M/S. AMBAWATTA BUILDWELL PVT. LTD.,NEW DELHI vs. DCIT, FARIDABAD

This appeal is filed by M/s AmbawattaBuildwell P. Ltd. ("the assessee") against the order dated 24.2.2015 in Appeal No. 73/2013-14 passed by the Learned Principal Commissioner of Income Tax [OSD], Gurgaon (hereinafter referred to as the “Ld. CIT”) for the Assessment year 2010-11.

Brief facts of the case are that the assessee, namely, M/s AmbawattaBuildwell P. Ltd. (ABPL) is a private limited company and is engaged in the business of real estate. There were search and seizure operations at the residential as well as office premises of Krrish Group on 9.11.2011 and consequently survey action u/s 133A of the Income- tax Act, 1961 (“the Act”) was also carried out on 15.11.2011 at the business premises of the assessee company and its director Mr. Vinod Kumar. Notice u/s 153A/153C of the Act was issued on 3.10.2013. Assessee filed a copy of their return which was already filed on 6.10.2010 with a returned income of nil. During the course of assessment, learned AO observed that at the time of search on 9.11.2011, various incriminating papers were found and seized from the office as well as residential premises of the directors of the assessee and various documents were found and seized during the search/survey proceedings on Krrish Group at various premises and also from the premises of the assessee company and such documents were perused. By order dated 26.2.2014 passed u’/s 153A(1)(b) of the Act, learned AO made an addition of Rs.50 lacs and concluded the assessment at the assessed income of the assessee at Rs.50 lacs.

Challenging the same, assessee preferred an appeal before the learned CIT(A). By way of impugned order ld. CIT(A) dismissed the appeal and upheld the addition. Hence, the assessee is in this appeal before us stating that the assumption of jurisdiction by the ld. AO to initiate the assessment proceedings u/s 153C read with Section 153A(1)(b) of the Act was bad under law for want of recording mandatory satisfaction as contemplated in Section 153C of the Act. In so far as merits are concerned, the grounds of appeal show that the assessee is also challenging the confirmation of addition of Rs.50 lacs on account of investment made in cash from unexplained sources on the basis of collaboration agreements and receipts seized during the search and seizure operation without bringing the explanation along with the supporting documents that neither the payment in cash nor in cheque was made by the assessee as mentioned in the said seized collaboration agreement and receipts.

On the aspect of assumption of jurisdiction by the ld. AO, it is the submission of the ld. AR that in this matter the search was undertaken by the revenue on the Krrish group of cases on 9.11.2011, seized documents belonging to the assessee were received by the Central Circle on 29.8.2013 and satisfaction note was recorded by the ld. AO of the assessee and notice u/s 153C of the Act was issued on 3.10.2013. By drawing our attention to these dates, learned AR submitted that the documents belonging to the assessee were received by the AO of the searched person on 29.8.2013 and, therefore, the satisfaction note recorded on 3.10.2013 by the ld. AO is only in the capacity as the AO of the assessee but not as the AO of the searched person. He consequently submits that the law u/s 153 mandates that the AO of the searched person shall first record his satisfaction that the documents do not belong to the searched person but they belong to the other person, and then the documents could be transmitted to the AO of the other person, who shall proceed to examine the documents and to record satisfaction as to the escapement of income, if any. He, therefore, submits that in order to issue notice u/s 153C there shall be two circumstances, namely, the first satisfaction by the AO of the searched person as to the belongingness of the documents or material and the second satisfaction by the AO of the other person on the aspect of escapement of income.

Basing on the provisions u/s 153C and the decision of the Hon’ble jurisdictional High Court in the case of RRJ Securities, 380 ITR 612 (Del); Pepsi Foods, 367 ITR 297; and Adarsh Kumar vs DCIT, decided on 15.11.2017 by the Hon’ble jurisdictional High Court in the light of CBDT Circular No.24 of 2015, learned AR submitted that in the absence of any satisfaction recorded by the ld. AO of the searched person saying that the alleged documents do not belong to the searched person but belong to the assessee, assumption of jurisdiction to issue notice u/s 153C of the Act is bad in law. He further submitted that in the case of Ganpati Fincap Services P. Ltd. (2017) 395 ITR 692, the Hon’ble jurisdictional High Court categorically stated that the recording of satisfaction note qua the other person by the AO of the searched person is a sine qua non for triggering the proceedings against the other person u/s 153 of the Act.

Per contra, it is the submission of the learned DR that there is no merit in the contention of the assessee in respect of the satisfaction by the AO of the searched person because the AO of the searched person and the other person were the one and the same person. Further argument of the learned DR is that the amendment to Section 124(3) by Finance Act, 2016 by insertion of clause (c) w.e.f. 1.6.2016 prohibits the assessee from raising any jurisdictional issue after the expiry of one month from the date on which he was served with a notice u/s 153A(1) or 153(2) in case of no action taken under consideration u/s 132 or 132A of the Act or after the completion of assessment, whichever is earlier. Further, he placed reliance on the decisions reported in the case of PCIT vs. Sheetal International P. Ltd. (2017-TIOL-1355-HC-DEL-IT) for the proposition that proceedings u/s 153C cannot be invalidated merely because the AO of the searched who was also that of the assessee, did not record a separate satisfaction note; and also on the decision in the case of PCIT vs. Instronics Ltd. (2017 82 Taxmann.com 357(Del) for the principle that where satisfaction note was recorded by the Assessing officer of searched person who also happened to be AO of assessee (other person) to the effect that seized documents belong to assessee, issuance of notice u/s 153C against assessee on basis of said note was justified.

We have gone through the record in the light of the above submissions. In so far as the dates referred to by the learned AR are concerned, absolutely there is no dispute. Search in this matter was conducted on 9.11.2011 and the seized documents belonging to the assessee were received in the Central Circle on 29.8.2013. The satisfaction note was recorded by the ld. AO on 3.10.2013. Basing on this, as contended by the learned AR, it is evident that the satisfaction note dated 3.10.2013 was recorded by the ld. AO of the assessee and certainly, it could not be by the AO of the searched person inasmuch as long prior to these dates, the ld. AO of the searched person parted with the documents which were received in the Central Circle on 29.8.2013. Even if the AO of the searched person and the AO of the assessee are one and the same, in view of the dates, namely, date of receipt of documents by the Central Circle being 29.8.2013 and the date of satisfaction note being 3.10.2013, the irresistible inference is that the satisfaction note dated 29.8.2013 was recorded by the ld. AO as the AO of the other person i.e. the assessee but not AO of the searched person. Had such a note been recorded by the ld.AO any date prior to 29.8.2013, there would have been a possibility of understanding that such a note could have been recorded by the ld. AO as the AO of the searched person. However, in view of the admitted dates of receipt of the seized documents by the Central Circle and the subsequent satisfaction note, there is no other way of understanding the same except as the satisfaction recorded by the other person. Now coming to the law applicable to these facts, both the assessee and the revenue are relying on the decision of the Hon’ble jurisdictional High Court in the case of Ganpati Fincap Services P. Ltd. (supra). This case is relied on by the Hon’ble jurisdictional High Court in a subsequent decision in the case of PCIT vs. Sheetal International P. Ltd. (supra) on which learned DR has placed reliance.

In the case Ganpati Fincap (supra), Hon’ble jurisdictional High Court, at para 41, summarized the law on this aspect as under: “41. To summarise the legal position: (i) No search under Section 132(1) of the Act can be initiated without a satisfaction note being recorded by the AO of such searched person. This is followed by issuance of a notice to such searched person under Section 153A of the Act. At that stage the AO does not have to record another satisfaction note qua the searched person. (ii) Where proceedings are proposed to be initiated under Section 153C of the Act against the 'other person', it has to be preceded by a satisfaction note by the AO of the searched person. He will record in this satisfaction note that the seized document belongs to the other person. Depending on the nature and contents of the document he may be required to give some reasons for such conclusion. (iii) Where the AO of the searched person is different from the AO of the other person, the AO will simultaneous with transmitting the documents along with his satisfaction note to the AO of the other person, make a note in the file of the searched person that he has done so. But this is for administrative convenience. The failure by the AO of the searched person, after preparing and despatching the satisfaction note and documents to the AO of the other person, to make a noting to that effect in the file of the searched person will not vitiate the proceedings under Section 153C against the other person. (iv) Where the AO of the searched person and the other person is the same, such a satisfaction note qua the other person has to be recorded by the AO of the searched person prior to the initiation of the proceedings against the other person. This is a sine qua non for triggering the proceedings against the other person under Section 153C of the Act. (v) There do not have to be two separate satisfaction notes prepared by the AO of the searched person even where he is also the AO of the other person. In such event, the AO need make only one satisfaction note. That satisfaction note is qua the other person. Further it is sufficient that such satisfaction note is placed in the file of the other person by the AO in his capacity as the AO of such other person. (vi) It is only in certain cases, where the document is such that it may belong to more than one person (including the searched person) that the AO will have to indicate in the satisfaction note the reasons why he is of the opinion that the document belongs to the other person and not the searched person. (vii) Where the AO of the searched person records that the seized document in question belongs to the other person, and where necessary, gives the reasons therefor, the requirement of Section 153C stands satisfied. The failure by the AO in such case to record in the satisfaction note that such document does not belong to the searched person will not vitiate the proceedings under Section 153C against the other person.”

It is, therefore, clear that the Hon’ble jurisdictional High Court in unequivocal terms held that recording of the satisfaction by the AO of the searched person qua the other person prior to the initiation of proceedings against the other person is a sine qua non for triggering the proceedings against the other person u/s 153C of the Act. No decision contrary to this proposition is brought to our notice and on the other hand, in the case of Sheetal International (supra), Hon’ble jurisdictional High Court followed the same. However, in that case as could be seen from the judgment, theTribunal invalidated the proceedings u/s 153C of the Act only for the reason that the AO of the searched person who was also that of the assessee, did not record a separate satisfaction note. Such an approach of the Tribunal was reversed by the Hon’ble jurisdictional High Court in view of the fact that in Ganpati Fincap (supra) vide para 41(v), and it was held that there do not have to be two separate satisfaction notes prepared by the AO of the searched person even where he is also the AO of the other person.

In the case in hand, it is not the question of recording a separate note or a composite note. This is a case where altogether there is no satisfaction recorded by the AO of the searched person qua the other person prior to the initiation of the proceedings against the other person u/s 153C of the Act. Therefore, the case of Sheetal International (supra) has no application to the facts of the case.

In so far as the decision in the case of Instronics Ltd. (supra) is concerned, the AO of the searched person recorded a satisfaction note to the effect that seized documents belonged to the assessee and on such basis, notice u/s 153C was issued. On this set of facts, Hon’ble jurisdictional High Court held that the issuance of such a notice was justified. In the case of Super Malls P. Ltd. (supra), the issue involved was not recording of the satisfaction either separately or by way of composite order by the AO of the searched person qua the other person in order to impact the validity of the notice issued u/s 153C. The issue involved therein was post amendment to Section 153C brought into force w.e.f. 1.6.2015 by the Finance Act, 2015 deleting the reference to the expression “belonging to” and instead substituting it with “pertains or pertained to” and the impact of a validity of the notice recorded u/s 153C of the Act. This decision is also not applicable to the facts of the case. Likewise, no decision is brought to our notice where the decision of the Hon’ble jurisdictional High Court in the case of Ganpati Fincap Services ltd. (supra) was disturbed.

We are, therefore, of the considered opinion that the decision in the case of Ganpati Fincap Services ltd. (supra) holds the field and the recording of satisfaction not by the AO of the searched person qua the other person prior to the initiation of the proceedings against the other person is a sine qua non for triggering the proceedings against the other person u/s 153C of the Act and, therefore, in the absence of such recording of satisfaction by the AO of the searched person qua the other person, assumption of jurisdiction by the AO by issuance of notice u/s 153C of the Act cannot be sustained.

It is pertinent to note that in the case of Ganpati Fincap Services Ltd;(supra), Hon’ble jurisdictional High Court stated that there do not have to be two separate satisfaction notes prepared by the AO of the searched person where such person happens to the AO of the other person but one satisfaction note by such AO qua the other person would meet this requirement. However, there is no such satisfaction recorded by the AO of the searched person qua the other person which the Hon’ble jurisdictional High Court laid sine qua non for initiation of proceedings against the other person. We, therefore, while respectfully following the decision of the Hon’ble jurisdictional High Court in the case of Ganpati Fincap Services P. Ltd. (supra) hold that the assessment of jurisdiction for issuance of notice u/s 153C of the Act cannot be sustained and, on that ground, the assessee succeeds in this appeal. Since assessee succeeds on the question of law, we do not deem it necessary to delve deeper into the merits of the case. Appeal is accordingly allowed.

In the result, appeal of the assessee is allowed. Order pronounced in the Open Court on 9th April, 2019.