ACIT, NEW DELHI vs. M/S. ARINTEX LTD., NEW DELHI

order dated 11.11.2014 passed by the Ld. CIT (Appeals)-XXXIII, New Delhi for assessment year 2005-06 and is the department’s appeal against order dated 11.11.2014 passed by the Ld. CIT (Appeals)-XXXIII, New Delhi for assessment year 2006-07.

Both the appeals involve identical questions and, therefore, they were heard together and they are being disposed of by this common order for the sake of convenience.

2.0 The brief facts of the case are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter called as the ‘Act’) was conducted by the Investigation Wing of the department on 22.03.2011 in the Amtek Group of cases. The Premises of M/s.

Amtek Auto Ltd. were also covered. The documents belonging to the assessee i.e. M/s. Arintex Ltd. were also found and seized from the premises of M/s. Amtek Auto Ltd. in whose name the search warrant of authorization was issued. Notices u/s 153C of the Act were issued for both the years. For assessment year 2005-06, the return was filed declaring income at Rs. Nil. For assessment year 2006-07, the return was filed declaring income of Rs. 41,600/-. The assessment for AY 2005-06 was completed u/s 153C read with Section 143(3) of the Act at an income of Rs. 63,31,500/- which included an addition of Rs. 61,31,500/- made u/s 68 of the Act on account of unexplained cash creditors and a further disallowance of Rs. 2,00,000/- u/s 14A of the Act. In assessment year 2006-07, the assessment was completed u/s 153C read with section 143(3) of the Act at an income of Rs. 68,47,600/- which comprised of addition of Rs. 67,56,000/- u/s 68 of the Act on account of unexplained cash creditors and further disallowance of Rs. 50,000/- u/s 14A of the Act.

2.1 The assessee carried the matter before the Ld. CIT (Appeals). Before the Ld. CIT (Appeals), the assessee submitted that the satisfaction note was recorded u/s 153C by the AO of the assessee company which was contrary to the provisions of Section 153C because the documents were seized from M/s. Amtek Auto Ltd. and, therefore, the satisfaction note should have been recorded in the case of Amtek Auto Ltd. being the searched person. The Ld. CIT (Appeals) gave a categorical finding that the satisfaction note was not recorded in the file of the assessee searched u/s 132 of the Act and the documents claimed to be owned by the assessee were transferred to the file of the assessee. The Ld. CIT (Appeals) held that the jurisdiction u/s 153C of the Act was not assumed in proper manner.

He proceeded to quash the assessment orders passed u/s 153C for both the years.

2.2 Now the department has approached the ITAT and has challenged the action of the Ld. CIT (Appeals) in quashing the assessments.

3.0 The Ld. Authorised Representative placed reliance on the orders of the Ld. CIT (Appeals) and vehemently argued that it was apparent from the perusal of the satisfaction note [reproduced in the order of the Ld. CIT (Appeals)] that the satisfaction was recorded by the AO in the case of the assessee itself and not in the case of the searched person and, therefore, the satisfaction note did not fulfill the mandate of Section 153C of the Act and, accordingly, the Ld. CIT (Appeals) was justified in quashing the assessments for the two years under consideration.

4.0 In response, the Ld. CIT (DR) placed reliance in the findings observations of the AO and also placed reliance on the following judgments of the Hon’ble Delhi High Court in support of the contention that it was not necessary that the AO of the searched party should record the satisfaction note:

(1) PCIT vs. Instronics Ltd., Delhi High Court, 2017, [2017]82 taxmann.com357 (Delhi) (2) Ganpati Fincap Services (P) Ltd. vs. CIT, Delhi High Court, 2017, 82 taxmann.com 408 (3) PCIT vs. Sheetal International Pvt. Ltd., Delhi High Court, 20170TIOL01355-HC-DEL- IT.

4.1 The Ld. CIT-DR submitted that the Ld. CIT (Appeals) had quashed the assessment proceedings without appreciating the facts of the case and, therefore, the orders of the Ld. CIT (Appeals) deserved to be set aside.

5.0 We have heard the rival submissions and have also perused the material available on record. The contents of the satisfaction note are reproduced as under:-

Office of the Deputy Commissioner of Income Tax Central Circle-14, Room No. 320, 3rd Floor, E-2 ARA Centre, Jhandewalan Extn. New Delhi Name & Address of the Assessee : M/s. Arintex Ltd. Lotus Tower, Community Centre, Basement New Friends Colony, New Delhi-110065 PAN : AADCA5442J Period : Asstt. Years 2005-06 to 2010-11 Date : 18.09.2012 Satisfaction Note U/s. 153 C of the Income Tax Act, 1961 The case of M/s. Arintex Ltd. was centralized u/s 127 of the Income Tax Act, 1961 with the Assessing Officer, Central Circle-14, New Delhi. Vide order F.No. CIT-I/Centralisation /2011-12/3422 dated 26.03.2012 passed by CIT-I, New Delhi. Search u/s 132 of the IT Act, 1961 was carried out at the premises of M/s. Amtek Auto Ltd., 9 Allied House LSC Madangir, New Delhi on 22.03.2011. During the course of search proceeding in M/s. Amtek Group of cases, certain documents belonging to M/s. Arintex Ltd. were found and seized from the above mentioned premises in whose name search warrant of authorization has been issued. The documents seized from the premises of Amtek Group and belonging to M/s. Archon Estates (P) Ltd. are listed as under :- S. Party Premises Annexure Page Description No. No. No.

crores has been raised by the company from 42 non- existent shareholders during the F.Y. 2006-07 as per Appraisal report.

From the detail given in the above documents, I am satisfied that the pages mentioned in the above table and seized from the premises M/s. Amtek Auto Ltd., 9 Allied House LSC Madangir, New Delhi belongs to M/s. Arintex (P) Ltd. Therefore it is a fit case for assessment u/s 153C of the Income Tax Act, 1961. Accordingy, notice u/s 153C Income Tax Act, 1961 are hereby issued to M/s. Arintex (P) Ltd. for the A.Y. 2005-06 to 2010-11.”

5.1 A perusal of the above satisfaction note makes it apparent that the satisfaction note has been recorded in the file of the assessee instead of the file of the searched party. This categorical finding has also been given by the Ld. CIT (Appeals) and the Ld. CIT-DR could not dispute this finding of the Ld. CIT (Appeals) that this satisfaction note u/s. 153C was recorded in the file of the assessee and not in the file of the searched party.

According to Section 153C of the Act, action under section 153C can be taken in respect of any other person than the person searched, if the A.O. of the searched person is satisfied that any money, bullion, jewellery, or other valuable article or thing or books of account seized or requisitioned belongs or belonged to a person other than the person searched under section 153A. In such circumstances, the Assessing Officer is required to hand over to the Assessing Officer of such other person money, jewellery, bullion or other valuable article or thing or books of account or document, and thereafter, the Assessing Officer of such other person is to proceed against the said person to assess or re-assess his income in accordance with the provisions of Section 153A of the Act. Therefore, recording of satisfaction by the Assessing Officer of the person searched is a condition precedent for initiating action under section 153C of the I.T. Act. The Hon’ble Supreme Court in the case of Manish Maheshwari vs. ACIT reported in (2007) 289 ITR 341 (SC) in Para-11 held as under:

"Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are : (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act." 5.2 It was further held by the Hon’ble Supreme Court in para-16 in the case of Manish Maheshwari (supra) as under:

"Law in this regard is clear and explicit. The only question which arises for our consideration is as to whether the notice dated 06.02.1996 satisfies the requirements of Section 158BD of the Act. The said notice does not record any satisfaction on the part of the Assessing Officer. Documents and other assets recovered during search had not been handed over to the Assessing Officer having jurisdiction in the matter."

5.3 It was further held in para-22 by the Hon’ble Apex Court in the case of Manish Maheshwari (supra) as under:

"As the Assessing Officer has not recorded his satisfaction, which is mandatory; nor has he transferred the case to the Assessing Officer having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly. The appeals are allowed. However, in the facts and circumstances of the case, there shall be no order as to costs."

5.4 The CBDT vide Circular No.24/2015 dated 31stDecember, 2015 issued the following directions:

“Subject: Recording of satisfaction note under section 158BD/153C of the Act – Reg.

The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.

at the time of or along with the initiation of (a) proceedings against the searched person under section 158BC of the Act; or (b) in the course of the assessment proceedings under section 158BC of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."

5.5 It is an admitted fact that no satisfaction note u/s 153C was recorded by the AO of the searched person. It is clear from the material on record that the satisfaction note has not been recorded by the AO in the capacity of the AO of the searched person and, therefore, the proceedings initiated u/s 153C of the Act against the assessee were clearly illegal, bad in law and void ab initio.

Therefore, the Ld. CIT (Appeals) was correct in holding that the assumption of jurisdiction u/s 153C of the Act was illegal and bad in law. Accordingly, we find no reason to interfere with the findings of the Ld. CIT (Appeals) and we dismiss the appeals of the revenue.

6.0 In the final result, both the appeals of the revenue stand dismissed.

Order pronounced in the open court on 30.11.2018