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Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
Before: SHRI PRASHANT MAHARISHI & SHRI K.NARASIMHA CHARY
ORDER PER K. NARASIMHA CHARY, JM
Challenging the separate orders dated 05.10.2015 for assessment years 2007-08 and 2008-09 and order dated 18.05.2016 for assessment year 2009-10 passed by the Commissioner of Income Tax (Appeals)-23, New Delhi in the cases of D.D. Resorts Pvt. Ltd. (“the assessee”), Revenue preferred these appeals.
Brief facts of the case are that the assessee is a company engaged in the business of real estate development and it was developing a shopping cum office complex by name “CITYSCAPE” at Gurgaon. On 31/7/2008, search and seizure operations under section 132 of the Income Tax Act, 1961 (for short “the Act”) were carried out in Raj Durbar group of cases and computerised books of accounts of the assessee were seized. A survey under section 133A of the Actwas also carried out at the project site of the assessee company.
Notice under section 153C of the Act was issued on 10/3/2010 and the assessee filed their returns of income for the assessment years 2007- 08, 2008-09 and 2009-10 on 30/8/2010, 9/4/2010 and 30/9/2009 respectively declaring income of Rs.9,04,223/-, Rs.13,04,22,124/-and Rs.4,51,81,260/-respectively.After scrutiny, learned Assessing Officer passed the orders dated 27/12/2010 under section 153C read with section 143(3) of the Act in respect of assessment year 2007-08 and 2008-09 by rejecting the books of accounts, and under section 143(3) of the Act in respect of the assessment year 2009-10, by making certain additions. In respect of the assessment years 2007-08 and 2008-09, learned Assessing Officer observed that during the search operations in the case of Raj Durbar group on 31/7/2008, certain documents were seized and such documents belonged to the assessee; that a survey under section 133A of the Act was also carried out at the project site of the assessee, namely, “cityscape” at the Gurugaon;that during the search and seizure operations at Raj Durbar group, computerised books of accounts of the assessee were also seized; and that a perusal of books of accounts and the details filed by the assessee suggested that during the Financial Year 2006-07 the assessee had debited an amount of Rs.51,79,38,910/-as the cost towards “surrender of area” by certain companies.
4. Aggrieved by the action of the learned Assessing Officer, assessee preferred appeals before the Ld. CIT(A). It was submitted before the Ld. CIT(A), among other things, that no incriminating material/documents were found and acted upon for making the additions and in view of various decisions of the Tribunal and courts such additions in the absence of any incriminating material are not sustainable.
5. Ld. CIT(A) observed that in view of the fact that the legal grounds go to the root of the case and the recording of satisfaction and the very initiation of proceedings under section 153C of the Act of the Act were challenged, it was desirable to take up such grounds for adjudication first. As a matter of fact he observed that from the assessment order it could be observed that the Assessing Officer has not referred to any seized material/document “belonging to” or “relating to” the assessee company which could be considered to be the basis for assessment under section 153C read with section 153A of the Act; that the learned Assessing Officer referred to the books of accounts of the assessee company which were submitted by the assessee to be the regular books of account based on which the original return of income was filed under section 139 of the Act and the learned Assessing Officer had not even referred to such audited books of accounts while considering the other additions and the basis for the learned Assessing Officer for making the additions was the entries in the regular books of account, which were in fact, rejected by the learned Assessing Officer; that application of percentage completion method to derive the profit from the construction business, which is an estimation, cannot be said to be the computation of profits emanating from the seized material; that on one hand the learned Assessing Officer made additions basing on the entries in the regular books of account and on the other hand rejected the same books of accounts; that nowhere in the assessment order the Assessing Officer placed reliance on any seized material relevant to the assessment under section 153A of the Act/153C of the Act; that there were no proceedings pending in the case of the assessee for the assessment years 2007-08 and 2008-09 as on the date of the search; and that, therefore, in the light of the decision in CIT vs. Kabul Chawla, 380 ITR 573 the proceedings under section 153C of the Act cannot be sustained. Ld. CIT(A) further observed that the satisfaction recorded by the learned Assessing Officer in these cases is grossly deficient and does not fulfil the legal requirements to assume jurisdiction under section 153C of the Act and in terms of the decision of the Hon’ble Delhi High Court in the case of PepsiCo India Holdings Private Limited 50 taxmann.com (2014) 299 (Delhi) and PepsiFoods Private Limited(2014) 52 taxmann.com 220 (Delhi),the assessment under section 153C of the Act read with section 143(3) of the Act is liable to be quashed. In the order for the assessment year 2008-09, Ld. CIT(A) observed that the facts in respect of the assessment year 2007-08 and 2008-09 are identical. Ld. CIT(A) accordingly quashed the assessment proceedings and declined to consider the sustainability of additions on merits.
Revenue is, therefore, before us in these appeals, on the following identical grounds:- “1. The order of Ld. CIT(A) is not correct in law and on facts.
2. On the facts & Circumstances of the case, the CIT(A) has erred in law in quashing the order u/s. 153C of the Income Tax Act, 1961.
3. On the facts & Circumstances of the case, the CIT has erred in observing that proceedings u/s. 153C can be initiated only if theseized documents “belongs to” the other party.
On the facts & Circumstances of the case, the CIT(A) has erred in observing that the criteria for initiating 153C proceedings is belongingness of the documents instead of “relation” of the information in the documents to the assessee.
On the facts & Circumstances of the case, the CIT(A) has erred in holding that order u/s. 153C can be passed only on the basis of seized documents.” 7. It is the submission of the Ld. DR that from a bare reading of the provisions of section 153A of the Act and 153C of the Act it is clear that the basic prerequisite to issue notice under section 153C of the Act is that the learned Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitionedbelongs or belonged to a person other than the person referred to in section 153A of the Act and if the Assessing Officer is so satisfied he shall 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 made. She further submitted that the learned Assessing Officer was well within the ambit of law and the Ld. CIT(A) erred in holding that the proceedings initiated under section 153C of the Act are void and in doing so the Ld. CIT(A) failed to appreciate the clearlegislative intent of section 153C of the Act. She submitted that the taxing statute should be construed strictly and in accordance with the natural construction of the words. He further submitted that a general principle asappreciated by various high courts is that the learned Assessing Officer of the searched person is not required to examine whether the assets or documents seized reflected undisclosed income or not and all that is required for him is to satisfy himself that the documents do not belong to the searched person, but were of other person. He placed reliance on the decision reported in PCIT vs. Super Mall Private Limited in and some other cases.
Further, without prejudice to this argument, Ld. DR submitted that the order of Delhi High Court in the case of Kabul Chawla (supra) has not achieved finality and on the other hand the decisions reported in the case of Anil Kumar Bhatia, 24 taxmann.com 98 which has been followed in a number of cases lays down that the assessment under section 153A of the Act need not necessarily be based on incriminating material. According to her the Assessing Officer is bound to issue notices to the assessee to furnish returns for six assessment years and he is empowered to assess or reassess the total income including undisclosed income of the assessee; that the Assessing Officer is entrusted with the duty of bringing to tax the total income of the assessee whose cases are covered by section 153A of the Act by making reassessments; that the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the “total income” of the assessee in whose case search or requisition has been initiated. She also placed reliance on certain decisions of the Tribunal in support of her contentions.
Per contra, it is the argument of the Ld. AR that from the grounds of appeal it could be seen that the main contention of the Revenue is that it is not necessary that the seized documents should belong to the party other than the party in whose cases such action was carried out and that it is not necessary that the additions under section 153C of the Act have to be only on the basis of the seized incriminating documents. He submits that both these contentions of the Revenue are fully settled by numerous decisions of the Hon’ble jurisdictional High Court and also several cases wherein action under section 153C of the Act was taken in the case of assessee group itself under the same set of facts and circumstances, and such entities include M/s Natural Product Biotech Ltd, M/s NageshwarInvestment Ltd, M/s Global Heritage Ventures Ltd, M/s Narendra Impex Ltd, M/s NS Software, M/s Global Reality Creations Ltd, M/s globalTele-ventures Ltd, and M/s ChitrakootMerchandise Private Limited.
Stressing on the necessity of belongingness of documents for assumption of jurisdiction under section 153C of the Act, he submitted that this issue has been dealt with in great details by the Hon’ble jurisdictional High Court in the case of PepsiCo India Holdings Private Limited (supra) and Pepsi Foods Private Limited (supra) and submitted that the Hon’ble High Court categorically held that it is essential that the seized documents must belong to the persons other than the person searched, to enable the assumption of valid jurisdiction under section 153C of the Act.
Ld. AR has placed on record the decisions of the Tribunal in the case of the companies belonging to the group of the assessee wherein the facts involved are identical and were also covered by the search dated 31/7/2008 conducted in the case of Raj Durbar group of cases. While submitting the copies of orders of the Hon’ble High Court, he submitted that the view taken by the Tribunal has been upheld by the Hon’ble High Court while dismissing the appeals preferred by the Revenue. He also submitted that the Special Leave Petitions decision of the Hon’ble Supreme Court in the cases of M/s natural products Biotech Ltd and M/s NageshwarInvestment Ltd.
Ld. AR justifies the observations of the Ld. CIT(A) as to the separate satisfaction to be recorded by the Assessing Officer of the other person under section 153C of the Act, by placing reliance on the circular dated 31/12/2015 issued by the CBDT wherein it is stated that even the Assessing Officer of the searched person and the other person is one and the same, then also the Assessing Officer is required to record satisfaction as has been held by courts.
We have gone through the record in the light of the submissions made on either side. On appeal, the satisfaction note of the learned Assessing Officer, having analysed it in the light of the submissions made by the assessee, Ld. CIT(A), as a matter of fact, found that the learned Assessing Officer mentioned that during the course of search at the premises of various persons of the Raj Durbar group, various papers were found and seized, no search was conducted against the assessee company. Further, there is no mention of the contents or details of any document as to how certain documents mentioned therein “belong to” or “related to”, the assessee company; that the assessment order also does not give support to the said recitals inasmuch as there is no reference of any seized material “belonging to” or even “relating to” the assessee company leave aside any incriminating material relevant to assessment under section 153C of the Act/153A of the Act; and that in the light of the judgement of the Hon’ble High Court of Delhi in the case of PepsiCo India (supra) Pepsi Foods (supra) the satisfaction recorded by the learned Assessing Officer is grossly deficient and it does not fulfil the legal requirements to assume the jurisdiction under section 153C of the Act.
On a perusal of the orders of the Tribunal in the cases of natural products Bio Tech Ltd. in and batch, NageshwarInvestment Ltd in ITA No. 5393/Del/2012 and batch, M/s Global Heritage Ventures Ltd in ITA No. 3196 /Del/ 2013, Narendra Impex Ltd in ITA No. 5945/del/2013, M/s Global Reality Creations Ltd in ITA No. 245/del/2014, M/s Global Heritage Ventures Ltd in ITA No. 1335/del/2014, M/s global Tele-ventures Ltd in ITA No. 1341/del/2014, M/sChitrakoot Merchandise Private Limited in ITA No. 6801 /Del/ 2013, we find that all these entities are covered by the search that took place on 31/7/2008 in the Raj Durbar group of cases. In all these matters, in identical circumstances, the assumption of jurisdiction under section 153C of the Act was called in question with reference to the decisions of the Hon’ble High Court in the cases of Pepsi Foods Private Limited (supra) and PepsiCo India Holding Private Limited (supra). In all these matters, wherein the facts are identical, while referring to the decision of the Hon’ble jurisdictional High Court in the cases of PepsiCo India Holdings Private Limited (supra), Pepsi Foods (supra) and also the decision of the Tribunal in the case of M/s VK Fiscal Services Private Limited in ITA numbers 5462, 5465/Del/2012, the Tribunal reached a conclusion that the assumption of jurisdiction under section 153C of the Act was bad and the consequent assessment was null and void.From the record we further find that such a view taken by the Tribunal has been confirmed by the Hon’ble High Court as is evident from the orders produced before us.
The case of the assessee for the assessment year 2007-08 and 2008-09, being identical to facts and circumstances of such cases of group companies, is squarely covered by the decisions of the Tribunal and the Hon’ble High Court. While respectfully following the same, we hold that in this case also there is a deficiency in the satisfaction recorded by the learned Assessing Officer inasmuch as not specifying as to how any document that was seized at the search either “belong to” or “related to” the assessee company. Consequently, we find that in view of the decision of the Hon’ble High Court in the case of PepsiCo India Holdings (supra) and Pepsi Food (supra), the assumption of jurisdiction under section 153C of the Act by the learned Assessing Officer cannot be approved and consequently the assessments are liable to be quashed. Grounds of appeal in and 6896/Del/2015 are dismissed.
Now coming to for the assessment year 2009-10, the facts are that the return of income was filed on 30/9/2009 and notice under section 143(2) of the Act could have been issued till 30/9/2010 and as a matter of fact such notice was issued on 30/4/2010. Learned Assessing Officer resumed jurisdiction in respect of the assessee who is not a searched person on 10/3/2010, the date on which he has used possession of the seized assets/documents in his capacity as an AO of the person other than the searched person. Since by 10/3/2010 the assessment proceedings for assessment year 2009-10 are pending, they would abate on the learned Assessing Officer resuming jurisdiction under section 153C of the Act in this case.
Ld. CIT(A), having taken cognizance of these facts observed that in view of the decisions of the Hon’ble jurisdictional High Court in the case of SSP Aviation Ltd vs. DCIT (2012) 346 ITR 177 the case of the assessee for assessment year 2009-10 was to be assessed under section 153C of the Act; that inasmuch as the Assessing Officer neither recorded any satisfaction for this assessment year in the case of the assessee nor issued any notice under section 153C of the Act and make assessment under section 153C of the Act read with section 153A of the Act, rather assessed the same under section 143(3) of the Act after issuing notice under section 143(2) of the Act, without recording the mandatory satisfaction the assessment, and it is, therefore, bad under law.
Insofar as the above stated dates are concerned, there is no dispute. Since a notice under section 143(2) of the Act could have been issued till 30/9/2010 and the learned Assessing Officer of the assessee is in possession of the seized documents in his capacity as the learned Assessing Officer of the person other than the searched person on 10/3/2010, the pending assessment stands abated and the Assessing Officer should have recorded satisfaction and issued notice under section 153C of the Act. Learned Assessing Officer even after resuming possession of the documents in his capacity as the learned Assessing Officer of the person other than the searched person proceeded to issue notice under section 143(2) of the Act and framed the assessment under section 143(3) of the Act.
In SSP Aviation (supra) it was held that in the case of the other person, the question of both the pendency and abatement of proceedings of assessment or reassessment would be examined with reference to the date of handing over of the books of accounts or documents to learned Assessing Officer having jurisdiction over such other person. This decision is followed by the Hon’ble jurisdictional High Court in the cases of CIT vs. Jasjeet Singh and Bhupinder Pal Singh in ITA No. 772 of 2015. In terms of the decisions in Kabul Chawla (supra) and RRJ securities (2015) 62 taxmann.com 391 (Delhi), the completed assessments as on the date of such assumption of jurisdiction cannot be reassessed under section 153C of the Act in the absence of any incriminating material belonging to the person other than the searched person whereas all the pending assessments stand abated and shall be proceeded under section 153A of the Act or 153C of the Act, as the case may be.
In this factual as well as legal position, we are unable to find anything illegality or irregularity committed by the Ld. CIT(A) in holding that for the assessment year 2009-10 also the Assessing Officer should have recorded satisfaction and after issuing notice under section 153C of the Act should have framed the assessment, and the procedural lapse in this matter goes to the root of the matter and vitiates the proceedings. Order of the Ld. CIT(A) for assessment year 2009-10 does not suffer any illegality or irregularity and, therefore, we uphold the same and dismiss the grounds of appeal of the Revenue.
In the result, appeals of the Revenue are dismissed.