPV5128Q) Prop. Brijesh Enterprises. Name and Address of the assessee: Shri Nalin J. Vyas, Prop. Brijesh Enterprises Status : Individual PAN : ACWPV5128Q AY.: 2009-10 to 2014-15 A search action u/s. 132 of the Income-tax Act,1961 was conducted in the case of M/s. Navjeevan Charitable Trust (PAN-AAATN6332N) on 27.10.2014 by Investigation wing Mumbai. During the course of search and seizure action material seized from the premises of M/s Navjeevan Charitable Trust pertaining to Shri nalin J. Vyas vide annexure A-1/154 to 156 and A-2/45 with transaction amount of Rs.2,48,81,200/and Rs.1,45,000/respectivelu made for F.Y.2010-11 relevant to A.Y.2011-12. The Dy.CIT Central circle 2(1), Mumbai vide letter No. Mum/DCIT CC 2(1)/Intimation/153C/2016-17 dated 03.03.2017 forwarded satisfaction note A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas along with the copies of seized documents to this office on 15.03.2017 for initiating proceedings u/s.153C of the Income-tax Act,1961 in the case of Shri nalin J. Vyas, as the jurisdiction lies with the ITO ward 4(3), Thane. On examination of the seized documents, it reveals that Shri Nalin J. Vyas Prop. Brijesh Enterprises has made transaction for F.Y.2009-10 of Rs.4,86,64,449/- relevant to A.Y.2010-11 and F.Y.2010-11 of Rs. 2,48,81,200/- relevant to A.Y.2011- 12. Therefore, the case of Shri Nalin J. Vyas falls within purview of the provisions of section 153 C of the Income-tax Act,1961 and action is initiated to assess or reassess the income of for the A-Y. 2009-10 to 2014-15 by calling return of income as required for the six assessment years as required u/s. 153A(a) r.w.8.153C of the Income-tax ,1961. The return of income to be filed within 30 days from the date of receipt of the notice. Notices u/s.153C r.w.s.153A(a) of the Income-tax Act,1961 are issued for the A.Ys. 2009-10 to 2014-15. A notice u/s. 142(1) of the income tax Act for A.Y.2015-16 is also issued for filing of return of income. R. R. Patwardhan Income Tax Officer, Ward-4(3), Thane Date 30.03.2017 9. From a perusal of the satisfaction note it reveals that AO of the assessee [ITO-4(3), Thane] records that “on examination of seized documents, it reveals that Shri Nalin J. Vyas prop. Brijesh Enterprises has made transaction for FY. 2009-10 of Rs.4,86,64,449/- relevant to AY. 2010-11 & FY. 2010-11 of Rs.2,48,81,200/- relevant to AY. 2011- 12. Therefore, the case of Shri Nalin J. Vyas falls within the purview of provisions of section 153 of the Act”. And after recording the aforesaid satisfaction on 30.03.2017, the AO of the assessee proceeded against the assessee and issued notice u/s 153C of the Act. 10. So when we examine the legal validity of the satisfaction note prepared by the AO of the searched person [DCIT-CC-2(1)] against the assessee, first we have to ascertain whether the pre-amended A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas provision u/s 153C (ie. before 01.06.2015) is applicable or the post- amended section 153C is applicable. We note that this issue is no longer res-integra and the Hon’ble Gujarat High Court has answered the same in its decision in Anilkumar Gopikishan Agrawal V CIT (2019) 418 ITR 25 (Guj) wherein similar issue cropped up and the Hon’ble High Court held that it is the date of search that has to be considered to be relevant date for the purpose of applying the provision of section 153C(1) of the Act by observing as under: - “The moot question that arises for consideration in the present case is as to what is relevant date from which the amended provisions of section 153C of the Act would be applicable. While the amended provisions have been expressly brought into force with effect from 1.6.2015, the controversy in the present case arises because the searches in all these case had been conducted prior to 1.6.2015, whereas the proceedings under section 153C of the Act have been initiated after that date and it is in this backdrop that the validity of the impugned notices has been called in question. It is the case of the petitioners that the proceedings under section 153C of the Act are triggered by the search, and hence the provisions of law as existing on the date of the search have to be followed, while it is the case the respondents that the provisions of law as existing on the date of recording of satisfaction by the Assessing Officer of the person searched and the date of issuance of notice under section 153C of the Act have to be followed. 19.5 On behalf of the respective parties, reliance has been placed upon the decision of the Supreme Court in Commissioner of Income Tax v. Calcutta Knitwears (supra). A perusal of the said decision of the Supreme Court reveals that the question before the Supreme Court was the stage at which the satisfaction note could be prepared. In the facts of the present case, we are concerned with the applicability of the amended provisions which are brought into force with effect from 1.6.2015 as to whether the same would be applicable to cases where the search was conducted prior to that date. Thus, the question is what would be the relevant date for applicability of the amended provision, whether it has to be considered in the context of the date of search or date of recording of satisfaction by the Assessing Officer of the searched person or the date of issuance of notice under section 153C of the Act. A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas 19.6 On behalf of the respondents it has been contended that section 153C of the Act is a machinery provision. In Calcutta Knitwears (supra), the Supreme Court has held that while interpreting a machinery provision, the courts would interpret a provisions in such a way that it would give meaning to the charging provisions and that the machinery provisions are liberally construed by the courts; and that it is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose, the section should be liberally construed. The court has further held that wherever the intention to impose liability is clear, the courts ought not to be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. It is contended that the legislature having the clear intent to bring in persons other than the person searched within the ambit of section 153C of the Act even if the books of account or documents seized or requisitioned pertain to or any information therein relates to such other person, the amended provisions should be so construed as would effectuate the object and purpose of the statute and not defeat the same, namely to tax the total income of the assessee. 19.7 In Calcutta Knitwears (supra) the Supreme Court has held that section 158-BD of the Act is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under sections 132 or 132A of the Act. The court has referred to its earlier decision in the case of J.K. Synthetics Ltd. v. CTO, (1994) 4 SCC 276, wherein it has been held thus: “16. It is well known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. … ….Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. IRC, 1926 AC 37 (HL), CIT v. Mahaliram Ramjidas, (1940) 8 ITR 442, Indian United Mills Ltd. v. Commr. of Excess Profits Tax, (1955) 27 ITR 20 (SC) and Gursahai Saigal v. CIT, (1963) 48 ITR 1 (SC).)” 19.8 While it is true that section 153C of the Act is also a machinery provision for assessment of income A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas of a person other than the person searched, in the opinion of this court, this is not a case where by virtue of the amendment, there is merely a change in the procedural provisions affecting the assessees who were covered by the unamended provision. By the amendment, a new class of assessees are sought to be brought within the sweep of section 153C of the Act, which affects the substantive rights of the assessees and cannot be said to be a mere change in the procedure. Since the amendment expands the scope of section 153C of the Act by bringing in an assessee if books of account or documents pertaining to him or containing information relating to him have been seized during the course of search, within the fold of that section, this question assumes significance, inasmuch as in the facts of the present case, as on the date of search, it was only if such material belonged to a person other than the searched person, that the Assessing Officer of the searched person could record such satisfaction and forward the material to the Assessing Officer of such other person. However, subsequent to the date of search, the amendment has been brought into force and based on the amendment, the petitioners who were not included within the ambit of section 153C of the Act as on the date of the search, are now sought to be brought within its fold on the ground that the satisfaction note and notice under section 153C of the Act have been issued after the amendment came into force. Therefore, this case does not relate to the interpretation of the provisions of any of the sections, but relates to the stage at which the amended section 153C of the Act can be made applicable, as to whether it relates to the date of search; or the date of recording of satisfaction by the Assessing Officer of the searched person; or the date of recording of satisfaction by the Assessing Officer of the other person; or the date of issuance of notice under section 153C of the Act. 19.9 In the facts of the present case, the search was conducted in all the cases on a date prior to 1st June, 2015. Therefore, on the date of the search, the Assessing Officer of the person searched could only have recorded satisfaction to the effect that the seized material belongs or belong to the other person. In the present case, the hard disc containing in the information relating to the petitioners admittedly did not belong to them, therefore, as on the date of the search, the essential jurisdictional requirement to justify assumption of jurisdiction under section 153C of the Act in case of the petitioners, did not exist. It was only on 1st June, 2015 when the amended provisions came into force that the Assessing Officer of the searched person could have formed the requisite belief that the books of account or documents seized or requisitioned pertain to or the information contained therein relates to the petitioners. A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas 19.10 In this backdrop, to test the stage of applicability of the amended provisions, a hypothetical example may be taken. The search is carried out in the case of HN Safal group on 4.9.2013. If the Assessing Officer of the searched person had recorded satisfaction that some of the seized/requisitioned material belongs to a person other than the searched person and forwarded the material to the Assessing Officer of the other person, had issued notice under section 153C of the Act prior to the coming into force of the amended provision. The notice under section 153C of the Act was challenged before the appropriate forum on the ground that the seized material does not belong to such other person and such issue was decided in favour of such person on a finding that the seized material does not belong to the other person. Thereafter, in view of the amendment in section 153C (1) of the Act, since the books of account or documents did not belong to the other person but did pertain to him or the information contained therein related to him, can the Assessing Officer of the searched person once again record satisfaction as contemplated under the amended provision and forward the material to the Assessing Officer of such other person. The answer would be an emphatic “no” as the Assessing Officer of the searched person after recording the earlier satisfaction would have already forwarded the material to the Assessing Officer having jurisdiction over the other person, therefore, there would be no question of his again forming a satisfaction as required under the amended provisions of section 153C of the Act. 19.11 In the opinion of this court, if a date other than the date of search is taken to be the relevant date for the purpose of recording satisfaction one way or the other, it would result in an anomalous situation wherein in some cases, because the notices under section 153C of the Act were issued prior to the amendment, they would be set aside on the ground that the books of account or documents seized or requisition did not belong to the other person though the same pertained to or the information contained therein related to such person, whereas in other cases arising out of the same search proceedings, merely because the notices are issued after the amendment, the same would be considered to be valid as the books of account or documents seized or requisitioned pertain to or the information contained therein relate to the other person. It could not have been the intention of the legislature to deal with two sets of identically situated persons differently, merely because in one case the Assessing Officer of the searched person records satisfaction as required under section 153C of the Act prior to the coming into force of the amended provisions and in any another case after the coming into force of the amended provisions.” A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas 11. In the light of the ratio of the above judgement, in the case in hand, pre-amended law u/s 153C of the Act needs to be applied [since the date of search was on 27.10.2014, that has to be considered to be relevant date for the purpose of applying the provision of section 153C(1) of the Act, even though the satisfaction note was handed over to AO of assessee on 15.03.2017]. The essential jurisdictional fact for initiation of assessment u/s 153C of the Act as per the pre-amended section 153C of the Act is that AO of the searched person should be able to return a finding of fact that the seized material (in this case A- 1/154 to 156 to A-2/45) belongs to assessee and thereby rebutting the presumption that documents seized belongs to searched party. Keeping this in mind, we have to see whether the satisfaction note recorded by the AO of the searched person (M/s. Navjeevan Trust) i.e. DCIT-CC- 2(1), Mumbai satisfies the requirement of law as prescribed under the pre-amended section 153C of the Act. For that, when we perused the satisfaction note dated 03.03.2017 (supra), we note that even though the AO says that the seized documents A-1/154 to 156 to A-2/45 belongs to the assessee, however on careful examination of the said documents (A-1/154 to 156 to A-2/45) which is found placed at page no. 9 to 14 of the paper book, we find that these are merely ledger account of assessee maintained by the searched person (M/s. Navjeevan Trust) in their books i.e of M/s. Navjeevan Trust. So, by no stretch of imagination it can be said to be as “belonging to the assessee”. Having found that the ledger copies [copies of seized documents A-1/154 to 156 to A-2/45] forwarded by the DCIT-CC- 2(1), Mumbai along with the satisfaction note (supra) to AO of A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas assessee, are only ledger account of transactions between the assessee and (M/s. Navjeevan Trust) recorded by Navjeevan Charitable Trust in its books (M/s. Navjeevan Trust), we find that the conclusion or finding of fact recorded by DCIT-CC-2(1), Mumbai in his satisfaction note that the same belongs to the assessee is per-se erroneous. Since the DCIT-CC-2(1), Mumbai erred in his finding regarding the jurisdictional fact [ i.e, seized documents A-1/154 to 156 to A-2/45 belongs to assessee] the satisfaction note prepared by him to AO of the assessee [ITO-4(3) Thane] is vitiated. Thus we find that the jurisdictional fact [seized material from M/s Navjeevan belongs to third party the assessee] does not exist, and the DCIT/AO of searched person wrongly assumed that the documents seized during searched on 27.10.2014 at the premises of M/s. Navjeevan Trust belongs to the assessee [i.e. A-1/154 to 156 to A-2/45] which was on wrong assumption of facts and therefore the foundational fact recorded by DCIT in his satisfaction note itself is bad in law. Therefore, we are of the considered opinion that the satisfaction note prepared at the first stage by AO of the searched persons [DCIT-CC-2(1)] in respect of third party assessee for initiation of proceedings u/s 153C of the Act does not satisfy the requirement of the law and consequently all actions taken pursuant thereto by the AO of the assessee i.e. ITO, Ward (4)(3) also is void-ab-initio and we hold accordingly.

Therefore, all the quantum assessments u/s 153C of the Act pertaining to AY 2010-11, 2011-12, 2012-13 stands quashed. A.Ys. 2010-11, 2011-12 & 2012-13 Nalin Vyas 13. Coming to the penalty levied u/s 271(1)(c) of the Act, in the light of us quashing the assessments framed u/s 153C of the Act for AY 2010-11, 2011-12, 2012-13, the penalty levied also based on those assessments, has to fall because the case of assessee is squarely covered by the legal Maxim “Sublato Fundamento credit opus” meaning in case foundation is removed, the super-structure falls. In the case of Badarinath Vs. Tamilnadu AIR 2000 (SC) 3243 SC, the Hon’ble Supreme Court held that once the basis of proceedings is gone, all consequential order/action would fall on the ground automatically which is applicable to judicial and quasi-judicial proceedings also. Thereafter, the impugned penalty for all the captioned appeals needs to be cancelled and we do so.