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Facts
A search was conducted on the Apple Group on 11.11.2014, of which Apple Commodities Ltd. (the assessee) is a part. The Assessing Officer (AO) initiated proceedings under Section 153C against the assessee for AYs 2009-10 and 2010-11, making additions for unexplained share capital and premium. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, finding no incriminating material belonging to the assessee and that the jurisdictional conditions for issuing a Section 153C notice were not satisfied. The Revenue appealed this deletion, while the assessee filed cross-objections challenging the validity and limitation of the Section 153C notice.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that the jurisdictional conditions for invoking Section 153C were not met, as no incriminating material belonging to the assessee was found during the search and the AO's satisfaction note lacked specific assessment years. Additionally, the Tribunal held that the assessments for AYs 2009-10 and 2010-11 were barred by limitation, as these years fell outside the statutory six-year block period when reckoned from the date of recording satisfaction (02.12.2016), in line with various Supreme Court and High Court precedents.
Key Issues
1. Whether the notice and assessment under Section 153C were valid in the absence of incriminating material belonging to the assessee and proper satisfaction recording by the AO for the specific assessment years. 2. Whether the assessment years in question fell within the statutory limitation period for proceedings under Section 153C.
Sections Cited
Section 153C, Section 153A, Section 132, Section 132A, Section 68, Section 139, Section 147, Section 148, Section 149, Section 151, Section 153, Section 250(4)
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Income Tax Appellate Tribunal, DELHI BENCH “A” NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI CHALLA NAGENDRA PRASAD
आदेश /O R D E R PER G.S. PANNU, V.P.
These appeals are filed by the Revenue and Cross Objection by the Assessee against the common order of the Ld.CIT(Appeals)-4, Kanpur dated 28.12.2018 for the AY 2009-10 to 2010-11. The Revenue has raised the following common Grounds in its both appeals: “1. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) erred in applying the decision of the Hon’ble Supreme Court in the case of M /s Sinhgad Technical Education Society, which was distinguishable on the facts of the present case as the same pertained to prior period to 01.04.2005 whereas after 01.04.2005 153C notice can be issued when AO is satisfied that seized material has a bearing on the assessment of income of other person. 2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in law while holding that there was no incriminating material for the issuance of notice u/s 153C, without appreciating that in the satisfaction note the AO had brought out the facts and circumstances, which indicated that the Assessee company has entered into transactions which remained unexplained hence such documents constituted “incriminating material” for the purpose “of the issue of notice u/s 153C in the context of assessee. 3. Whether on facts and circumstances of the case and in law, the Ld CIT(A) erred in not appreciating that after 01.4.2005 the test of issue of notice u/s 153C is availability of seized material Which has bearing on assessment of income which has to be only in nature of prima facie belief having live nexus & not in nature of absolute evidence based on detailed investigation.
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That the appellant craves leave to add or amend any other more ground of appeal as state above as and when needs for doing so may arise. 5. The order of the Ld CIT(A) is erroneous in law and on facts of the case and is liable to be set aside and the order of the AO be restored.” 2. The only issue to be adjudicated in the appeals of the Revenue is as to whether the additions made by the Assessing Officer as an unexplained investment being share capital and share premium are sustainable in the absence of incriminating material seized in the course of search. 3. The Ld. Counsel for the assessee submits that additions towards share capital and share premium were made by the AO based on the ledger accounts, confirmation accounts by various parties which are all part of regular books of accounts and there is no incriminating material was seized in the course of search belonging to the assessee so as to make the additions while completing the assessments u/s 153C/144 of the Act. The Ld. Counsel submits that as there was no incriminating material seized in the course of search which belongs to the assessee the Ld.CIT(A) deleted the additions following the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Sinhagad Technical Education Society (397 ITR 344). 4. On the other hand, the Ld. DR strongly supported the orders of the AO. 5. We have heard the rival contentions, perused the orders of the authorities below. We find that the Ld.CIT(A) after analyzing the satisfaction note recorded by the DCIT (Central Circle), the materials found in the course of search concluded that no 3
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incriminating documents found as a result of search which belong to the assessee company. The Ld.CIT(A) also observed that AO failed to demonstrate that seized document belongs to the assessee company and no seized documents were found as a result of search have a bearing on the determination of total income of the assessee and, therefore, jurisdictional condition for issue of notice u/s 153C is not satisfied. The Ld.CIT(A) while holding so observe as under: - “5.1 Ground no. 1 to 5 for each assessment year relate to the legal validity of notice issued u/s 153C of the Act. During this appeal proceeding, Ld. A.R. of the appellant has submitted that the assessment framed u/s 153C of the Act are bad in law and without jurisdiction because of the following reasons; i. Notice issued u/s 153C by the A.O. is without jurisdiction and barred by limitation. ii. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no satisfaction as required u/s 153C of the Act has been recorded by the assessing officer of the searched person. iii. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no document(s) belonging to the assesses was found and seized during the course of search. iv. That the proceedings initiated u/s 153C and the consequent assessment order passed are liable to be quashed as no incriminating documents material has been found and there is no co-relation of year wise incriminating documents mentioned in the assessment order. v. The additions made by the A.O. are beyond the scope of jurisdiction of section 153C of Income Tax Act, 1961.
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The Ld. A.R. of the appellant has also submitted that after the decision of Hon’ble Supreme Court in the case of PCIT-III, Pune Vs. Sinhgad Technical Education Society, the law is crystal clear, that issue of notice u/s 153C without incriminating material for the’ relevant assessment year is legally not sustainable. 5.2 Upon the legal challenge of Id. A.R., the AO, vide this office letter F. No. CIT (A)-IV/KNP/Remand Report/2018-19/171 dated 09.10.2018 was specifically requested to comment on the legal contention of the appellant. The letter of this office is reproduced here-in-under: “Sub: Remand; Report u/s 250(4) of the Income Tax Act In the case of M/s. Apple Commodities Ltd. for the A.Y. 2011-12 to A.Y. 2013-14 (3 Years) PAN:AADCA0300K- Regarding- “Please find enclosed herewith copies of Submission filed by the appellant before the undersigned on 01.10.2018. Vide above submissions, the appellant has challenged legal validity of the issuance of notice u/s 153C of the Act. It was submitted by (the appellant that appellant has challenged that AO of the searched person has not recorded the satisfaction that seized documents belongs to the appellant. Further, it has challenged by the appellant that no incriminating material was found for above said assessment years for which notice u/s 15 3C of the Act was issued. Appellant has also submitted that satisfaction recorded by AO does not fulfill the requirement –of provisions of section 153C of the Act. The appellant also relied upon the finding given by various Hon’ble High Court/Hon’ble Supreme Court in support of its legal challenge Hence, notice issued u/s 153C of the Act and the assessment framed is ab-intio-invalid.
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In the context, you are requested to please go through the contents of said legal submissions and your detailed report u/s 250(4) of the income Tax Act, to this office positively by 22/10/2018. The matter may please be given ‘top priority’ keeping in view the directions given in Central Action Plan 2018-19.” 5.3 The AO submitted his report vide letter F. No. DCIT/CC-IT/Noida/Remand Report/2018-19/223 dated 22.11.2018 which is reproduced herein under:
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5.4 The comments of the appellant were also called for on the report of the AO. The appellant submitted its comments vide written submission, which is reproduced as under: “Please refer to remand report dated 22.11.2018 of the Assessing Officer, our rejoinder is as under: 1. Notice issued u/s 153C by the AO is without jurisdiction and barred by limitation. 2. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no satisfaction as required 7
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u/s 153C of the Act has been recorded by the assessing officer of the searched person. 3. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no document(s) belonging to the assessee was found and seized during the course of search. 4. That the proceedings initiated u/s 153C and the consequent assessment order passed are liable to be quashed as no incriminating documents material has been found and there is no co-relation of year wise incriminating documents mentioned in the assessment order. 5. The additions made by the A. O. are beyond the scope of jurisdiction of section 153C of Income Tax Act, 1961. In the remand report, the A.O. has not rebutted the appellant’s submission. The A.O. has only .made vague remarks without bringing on record any incriminating material or evidence. In our submission we have referred to provisions of law and various judicial pronouncements including those of Hon’ble Apex Court. The assessing officer has not made any rebuttal. As a matter of fact, in the remand report the A.O. has realized that on legal issues the order passed by him is not sustainable and therefore as per para 8 of the remand report the A. O. has mentioned that Quote on the legal issues raised by the appellant your goodself may take appropriate decision in accordance with law Unquote. In view of the above, the orders passed by the Assessing Officer are liable to be quashed on legal issues itself. In view of the above, it is submitted that the additions made by the A.O. are liable to be deleted.” 5.5 The appellant has submitted another detailed written submission dated 28.12.2018, which is common for A.Y. 2009-10 to. A.Y. 2014-15, on the satisfaction recorded by the AO, which is reproduced as under: 8
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“In 1st para of the satisfaction note, the assessing officer has made general observation with regard to business activities of the companies and there is nothing incriminating. 2. In para 2 to 3.2 of the satisfaction Note the A.O. has not referred to any seized document. He has merely referred to certain information gathered from Hard Disk with regard to certain loans and share capital received by the company. As per the A.O. himself these are the information gathered and not the document seized. Therefore, even the primary condition of recording satisfaction based on the seized document has not been fulfilled leave alone the question of fulfilling the requirement that the seized documents must belong to the assessee. Moreover, merely receipt of loans and share capital cannot be a ground for reopening of assessment u/s I53C of the Act. Every company will have some share capital and according to the methodology of the assessing officer if during the course of search in case of a person, any information relating to any other person being a company is found, proceedings u/s I53C can be initiated on the ground that the company has received share capital. Your goodself appreciate that is not the position of law. The assessing officer of the searched person has to records satisfaction that Documents belonging to (and not merely any information relating to or pertaining to) such other person has been found and seized during the course of search. The documents found must be of incriminating nature. The documents found must has a bearing on the determination of income of the year for which notice u/s I53C is being issued. Thus year wise analysis of the seized material is required to be made and stated in the satisfaction Note. In the present case of the assessee, the above requirements have not been fulfilled.
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In para 4 of the satisfaction Note the A.O. has referred to Annexure LP-2J & LP-22 and LP-I to LP- 18. In this regard, it is submitted that in the entire satisfaction Note the A.O. has not recorded any satisfaction that these seized annexures belong to the assessee. Without prejudice to the above, it is submitted that (here is nothing incriminating in the aforesaid seized-material. The page wise description / contents of the aforesaid seized material is given separately and it is self-evident that there is nothing incriminating in these documents. As a matter of fact, the assessing officer has not made any addition in the assessment order based on these documents. 4. In para 5 of satisfaction Note the A.O. has referred to annexure LP-I and LP-2 page No. 23 to 33 stating them to be transactions with offshore units in Hongkong & Malasiya. In this regard it is submitted that in the satisfaction Note, the A.O. has nowhere recorded that these documents belong to the assessee company. Without prejudice to the above, it is submitted that the observation made by the assessing officer are factually erroneous. Page No. 23 to 33 of LP-1 contains draught survey report relating to coal, ‘ outgoing message report. These are not even pertaining to the assessee leave alone the question of belonging to the assessee. There is nothing incriminating in these documents. The assessing officer has also not made any addition on the basis of these documents. Similarly Page No. 23 to 33 of LP-2 are copy of Valuation report of Property bearing no. A-248, Defence Colony, Delhi in the name of Mrs. Ruchi Garg done on behalf of State Bank of India. These are also not even pertaining to the assessee leave alone the question of belonging to the assessee. There is nothing incriminating in these documents. The Assessing Officer has also not made any addition on the basis of these documents.
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In para 5.1 of satisfaction Note the A.O. has referred to page No. 8 & 9 of annexure LP-3. In this regard it is submitted that in the satisfaction Note, the A.O. has nowhere recorded that these documents belong to the assessee company. Without prejudice to the above, it is submitted that the observation made by the assessing officer arc factually erroneous. Name of the assessee company is nowhere mentioned on these pages. As a matter of fact, even as per the details tabulated in the satisfaction Note, the name of the assessee company is nowhere appearing. These are not even pertaining to the assessee leave alone the question of belonging to the assessee. There is nothing incriminating in these documents. 6. In para 6 of the satisfaction Note the A.O. has mentioned that survey ids 133A of the Act was conducted at the premises of the assessee and various documents were found and impounded. The A.O. has not pointed out or analysis any of the such document stated to be impounded diming the course of survey. Even otherwise, it is submitted that documents impounded during survey cannot be the basis for initiating proceedings u/s 153C of the Act. The prerequisite for invoking provisions of section 153C of the Act is that there should be a search in case of a person and during that search documents belonging to some other person must be found during the course of search.” Further, Id, A.R. of the appellant has submitted the detailed page wise analysis of the seized document found, as a result of search in the case of) M/s. Apple Group of Companies ranging from LP-1 to LP-22, which is part and parcel of the appeal record. From the page wise detailed analysis Id. A.R. of the appellant has submitted that, the seized document neither belong to the appellant company nor it is incriminating in nature. Thus, the twin imperative conditions as stipulated under provision of section u/s 153C of the Act are not satisfied in the present facts of the case.
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5.6 The undersigned has carefully gone through the assessment order, written submission, remand report by Assessing Officer and rejoinder filed as well as verbal arguments of the Ld. A.R. For the sake of brevity satisfaction note recorded by the A,0, is scanned and reproduced here-in-under:
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P.T.O.
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5.7 Detailed perusal and scanning of the satisfaction note recorded by the AO reveals the following facts: i. AO has not mentioned the assessment years for which, it belongs to. There appears to be only one satisfaction note recorded by AO in relation to appellant company. Thus it is presumed that, satisfaction note is common for all the A.Y. 2009-10 to A.Y. 2014-15 (6 Years). ii. AO has not mentioned the specific Seized documents, which belongs to the appellant company. Thus, no satisfaction is recorded by the AO of searched person to establish the fact that specific seized document indeed belongs to the appellant company. iii. AO has mentioned in para 4 of the satisfaction note LP-21, LP-22 and LP-1 to LP-18. Further, AO has noted seized document page 23 to 33 of LP-2 in para - 5 of the satisfaction note. AO has also recorded pages 8 & 9 of IP-3 in para 5.1 of the satisfaction note. However, AO has not recorded the-finding that this seized document indeed belongs to the appellant company and is incriminating in nature. Perusal of these documents reveals that neither they belong to the appellant company nor they are in incriminating nature. AO has not made any addition on the basis of
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these seized documents. Ld. A.R. of the appellant vide his submission dated 28.12.2018, which is .reproduced in para 5.5 of this order, has analyzed each seized document and correctly concluded that neither they belong to appellant nor they are incriminating in nature. iv. Further, AO has not recorded the finding in the satisfaction note that any specific seized documents have the bearing on the determination of total income or any seized document is incriminating in nature. It is observed from the assessment orders framed by the AO that additions were made on account of share capital/share premium/unsecured loans, disallowance of interest and enhancement of gross profit or unexplained foreign remittances. However, AO has not discussed or mentioned any incriminating seized document, which is found and seized, as a result of search and belonging to the appellant company for making such additions in the assessment orders. It is evident from the assessment order that all the additions made by AO are not based on any seized incriminating document. On the other hand Id. A.R. of the appellant has submitted pagewise detailed analysis of LP-1 to LP-22, which is part of appeal proceedings, to demonstrate that twin imperative conditions of provisions of section 153C of the Act i.e. i. Satisfaction of AO of searched person that seized document indeed belongs to the-person whose case is covered u/s 153C of the Act, and ii. The seized document is having its bearing on the determination of - acme meaning thereby that seized documents are incriminating in nature, isnot fulfilled in the present facts of the case. In fact, there does not exist any incriminating document as a result of search which ‘belong to’ the appellant company. The investments reflected in the balance sheet of M/s. Apple Commodities Ltd. cannot be taken as incriminating because these are the part of its regular books of account and already disclosed by the investing company as well as M/s. Apple
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Commodities Ltd in the return of income. All additions made by the Assessing Officer are either from balance sheet or from profit A loss account, for which, no incriminating document was found and seized during search action. Hence, it is concluded that there exist no incriminating seized material for these relevant assessment year to justify issue of notice u/s 153C of the Act. The AO has not made any addition on the basis of any incriminating document found and also, additions made by AO does not co-relate with satisfaction noted by him. In absence of incriminating seized material relating to assessment year under consideration, action u/s 153C of the Act cannot be treated as valid in the eye of law. 5.8 The proceedings u/s 153C of the Act are very specific and clearly explained in the Act. For the sake of clarity, relevant previsions of Act is 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, 69belongs 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 for the 20
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relevant assessment year or years referred to in sub-section (1) of section 153A]:]” A plain reading of provision u/s 153C makes it abundantly clear that some imperative condition need to be satisfied by the AO, prior to the issue notice u/s 153C of the Act. This pre-condition includes: i) Existence of undisclosed/unexplained asset or incriminating seized documents against the appellant, as a result of search. ii) Recording of satisfaction by the AO of the person searched that, the undisclosed assets or incriminating document found as a result of search should "belongs to" the appellant, for relevant assessment year. iii) Proper satisfaction is to be recorded by the AO for the relevant assessment year for issuance of notice u/s 153C. All the above three conditions are to be satisfied cumulatively and simultaneously as per provisions of section 153C of the Act. Non satisfaction of any of the pre-conditions mentioned here in above, would result in notice u/s 153C of the Act legally unsustainable or invalid, In the present facts of the case AO has failed to demonstrate that, seized document belongs, to the appellant company and no seized documents were found as a result of search and have bearing on the determination of total income of the appellant company. Hence, imperative jurisdictional condition for issue of notice 153C of the Act is not satisfied. 5.9 Hon'ble Supreme Court in the case of PCIT-3, Pune Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) has held that the nexus between issue of notice u/s 153C and the incriminating material found as a result of search must exist. Hon'ble Supreme Court in para 13 of the order has observed that one of the jurisdictional conditions precedent to the issue of a notice u/s 153C of the Act is that “money, bullion, jewellery or other valuable article or thing” or any “books of account or document must be seized or requisitioned for the relevant assessment year for issue of notice u/s 153C of 21
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the Act.” The observation of the Supreme Court in para 18 of the order mentioned here in above is reproduced below: “The ITAT permitted this additional ground by giving a reason that it jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.” Thus, facts of the instant case are squarely covered by the ratio of judgment mentioned here-in-above. 5.10 Hon'ble Delhi High Court in para 31 has held in the case of Index Security Pvt. Ltd [86 taxmann.com 84 (Del)] as follows:
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“As regards the section jurisdictional requirement viz, that the seized documents must be incriminating and must relate to the A.Ys. whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Tax-Ill, Pune Vs. Sinhgad Technical Education Society (Supra) settles the issue and holds this to be an essential requirement. The decision of this Court in CIT-7 Vs RRJ Securities (2016) 380ITR 612 (Del) and ARN Infrastructure India Ltd. Vs A CIT [2017] 394ITR 569 (Del) also held that in order to justify the assumption of jurisdiction under section 153Cof the Act the documents seized must be incriminating and must relate to each of the A Fs whose assessments are sought to be reopened." Thus, by now, it is a settled law that notices u/s 153C of the Act is ab-initio-invalid in absence of incriminating seized material. From the plain reading of language of section 153C of the Act and various judicial pronouncement cited herein above, it is abundantly clear that in order to reopen the assessment of other person u/s 153C of the Act for the assessment year earlier to the year of search, direct correlation must exist between existence of incriminating material and relevant assessment years. In the instance case, admittedly, additions are not based on any incriminating document found, as a result of search. Further, AO has not recorded the satisfaction for these relevant assessment years, as envisaged u/s 153C of the Act. In fact, no assessment year is mentioned in the satisfaction note recorded by the AO. 5.11 In view of the detailed discussion mentioned here in above end respectfully following the judgement of the Supreme Court in the case of Sinhgad Technical Educational Society, it is concluded that notice u/s 153C issued by the AO need to be treated as ab-initio invalid and legally not sustainable, therefore, assessment framed on the basis of legally unsustainable notice is hereby quashed and annulled. Thus, these legal grounds of appeals i.e. for A.Y. 2009-
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10 to A.Y. 2014-15 are decided in favour of the appellant.” 6. It could be observed from the above, it is the finding of the Ld.CIT(A) that there is no seized materials impounded in the course of search belong to the assessee. After analyzing the satisfaction note of the DCIT (Central Circle) the Ld.CIT(A) held that the three conditions enumerated in Section 153C of the Act are not satisfied cumulatively and simultaneously. It is the finding of the Ld.CIT(A) that in the case of the assessee admittedly additions are not based on any incriminating document found as a result of search and AO has not recorded the satisfaction for the relevant assessment years as envisaged u/s 153C of the Act. It is also the observation of the Ld.CIT(A) that in fact no assessment year is mentioned in the satisfaction note recorded by the AO and, therefore, conditions stipulated in Section 153C have not been satisfied cumulatively and simultaneously. Non-satisfaction of any of the pre-conditions mentioned in the provision of Section 153C of the Act would result in notice under 153C legally unsustainable or invalid. The ratio of the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Sinhagad Technical Education Society (supra) and the decision of the Hon’ble Delhi High Court in the case of Index Security Pvt. Ltd. (86 taxmann.com 84) was rightly applied to the facts of the assessee’s case. Thus, we see no infirmity in the orders passed by the Ld.CIT(A). The same is sustained. Accordingly, both the Revenue’s appeals are dismissed in the aforesaid manner.
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Assessee’s Cross Objections
The Assessee has raised various common grounds, however, he argued one solitary issue raised in Ground No. 1 in both the Cross Objections, which read as under:- “On the facts and circumstance of the case and in law, the notice u/s. 153C issued by the Assessing Officer is bad in law, barred by limitation, without jurisdiction and illegal.” 8. Ld. AR submitted that the notice u/s. 153C issued for AY 2009-10 & 2010-11 are without jurisdiction and barred by limitation. It was further submitted that in a case of searched person, the block of 6 years for assessments are 6 years immediately proceedings the year of search. For instance, as mentioned in the assessment order, search u/s. 132 was conducted in the Apple Group on 11.11.2014. Thus, the date of search falls in AY 2015-16 in the case of Apple Group. Accordingly, the AO in the case of searched person was empowered to initiate the proceedings u/s. 153A for immediately preceding six years from AY 2009-10 to AY 2014-15. He further submitted that in a case of “person other than the searched person” (like the case of assessee where no search has been conducted but the proceedings have been initiated on the ground that documents relating to the assessee has been found from the searched person) provisions of section 153C are applicable and in such case, the block of 6 years will be immediately preceding the year in which satisfaction u/s. 153C of was recorded. It was the further say of the Ld. AR that in the instant case the AO has recorded satisfaction on 2.12.2016, therefore, at the earliest, it is the date of 2.12.2016, when the 25
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AO can be presumed to have got the documents in his capacity as AO of the assessee, on the basis of which proceedings u/s. 153C have been initiated. This date of 2.12.2016 falls in the previous year 2016-17 releavnt to AY 2017-18. The immediately preceding six years are AY 2011-12 to AY 2016-17. Thus, the AY 2009-10 and AY 2010-11 are clearly out of block of 6 years. Hence, he requested to quash the assessment. In support of his contention, he relied upon the following decisions:- i) CIT vs. Jasjit Singh 2023 (10) TMI 572 (SC). ii) CIT vs. RRK Securities Ltd. [2015] 62 taxmann.com 391 (Delhi) (Delhi High Court.) iii) ARN Infrastructure India Ltd. Vs. ACIT [2017] 81 Taxmann.com 260 (Delhi) (Delhi High Court). iv) CIT vs. Sarwar Agency P Ltd. 397 ITR 400 v) Apple Sponge and Power Ltd. Vs. DCIT (ITA No. 7638/Del/2018 AY 2015-16) – ITAT, Delhi decision dated 25.5.2022. 8.1 The Ld. CIT(DR) strongly supported the findings of the Assessing Officer. 9. We have heard the rival contentions and perused the orders of the authorities below. We find that in this case date of search was 11.11.2014 and the Date of recording of satisfaction u/s. 153C was 02.12.2016. We are of the considered view that in a case of searched person, the block of 6 years for assessments are 6 years immediately proceedings the year of search. As the search u/s. 132 was conducted in the Apple Group on 11.11.2014, hence, the date of search falls in AY 2015-16 in the case of Apple Group. Accordingly, the AO in the case of searched person was empowered to initiate the proceedings u/s. 153A for immediately preceding six years from AY 2009-10 to AY 2014-15. 26
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We further observed that in a case of “person other than the searched person”, provisions of section 153C are applicable and in such case, the block of 6 years will be immediately preceding the year in which satisfaction u/s. 153C of was recorded. In the instant case the AO has recorded satisfaction on 02.12.2016, hence, at the earliest, it is the date of 2.12.2016, when the AO can be presumed to have got the documents in his capacity as AO of the assessee, on the basis of which proceedings u/s. 153C have been initiated. Hence, this date of 02.12.2016 falls in the previous year 2016-17 relevant to AY 2017-18. The immediately preceding six years are AY 2011-12 to AY 2016-17. Thus, the AY 2009-10 and AY 2010-11 are clearly out of block of 6 years and therefore, the assessment order deserve to be quashed being invalid. 9.1 We note that Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh 2023 (10) TMI 572 has dealt the similar issue and observed as under:- “4. Notice was issued by the concerned jurisdictional A.Os. to the said assessees who contended that the period for which they were required to file returns, commenced only from the date the materials were forwarded to their A.Os. The Revenue, on the other hand, urged that the date (relatable to the period for which six years returns were to be filed by the assessee) was to be from the date when the search and seizure proceedings were conducted, in respect of the main assessee under Section 132. 5. The impugned order upheld the order of the Income Tax Appellate Tribunal (hereinafter referred to “ITAT”) which in turn 2 affirmed the assessee’s arguments. 6. It is submitted on behalf of the revenue by Ms. Bagchi, learned counsel that the impugned order is erroneous because 27
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the date referred under proviso to Section 153(1) is relatable to the second proviso to Section 153A, only as far as it concerns abatement. The revenue relied upon the ruling of a Division Bench of the Delhi High Court, reported as “SSP Aviation Ltd. vs. Deputy Commissioner of Income Tax” reported in (2012) 346 ITR 177. 7. Sections 153A and Section 153C of the Income Tax Act, 1961 to the extent they are relevant are extracted below:- ”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 search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 61[but on or before the 31st day of March, 2021], the Assessing Officer 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 and for the relevant assessment year or 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 under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is 3 made and for the relevant assessment year or years: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation 28
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of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate:….” “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 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 under section 132A in the second proviso to sub- section 4 (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 rules 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 29
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made 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.” 8. In SSP Aviation (supra) the High Court inter alia reasoned as follows:- “14. Now there can be a situation when during the search conducted on one person under Section 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 Assessing Officer has to first be satisfied under Section 153C, which provides for the assessment of income of any other person, i.e., 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 document to the Assessing Officer having jurisdiction over the other person. Thereafter, the Assessing Officer 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 under Section 5 132 or the requisition under Section 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 Assessing Officer having jurisdiction over such other person. In the case of the other person, the question of pendency and abatement of the proceedings of assessment or reassessment to the six assessment years will be examined with reference to such date.” 30
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It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under Section 153-C was enacted. The revenue argued that the proviso [to Section 153(c)(1)] is confined in its application to the question of abatement. 10. This Court is of the opinion that the revenue’s argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials – of the search party, under Section 132 – would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually “relate back” as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into 6 proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate. For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee’s prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this Court adopts. 11. For the foregoing reasons, the Court finds no merit in these appeals; they are accordingly dismissed, without order on costs.” 9.2 Hon’ble Delhi High Court has dealt exactly the similar issue in the case of CIT vs. RRJ Securities Ltd. (2015) 62 taxmann.com 391 (Delhi) wherein, it has been held as under:- “24. As discussed hereinbefore, in terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed 31
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as the date of handing over of assets/documents belonging to the Assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee. Further proceedings, by virtue of Section 153C(1) of the Act, would have to be in accordance with Section 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. In this case, it would be the date of the recording of satisfaction under Section 153C of the Act, i.e., 8th September, 2010. In this view, the assessments made in respect of assessment year 2003-04 and 2004-05 would be beyond the period of six assessment years as reckoned with reference to the date of recording of satisfaction by the AO of the searched person. It is contended by the Revenue that the relevant six assessment years would be the assessment years prior to the assessment year relevant to the previous year in which the search was conducted. If this interpretation as canvassed by the Revenue is accepted, it would mean that whereas in case of a person searched, assessments in relation to six previous years preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the AO would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of Section 153C(1) of the Act, which construes the date of receipt of assets and documents by the AO of the Assessee (other than one searched) as the date of the search on the Assessee. The rationale appears to be that whereas in the case of a searched person the AO of the searched person assumes possession of seized assets/documents on search of the Assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is 32
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satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the Assessee's income for that year.” 9.3 Further, Hon’ble Delhi High Court in the case of ARN Infrastructure India Ltd. Vs. ACIT (2017) 81 taxmann.com 260 (Delhi) has held as under:- “12. The decision in CIT-7 v. RRJ Securities Ltd. (supra) is categorical that under Section 153 C of the Act, the period of six years as regards the person other than the searched person would commence only from the year in which the satisfaction not is prepared by the AO of the searched person and a notice is issued pursuant thereto. The date of the Satisfaction Note is 21st July, 2014 and the notice under Section 153 C of the Act was issued on 23rd July 2014. The previous six AYs would therefore be from AY 2009-10 to AY 2014-15. This would therefore not include AYs 2007-08 and 2008-09. The decision in CIT-7 v. RRJ Securities Ltd. (supra) is also an authority for the proposition that for the proceedings under Section 153C to be valid, there had to be a satisfaction note recorded by the AO of the searched person.” 9.4 Hon’ble Delhi High Court in the case of Pr. CIT vs. Sarwar Agency P. Ltd. 397 ITR 400 has observed and held as under:-
‘10. Mr. Salil Aggarwal, learned counsel for the Assessee, has drawn the attention of the Court to the recent amendment made in Section 153 C of the Act by the Finance Act, 2017 with effect from 1st April 2017. This amendment in effect states that the block period for the searched person as well as the 'other person' would be the
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same six AYs immediately preceding the year of search. This amendment is prospective. 11. Mr. Ashok Manchanda, learned Senior Standing counsel for the Appellant, sought to pursue this Court to reconsider its view in RRJ Securities (supra). The Court declines to do so for more than one reason. First, for reasons best known to it, the Revenue has not challenged the decision of this Court in RRJ Securities (supra) in the Supreme Court. The said decision has been consistently followed by the authorities under this Court as well as by this court. Thirdly, the recent amendment to Section 153 C(1) of the Act states for the first time that for both the searched person and the other person the period of reassessment would be six AYs preceding the year of search. The said amendment is prospective. 12. Consequently, no substantial question of law arises from the impugned order of the ITAT. The appeal is, accordingly, dismissed.” 9.5 The Coordinate Bench of the Delhi Tribunal in the case of Apple Sponge and Power Ltd. Vs. DCIT (ITA No. 7638/Del/2018 AY 2015-16) – vide its decision dated 25.5.2022 has held as under:- “8. Having heard the rival contentions, we have carefully perused the orders of the authorities below. We are of the considered view that in the case of a person other than a "Searched Person", provisions of section 153C of the Act are applicable and in such a case, the date of search or date of requisition, as referred to in Section 153A of the Act is substituted by the date of handing over of documents by the Assessing Officer of the "Searched Person" to the Assessing Officer of the "Other Person". 9. Since the date of recording satisfaction is 02.12.2016 which falls in the previous F.Y. 2016-17 relevant to Assessment Year 2017-18, the immediately preceding six years are Assessment Years 2011-12 to 2016-17. Thus,
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the year under appeal clearly falls in the block of six years covered by section 153C of the Act. Thus, the assessment for Assessment Year 2015-16 could have been made only u/s 153C of the Act after compliance of provisions of that section. 10. We draw support from the decisions of the Hon'ble High Court of Delhi in the case of RRJ Securities Ltd 62 Taxmann.com 391 and ARN Infrastructure India Ltd 81 Taxmann.com 260. 11. Assessment order dated 31.12.2016 is framed u/s 143(3) of the Act for the impugned Assessment Year 2015- 16. In our considered view, this year falls within the period of six years when counted from the date of recording satisfaction note u/s 153C of the Act which is the deemed date of search. 12. The Act has been amended recently by the Finance Act, 2017 with prospective effect i.e. Assessment Year 2018-19. 13. Therefore, we hold that the assessment order framed u/s 143(3) of the Act on the facts of the case is invalid. We, accordingly, hold the assessment order as bad in law. A perusal of the grounds taken before the ld. CIT(A) show that this issue was raised before the ld. CIT(A). Therefore, the submissions of the ld. DR do not hold any water. 14. Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case. 15. In the result, the appeal of the assessee in ITA Nos. 7638/DEL/2018 is allowed.” 10. Keeping in view of the facts and circumstances and respectfully following the aforesaid precedents, we hold the assessment order as bad in law and quash the same and accordingly, the Ground No. 1 raised in both the Cross Objections stand allowed in the aforesaid manner. Since no other Grounds were argued before us, except the Ground No. 1, hence, the
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other Grounds raised in both the Cross Objections stand dismissed being not argued.
In the result, appeals of the Revenue are dismissed and cross objections of the assessee are partly allowed.
Order pronounced in the Open Court on 10/07/2024.
Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (G.S. PANNU) JUDICIAL MEMBER VICE PRESIDENT
SRBhatnagar Copy forwarded to: -
Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order
Assistant Registrar, ITAT: Delhi Benches-Delhi