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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue and the cross objection (C.O. for short) by the assessee arise out of the order of the learned Commissioner of Income Tax (Appeals)- 39, Mumbai (‘ld.CIT(A) for short) dated 28.08.2013 and pertains to the assessment year (A.Y.) 2006-07. The assessee’s appeal for assessment year 2008-09 is directed against the order of the ld. CIT(A) – 39, Mumbai dated 28.08.2013. Since the issues
2 M/s. Suresh Janardan Raut are common and connected these have been consolidated and disposed of by this common order.
2. The grounds of appeal read as under:
1. "Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) was justified in deleting the addition made in the case of the assessee on account of evidences gathered u/s,131 of the I.T. At, 1961, as per of investigation conducted in connection with search proceedings in the case of one Shri Madan Kolambekar." 2. "Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) was justified after having confirmed the correctness of assumption of jurisdiction u/s.153C of the IT., Act, 1961 in the case of the assessee, in ignoring the legal position that all the evidences, whether or not part of the documents seized/impounded, in course of search action, can form valid basis for the purpose of addition as the same were not available at the time of assessment finalized u/s.,143(3) of the I.T. Act, 1961. 3. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in ignoring the fact once sec.153C of the I.T. Act, 1961 is invoked what takes place is assessment or re-assessment of income of such other person in accordance with the provision of sec.153A of the I.T. Act, 1961 and the proviso which provides for abatement of pending assessment/re-assessment is only to avoid multiple proceedings for the same year and at the same time."
Brief facts of the case are as under:
There was an action under s. 132 of the Income Tax Act, 1961 (‘the Act' for short) on the Jay Corporation Group namely, Well Done Real Estate (P.) Ltd., Jaylaxmi Realty and Developers Pvt. Ltd., as well as Madan Kolambekar. Proprietor of Deva Realtors.
Certain documents and papers were seized from the office of Well Done Real Estate (P.)
Ltd., amongst which was a document showing the fund flow and fund utilization. The document contained an entry of fund transfer under the head “Suresh Raut and Mitra Mandal (DC)” amounting to Rs.3,75,50,000/-. A survey was also carried out at the 3 M/s. Suresh Janardan Raut residential and business premises of the assessee. Subsequently, notice was issued initiating proceedings under a 153C of the Act and the assessment has been completed under s. 143(3) r.w.s. 153C, determining the total income at Rs.1,52,39,178/- against the declared income of Rs.16,25,865/-.
4. The assessee inter alia challenged the validity of jurisdiction by submitting that no incriminating documents were found in the search. The brief facts of the case in this regard as noted by ld. CIT(A) which are undisputed were as under:
6.1 The A.O has examined the accounts maintained including impounded materials under s. 131, with respect to the regular business carried on, i.e. construction business . The A.O observed that cash payments had been made by the assessee to different persons, and that expenses were incurred in cash for various items. The total cash expenditure for the year was ascertained at Rs.1,20,09,027/- after examination of the impounded material; whereas as per the copy of accounts, only an amount of Rs.5,86,980/- is reflected. Hence the A.O brought to tax the balance cash expenditure of Rs.1,14,22,045/- (Rs.1,20,09,025 - 5,86,980) under s. 69C as unexplained expenditure. Also, for the reason that assessee failed to explain the source of cash payments 'made, and also that no TDS details were submitted in respect of said expenses, a sum of Rs.21,91,268/- has been further subject to tax. Under the said circumstances, an addition of Rs.1,36,13,313/- was made under s. 69C.
5. Before the ld. CIT(A), it was submitted that the original assessment order was passed u/s. 143(3) and in that search and survey, not a single piece of paper was found which depicts that any income which has been earned has not been disclosed. The ld. CIT(A) in this regard obtained remand report from the Assessing Officer (‘A.O.’ for short) and also obtained rejoinder from the above. The ld. CIT(A) gave a finding that no incriminating material has found during search. Hence, he held that since the original assessment was completed u/s.143(3), there was no pending assessment which could
4 M/s. Suresh Janardan Raut abate. Hence, the ld. CIT(A) found that the A.O. is revisiting the matter already concluded earlier which he found to be not permissible under the provision of the the law.
In this regard, he held as under:
7. I have carefully considered the matter. It. has been held that the proceedings under s. 153C have been validly initiated. Once notice has been issued under s. 153C and return in response thereto filed, the A.O proceeds to examine the seized documents pertaining to or relating to the assessee. It is an undisputed fact that the seized/impounded documents have not revealed any specified undisclosed income for the captioned year. It is also an admitted fact that the assessment in the present appeal was not pending on the date of initiation of action under s. 153C i.e. on 22.10.2010; the original assessment having been completed under s. 143(3) on 30.12.2008. As per the second proviso to s. 1 53C only assessment or reassessment pending before the A.O shall abate. It therefore follows that matters which have attained finality in original assessment cannot be revisted It is an admitted position that in the original assessment the A.O had called for and examined the books ' of accounts, bills, vouchers pertaining to the proprietary concerns. For the reason that the claim of expenses are not fully supported, the A.O rejected the book results and estimated income from the two proprietary business i.e. M/s. Shiv Constructions and M/s. Shiv Properties, at 5% of the turnover. The A.O is therefore, precluded from re-visiting the concluded assessment; under the circumstances, the question of enhancement or further addition to be made " in respect of an assessment that was completed on the date of initiation of proceedings under s. 153C does not have the sanction of law. The provisb provides for abatement of pending proceedings/assessment alone. The necessary corollary of the second proviso is that assessment or reassessment proceedings which have already been completed and assessment order passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In such cases where the assessment already stands completed, the Assessing Officer can reopen the assessment or reassessment already made without following the provisions of s. 147, 148 and 151 of the Act and determine the total income of the assessee. Reliance is placed on:- LMJ International Ltd., vs. DC1T (2008) 22 SOT 315 All Cargo Global Logistics Ltd. Vs. ACIT 137 ITD 0287
For the said reason, the grounds 2 and 3 are held in favour of the assessee.
Against the above order, the Revenue is in appeal before us.
5 M/s. Suresh Janardan Raut
We have heard both the counsel and perused the records. The ld. ld. Departmental Representative relied upon the orders of the A.O.
Per contra, the ld. Counsel of the assessee submitted that no incriminating material has been found during search and survey. Hence, he submitted that since the original assessment was completed earlier u/s. 143(3) of the Act and no incriminating material has been found relating to the addition being proposed in the assessment order, he submitted that the jurisdiction of the A.O. is bad in law. In this regard, the ld. Counsel of the assessee inter alia placed reliance upon the decision of the Hon’ble Apex Court decision in the case of CIT vs. Sinhgad Technical Education Society [2017] 397 ITR 344 (SC). In this case, the Hon’ble Apex Court had upheld the proposition that de hors any incriminating material, the assessment once concluded cannot be reopened u/s. 153C of the Act.
Upon careful consideration, we find that assessment in this case was earlier completed u/s. 143(3). There after pursuant to search action, notice were issued u/s. 153C. In the assessment proceeding u/s. 153C, the impugned addition was made de horse any incriminating material found in search. As settled by the Hon’ble Apex Court decision referred above, it is not permissible. Hence, we find that the revenue’s grounds are misconceived in light of the above Hon’ble Apex Court exposition. Hence, since this addition has been proposed de hors any reference to incriminating material, we uphold the order of the ld. CIT(A) in deleting the same.
6 M/s. Suresh Janardan Raut
Hence, we are of the considered opinion that the ld. CIT(A)’s order on this issue does not suffer from any infirmity. Hence, we uphold the same.
Assessee’s Cross Objection – CO No. 52/Mum/2015
In the C.O. it has been agitated that notice issued u/s. 153C is invalid and without jurisdiction. Since, we have already upheld the order of the ld. CIT(A), wherein it has been held that addition was not sustainable, inasmuch as no incriminating material were found regarding the addition. We are of the considered opinion that further adjudication on this issue is now infructuous. Hence, the C.O. filed by the assessee stands infructuous.
Assessee’s appeal – ITA No.1009/Mum/2014
The grounds of appeal read as under:
1 In the facts and circumstances of the case and in law the notice issued u/s 153C is invalid without jurisdiction and the assessment order passed in pursuance of the said invalid notice is void ab initio. 2 In the facts and circumstances of the case and in law the learned CIT(A) erred in enhancing addition made by the A. 0 from Rs.5,83,400/- to Rs. 12.43.837/- to the total income by invoking the provisions of Sec 69C in respect of cash expenditure duly disclosed in the regular books of accounts in the an assessment order passed u/s 153A rws 153C of the IT Act, 1961. 3 Reasons given by the learned A.O. for enhancing addition made by the A. O from Rs.5,83,400/- to Rs.12,43,837/- to the total income by invoking the provisions of Sec 69C in respect of cash expenditure duly disclosed in the regular books of accounts in the an assessment order passed u/s 153A rws 153C of the IT Act, 1961 are wrong, insufficient and contrary to the facts and evidence on record. 4 In the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition made by the A. O. of Rs.3,75,50,000/- being unexplained / undisclosed income of the appellant. Reasons given by learned CIT(A) for confirming the addition made by the A.O. of Rs.3,75,50,000/- being unexplained/undisclosed income of the appellant, are wrong, insufficient and contrary to the facts and evidence on record.
7 M/s. Suresh Janardan Raut
At the outset, in this case, the ld. Counsel of the assessee has submitted that the A.O.’s jurisdiction is invalid. In this respect, he submitted that there is no proper satisfaction notes in the case of searched person that incriminating material was found which belong to the assessee. In this regard, the ld. Counsel of the assessee placed reliance upon several case laws and also the CBDT Circular No.24 dated 31.12.2015.
We have carefully considered the submissions and perused the records. Brief facts of the case in this case are as under:
There was an action under s. 132 of the Act on the Jay Corporation Group namely, Well done Real Estate (P) Ltd., as well as Medan Kolambekar, Proprietor of Deva Realtors. Certain documents and papers were seized from the office of Well done Real Estate Ltd., amongst which vas a document showing the fund flow and fund utilization, marked as pages 64 & 65 of Annexure A-2. The document contained an entry under the head "Suresh Raut and Mitra Mandal (DC)" with the sum of Rs.3,75,50,000/- shown against the said entry. A survey was also carried out at the residential and business premises of the appellant. Subsequently notice was issued initiating proceedings under s.
153C of the Act and the assessment has been completed under s. 143(3) r.w.s. 153C, determining the total income at Rs.3,84,01,890/- against the declared income of Rs.2,68,490/-.
The assessee has raised a challenge to the jurisdiction before the ld. CIT(A). The first challenge in this regard was as under:
8 M/s. Suresh Janardan Raut i) The AO has issued notice under s. 153C without giving the satisfaction note recorded by the A.O and hence the assessment in pursuance of s. 153C is bad in law and void abinitio in view of the decision of the Apex Court in Manish Maheshwari vs. ACIT 289 ITR 341. The A.O has to record satisfaction that any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized belongs to any person other than the person searched. In the notice issued under s. 153C, nothing is mentioned in the said notice that the no rice is issued after due satisfaction of the A.O who was assessing the person searched. On the said preliminary ground, the notice under s. 153C requires to be quashed.
The ld. CIT(A) has dismissed this contention of the assessee by inter alia observing that the Act enjoins the prescription of the satisfaction only in the circumstances where the A.O. assessing the person searched and “other than the person searched” are different. He observed that in the present case, the A.O. being one and the same, for both the searched person and “person other than the person searched”, there is no question of handing over the seized material and hence the question of satisfaction too, prior to hand over, does not arise. He observed that even if it is assumed that the satisfaction has to be present, the Act does not mandate that such satisfaction note has to be handed over, communicated to the assessee, suo moto by the A.O. He further found that the Hon’ble Apex Court decision in the case of Manish Maheshwari is not applicable on the facts of the present case. Hence, he upheld the A.O.’s jurisdiction in this regard.
We have heard both the counsel and perused the records. We find that it is not disputed that there is no satisfaction on record in the case of the searched person that incriminating material relating to the assessee were found which is being handed over to the A.O. of the assessee. The satisfaction note is only in the case of the assessee which reads as under:
9 M/s. Suresh Janardan Raut
Search and seizure action u/s. 132 of the Income-tax Act, 1961 was conducted in the cases of Mr. Madan Kolambekar Group on 22.01.2009. Mr. Madan Kolambekar was a dealer in the business of real estate, and he also acted as land aggregator in respect of land acquisitions made by various entities of Jai Corp Group. Mr. Suresh Raut (i.e. the assessee) and one Mr. Sandeep Tatode are close associates of Mr. Madan Kolambekar. The assessee is also a nominated farmer of M/s. Deva Realtors which is a proprietary concern of Mr. Madan Kolambekar. The assessee has acquired various agricultural lands/other lands in his name as nominated farmer of M/s. Deva Realtors also. Search and seizure action u/s. 132 in the case of Mr. Sandeep Tatode were also conducted in his residential premises at D-88, Ashwatha Co-op. Housing Society, Sector 4, Sanpada, Navi Mumbai on 22.01.2009. During the course-of the search and seizure, certain documents were seized as per Annexure A to Panchanama dated 21.02.2009. On perusal of the seized documents, it is found that page nos. 28 to 47 of Annexure A/7 are power of attorney given by various farmers to Mr. Suresh Raut (i.e. the assessee) and these seized documents belong to Mr. Suresh Raut. In view of the above, I am satisfied that the above-mentioned seized documents belong to a person i.e. Mr. Suresh Raut (the assessee), other than the person referred to in section 153A wifh/n the meaning of provisions of section 153C of the Act. Accordingly, proceedings u/s. 153C of the Act are initiated in the case of Mr. Suresh Raut. Issue notices u/s. 153C of the Act in the case of Mr. Suresh Raut.
We find that the above satisfaction note is in the case of the assessee and no such satisfaction note is there in the case of the searched person which records that incriminating material belonging to the assessee has been found which is being handed over to the A.O. of the assessee. Though the ld. CIT(A) has not disputed the fact, he has distinguished this on the ground that the A.O. of the searched person and the assessee are the same. We find that the CBDT in this regard has issued a Circular No.24 dated 31.12.2015 which reads as under:
SECTION 153C, READ WITH SECTION 158BD, OF THE INCOME-TAX ACT, 1961 - SEARCH AND SEIZURE - ASSESSMENT OF INCOME IN CASE OF OTHER PERSON - RECORDING OF SATISFACTION NOTE UNDER SECTION 158BD/153C OF SAID ACT CIRCULAR NO.24/2015 [F.NO.279/MISC./140/2015/ITJ], DATED 31-12-2015
10 M/s. Suresh Janardan Raut 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 12-3-2014 [2014] 43 taxmann.com 446 (SC) (available in NJRS at 2014-LL-0312-51) 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 AO who has jurisdiction over such other person u/s 158BD. The 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 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. "
3. 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.
In view of the above, filing of appeals on the issue of recording of satisfaction note should also be 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.
From the above, we find that the CBDT in the above said Circular has opined that the existence of a proper satisfaction note in the case of a searched person is sine-quo-non for initiating action against the person other than the searched person. The CBDT has come out with the said Circular in view of the several judicial pronouncement on the subject. Since in the preset case it is undisputed that there is no proper satisfaction note in 11 M/s. Suresh Janardan Raut the case of the searched person recording that incriminating material pertaining to the assessee having been found and handed over to the A.O. of the assessee, the validity of the assumption of jurisdiction in this case is liable to fail. Accordingly, we set aside the order of the ld. CIT(A) and hold that the jurisdiction of the A.O. in this regard is bad in law. Hence, the assessment is quashed on account of lack of jurisdiction. Since we have already held that the A.O.’s action lacks jurisdiction, the adjudication on merits of the case is only of academic interest. Hence, we are not engaging into the same.
In the result, the appeal by the Revenue is dismissed and the appeal by the assessee is partly allowed and the assessee’s cross objection is dismissed as in fructuous.
Order pronounced in the open court on 18.09.2018