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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
O R D E R Per Bench Out of this bunch of eight appeals, seven appeals are filed by the assessee for Assessment Years 2001-02 to 2007-08 and there is one appeal of revenue for Assessment Year 2007-08. All these appeals are directed against a combined order of ld. CIT(A)-VI, Bangalore dated 15.01.2010. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
These appeals were earlier decided by the Tribunal as per its earlier order dated 30.07.2010 as per which the assessee’s appeals for Assessment Year 2001-02, 2002-03 and 2003-04 were partly allowed and the remaining four appeals of assessee for Assessment Years 2004-05 to 2007-08 were ITA Nos. 174 to 180 & 373/Bang/2010 Page 2 of 9 dismissed and the appeal of the revenue for Assessment Year 2007-08 was partly allowed. Against this Tribunal order, appeals were filed by the assessee before Hon'ble Karnataka High Court and these appeals were decided by Hon'ble Karnataka High Court in to 450 & 454 to 456/2010 dated 11.03.2016. The Hon'ble Karnataka High Court held that the Tribunal order is set aside and the entire matter was restored back to Tribunal with the direction that the Tribunal shall examine the aspect of satisfaction note if any, and whether the same can be termed sufficient compliance or not for the assessment to be initiated or to be made or finalized under Section 153C of IT Act. This was also held by Hon'ble Karnataka High Court that if need arises, the Tribunal may also examine the assessment made on merits for the purpose of gross profit or for the purpose of addition, if any or for the purpose of liability to pay interest, if any afresh in accordance with law. After receipt of this judgment of Hon'ble Karnataka High Court, these appeals were fixed for hearing for the first time on 28.08.2018. As per the noting in the order sheet on this date, it is seen that on this date, the ld. DR of revenue was directed to produce the records and hearing was adjourned to 08.10.2018. On 08.10.2018, hearing was adjourned on the request of the ld. AR of assessee and hearing was fixed on 17.12.2018. On 17.12.2018, the bench did not function and therefore, the hearing was adjourned to 14.01.2019. On 14.01.2019 also, the bench did not function and therefore, the hearing was again adjourned to 05.02.2019. On 05.02.2019, detailed order sheet has been passed in which it is noted that it was submitted by ld. DR of revenue that he has asked the AO to send the records as directed by the Tribunal on 28.08.2018 but the same has not been received till now and he requested for some more time. On his request, the hearing was adjourned to 12.03.2019 as last opportunity and ld. DR of revenue was directed that on this date, the AO should personally appear before the bench along with the required records. This is also noted in order sheet entry that the bench also made it clear that if the records are not produced on the next date then the bench may draw adverse inference and it was also directed by the bench that in any case, the AO should personally appear before the bench on that date preferably to 180 & 373/Bang/2010 Page 3 of 9 with the required records. On 12.03.2019, it is noted by the bench in the order sheet entry on this date that it was intimated by ld. DR of revenue present on this date that the direction of the bench given on 05.02.2019 was intimated by him to the AO but in spite of this, neither the desired records were made available to him to produce the same before the bench nor the AO has appeared personally before the bench. The bench observed that non-compliance by the AO of the direction of the bench is a serious matter and the bench viewed it very seriously but still, the bench gave one more opportunity to the AO to comply with the direction of the bench given on 05.02.2019 on the next date of hearing i.e. on 19.03.2019. The bench clerk was directed to issue a copy of the order sheet of 12.03.2019 and also of 05.02.2019 to the ld. DR of revenue and the ld. DR of revenue was directed to provide one copy of the same to the AO and for information to the Addl. CIT and Pr. CIT who are in-charge for Tribunal duty. On 19.03.2019, Mr. K.R. Narayana, JCIT and Assessing Officer was present in the court along with ld. DR of revenue but he did not bring the desired records before the bench. He requested for some more time. Accordingly, the AO was directed by the bench to be present on the next date of hearing along with the desired records and the hearing was adjourned to 22.04.2019. On 22.04.2019, neither the AO was present nor the records were made available. The ld. DR of revenue present on this date intimated the bench that he has duly intimated the AO as well as Addl. CIT and Pr. CIT as directed by the bench on 12.03.2019 and he submitted a copy of letter dated 13.03.2019 addressed to the AO i.e. ACIT, Circle – 5 (2) (1), Bangalore along with copy of order sheet entry dated 05.02.2019 and 12.03.2019. He submitted that in spite of this that on the last date of hearing i.e. 22.03.2019, the AO was present in the court and the direction was given by the bench in the presence of the AO to comply with the earlier directions by 22.04.2019, neither the AO is present today nor the records were made available to him to present it before the bench. Hence it is seen that to decide the issue afresh as per the directions of Hon'ble Karnataka High Court, the bench has fixed the hearing on various dates as noted above but the AO has not made available the required records. As per Para to 180 & 373/Bang/2010 Page 4 of 9 17 of the judgment of Hon'ble Karnataka High Court, it is directed by Hon'ble Karnataka High Court that the Tribunal shall comply with the direction of the High Court within six months from the receipt of this judgment of Hon'ble Karnataka High Court. As early as on 28.08.2018, the ld. DR of revenue was directed to produce the relevant records and till 22.04.2019, these records are not produced before the bench. Hence we have no option but to decide the issue in the absence of records which has not been produced by the revenue in spite of several directions of the bench. First of all, we reproduce Para nos. 13 to 17 of the judgment of Hon'ble Karnataka High Court for ready reference. “13. We do notice that, the Tribunal has, after dismissing thecontention of the assessee regarding the assessment not being inaccordance with the provisions of the Act under Section 143(3) read with Section 153C, has examined the other aspects namely of theestimated gross profit at the rate of 7% or 6% and further additionof the amount of liability to pay interest to appellant- assessee.Based on the aforesaid findings of the Tribunal, the assessee haspreferred the present appeals and has also raised the questions forwhich, appeals were admitted. But, considering the facts and circumstances, it appears to us that, the requirements of satisfaction note at the time of initiation of assessment or duringthe assessment or at the time of conclusion of the assessmentwould go to the root of the matter and if ultimately found by theTribunal that aforesaid requirement was not complied, everythingwould fall to the ground and the assessments made would berendered illegal. But, at the same time, if the Tribunal finds that,all requirements were met under Section 153-C, then the questionmay further arise for consideration on the aspects of percentage ofgross profit or addition to be made or the liability to pay interest 14. Considering the facts and circumstances, it appears tous when we are inclined to relegate the matter to the Tribunal onthe issue which goes to the root of the matter, it would bepremature on our part to address ourselves on the aspects of theassessment already made and considered by the Tribunal in theimpugned order. Hence, we find that, when the matter has to berelegated to the Tribunal, on the main aspect which goes to the root of the matter, other two aspects of the assessment if ultimately arise for consideration namely, as that of for estimated gross profit or for addition or to pay interest may also be considered afresh by the Tribunal without being in any manner influenced by the observations made and the conclusions recorded in the impugned order.
Suffice it to observe that the Tribunal would consider the matter to 180 & 373/Bang/2010 Page 5 of 9 even on the said aspects, if need arises, afresh and in accordance with law, after giving sufficient opportunity of hearing to both the sides.
In view of the aforesaid observation and discussion, the impugned orders passed by the Tribunal are set aside with a further direction that all appeals shall stand restored to the Tribunal. The Tribunal shall examine the aspects of satisfaction note if any, and whether the same can be termed sufficient compliance or not for the assessment to be initiated or to be made or finalized under Section 153C of the Act. It is further observed and directed that, thereafter, if need arises, the Tribunal may also examine the assessment made on merits for the purpose of gross profit or for the purpose of addition if any or for the purpose of liability to pay interest if any afresh in accordance with law.
The aforesaid exercise shall be complied by the Tribunal preferably within six months from the receipt of order of this Court.”
From the above paras reproduced from this judgment of Hon'ble Karnataka High Court, it is seen that this is the specific direction of Hon'ble Karnataka High Court that the Tribunal has to examine as to whether the requirements of section 153C was fulfilled by the revenue or not. We therefore, reproduce the provisions of section 153C for ready reference. The same are as under. “153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person 17[for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in sub-section (1) of section 153A : Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition to 180 & 373/Bang/2010 Page 6 of 9 under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules18 made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made 19[and for the relevant assessment year or years as referred to in sub-section (1) of section 153A] except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) ofsection 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.”
As per above provisions of section 153C of IT Act, it is seen that as per this section, if the AO of the searched person is satisfied that the seized material belongs to a person other than the searched person, then such seized material shall be handed over to the AO having jurisdiction over such other person and that Assessing Officer shall proceed against such such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A of IT Act. Hence this is the first requirement that the AO of the searched person should record satisfaction that the seized material is not belonging to the searched person but it is belonging to some other person and then only he can to 180 & 373/Bang/2010 Page 7 of 9 handover the seized material to the AO of the other person and then such AO of the other person should complete the assessment in the case of other person under the provisions of section 153A of IT Act. In the present case, as per the assessment order, search and seizure operation has taken place u/s. 132 in the case of Shri Babulal Nagori and group on 20.04.2006. In para no. 3 of the assessment order for Assessment Year 2001-02, it is noted by the AO that on the basis of seized documents belonging to the assessee, notice u/s. 153C was issued in its case on 21.02.2008 and served on 25.02.2008. This is not coming out from the assessment order as to whether the required satisfaction was recorded or not by the AO of the searched person as required u/s. 153C of IT Act. At this juncture we would like to observe that even if the AO of the searched person and the other person to whom the seized material is belonging is one and same, then also the required satisfaction has to be recorded by the AO in his capacity of the AO of the searched person. Hence, even if the AO of the searched person and the present assessee is same, it was required to be shown that the required satisfaction was recorded by the AO in his capacity of the AO of the searched person. This is not done. After the receipt of this judgment of Hon'ble Karnataka High Court, the matter was fixed by the Tribunal on various dates and on the first date of such hearing on 28.08.2018, the ld. DR of revenue was directed to produce the relevant records in this regard. Same direction was repeated on 05.02.2019, 12.03.2019 and 19.03.2019 but till 22.04.2019, the relevant records are not produced before the Tribunal by the AO in spite of several opportunities provided by the Tribunal.
Under these facts, we have no option but to decide the issue in the absence of the records and we are constrained to draw adverse inference that the required satisfaction was not recorded by the AO of the searched person and therefore, the assessment orders passed by the AO in these seven years are not valid and the same are quashed.
In the result, all the seven appeals of assessee are allowed.
Now we take up the appeal of the revenue for Assessment Year 2007-08 in . The grounds raised
by the revenue are as under. “1. The Order of the Commissioner of Income-tax(Appeals)-VI, to 180 & 373/Bang/2010 Page 8 of 9 Bangalore, is opposed to law and facts of the case.
2. The ld. CIT(Appeals) has failed to appreciate that the AO had made an addition of Rs.6,98,007/- as deficit stock being the difference in the trading account and physical stock as on the date of survey by holding it as unexplained investment.
3. Further, the CIT(A) has ignored the fact that the assessee vide its reply to this office letter dt: 11-3-2008 had admitted to shortage of stock to the extent of Rs.6,98,074/- and had attributed the same to unaccounted sales.
4. Thus, the Id. CIT(A) has erred in deleting the addition by holding that addition cannot be made as unexplained investment as deficit stock does not amount to investment.
5. For these reasons and the reasons that may be urged at the time of hearing, it is prayed that the addition made by the AO may be upheld.”
8. The appeal of the revenue is liable to be dismissed for two reasons. First reason is this that since, the assessment orders is quashed, the appeal of the revenue does not survive. Second reason is this that because of low tax effect, this appeal of the revenue is not maintainable. As per the grounds of appeal raised by the revenue, there is only one issue raised i.e. regarding deletion of the addition made by the AO of Rs. 6,98,074/- because as per the combined order of CIT(A) for Assessment Year 2007-08, only relief allowed by ld. CIT(A) was of Rs. 6,98,074/-. As per the recent CBDT instructions as per Circular No. 3/2018 dated 11.07.2018, this appeal of the revenue is not maintainable. Accordingly, this appeal of the revenue is dismissed.
9. In the result, the appeal of the revenue is dismissed.
10. In the combined result, all the seven appeals of assessee are allowed and the appeal of the revenue for Assessment Year 2007-08 is dismissed. Order pronounced in the open court on the date mentioned on the caption page.