KETAN CERAMICS PVT. LTD.,,NAGPUR vs. THE ACIT, CENTRAL-CIRCLE-2(3),, NAGPUR

Since the issues are common and connected and the appeals were heard together these are being consolidated and disposed of together by this common order. The common grounds of appeal raised read as under: (1) That the order of the Asstt. Commissioner of Income Tax, Central Circle 2(3), Nagpur is bad in law and wrong on facts and the learned C.I.T.(A) has erred

In all these cases there was a search action carried out in the business premises of Gupta Industries Ltd. and at the residential premises as well as other premises belonging

Upon the assessee's appeal, the ld. Commissioner of Income Tax (Appeals) has dealt with the assessee's challenge of juri iction as under:

1 The AO noted that in the assessment order that in the return filed u/s.153C assessee has taken a plea that the notice U/S.153C is bad in law, without substantiating his claim. In the absence of any substantial reason the plea taken by the assessee was held to be not tenable, more so when there is search and seizure action on the assessee u/s.132 of the Act.

2 In appeal proceedings it was submitted for the appellant that a search and seizure operation was conducted in the business premises of Shri Mahesh Gupta on 09.17.2009 and other premises belonging to Shri Mahesh Gupta. There was no seizure of cash and valuables belonging to the assessee. As per the AO, during the course of search, several items of books of accounts and incriminating documents were found and seized. However no incriminating documents were found. Throughout the post search proceedings, the assessee made repeated requests to the investigation wing & to AO provide the copy of the statements recorded in case of the assessee. However, neither was the request for inspection and procurement of copy of seized material favourably considered nor was the same provided to the assessee. Also the assessee was not provided any evidence on the basis of which the order was passed by the AO. The order is based on conjectures and surmises of the AO. No evidence was brought on record by the AO either during the assessment proceedings or in his order to support the claim made in the order by him. Thus, that the order of AO is unjustified and liable to be set aside.

3 In addition to the fact that as noted in the assessment order, the appellant raised no substantial reason for its objection to notice u/s 153C, and the fact that the AO has noted that during the course of search several item of books of accounts and incriminating documents were found and seized, and that the seized material vide Annexure-B of Item No. 2 and Item No. 26 belong to the assessee which is incriminating in nature, and further that the authorized representative of the assessee inspected the seized material and took photocopies of relevant documents etc., the appellant's ground is held to be without substance and is dismissed.

Against the order of the ld. Commissioner of Income Tax (Appeals), the assessee

As emanating from the grounds of appeal referred above, the assessee at the threshold has raised the issue that the ld. Commissioner of Income Tax (Appeals) has erred in holding that the notice issued u/s. 153C is rallied.

The ld. Counsel of the assessee has assailed the validity of notice on two counts.

We have carefully considered the submissions and perused the records. We find

From the above case laws and CBDT Circular, it is evident that recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming juri iction for the issue of notice u/s 153C even if the AO of the searched person and the assessee are same. It is abundantly clear from the satisfaction note recorded in the case of the searched person that there is no requisite satisfaction granting the AO juri iction for issuing notice to the assessee u/s 153C of the I.T. Act. The satisfaction note as emanated from files of searched persons, namely, M/s Mukesh Gupta and Gupta Industries Ltd, dpes not show at all that that the AO in their case has recorded a satisfaction that any of the seized material is belonging to the assessee has been found, arid is incriminating in nature which is to be handed over to the AO of the assesses: In such circumstances, in our considered opinion, the assessee deserves to succeed on this account and the assessments are liable to be quashed on account of lack of validity of juri iction.

We further note that an identical view as above has been taken by this. Bench in similar case of group concern in the case of M/s Grace Industries Ltd. in ITA Nos. 296 to 300/Nag/2014 and 348 to 352/Nag/2014 vide order dated 25th November, 2016 and in the case of Mansi Commodities Pvt. Ltd. in ITA Nos. 146,147&148/Nag/2014 & Tasmseem Commercial Pvt. Ltd. in ITA Nos. 149, 150 & 151/Nag/2014 vide order dated 19th Dec., 2016

Similarly this Tribunal in the case of another group company of the assessee

We have heard rival contentions and gone through the facts and circumstances of the case. Admittedly, there is no incriminating document found during the course of search in relation to assessment years 2004-05 to 2008-09. The documents containing pages 44 to 65 of Annexure A-2(25) are purchase bills of the assessee company on account of purchase of coal. Revenue has not contested the claim of the assessee that the entries for the purchase made by the company are duly recorded in the books of account and these documents cannot be called as incriminating document for the purpose of issuance of notice u/s 153C of the Act. Even going by the satisfaction note, which is recorded in the case of the assessee and not while framing assessment of the searched person, clearly reveals that the material seized is pages 44 to 65 of Annexure A-2(25) from the residence of Shri Mukesh Gupta. But, can these be said to be incriminating material when assessee contested that these are entries for purchase of coal by the assessee company and were duly recorded in the books of account and, on the basis of which, no addition is made by the Assessing Officer in the assessment order. According to us, these cannot be treated as incriminating documents. Even otherwise, the satisfaction recorded by the Assessing Officer vide satisfaction note dated 23rd June, 2010 is in the case of the assessee and not in the case of the searched person. This position has been explained by Hon'ble Supreme

Having said that, let us revert to discussion of Section 158BD of the Act. The said provision 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. Under Section .158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc to the assessing officer having juri iction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the juri ictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD of the Act, the other provisions of XIV-B shall apply.

The opening words of Section 158BD of the Act are that the assessing officer must be satisfied that "undisclosed income" belongs to any other person other than the person with respect to whom a search was made under Section 132 of the Act or a requisition of books were made under Section 132A of the Act and thereafter, transmit the records for assessment of such other person. Therefore, the short question that falls for our consideration and decision is at what stage of the proceedings should the satisfaction note be prepared by the assessing officer: whether at the time of initiating proceedings under Section 158BC for the completion of the assessments of the searched person under Section 132 and 132A of the Act or during the course of the assessment proceedings under Section 158BC of the Act or after completion of the proceedings under Section 158BC of the Act.

The Tribunal and the High Court are of the opinion that it could only be prepared by the assessing officer during the course of the assessment proceedings under Section 158BC of the Act and not after the completion of the said proceedings. The Courts below have relied upon the limitation period provided in Section 158BE(2)(b) of the Act in respect of the assessment proceedings initiated under Section 158BD, i.e., two years from the end of the month in which the notice under Chapter XIV-B was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after 01.01.1997. We would examine whether the Tribunal or the High Court are justified in coming to the aforesaid conclusion.

We would certainly say that before initiating proceedings under Section 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158BC of the Act should be satisfied that there is an undisclosed income which has been 9 Ketan Ceramics Pvt. Ltd. traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act, This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative 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 under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 15SBC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not Imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person.

Further, Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after 01.01.1997. The said section does neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation the satisfaction note under Section 158BD and consequent issuance of notice to the other person.

In the lead case, the assessing officer had prepared a satisfaction note on 15.07.2005 though the assessment proceedings in the case of a searched person, namely, S.K. Bhatia were completed on 30.03.2005. As we have already noticed, the Tribunal and the High Court are of the opinion that since the satisfaction note was prepared after the proceedings were completed by the assessing officer under Section 158BC of the Act which is contrary to the provisions of Section 158BD read with Section 158BE(2)(b) and therefore, have dismissed the case of the Revenue. In our considered opinion, the reasoning of the learned Judges'of the High Court is contrary to the plain and simple language employed by the legislature under Section 158BD of the Act which clearly provides adequate flexibility to the assessing officer for recording the satisfaction note after the completion of proceedings In respect of the searched person under Section 158BC. Further, the 10 Ketan Ceramics Pvt. Ltd. interpretation placed by the Courts below by reading into the plain language of Section 158BE(2)(b) such as to extend the period of limitation to recording of satisfaction note would run counter to the avowed object of introduction of Chapter to provide for cost-effective, efficient and expeditious completion of search assessments and a voiding or reducing long drawn proceedings.

In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has juri iction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person.

We are informed by Shri Santosh Krishan, who is appearing in seven of the appeals that the assessing officer had not recorded the satisfaction note as required under Section 158BD of the Act, therefore, the Tribunal and the High Court were justified in setting aside the orders of assessment and the orders passed by the first appellate authority. We do not intend to examine the aforesaid contention canvassed by the learned counsel since we are remanding the matters to the High Court for consideration of the individual cases herein in light of the observations made by us on the scope and possible interpretation of Section 158BD of the Act, "

Furthermore, we find that this position has been accepted by the CBDT vide its Circular No. 24/2015 wherein the guidelines set by Hon'ble Supreme Court that even if the Assessing Officer of the searched person and the other person is the one and the same, then also the Assessing Officer has to record his satisfaction in the case of the other person i.e., other than the searched person. In view of the facts in entirety and the dictum of Hon'ble Supreme Court, which was further adopted by CBDT vide Circular No. 24/2015 dated 31st December, 2015, respectfully following the same, we are of the view that in the present case, the assumption of juri iction by the Assessing Officer for issuance of notice u/s 153C of the Act and consequent assessment framed is bad in law. Consequently, we hold that the assessment order passed by the Assessing Officer was bad in law and learned CIT(A) has erred in upholding the same. Accordingly, we quash the assessment order. Ground Nos.l & 2 of the assessee's cross-objection are allowed.

Examining the present case, on the touchstone of factual details of this case and the above ITAT decisions in assessee's own group case, we find that facts are identical. In 11 Ketan Ceramics Pvt. Ltd. fact, there is no dispute that facts are different. It is also not the case that honourable juri ictional High Court has reversed the ITAT decisions as above. Hence, respectfully following the above decisions we hold that the assessing officer in the present case has no valid juri iction inasmuch as, firstly, there is no satisfaction in the case of the searched person regarding incriminating material found to be relating to the assessee to be handed over to the assessing officer of the assessee. Secondly, no incriminating material qua the addition made has been found. Hence, the assessment made in these cases is quashed in absence of valid juri iction.

Since we have already quashed the assessment order's, the other ground raised by the assessee on merits of the addition are now only of academy interest and we are not engaging with the same.

In the result, these appeals by the assessee stands allowed प"रणामतः "नधा"रती क" अपील "वीकृत क" जाती है । Order pronounced in the open court on 23.05.2018 (Ram Lal Negi) (Shamim Yahya) "या"यक सद"य / Judicial Member लेखा सद"य / Accountant Member "दनांक Dated : 23.05.2018 व."न.स./Roshani, Sr. PS

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Nagpur 5. गाड" फाईल / Guard File 6. //// आदेशानुसार/ BY ORDER,