DCIT CENTRAL CIRCLE 7 1, MUMBAI vs. ROYAL INDIA CORPORATION LIMITED, MUMBAI

Subsequently, a survey action u/s 133A of the Act was carried out at the premises of M/s Royal India Corporation Ltd on 18/10/2019. Accordingly, notice u/s 153C of the Act has been issued by the Assessing Officer on 28/10/2021. In response to the notice the assessee filed his return of income on 08/12/2021. In response to notices u/s.153C assessee has filed the return of income.

Here in this case the main issue involved is that the additions have been made by the ld. AO u/s.153C are beyond the scope of Section 153C as same is not based on any incriminating material and also in absence of any material or information pertaining to the assessee relating to these assessment years, no assessment u/s.153C could have been made. The ld. AO based on the requisition u/s.153A in case of M/s. Royal India Corporation Limited Shri Sagar Ramesh Ajagaonkar and Shri Ramesh Ashok Jain had issued a notice u/s.153C on the ground that cash seized belongs to assessee and accordingly, he has recorded the satisfaction. However, in the assessment order he has proceeded to make the addition on altogether different grounds, like on account of unexplained loan transactions disclosed in the balance sheet, addition on account of excessive claim of employee benefit expenses, addition on account of excessive claim of expenses etc. None of these additions were based on satisfaction note or incriminating material.

Ld. CIT(A) has quashed the order u/s.153C has held as under:- “18. It may be noted here that in the case of Saksham Commodities Ltd. v. ITO (supra.), the AO had referred to certain incriminating material found pertaining to the F. Ys. 2009-10, 2010-11 & 2011-12 (relevant to A.Ys. 2010-11, 2011-12 & 2012- 13) in the satisfaction note. The assessee contended that invoking of Section 153C of the Act for A.Y 2015-16, for which no incriminating material was found, was arbitrary and legally unsustainable. The Hon'ble High Court held that the incriminating material has to be identified with respect to the assessment year to which it relates or may be likely to impact before the initiation of proceedings under Section 153C of the Act. It was further held that a material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income and that the mere existence of a power to assess or reassess the six assessment years immediately preceding the assessment year corresponding to the year of search or the "relevant assessment year" would not justify a sweeping or indiscriminate invocation of Section 153C M/s. Royal India Corporation Limited 19. In the present case, as stated above, the e requisitioned asset and the incriminating material found during proceedings u/s 132A of the Act (being cash seized from Shri Sagar Ramesh Ajagaonkar and Shri Ramesh Ashok Jain on 16/10/2019 and the statements of various persons recorded u/s 131 of the Act as discussed above), pertained to the FY 2019-20 relevant to A.Y 2020-21. From the satisfaction note recorded by the AO on 25/10/2021, it is apparent that he had issued the notices u/s 153C of the Act for the years under consideration, assuming that once requisitioned assets and/or documents are received and the same are found to be relating to the assessee, notices u/s. 153C are required to be issued for all the assessment years in the same manner in which notices are issued u/s. 153A of the Act consequent to search carried out u/s. 132 of the Act. As observed by the Hon'ble Delhi High Court in the above judgement, the Assessing Officer in the case of Saksham Commodities Ltd. had also proceeded on the same premise Accordingly, the said decision is squarely applicable to the appellant's case.

It can be seen from the Assessment orders for the A.Y 2014-15 to A.Y 2019-20 the additions / disallowance made by the A.O are not related to the cash seizure made. All these additions/disallowances are not linked to any incriminating material found during the search/requisition made u/s 132/132A of the I.T Act, which clearly demonstrates that, assets seized/requisitioned in this case has no bearing on the determination of total income for all such Assessment Years.

Before me the appellant has also submitted that as per Rule 112F of the Income-Tax Rules, 1962 (hereinafter referred to as "the M/s. Royal India Corporation Limited Rules") the AO was not required to issue notices u/s: 153C of the Act in its case for the assessment years under consideration as the c Maharashtra. cash was seized during the Assembly polis 2019 of 21.2 I have considered the facts of the case in the present it case the requisition u/s. 132A of the Act was made consequent to receipt of intimation by the Control Room set up by the Income Tax Department after declaration of the Maharashtra Assembly Election-2019, regarding seizure of cash by authorities of the LT Marg Police Station, Mumbai…………………………………………………………………… 21.2.2 It can be seen that as per the Rule 112F, if a person is found to be in possession of any money, bullion, jewellery or other valuable articles or things, etc. as a result of a search u/s 132(1) of the Act or a requisition made u/s. 132A of the Act, and where such search is conducted or such requisition is made in the territorial area of an Assembly or Parliamentary constituency in respect of which a notification has been issued under section 30 read with section 56 of the Representation of the People Act, 1951 (43 of 1951), the Assessing Officer shall not be required to issue notices u/s 153C of the Act for assessment or reassessment of the total income for six assessment years immediately preceding the search is conducted or requisition is made assessment year in which the 21.3 The notification for Maharashtra Assembly election 2019 was issued on 27.09.2019 and the date of poll was 21 10.2019. The cash was seized 16.10 2019. Thus, the appellants case clearly falls under the provisions of Rule 112F Accordingly, I agree with the contention of the appellant that as per Rule 112F of the Rules also, the AO could not have issued the notices u/s, 153C of the Act for the assessment years under consideration.

In view of the discussion in the foregoing paragraphs, I hold that the notices issued u/s. 153C of the Act by the AO in the case of the appellant company for all the assessment years under consideration (A.Ys. 2014-15, 2015-16, 2017-18, 2018-19 & 2019- 20) and, consequently, also all the impugned assessment orders are invalid and bad in law. Accordingly, the impugned M/s. Royal India Corporation Limited assessment orders passed by the AO u/s. 143(3) r.w.s. 153C of the Act for A.Ys. 2014-15, 2015-16, 2017-18, 2018-19 & 2019-20 are hereby quashed. All the grounds of appeal

We have heard both the parties and also perused the relevant finding given in the impugned order. Here in this case notice u/s.153C has been issued on the basis of requisition of cash from Shri Shri Sagar Ramesh Ajagaonkar and Shri Ramesh Ashok Jain who have stated that seized cash of Rs. 1 Crore does not belong to them and it belongs to the assessee i.e. M/s. Royal India Corporation. It has been brought on record that in the assessment order for the A.Y.2020-21 in the case of the assessee i.e. Royal India Corporation Ltd., assessment has been made wherein this addition of Rs.1 Crore on account of unexplained cash seized has been added. Thus, the material which was found i.e. in the form of cash from the two employees of the assessee company has already been added and assessed to tax in the A.Y.2020-21 vide order dated 31/03/2023. Now without there any incriminating material or document pertaining to A.Yrs. 2014-15 to 2019-20, notice u/s.153C has been issued and all the additions / disallowance made by the ld. AO are nowhere related to the cash seized nor linked to any incriminating material found during the search / requisition made u/s.132A. Thus, the assets seized / requisition has no bearing on the determination of the total income for all such assessment years.

For the sake of ready reference the relevant provisions of Section 153C reads as under:- 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 and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :

On a careful perusal of the provisions, we find that, there is a vast difference in the application of provisions of the section 153C of the Act prior to 01/06/2015 and thereafter. Substantial amendment was made in the said section in two phases: i) W.e.f. 01/06/2015- when no simultaneous amendment was made in the section 153A of the Act; and ii) W.e.f. 01/04/2017- when the amendment was made parallel to the amendment u/s 153A of the Act. Ergo, a) The section 153C was amended w.e.f. 01/06/2015 when the following additional amendments were made and this led to construction of the said section as below: "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……….”

Thus, after the amendment therein w.e.f. 01/06/2015, we find that, the concept of belonging was just restricted to the valuables found in any form u/s 153C(1)(a) of the Act, but a new sub clause (b) has been inserted as above, where the requirement in physical form of books of account, documents, etc. of a person not searched to have been seized from the premises of the person searched was dispensed with and the word ‘belonging’ was removed by substituting the same with pertains or pertain to besides making an addition of the words there in for any information contained therein pertains or relates to a person not searched. Thus, the scope of application of the said section has been widened which was explained in the para 36 to the Notes to Clauses of the Finance Bill 2015 as below: Clause 36 of the Bill seeks to amend section 153C of the Income-tax Act relating to assessment of income of any other person.

Now as per the provision of Section 153C, what is required to be seen that if the ld. AO (of the non-search assessee) is satisfied that the information so received has a bearing on the determination of total income of the said person for the relevant year or years which means that satisfaction to the effect of M/s. Royal India Corporation Limited escapement of such income may be for one year or more after verification of the material received. The reason being in some cases it may be that the person searched may not be recording the relevant transaction in his books of account leading to incrimination but the non-searched person might have properly disclosed the said transaction in his books of account, where it can no more remain incriminating in his hands. In such case, no reassessment proceedings can be initiated under the provisions of the section 153C of the Act of the non-searched person. Thus, Section 153C clearly envisages to issue notice only for the assessment year or years for which any incriminating information relating to the non-search person was found to the satisfaction of the ld. AO of the non-search person that is the reason why the legislature in its wisdom has specifically mentioned separately year and years therein clearly restricting its application only to the assessment period for which the incriminating information was found and not for the period of six years, and secondly, there can be more than one reassessment proceedings for the same assessment year by taking recourse to the provisions of the section 153C of the Act as the action may follow on finding incriminating information for the same period but from different persons searched and at different locations or different times. In such a situation, every time when such information is found in a new search, a fresh proceeding u/s 153C of the Act will ensue irrespective of the earlier action(s). There is no limit to multiple reassessments in M/s. Royal India Corporation Limited such cases as is in the case of reassessment proceedings u/s 148 of the Act,(3).

The Hon’ble Apex Court in Sinhgad Technical Education Society 2017-TIOL-309-SC-IT (para 18) has also elaborated the above law as below: 18) The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal.

Thereafter, Hon’ble Delhi High Court in Index Securities & Research Pvt. Ltd2017-TIOL-1813-HC-DEL-IT(para 31) has held as below.

As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of M/s. Royal India Corporation Limited Income Tax-III, Pune v. Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del) and ARN Infrastructure India Limited v. ACIT [2017] 394 ITR 569 (Del) also hold that in order to justify the assumption of jurisdiction under Section 153C of the Act, the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153C of the Act, it is futile for Mr. Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment.

Accordingly, the order of the ld. CIT(A) is in accordance with the provisions of Section 153C and it is justified in holding that once there is no incriminating document or information or material pertaining to the aforesaid assessment years, action u/s.153C could not have been taken and in any case none of the additions which have been made are emanating from the satisfaction note or any incriminating documents pertaining to the assessee as already stated above whatever material or information was found which was incriminating, same has already been added and taxed in the assessment order passed in the A.Y.2020-21. Accordingly, all the appeals of the Revenue are dismissed.