PRL., COMMISSIONER OF INCOME TAX-3 vs. M/S I B C KNOWLEDGE PARK PVT LTD

- 1 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF DECEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH INCOME TAX APPEAL NO. 721 OF 2023 BETWEEN:

M/S. I B C KNOWLEDGE PARK PVT LTD, NO.150, DIAMOND DISTRICT, TOWER B, PENTHOUSE, OLD AIRPORT ROAD, BANGALORE 560 008. …RESPONDENT

THIS ITA IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, PRAYING THAT THIS HONBLE COURT MAY KINDLY BE PLEASED TO (1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 18/03/2021 PASSED

Digitally signed by K G RENUKAMBA Location: High Court of Karnataka

- 2 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

BY THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT- ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA NO. 327/BANG/2018 FOR A.Y 2007-08. (ANNEXURE-A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT.

THIS APPEAL COMING ON FOR ORDERS THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE V KAMESWAR RAO and HON'BLE MR JUSTICE S RACHAIAH

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE V KAMESWAR RAO)

The present appeal has been filed challenging the order dated 18.03.2021 passed by the Income Tax Appellate Tribunal (for short ‘ITAT’), whereby the ITAT has decided the two cross appeals filed by the parties herein.

- 3 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

“9. We noticed that the learned CIT(A) has followed the decision rendered by the Hon’ble High Court of Karnataka in assessee’s own case. For the sake of convenience, we extract the relevant portion of the decision rendered by the Hon’ble jurisdictional High Court on the legal issue:- 54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, section 158BD of the Act deals with undisclosed income of a third party. However, in so far as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages : one, at the stage when the reassessment is initiated, the second, at the stage during the course of reassessment and third, at a stage where the reassessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of the apex court in the case of Calcutta Knitwears (supra) and based on the said decision, the Central Board of Direct Taxes has also issued circular dated December 31, 2015, vide No. 24 of 2015.The relevant extract of the circular for ready reference can be extracted as under (see (2016) 380 ITR (St.) 32 ):

- 4 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

"The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation. 2. The hon'ble Supreme Court in the case of Calcutta Knitwears in its detailed judgment in Civil Appeal No. 3958 of 2014, dated March 12, 2014 (available in (2014) 362 ITR 673 (SC) ; 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 Assessing Officer before he transmits the record to the other Assessing Officer who has jurisdiction over such other person under section 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 Supreme Court, apply to proceedings under section 153C of the Income-tax Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by Central Board of Direct Taxes. 4. 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

- 5 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

notice of all for strict compliance. It is further clarified that even if the Assessing Officer 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. 5. 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." As per the aforesaid circular, at the time of or along with initiation of the proceedings, against the searched person or third party under section 153C or in the course of assessment proceedings under section 153C of the Act or immediately after the assessment proceedings are completed under section 153C of the Act, recording of satisfaction is required. 55. If the observations made by the Tribunal are considered in this regard, it is noted by the Tribunal that it is not necessary that satisfaction should be recorded that documents or valuable assets found in the course of search showed undisclosed income. In view of the aforesaid discussion, we do not think that such can be the correct position of law. 56. Further, in the judgments referred to by the learned counsel for the Revenue, where incriminating material leading to undisclosed income of another assessee was detected in a search operation, in those cases, reopening of the concluded assessment have taken place. There has been no single decision cited by the learned counsel for the Revenue where the

- 6 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

assumption of jurisdiction of the Assessing Officer is in the absence of any incriminating material or undisclosed income having been detected during the course of search leading to reopening of a concluded assessment. In the instant case, though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. Consequently, no satisfaction was recorded in the case of the assessee. We answer the substantial question of law No. 2 by holding that the Tribunal was not correct in holding that the assessment under section 153C was valid despite there being no satisfaction recorded to the effect that the documents found during the search on June 17, 2008 were incriminating in nature and prima facie represented undisclosed income.”

- 7 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

“1. "Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in by holding that there is recording of satisfaction by assessing authority showing that is incriminating material to make addition under the head undisclosed income and as such section 153C proceeding cannot be invoked ignoring that conditions set out in Section 153C are fully satisfied in facts of present case and Tribunal failed to consider mandate of section 153 of the Act"? 2. "Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in not considered that assessing authority had passed assessment order in accordance with parameters of Section 153C and object and intention of insertion of Said section has to be considered when same has been met subjectively in assessment order. 3. 'Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in ignoring that mere non mentioning of about incriminating materials in satisfaction cannot be reasons for quashing assessment order ignoring that there is undisclosed income which has escaped tax and same is unearthed by

- 8 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

Revenue in search operation conducted under section 132 of the Act"? 4. 'Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in following decision of this Hon'ble Court in case of assesse which has not reached finality and without considering the materials on record and ought to have dealt the matter on merits of the case"?”

- 9 -

NC: 2024:KHC:50758-DB ITA No. 721 of 2023

Sd/- (V KAMESWAR RAO) JUDGE

Sd/- (S RACHAIAH) JUDGE

SMC/List No.: 1 Sl No.: 29