BLUE OCEAN TRAVELS PVT. LTD.,DELHI vs. DCIT, CENTRAL CIRCLE-15, DELHI

to 3287/Del/2024 Date of Hearing : 06.11.2024 Date of Order : 04.12.2024 O R D E R

PER S. RIFAUR RAHMAN, AM :

5. The Assessing Officer observed that on perusal of said incriminating documents, satisfaction was duly recorded for initiating proceedings u/s 153C of the Act in the case of the assessee for AYs 2010-11 to 2020-21. The case of the assessee was centralized u/s 127 of the Act. Accordingly, notices u/s 153C were issued and served on the assessee. In response, assessee filed its return of income for AY 2014-15 on 26.10.2021 declaring total income of Rs.66,85,880/-. Subsequently, other notices u/s 143(2) and 142(1) were issued and served on the assessee. In response, ld. AR for the assessee appeared and submitted the informations as called for.

to 3287/Del/2024 Without, prejudice to tire above, in compliance to your notice u/s 142(1), I am submitting the following: In your Show cause notice, YOII hate mentioned certain transactions relating to forex and event management which was alleged to be not recorded in our books of accounts, we would like to submit that the transactions referred by you are just the quotes / proposal given to various clients, however, the actual transactions has not taken place, most of the additional income mentioned the transactions referred in the how cause notice are just quotation / proposals given to the client / customers, without prejudice to the above you have mentioned the basis on which income is earned by the assessee company on foreign currency transaction. I would like to submit that the assessee company is engaged in the business of the Travel agency, providing travel related and other ancillary services. The Company is recognized by the Ministry of Tourism, Government of India, as a Tour Operator and Travel Agent. Apart from this Company, is a member of :- o International Air Transport Authority (IATA) o Indian Association of Tour Operators (IATO) o Travel Agent Association of India (TAAI) o Travel Agent Federation of India (TAFI) The revenue streams of the Company are as follows : o Ticketing o Passport & Visas o Hotel Booking o Customized services o Domestic train bookings o Travel Insurance arrangements However, sometimes our customers request us to arrange forex currency, so that they get all the services under one umbrella. In order to retain our clients we refer our clients to the forex agents. We are not trading in foreign currency. In lieu of the reference made to the forex agents we receive referral income from forex agent in case, the deal is executed. In order to determine the rate of our introduction or referral income there are two registers seized from the residence of Ramesh Hemrajani and Munish Hemrajaui at 38/19, East Patel Nagar, New Delhi -110008 as Annexure - 3 and Annexure - 7. The total income earned from the forex transactions in the registers given below : to 3287/Del/2024 Annexure No. Referral Total Forex Percentage of Income in INR transaction referral as per seized in INR (B) income i.e. registers (A) A/B*100 Annexure – 3 240942 88790839 0.27% Annexure – 7 103697 30927465 0.34% Hence, the referral income varies from 0.27% to 0.34%.”

“7.1.6. Further, it was observed from the submission of the assessee in response to show cause notice that the referral Income on forex transaction was calculated in the range of 0.27% to 0.34% and no specific rate was provided. So for arriving at a logical base of calculating income on total "forex" transactions, this office has analysed some sample transactions from the pages of Annexure A-3. From the pages of annexure A-3, it was observed that, transactions a mentioned on these pages are related to forex (currency) arrangements, where the assessee company has facilitated arrangement of forex requirements of it clients through an authorised money changer after charging a certain percentage as commission. For better understanding of the same, a working in tabular format of seized papers of Annexure A- are summarised as under: S.No. Page Name of Person Total Net Rate Quoted Differ- Commission No. Forex Rate ence Percentage required 1 8 Sharad Gupta 2500 USD 67.65 67.85 .20 0.30% 2 8 Mr. Neetu 1500 USD 67.65 67.90 .25 036% Kumar 3 8 Mrs. Madhu 2500 75.60 75.60 .10 013% EURO 4 12 Sanjay Sen 1000 78.10 78.30 .20 025% Gupta EURO 5 12 Mrs. Ritu Kumar 1800 75.30 75.50 .20 026% EURO 6 32 Anubhav Arora 700 EURO 69.90 70.10 .20 029% 7.1.8 From the perusal of above chart, it can be observed that the average profit margin rate (referral fees) on fore transactions varies from 0.13% to 0.36% which can be safely taken at 0.30% for calculating referral/ facilitation fees/ income of the assessee in respect of total value of forex transactions arranged by it.

7.1.9 Accordingly, by considering the rate @.3% on total forex transaction of Rs.34,97,000/ - as per Annexure A-11, referral income of Rs.10491/- was not offered for tax by the Assessee Company during the year and the same is added to its taxable income of the relevant year as business income. Further, as per annexure A-3, there was income of Rs.1,850/- on facilitation of forex transaction and assessee has calculated this amount in its submissions but not declared in its ITR, the same is also added back to total Income. (Addition of Rs.6,76,171/- + Rs.3,86,600 + Rs.10,491 + Rs.1,850 = Rs.10,75,112/-)”

1. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is liable to be quashed as it is contrary to provisions of section 153D of the Income Tax Act, 1961 and CIT(A) erred in not holding so.

2. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is non-est as it does not have valid DIN. 3 On the facts and circumstances of the case and in law, the addition made by the AO is erroneous and without jurisdiction. The addition made is beyond the scope / jurisdiction of provisions of section 153C read with section 153A of the Income Tax Act, 1961 and CIT(A) erred in not holding so.

4. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the AO of Rs.10,75,112/- as alleged income on account of facilitation fees.

5. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the AO of Rs.21,10,083/- as alleged income on account of events management/facilitation fees 6. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the AO of Rs.2,516/- as alleged income on account of hotel booking, ticketing and other ancillary services, to 3287/Del/2024 7. On the facts and circumstances of the case and in law, the CIT(A) erred in passing ex-parte order without providing proper opportunity of being heard.

8. On the facts and circumstances of the case and in law, the CIT (A) erred in not adjudicating the grounds of appeal on merit and is also against the principles of natural justice.

9. On the facts and circumstances of the case and in law, the notice u/s 153 C issued by the AO is bad-in-law, barred by limitation and without jurisdiction and, therefore, the said notice along with the assessment order passed on the foundation of such notice are liable to be quashed and CIT(A) erred in not holding so.

10. On the facts and circumstances of the case and in law, the notice u/s 153C issued by the AO is illegal and without jurisdiction. The AO has not complied with the provisions of section 153C and other allied provisions for issuance of such notice. Accordingly, the notice u/s 153C along with the assessment order passed on the foundation of such notice are liable to be quashed and CIT(A) erred in not holding so.

11. On the facts and circumstances of the case and in law, the satisfaction note(s) recorded u/s 153C of the Act are bad-in- law and without jurisdiction and, accordingly, the assessment proceedings initiated on the foundation of such satisfaction note(s) and also the consequent assessment order passed are liable to be quashed and CIT(A) erred in not holding so.”

11. At the time of hearing, ld. AR for the assessee submitted that the search was conducted in the case of Sushen Mohan Gupta and others on 02.01.2020 and based on above search, the case of the assessee was initiated u/s 153C of the Act. He submitted that the Assessing Officer recorded the satisfaction for AYs 2014-15 to 2019-20 on 30.09.2021. Therefore, the relevant search to 3287/Del/2024 assessment in the case of the assessee is AY 2022-23. That be the case, the six years relevant for revision of AYs relevant for AYs 2016-17 to 2019-20. Therefore, AYs 2014-15 and 2015-16 are outside the provisions of section 153C of the Act.

12. Coming to other AYs under consideration, he submitted that the Assessing Officer has not recorded satisfaction year-wise rather recorded a satisfaction in single consolidated satisfaction. In this regard, he relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Jagjit Singh (2023) 10 TMI 572 and further he relied on the decision of coordinate Bench in the case of Raja Varshney vs. DCIT in dated 26.09.2024 and Akansha Gupta vs. ACIT in ITA No.3074/Del/2023 dated 10.07.2024.

13. On the other hand, ld. DR for the Revenue accepted the fact that the Assessing Officer has recorded the satisfaction only on 30.09.2021. Assessment Years 2014-15 and 2015-16 are outside the provisions of section 153C of the Act. With regard to other Assessment Years, ld. DR submitted that with regard to the case law relied upon by the ld. AR in the case of Sunil Kumar Sharma, he submitted that it is not a ratio decidendi and the real issue decided by Hon’ble Court is only on the issue of section 153C/153A applicability and it is not the issue of separate satisfaction note. She submitted that ld. AR heavily relied on the above decision on the issue of to 3287/Del/2024 satisfaction note is misleading. Further ld. DR submitted that during the course of assessment proceedings, assessee admitted certain commission income, therefore, the issue has to be decided on merits of the case. She prayed that the findings of the Assessing Officer may be sustained considering the various documents and material found during the search.

1. 1. In this satisfaction note there is reference to statements recorded u/s 131 during Survey. There is no reference to any statement u/s 132(4) during search.The statement u/s 131 recorded during survey cannot be said to be material found and seized during search and therefore, such statement cannot be a basis for initiation of proceedings u/s 153C of the Act.

2. The satisfaction recorded u/s 153C is vague as there is no reference to any seized material which may have bearing on the determination of total income. There is no year wise analysis of any seized material and how they have bearing on the determination of total income. The statutory requirement is that in the satisfaction note, the assessing officer has to record satisfaction that particulars seized material is incriminating in nature and to further record satisfaction that such seized material is likely to have a bearing on the determination of the total income of the ‘other person’. In the present case, this statutory requirement has not been fulfilled.

3. The submission by the Ld. DR that during the course of assessment proceedings, the assessee admitted certain commission income is totally out of context. The issue before your honour is with regard to validity of initiation of to 3287/Del/2024 assessment proceedings u/s 153C of the Act. The foundation/jurisdiction for initiation of proceeding u/s 153C is the satisfaction note recorded u/s 153C of the Act. If the satisfaction note recorded u/s 153C is not in accordance with law, the assessmentorder passed on the foundation of such satisfaction note will also not survive. Moreover, in the assessment order, the assessing officer cannot go beyond the satisfaction recorded u/s 153C of the Act. In the present case, the assessing officer has made the addition on account of commission income whereas in the satisfaction note there is no reference to any commission income.

63. On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to “have a bearing on the determination of the total income” and would have to be examined bearing in mind the AYs’ which are likely to be impacted. It would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the “relevant assessment year”.

64. In our considered view, abatement of the six AYs’ or the “relevant assessment year” under Section 153C would follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs’ that may form part of the block of ten AYs’. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of the former, a notice would inevitably be issued the moment a search is undertaken or documents requisitioned, whereas in the case of the to 3287/Del/2024 latter, the proceedings would be liable to be commenced only upon the AO having formed the opinion that the material gathered is likely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to be made based upon the material recovered is an aspect which would merit consideration in the course of the assessment proceedings, under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to “have a bearing on the determination of the total income”. It is only once an opinion in that regard is formed that the AO would be legally justified in issuing a notice under that provision and which in turn would culminate in the abatement of pending assessments or reassessments as the case may be.

66. Therefore, and in our opinion, abatement of the six AYs’ or the “relevant assessment year” would follow the formation of that opinion and satisfaction in that respect being reached.

67. On an overall consideration of the aforesaid, we come to the firm conclusion that the “incriminating material” which is spoken of would have to be identified with respect to the AY to which it relates or may be likely to impact before the initiation of proceedings under Section 153C of the Act. A material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs’ immediately preceding the AY corresponding to the year of search or the “relevant assessment year” would not justify a sweeping or indiscriminate invocation of Section 153C.

68. The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs’ and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only be consequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.

69. When tested in light of the aforesaid principles, we find that except for a few exceptions which were noticed in the introductory parts of this judgment, the writ petitions forming part of this batch, impugn the invocation of Section 153C in respect of AYs’ for which to 3287/Del/2024 no incriminating material had been gathered or obtained. The Satisfaction Notes also fail to record any reasons as to how the material discovered and pertaining to a particular AY is likely to “have a bearing on the determination of the total income” for the year which is sought to be abated or reopened in terms of the impugned notices. The respondents have erroneously proceeded on the assumption that the moment any material is recovered in the course of a search or on the basis of a requisition made, they become empowered in law to assess or reassess all the six AYs’ years immediately preceding the assessment correlatable to the search year or the “relevant assessment year” as defined in terms of Explanation 1 of Section 153A. The said approach is clearly unsustainable and contrary to the consistent line struck by the precedents noticed above.” In view of the above decisions of Jurisdictional high court and also the Apex court, the proceeding initiated in the present case of the appellant company before your honour is liable to be quashed.

6. There is yet another reason because of which the notice issued u/s 153C in this case is liable to be quashed as there is no year wise satisfaction note recorded. With regard to submission of the Ld. DR that in the case of DCIT V Sunil Kumar Sharma (supra), there was no issue for consideration as to whether separate satisfaction note was required to be recorded, it is submitted that this is factually erroneous. The issue before the Hon’ble High Court was whether the notice u/s 153C issued was valid and in that context the issue of consolidated satisfaction note was specifically argued which is evident from para 36 of the decision of High Court which is as under: 36. Further, learned Senior Counsel argued that satisfaction note is required under Section 153C of the Act for each Assessment Year and in the impugned proceedings, consolidated satisfaction note has been to 3287/Del/2024 recorded for different Assessment Years which vitiates entire assessment proceedings. In this regard, he placed reliance on the judgment of the Hon’ble Apex Court in the case of L K VERMA v. HMT AND ANOTHER, reported in (2006)2 SCC 269 and in the case of JEANS KNIT PVT LTD v. COMMISSIONER OF INCOME TAX, reported in (2017)390 ITR 10 (SC) and argued that this Court is having jurisdiction to interfere with the impugned notices issued by the Revenue as the same is without jurisdiction and hence sought for interference of this court in those writ petitions. Thereafter, the Hon’ble High Court in para 53 of the decision held as under: - 53. Further, satisfaction note is required to be recorded under Section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for seeking intervention as sought for by the appellant / Revenue In the present case of the appellant company before your honour the appellant is challenging the validity of notice u/s 153C which is based upon consolidated satisfaction note. Therefore, the decision of Hon’ble Karnataka High Court (SLP dismissed by Apex Court) will squarely apply to the present cases of the appellant companies.”

20. The above proviso refers to second proviso to subsection (1) of section 153A. That section 153(1) and its first and second provisions read as under:- "153A. ((1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a to 3287/Del/2024 search is initiated u/s 132 or books of account, section 132A after the 31st day of May, 2003, the AO shall – (a) Issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished u/s 139; (b) Assess or reassess the total income or six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub- section) pending on the date of initiation of the search u/s 132 or making of requisition u/s 132A, as the case may be, shall abate."

to 3287/Del/2024 21. From the above, it is evident that as per clause (b) of subsection (1) of section 153A and second proviso, the AO can be issue notice for assessment or reassessment of total six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted. As per proviso to section 153C, the date of search is to be substituted by the date of receiving the books of account or documents or assets seized by the AO having jurisdiction over such other person. Ld. DR has stated that since the AO of the person searched and the AO of such other person was the same, no 14 handing over or taking over of the document was required. That section 153C(1) and its proviso have to be read together in a harmonious manner. While interpreting section 153C, we have already held that for initiating valid jurisdiction u/s 153C, even if the AO of the person searched and the AO of such other person is the same, he has to first record the satisfaction in the file of the person searched and thereafter, such note alongwith the seized document/books of account is to be placed in the file of such other person. The date on which this exercise is done would be considered as the date of receiving the books of account or document by the AO having jurisdiction over such other person. Though while examining the facts of the assessee's case we have arrived at the conclusion that no such exercise has been properly carried out and, therefore, initiation of proceedings u/s 153C itself is invalid, however, since both the parties have argued the issue of period of limitation also, we deem it proper to adjudicate the same. Since in this case satisfaction is recorded on 21st June, 2010 and notice u/s 153C is also issued on the same date, then only conclusion that can be drawn is that the AO of such other person has taken over the possession of seized document on 21st June, 2010. Accordingly, as per section 153(1), the 15 AO can issue the notice for the previous year in which search is conducted (for the purpose of to 3287/Del/2024 Section 1530 the document is handed over) and six assessment years preceding such assessment year. Now, in this case, the previous year in which the document is handed over is 1st April, 2010 to 31st March, 2011. The assessment year would be A.Y. 2011-12. Six preceding previous years and relevant assessment year would be as under: Previous Year Assessment Year 1.4.2009 to 31.03.2010 2010- 11 1.4.2008 to 31.03.2009 2009-10 1.4.2007 to 31.03.2008 2008-09 1.4.2006 to 31.03.2007 2007-08 1.4.2005 to 31.03.2006 2006-07 1.4.2004 to 31.03.2005 2005-06 22. The Assessing Officer has issued notice u/s 153C for A.Y. 2004-05 which is clearly barred by limitation. Therefore, issue of notice u/s 153C issued by the Revenue cannot be sustained on both the above counts, i.e., it is legally not valid as conditions laid down u/s 153C has not been fulfilled and it is barred by limitation. In view of the above, we quash the notice issued u/s 153C and consequently, the assessment completed in pursuance to such notice, is also quashed.

do not survive, and, therefore, do not require any adjudication.

16. We thus, find that the issue raised in the additional ground has been answered in favour of the assessee, by the Coordinate Delhi Bench of the Tribunal in the case of DSL Properties (supra).

17. So far as decision of Hon'ble Delhi High Court in the case of SSP Aviation Ltd. vs. DCIT (supra) relied upon by the Id. CIT(DR) is concerned, we find that it is not helpful to the revenue as in that case also in para no. 14 of the judgment it has been held as under. to 3287/Del/2024 14. "Now there can be a situation when during the search conducted on one person u/s 132, some documents or valuable assets or books of account belonging to some other person, in whose case the search is not conducted, may be found. In such case, the AO has to first be satisfied u/s 153C, which provides for the assessment of income of any other person, Le., any other person who is not covered by the search, that the books of account or other valuable article or document belongs to the other person (person other than the one searched). He shall hand over the valuable article or books of account or 17 document to the AO having jurisdiction over the other person. Thereafter, the AO having jurisdiction over the other person has to proceed against him and issue notice to that person in order to assess or reassess the income of such other person in the manner contemplated by the provisions of section 153A. Now a question may arise as to the applicability of the second proviso to section 153A in the case of the other person, in order to examine the question of pending proceedings which have to abate. In the case of the searched person, the date with reference to which the proceedings for assessment or reassessment of any assessment year within the period of the six assessment years shall abate, is the date of initiation of the search u/s 132 or the requisition u/s 132A. For instance, in the present case, with reference to the Puri Group of Companies, such date will be 5.1.2009. However, in the case of the other person, which in the present case is the petitioner herein, such date will be the date of receiving the books of account or documents or assets seized or requisition by the AO having jurisdiction over such other person. In the case of the other person, the question of to 3287/Del/2024 pendency and abatement of the proceedings of assessment or 18 reassessment to the six assessment years will be examined with reference to such date."

18. In view of the above finding, the assessment framed u/s 143(3) of the Act for the A.Y. 2009-10 in the present case is not valid. Respectfully following the above cited decisions on an identical issue, the additional ground no. 4 in the present case is decided in favour of the assessee and in the result the assessment order is quashed as void.

19. Since in the above finding on the issue raised in additional ground no. 4 we have quashed the assessment order itself, the additions questioned by the assessee by way of other grounds of the appeal do not survive and, therefore, do not require any adjudication.

Also, the relevant Survey Folder (including their annexures) as well as the above referred statements of various employees of M/s Blue Ocean Travels Private Limited (PAN: AACCB3915C) have been perused and have been considered before drawing the above satisfaction that the seized/impounded documents/digital material did not pertain to and the

20. Similarly, the Hon’ble Delhi High Court while considering the similar issue in the case of Saksham Commodities Ltd. vs. ITO 2024 (4) TMI 461, relying on the decision of Sinhgad Technical Education Society (supra), decided the issue in favour of the assessee by observing as under :- to 3287/Del/2024 “53. Sinhgad Technical Education Society also constitutes a binding precedent in respect of the aforesaid proposition as would be evident from the Supreme Court noticing that the material disclosed pertained only to AY 2004-05 or thereafter and that consequently the Section 153C action initiated for AYs’ 2000-01 to 2003-04 would not sustain. It was this position in law as enunciated in that decision which came to be reiterated by our Court in Index Securities.”

on merits by the assessee are not adjudicated at this stage.

23. In the result, all the appeals filed by the assessee relevant to AYs 2014-15 to 2020-21 are allowed. Order pronounced in the open court on this 4th day of December, 2024.