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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
अपीलार्थी की ओर े / Appellant by : Shir Sushilkumar Poddar, CIT DR प्रत्यर्थी की ओर े / Respondent by : Shri Satish Modi, AR ुनवाई की तारीख / Date of hearing: 03.09.2019 घोषणा की तारीख / Date of pronouncement : 03.09.2019 AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: These appeals by Revenue are arising out of the orders of Commissioner of Income Tax (Appeals)-47, Mumbai in Appeal Nos. CIT(A)-47/AP.34,35,36,42/14-15 even dated 14.09.2017. The Assessments were framed by the Asst. Commissioner of Income Tax, Circle-2 Mumbai (in short ACIT/ITO/ AO) for AYs 2008-09, 2009-10, 2010-11, 2011-12 vide even dated 28.03.2014 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only common issue in these four appeals of Revenue is against the order of CIT(A) deleting the addition made by AO on account of undisclosed receipts noted on seized documents found during the course of search and seizure action under section 132 of the Act in the case of Lalit Jobanputra Group on 19.08.2011. The facts and circumstances are identical in all the four years and issue is common. Even the grounds raised by Revenue in all the four years are identically worded and hence, will take the facts from AY 3 | P a g e ITA Nso.7042 - 7045MUM/2017 2008-09 in and will decide the issue. The grounds raised in AY 2008-09 reads as under: - “(i) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of ₹ 29,06,00,000/- on account of undisclosed receipts noted on documents seized during the course of search and seizure action under section 132 of the Act, without appreciating the findings of the Assessing Officer that the receipt were prepared by the director himself after due diligence and deliberation which lends credence to the importance of those documents for taking the assessment proceedings to a logical conclusions leading to the addition under section 292C of the Act, which states that such document shall be treated to be belonging to the assessee and the contents of such documents shall be presumed to be true?
(ii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in relying upon the judicial pronouncement of the Apex Court in the case of Parimistti Seetharamamma vs. CIT 57 ITR 532 (SC), wherein the facts of the case is not identical to that of the instant case?”
4 | P a g e ITA Nso.7042 - 7045MUM/2017 3. Brief facts are that a search and seizure action under section 132 of the Act was initiated in the case of Lalit Jobanputra Group by the investigation Wing of Mumbai, Income Tax Department on 19.08.2011 after receipt of information of undisclosed overseas of HSBC account. The AO noted that during the course of search under section 132 of the Act, the documents/papers belonging to the assessee company were found from the premises of Citipoint, Telly Gally, Andheri (E), Mumbai and seized and marked as Page -1 to ‘Annexure A-1’, Page 26 ‘Annexure A-2’. According to AO, these pages contains noting of cash and cheque payment made by assessee group of companies to Shri Bharat Mehta including assessee company. According to AO, as the noting belong to the assessee were found in the premises of Shri Lalit Jobanputra Group of cases, the provisions of section 153C of the Act were attracted. The AO noted that the satisfaction note was drawn for initiating the proceedings under section 153C of the Act. Accordingly, the assessment was framed. But, before the CIT(A), the assessee raised the issue that the alleged own undisclosed receipts noted in the seized documents are duly recorded in the regular books of account and these are not incriminating documents seized during the course of search. It was explained before the CIT(A) that the entries recorded on page No. 23 to 25 and 26 of Annexure 2 are the assessee’s audited finance statements and are not of any incriminating nature. He stated that the figures relate to Flyjac and JWC have been found to match with the respective audited books of account have not been a subject matter of any addition by the AO in 5 | P a g e ITA Nso.7042 - 7045MUM/2017 the original assessment. He stated that by virtue of very nature of business of assessee of a IATA Air Carbo Agent, where no transaction can bypass IATA or remains unrecorded, it is not possible to contend that the assessee has earn huge undisclosed receipt out of its books of accounts. Hence, these were not incriminating material. The CIT(A) also referred the copies of documents being additional evidences in the form of copies of Airline Accounts, Airline Commission Account, Airline Incentive Account and Airline Due Agent account together with the Cargo Sales Report (CSR) and these evidences were referred to the AO by the CIT(A) vide letter No. CIT(A)-47/JAC Air Services/Rem/Rep./2017-18 dated 22.08.2017. The AO despite the numerous opportunities and sufficient time to conduct the verification of the additional evidences and for furnishing of remand report could not submit the report or could not conduct the enquiry. The CIT(A) has reproduced documents seized along with the details filed by the assessee and consider that these notes are not incriminating documents and deleted the addition by holding that the seized papers are duly recorded in the regular books of account and hence, cannot be held to be incriminating in nature. Aggrieved, against the deletion, Revenue is in appeal before Tribunal in all these four years.
4. Before us, the learned Counsel for the raised a new issue in support of the order of CIT(A) in term of Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963. He filed the applications for this 6 | P a g e ITA Nso.7042 - 7045MUM/2017 ground vide letter dated 08.02.2019 and following is the context of the letter: - “The above referred appeal of the department is fixed for hearing before your honor’s on 14 Feb 2019 The respondent craves leave to your Honor’s to raise certain grounds in support of the order of CIT(A) as per Rules 27 of ITAT Rules, 1963. The said ground is a question of law and no new facts have to be brought on record. The said ground was inadvertently not raised and argued before the lower authorities.
In view of the above the Respondent humbly request your honor’s to kindly admit and adjudicate the said ground of appeal as it goes to the root of the matter.”
The assessee has raised the following ground in support of the order of CIT(A): - “Ground in support of the order of CIT(A) as per Rules 27 of ITAT Rules 1963 AY 2008-09. On the facts and in the circumstances of the case and in law the notice under section 153C of the Act is bad in law as the requisite satisfaction as contemplate under provision of section 153C of the Act has not been recorded 7 | P a g e ITA Nso.7042 - 7045MUM/2017 by the assessing officer of the person searched before initiating the proceedings in the case of the assessee.”
The learned Counsel for the assessee also filed Right To Information received in relation to recording of satisfaction in the case of the assessee for all these four assessment years and the order under section 7(1) of the Right to Information Act, 2005 submitted vide letter No. DCIT-CC-1(2)/RTI/2019-20 dated 27.03.2019, wherein the DCIT and CPIO, Centrals Circle (1)(2), Mumbai vide an order stating as under: - “The petitioner vide his application dated 25.06.2019 has requested for a copy of the Satisfaction Note on the basis of which income tax assessment in the case of M/s Jac Air Services Pvt. Ltd. was completed under section 143(3) read with section 153C of the Income Tax Act, 1961 for the assessment years 2008- 09, 2009-10, 2010-11 and 2011-12. The information requested is provided as under:
(i) It is hereby informed that the Satisfaction Note, as requested by the applicant, on the basis of which income tax assessment in the case of M/s. Jac Air Services Pvt. Ltd, was completed under section 143(3) read with section 153C of the Income Tax Act, 1961 for the 8 | P a g e ITA Nso.7042 - 7045MUM/2017 assessment years 2008-09, 2009-10, 2010-11 and 2011-12, is not available on record. However, the reasons for issue of notice under section 153C of the Act has been already incorporated by the assessing officer in the assessment orders passed under section 143(3) read with section 153C of the Act for the aforesaid assessment years. Hence, this may be considered as information furnished.
2. The petitioner, if aggrieved by this order may prefer an appeal under section 19(1) of the Right to Information Act, 2005, before the Appellate Authority, being the Addl. Commissioner of Income-tax, Central Range-1, Mumbai having office address at:
Room No 901, 9th Floor, Old CGO Annexe Building M.K. road, Marine Lines, Mubai-400 020 3. The application received under section 6(3) of the Right to Information Act, 2005 stands disposed off accordingly within the stipulated time frame mandated under the relevant Act.”
9 | P a g e ITA Nso.7042 - 7045MUM/2017 6. From this it is clear that no satisfaction whatsoever is recorded by the AO. This issue has been considered by the Hon’ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 362 ITR 673 (SC).
We find that Hon’ble Supreme Court in the case of Calcutta Knitwears (supra) has held that it is clear from the provisions of section 153C of the Act that where the AO of the person searched is satisfied that any money, bullion, jewellery, books of account or other documents etc., belong to a person other than the person searched, then, such documents or assets, etc., shall be handed over to the AO of the 'other person' and the later AO shall proceed against such 'other person' to assess or reassess his income. A bare perusal of the provision indicates that before handing over such documents etc. to the AO of the 'other person', a 'satisfaction' has to be recorded by the AO of the person searched that money, bullion or jewellery, etc., found from the person searched belong to the 'other person'. Only when such 'satisfaction' is recorded by the AO of the person searched and such documents or assets seized, etc., are handed over to the AO of the 'other person', that the later AO acquires jurisdiction to make assessment or reassessment of the 'other person.' It is, therefore, amply vivid that the AO of the 'other person' can acquire jurisdiction to assess or reassess income of the 'other person' only when the AO of the person searched records satisfaction in his case before handing over money, bullion, jewellery, etc. to him. What emerges is that the recording of satisfaction by the AO of the person searched is a condition 10 | P a g e ITA Nso.7042 - 7045MUM/2017 precedent for the AO of the 'other person' to acquire jurisdiction. Unless such jurisdictional condition is satisfied, there can be no question of making assessment or reassessment of the 'other person.' Subsequently, the Central Board of Direct Taxes (in short CBDT) vide Circular No. 24/2015 F. No. 273/Misc./140/2015/TTJ dated 31-12-2015 for implementation of the judgment in the case of Calcutta Knitwears (Supra), has explained the procedure in case the AO of the search person and the “the other person” is one at the same then also he is required to record his satisfaction as has been held by the Courts.
The relevant circular issued by CBDT reads as under: - 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.
The Hon’ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.20 14(available in MRS at 2014-LL-0312-5 1) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AU who has jurisdiction over such other person u/s 15813D. The 11 | P a g e ITA Nso.7042 - 7045MUM/2017 Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages:
(a) at the time of or along with the initiation of proceedings against the searched person under Sec/ion 158BC of/he 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."
Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon’ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.
The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts.
12 | P a g e ITA Nso.7042 - 7045MUM/2017 5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also he decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD / 153C should be withdrawn / not pressed if it does not meet the guidelines laid down by the Apex Court.”
The argument of the learned DR that the searched person and the assessee are being assessed by the same AO, the learned Counsel for the assessee contended that even in cases where the AO of the person searched and the assessee who is sought to be assessed u/s 153C of the Act is the same, the AO is required to record his satisfaction that the assets / documents seized belonged to a person i.e. the assessee, other than the searched person. This view is finally settled by Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Mechmen (2016) 380 ITR 591 (MP) wherein the view is expressed in the following manner: - “18. The concomitant of this conclusion, is that, the legal position as applicable to Section 158BD regarding satisfaction in the first instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in Section 153A), 13 | P a g e ITA Nso.7042 - 7045MUM/2017 must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A). The question as to whether that may influence the opinion of the Assessing Officer having jurisdiction over such other person, also cannot be the basis to take any other view. As a matter of fact, the other Assessing Officer to whom the items are handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. Similarly, as there is no provision 14 | P a g e ITA Nso.7042 - 7045MUM/2017 either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the argument of the Department must be negatived.
After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him.”
In the given facts and circumstances of the case and the legal position clarified by CBDT and the case laws cited supra, we are of the view that the satisfaction in this case is not recorded by the AO of the searched party, which is a pre-condition for invoking jurisdiction u/s 153C of the Act and hence, the assessment framed under section 153C read with Section 143(3) of the Act is bad in law and hence, quashed.