M/S. CHITRAKOOT MERCHANDISE PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

I.T.A. Nos.6801 & 6802/DEL/2013 A.Yrs. : 2003-04 & 2004-2005 M/S CHITRAKOOT MERCHANDISE DCIT, CC-12, PVT. LTD. VS. NEW DELHI 12, RING ROAD, ARA CENTRE, JHANDEWALAN LAJPAT NAGAR-IV, EXTN., NEW DELHI NEW DELHI (PAN: AABCC0071E) (APPELLANT) (RESPONDENT)

Assessee by : Sh. Sudesh Garg, Adv. Department by : Sh. Naveen Chandra, CIT(DR)

ORDER PER H.S. SIDHU : JM

These 02 Appeals are filed by the Assessee emanating from the

different Orders of the Ld. CIT(A)-XXXI, New Delhi relevant to assessment

years 2003-04 & 2004-05. Since the issues involved in these appeals

are common and identical, hence, these appeals were heard together and

are being disposed by this common order for the sake of convenience,

by dealing with Assessee’s Appeal No. 6801/Del/2013 (AY 2003-04) in the

case of Chitrakoot Merchandise Pvt. Ltd.

under:-

assessment has not been framed on the seized pursuant

to an action taken under section 132 of the Act but the

reassessment and change of opinion has been made as

such the order passed is illegal and therefore, is liable to

be quashed.

addition of Rs. 97,10,000/- as unexplained cash credit

u/s.68 of the I.T. Act, 1961.

evidence filed.

deletion, any of grounds of appeal either before the

hearing of appeal or at the time of appeal.

as under:-

assessment has not been framed on the seized pursuant

to an action taken under section 132 of the Act but the

reassessment and change of opinion has been made as

such the order passed is illegal and therefore, is liable to

be quashed.

addition of Rs. 89,50,000/- as unexplained cash credit

u/s.68 of the I.T. Act, 1961.

evidence filed.

deletion, any of grounds of appeal either before the

hearing of appeal or at the time of appeal.

of appeal in both the appeals. For the sake of convenience, we are

reproducing the additional grounds raised in ITA No. 6801/Del/2013 (AY

2003-04) as under:-

ITA NO. 6801/DEL/2013 (AY 2003-04)

was carried out u/s. 132 of the Income Tax Act, 1961 in Rajdarbar Group

of cases on 31.07.2008. During search operation certain document were

seized which belong to the assessee company. The case of the assessee

company was transferred to Central Circle-5, New Delhi u/s. 127 of the

I.T. Act, 1961 by the orders of Ld. CIT(Central)-I, Delhi. Notice u/s. 153C

of the Income Tax Act, 1961 dated 23.7.2010 was issued to the assessee

company, but the same returned as un-served. Again notice u/s. 153C of

the Act was issued at the new address of the assessee company on

02.08.2010, requiring it to file the return for the assessment year

2003-04. Return of income for the assessment year 2003-04 was filed by

the assessee on 13.10.2010 declaring income at 1,095/-. The return filed

by the assessee company is the same as that of filed under section 139 of

the Act on 28.11.2003. Notice u/s. 143(2) of the Act was issued to the

assessee on 18.10.2010, fixing the case for hearing to file the necessary

details. In the event of non-cooperation and keeping in view the limitation

in the matter, notice u/s. 144 of the Act dated 06.12.2010 was issued,

giving the assessee last opportunity to furnish the required details for the

completion of assessment. In response thereto, the Assessee has

submitted that during the year the assessee company issued 194200

equity share of Rs. 10 each and raised share capital by Rs. 19,42,000/

Apart from this nothing has been stated by the assessee. In reply to

question no. 24, the assessee has submitted that during the year, no

share application money was either received or paid. On going through

the balance sheet for the year, it has been gathered that reserve and

surplus has been increased by Rs. 77,68,000/- on account of share

premium. The assessee has also not furnished any detail in this regard.

Moreover, it has not filed the name and addresses of the parties to whom

these shares have been issued. During the assessment proceedings, the

assessee’s counsel was asked to furnish the details of the above

amounts with supporting documents in order to prove the genuineness of

the transaction and identity and creditworthiness of the parties. However,

nothing has been brought on record by the Assessee. The AO observed

that the assessee is a group company of “Rajdarbar Group” and in some

other companies of the group that during the AYrs. 2003-04 and 2004-05,

unexplained money was introduced by way of share capital through

Kolkata based companies and in the case of certain Kolkata based

companies enquiries were done by the Investigation Wing, Kolkata and

some of those were found to be paper companies. AO further observed

that in the present case the name of the particular company cannot be

pointed out as the list of shareholders have not been supplied by the

assessee and the time period is left very short in the completion of

limitation in the case. Hence, the AO observed that onus of providing

these details is on the assessee which it has not done. Accordingly, the

the AO completed the assessment at Rs. 97,11,095/- on account of

unexplained cash credit u/s. 68 of the I.T. Act, 1961 vide his Order dated

27.12.2010 passed u/s. 153C r.w.s. Section 143(3) of the I.T. Act, 1961

by making the addition of Rs. 97,10,000/- u/s. 68 of the I.T. Act, 1961.

preferred an appeal before the Ld. CIT(A), who vide impugned Order

dated 04.10.2013 has dismissed the appeal of the asseseee.

appeal before the Tribunal.

has stated that the additional grounds are on the assumption of

jurisdiction u/s.153C of the I.T. Act besides the scope of assessment

u/s.153/153A of the Income Tax Act. It was further submitted that it is

settled law that the additional grounds of appeal which are legal in nature

or which raises question of law or which involve interpretation of circular

/notification etc. can be taken up first time at any level of adjudication.

Even those additional grounds which are based on fresh evidences are

also normally admitted if the additional evidences are found admissible in

accordance with Rule 29 of the ITAT Rules. Ld. Counsel of the assessee

during the course of hearing, specifically relied on two judgements of this

Tribunal. The first one was in the case of one of the assessee in this set of

appeal i.e. Global Heritage Venture Ltd. In this matter for the AY 2009-10

(ITA Number 3197/Del/2013) which was decided on 21/06/2016 similar

question of law was raised by way of additional/revised ground and the

Hon’ble Tribunal not only admitted the additional grounds but also ruled

in favor of the assessee on the same. He further relied upon the another

judgment of the Tribunal dated 22/12/2016 in the case of another group

company namely Narendra Inpex Ltd where similar legal ground was

sought to be adjudicated by the assessee by way of application under

Rule 27 of the ITAT Rules 1963. He further stated that recently the

Tribunal vide its order dated 07.04.2017 on identical facts and

circumstances has admitted the additional grounds while adjudicating the

ITA No. 1245/Del/2014 (AY 2005-06) & Others in the case of Global

Realty Creations Ltd. Vs. DCIT & Ors. It was argued that admission of a

ground under Rule 27 is absolutely discretionary and looking at the

identical facts and circumstances of the matter the Hon’ble Tribunal not

only admitted the legal ground under Rule 27 but also decided in favor of

the assessee.

8.1 Ld. AR further argued that the AO has to tax the income of the

assessee as per provisions of law. It was submitted that Tribunal in the

umpteen numbers of cases almost without exceptions have admitted the

question of law raised so as to deliver substantive justice to the

appellants. Reliance was placed on CBDT's Circular No. 14(XL-35)

dated 11-4-1955. In the said circular, the CBDT observed as under:-

"3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should :-

(a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;

(b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."

8.2 It was argued that the above circular has been judicially noted and

approved in many judgments and has been relied upon in support of the

assessees' claim.

8.3 The Ld AR further relied upon several case laws to argue his case in

favor of admission of additional grounds and requested that keeping in

view of the following decisions, the additional grounds raised by the

assessee may be admitted and decided first.

National Thermal Power Co.Ltd. Vs. C.I.T., 229 ITR 383 (SC) Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 Sayaji Mills Ltd. (1974) 94 ITR 26 (Guj.) Steel Ingots (P.) Ltd. Vs. C.I.T., 86 Taxman 440 (MP) C.I.T. Vs. Bhopal Sugar Industries Ltd., 233 ITR 429 (MP) Ramlal V/s. Rewa Coalfields Ltd. AIR 162 S.C.361 Navnitlal C. Zaveri V/s. K K Sent, ACIT Bombay 56 ITR 198 (S.C)

Chokshi Metal Refinery V/s. CIT 107 ITR 63 (Guj)

CIT v. Jai Parbolic Springs Ltd. (2008) 306 ITR 42 (Del.) 8

CIT v. Natraj Stationery Products (P) Ltd., (2009) 312 ITR 222

CIT v. Rose Services Apartment India P. Ltd., [2010] 326 ITR 100 (Delhi)

CIT v. Jindal Saw Pipes Ltd., [2010] 328 ITR 338 (Delhi)

CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. – 349 ITR 336 (Bom.)

Chicago Pneumatic India Ltd. v. DCIT (2007) 15 SOT 252 (Mumbai).

8.4 Ld. Counsel of the assessee has also filed the Written Submissions

with regard to his contention on the incorrect assumption of jurisdiction

u/s. 153C of the I.T. Act, 1961 and on additional legal grounds, which

reads as under:-

“INCORRECT ASSUMPTION OF JURISDICTION UNDER SECTION 153C OF THE INCOME TAX ACT, 1961. Ld. AO has provided copy of the satisfaction note before issuing notice under Section 153C of the Act. Copy of the satisfaction note is enclosed herewith for reference and records at Pg number of Paper Book-01. The satisfaction note reads as below:-

"Satisfaction note for proceedings u/s 153C of the Income Tax Act, 1961 A search operation was conducted on Rajdarbar Group of cases on 31.07.2008. During the course of search operation at the premises of Party A-7 Global Reality Ventures Pvt. Ltd. Various papers were found and seized belonging to M/s Global Reality Creations Ltd. The annexure are marked as under:

Party A-7 Annexure A-45, Hard Disc containing Books of Accounts of M/s Global Reality Creations Ltd. Thus the proceedings u/s 153C r.w.s. 153A of the Income Tax Act, 1961 are being initiated in the above case.

The perusal of the satisfaction note clearly indicates that the action under Section 153C of the Act was not based on the correct legal foundations. The following may kindly be noted:-

i. Ld. AO doesn’t really indicate how and whether the vaguely indicated documents in the satisfaction note were found to be belonging to the assessee within the meaning of section 153C of the Act. ii. No mention of these documents in the assessment order ultimately passed under section 153C further lead to the conclusion that these documents had no relevance or belongingness to the assessee. iii. Ld. AO doesn’t even vaguely record the satisfaction under section 153C, except the words satisfaction in the heading satisfaction note for proceedings under section 153C, at no other place word satisfaction has been used. In the concluding line, Ld. AO merely mentions that “Thus the proceedings u/s 153C r.w.s. 153A of the Income Tax Act, 1961 are being initiated in the above case” iv. There is no recording/ reference about the contents of these documents allegedly pertaining to the appellant. Even in the assessment order, no such mention has been made. This indicates how irrelevant these documents were to the assessment of the appellant. v. No satisfaction note has been recorded by the assessing officer(s) of the entity/entities from whose premises the documents etc. were seized regarding the satisfaction of that assessing officer(s) that he/they found the documents belonged to the appellant. It is necessary that the assessing officer of the entity in whose hands the documents/ asset was seized records a satisfaction that the document/ asset belonged to some other entity. This has been repeatedly held 10

to be necessary for invoking jurisdiction u/s 153C by higher judicial authorities including the jurisdictional High Court.

Section 153C of the Act for ready reference is reproduced herewith:- “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 any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong 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 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 (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 made except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due 11

date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A”

Very recently Hon’ble Delhi High Court had an occasion to look at the conditions required to be fulfilled before initiating an action under section 153C of the Income Tax Act. Two orders in the case of PepsiCo India Holdings (P.) Ltd v ACIT [2014] 50 taxmann.com 299 (Delhi) & Pepsi Foods Pvt. Ltd v ACIT [W.P. (C) 415/2014 & CM 823/2014]are also filed with the submission at Pg numbers 132 to 139 of Paper Book. In the matter of Pepsi Foods Pvt. Ltd., Hon’ble Delhi High Court has ruled as below:-

“11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been

rebutted by the Assessing Officer. Mere use or mention of the word “satisfaction” or the words “I am satisfied” in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any “satisfaction” of the kind required under Section 153C of the said Act. (Emphasis Supplied)

In PepsiCo India Holdings (P.) Ltd v ACIT [2014] 50 taxmann.com 299 (Delhi)-Hon’ble Court was pleased to lay down the following proposition of law

“13. Having set out the position in law in the decision of this Court in the case of Pepsi Foods Pvt. Ltd. (supra), it must be seen as to whether the Assessing Officer of the searched person (the Jaipuria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners. 14. First of all we may point out, once again, that it is nobody"s case that the Jaipuria Group had disclaimed 13

these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is that "where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A ...." In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. 15. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong" to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise. 16. Thirdly, we would also like to make it clear that the assessing officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". A registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it "belongs to" the vendor just because his name is mentioned in the document. In the converse case if the vendor"s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy "belongs to" the purchaser just because it refers to him and he (the

purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to "belong to" the petitioner.

find that the ingredients of Section 153C of the said Act

have been satisfied in this case. Consequently the notices

dated 02.08.2013 issued under Section 153C of the said

Act are quashed. Accordingly all proceedings pursuant

thereto stand quashed.”

* emphasis supplied

Subsequent to the aforesaid rulings, Hon’ble Delhi High Court

has reaffirmed the aforesaid proposition of law in a number of

cases.

There are various other rulings addressing the requirements

to be fulfilled before initiating valid action u/s 153C. In these cases,

Hon’ble Courts & Tribunals have held that the conditions precedent

for invoking process u/s 153C has to be strictly complied with.

In three of the matters belonging to the assessee group namely

M/s Nageshwar Investment Ltd. and M/s Natural Product Bio-Tech

Ltd and M/s Global Heritage Venture Ltd in the identical

circumstances Hon’ble Delhi Tribunal quashed the proceedings u/s

153C. Copies of these orders are attached in the paper book, as per

the details below;

Name of Assessee Page no. of paper book M/s Global Heritage Venture 38-52 Ltd M/s Natural Product Bio-Tech 54-69 Ltd M/s Nageshwar Investment 73-82 Ltd.

Relevant Para from the ITAT order in the case of M/s Natural Product Bio-Tech Ltd are as below:

“22. In the light of the case laws cited above and on a reading of Section 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Coordinate Bench of this Tribunal in the case of DSL Properties Pvt. Ltd. Vs. DCIT 33 Taxman.com 420 vide para 15 has held that if the Assessing Officer is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the Assessing Officer of such other person, he has to issue the notice u/s 153A read with section 153C. The Assessing Officer of the searched person and such other person may be the same but these are two different assessees and therefore the Assessing Officer has to carry out the dual exercise first as the Assessing Officer of the person searched in which he has to record the satisfaction, during the course of assessment order proceedings of the person searched. We concur with the said view of the coordinate Bench and would like to add that this satisfaction must be an 16

objective satisfaction based on an enquiry by the AO to establish that the documents referred to in section 153C which is found during the search u/s. 132, which are seized or requisitioned belongs to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged u/s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a ‘sine-qua-non’ to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of Section 153C and in this case as seen from the satisfaction note itself that it has been done in a mechanical manner, without application of mind. On the same date i.e. 23.7.2010, similar satisfaction note, only with the change in the name of the assessee’s has been issued arbitrarily which does not in any manner satisfy the requirement of section 153C of the I.T. Act. We could not find any mention of any valuable articles or things or any books of account or documents have been referred even in the assessment order for framing assessment under section 153C of the I.T. Act. Since for all these years, the returns were originally filed and processed and since no additional material is found pertaining to the assessee which it is held to be belonging to the assessee, the AO does not assume jurisdiction for framing assessment u/s. 153C read with section 153A of the I.T. Act. The AO lacks jurisdiction to initiate proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned assessment order passed u/s. 153C is also a nullity.

Relevant Paras from the order in the case of M/s Nageshwar Investment Ltd. are as below:

“24. In the light of the order of the co-ordinate bench in the case of M/s. V.K.Fiscal Services Pvt. Ltd (supra) and the ratio of the jurisdictional High Court

in the case of Pepsico India Holiday (P) Ltd (supra), we hold that the AO lacks jurisdiction to initiate the 153C proceeding against the assessee and therefore the issuance of notice itself is null and void and therefore quashed. Consequently the impugned assessment order u/s 153C is also a nullity. 25. Since we have quashed the initiation and the notice issued by the AO u/s 153Cof the Act itself, the other grounds are not adjudicated being academic.”

Hon’ble Delhi High Court has affirmed the quashing of 153C assessments in the group cases mentioned above. All these orders are placed in the Paper book as per the details below;

Name of Assessee Page no. of paper book M/s Global Heritage Venture 53 Ltd M/s Natural Product Bio-Tech 70-72 Ltd M/s Nageshwar Investment 83-86 Ltd.

Hon’ble High Court held as below in the group entity Nageshwar Investment’s case;

“ The Income Tax Appellate Tribunal (ITAT) has in the common impugned order dated 28th November 2014 pertaining to Assessment Years (‘A Ys’) 2005- 06,2006-07,2007-08 & 2008-09 relied upon, inter alia, on the judgment of this court in Pepsico India Holdings (P) Ltd. vs. ACIT [2015] 370 ITR 295 (Delhi). It is stated that the judgment of this court in Pepsico is pending consideration in a special leave petition in the Supreme Court. However no stay has been granted of the operation of the judgment of this court.

Hon’ble High Court held as below in the group entity Global Heritage Venture Limited’s’s case has held;

Hon’ble High Court held as below in the group entity Natural Biotech’s case has held;

“ These three appeals under section 260A of the Income Tax Act, 1961 are directed against the common order dated 28th November 2014 passed by the Income Tax Appellate Tribunal (ITAT) in ITA Nos. 3089, 3088 and 3087/Del/2013 for Assessment Years 2006-07,2007-08 and 2008-09 respectively. The question that arises in these appeals is whether the hard disc found in the premises of the searched entity i.e. Global Heritage Venture Pvt. Ltd. belonged to the Assessee for the purposes of section 153C of the Act as it stood prior approval to its amendment with effect from 1st June 2015? The ITAT has found, and in this view of this Court Correctly, that the AO failed to record his satisfaction in that regard in terms of the law as explained by the court in Pepsico India Holdings (P) Ltd. vs. ACIT [2015] 371 ITR 295 (Del.) This Court has by this order dated 8th July, 2015 is dismissed the Revenue’s Appeal ITA NO. 373/2015 (Pr. Commissioner of Income Tax (Central)-1 vs. Global Heritage Venture Ltd.) and by the order dated 20th July 2015 dismissed the Revenue’s appeals ITA No. 406-409/2015 (Pr. Commissioner of Income Tax (Central)-1 vs. Nageshwar Investment Ltd.) all of which involve a similar question.” Recent decision in the case of RRJ Securities is also brought to the kind attention of the Hon’ble Tribunal. In this matter apart from reiterating various propositions of law as laid down in Pepsi, Hon’ble Court has laid down unambiguously that even if the AO of the searched person and the other person in whose case 153C proceedings are carried out are the same they have to record separate satisfaction note. Hon’ble Court has also laid down a very vital proposition that the scope of assessment u/s 153C is restricted to the documents/assets belonging to such other person. Copy of this ruling is also placed in the paper book at Pg number 72-90.

‘13. The first and foremost step for initiation of proceedings under Section 153C of the Act is for the AO of the searched

person to be satisfied that the assets or documents seized belong to the Assessee (being a person other than the searched person). The AO of the Assessee, on receiving the documents and the assets seized, would have jurisdiction to commence proceedings under Section 153C of the Act. The AO of the searched person is not required to examine whether the assets or documents seized reflect undisclosed income. All that is required for him is to satisfy himself that the assets or documents do not belong to the searched person but to another person. Thereafter, the AO has to transfer the seized assets/documents to the AO having jurisdiction of the Assessee to whom such assets/documents belong. Section 153C(1) of the Act clearly postulates that once the AO of a person, other than the one searched, has received the assets or the documents, he is to issue a notice to assess/re-assess the income of such person - that is, the Assessee other than the person searched - in accordance with provisions of Section 153A of the Act

….. The CIT(A) sought to distinguish the present case by observing that in the facts of the present case, the AO of the searched person who has to handover the documents and the AO of the Assessee was one and the same person. In our view, this distinction is not relevant in the scheme of Section 153C of the Act and the CIT(A) erred in proceeding on the basis that the period of six years was to be reckoned from the end of the financial year preceding the financial year in which the search was conducted …… 18. It, plainly, follows that the recording of a satisfaction that the assets/documents seized belong to a person other than the person searched is necessarily the first step towards initiation of proceedings under Section 153C of the Act. In the case where the AO of the searched person as well as the other person is one and the same, the date on which such satisfaction is recorded would be the date on which the AO assumes possession of the seized assets/documents in his capacity as an AO of the person other than the one searched. ……

In yet another ruling in the case of AkashArogya..Hon’ble High Court has held: “8. The Revenue has not placed any material to dispute the factual finding of the ITAT that the requirement of the law explained by this Court in Pepsi Foods regarding the recording of satisfaction by the AO even in respect of the searched person was not fulfilled. Consequently, the fact that it was the same AO both for the searched person and the Assessee makes no difference to the consequence of non compliance with the legal requirement regarding the recording of satisfaction. The Court also agrees with the ITAT that even if the AO were the same, satisfaction would have to be recorded separately qua the searched person and the Assessee.”

Copy of this ruling is also placed in the paper book at Pg number 52-60.

Further, it is relevant here to point to the amendments introduced to Section 153C (1) of the Act by Finance (No.2) Act, 2014 w.e.f. 01.10.2014. We may notice the changes brought in to the Section 153C (1). The section before and after the amendment reads as below:

After Amendment Before Amendment

“153C.(1) Notwithstanding “153C.(1) Notwithstanding anything contained in section anything contained in section 139, section 147, section 148, 139, section 147, section section 149, section 151 and 148, section 149, section 151 section 153, where the and section 153, where the Assessing Officer is satisfied Assessing Officer is satisfied that any money, bullion, that any money, bullion, jewellery or other valuable jewellery or other valuable article or thing or books of article or thing or books of account or documents seized account or documents seized or requisitioned belongs or or requisitioned belongs or belong to a person other than belong to a person other than the person referred to in the person referred to in section 153A, then the books section 153A, then the books of account or documents or of account or documents or assets seized or requisitioned assets seized or requisitioned shall be handed over to the shall be handed over to the Assessing Officer having Assessing Officer having jurisdiction over such other jurisdiction over such other person and that Assessing person and that Assessing Officer shall proceed against Officer shall proceed against each such other person and each such other person and issue notice and assess or issue such other person reassess the income of the notice and assess or reassess other person in accordance income of such other person with the provisions of section in accordance with the 153A, if, that Assessing Officer provisions of section 153A 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 relevant assessment year or years referred to in sub-section (1) of section 153A

From the changes made, it can be seen that the changes brought specifically stresses the requirements of the satisfaction of the assessing officer intending action under section 153C w.r. to the relevance of the document on the determination of total income of the other person then only action under section 153C is required to be taken. This amendment is in consonance with the judicial interpretation of this section made in several cases, some of them referred above.

The appellant further wishes to submit that the controversy has been substantially laid to rest by CBDT Circular number 24/2015 dated 31/12/2015 attached in the Paper Book at page number 37.

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 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. " 24

Considering the aforesaid position of law, its interpretation by the jurisdictional High Court and the jurisdictional Tribunal and the Circular issued by the Board, the manner in which satisfaction note has been recorded and also the contents of the assessment order itself clearly establishes that the exercise of jurisdiction under section 153C by the Ld. AO was incorrect and for this reason alone the assessments u/s 153C need to be set aside/quahed as the same violates the following propositions of law held in the various judgments referred in the earlier parts of this submission.

The appellant’s case fails on all the aforesaid propositions of law and the assessment, therefore, deserves to be quashed.

LIMITED SCOPE OF ASSESSMENT UNDER SECTION 153C/ 153A Additional ground of appeal number –2 raised by the appellant is as below:- Without prejudice to the other grounds of appeal, the Ld. CIT(A) has erred on facts and in law in confirming the additions which were not based on the incriminating material found and seized during the course of search. Perusal of Section 153C as quoted earlier in this submission, clearly indicates that the assessments where proceedings are initiated u/s 153C are required to be completed in accordance with the substantive provisions for assessment as laid down under section 153A of the Act.Hon’ble jurisdictional High Court has reaffirmed the aforesaid proposition of law.

What is the scope of assessment and what are the restrictions of assessment u/s 153A has been a matter of long controversy. In recent times there is near judicial unanimity on the limited scope of assessment u/s 153A/153C. Now in the years where assessments have abated the scope of assessments is restricted to the incriminating documents found during the course of search. Perusal of the assessment orders would undisputedly reveal that there was no incriminating document whatsoever which was found during the course of search and which has been referred in the assessment order. Leave alone an incriminating document, no document whatsoever has been mentioned in the assessment order.

We wish to refer to the following cases in support of our submission that the assessment u/s 153C should have been confined to the incriminating documents found during the course of search. As there is no incriminating document on which assessment/ additions have been based, entire additions made in the assessment order and all the conclusions drawn in the assessments need not be taken any cognizance of.

For the aforesaid proposition we wish to place reliance on the following rulings:-

i. Gurinder Singh Bawa (2012) 28 Taxmann.com 328 (Mum.) ii. Kusum Gupta ITA No. 4873/Del/2009 dated 28.03.2013 iii. Alcargo Global Logistics Ltd Vs DCIT (2012) 137 ITR 287/23 Taxmann.com-103 (Mum) (SB) iv. Anil Kumar Bhatia (2012) 211 Taxmann.com 453 (Delhi)/2013 352 ITR 493

v. ACIT v. Pratibha Industries (2012) 28 Taxmann.com (Mum.) vi. Pradeep Kumar Kumra ITA No. 4016/Delhi/2011 dated 07/11/2013 vii. MGF Automobiles Ltd ITA No 4212 & 4213/Del/2011 dated 28/06/2013 viii. Jai Steel (India) Jodhpur vs. ACIT ITA No. 53/2011 order dated 24/05/2011 ix. JCIT Vs. Spectrum Pearls & Exports Pvt. Ltd. ITA No. 2107 to 2113/Hyd./2011 order dated 04/04/2012 x. Sanjay Aggarwal Vs. DCIT ITA No. 3184/Del/2013 Order dated 16/06/2014 xi. Dream Buildcon Pvt. Ltd. ITA No. 5392/Del/2012 Order dated 22/11/2013 xii. ShriGovindAgarwal vs. ACIT ITA No. 339/Mum/2011 dated 10.01.2014 xiii. Jail Steel (India) Ltd (Rajasthan HC) 219 Taxmann 223 dated 24.05.2013 xiv. PACL India Ltd ITA No. 2637/Del/2010 dated 20.06.2013; [2013]-TIOL-734-ITAT-DEL. xv. Jakson Engineering Ltd. ITA No. 349 & 350/ Del/2013 dated 11/04/2014 xvi. VK Fiscal Services (P) Ltd. ITA No. 5460 to 5465/D/2012 dated 27.11.2013 xvii. ACIT vs. ManojNarainAggarwal, ITA No. 5518/D/2012 dated 30.01.2014 xviii. Marigold Merchandise (P) Ltd Vs DCIT ITA No 2666/D/2013 dated 27.12.2013 xix. Kabul Chawla vs. ACIT ITA No 779/D/2013 dated 23.05.2014 xx. CIT (C)-III vs. Kabul Chawla (Delhi) ITA No 707/2014 28

xxi. CIT (C)-I vs. MGF Automobiles Ltd. (Delhi) ITA No. 13,14/2014 xxii. Pr. CIT vs. Kurele Paper Mills (P) Ltd (Delhi) ITA No. 369/2015 xxiii. DCIT vs. Kurele Paper Mills (P) Ltd, ITA No. 3761/Del/2011 (ITAT Delhi)

As the perusal of the assessment order undisputedly indicates that no reference whatsoever has been made to any material found/ seized during the course of search. The assessments are, therefore, clearly outside the scope of assessments u/s 153C which are required to be passed in accordance with the methodology laid down in section 153A of the Act. The appellant, therefore, deserves relief on this ground as well.

In the Kabul Chawla case, (Copy of the order attached at Paper Book Pg 91-116)Hon’ble jurisdictional High Court has laid down following propositions of law..

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment 29

orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment” In the case of the appellant the assessment has not been restricted/based to incriminating documents. Assessments are therefore, unsustainable for this reason as well.

8.5 The Ld AR has further relied upon a number of cases pertaining to

the assessee group to argue that identical action of assumption of

jurisdiction based on the identical material was quashed by the Hon’ble

Tribunal and the aforesaid orders quashing the assessments were

accepted by the Hon’ble Delhi High Court. Relevant detailed specific

details have been given in written submission filed during the course of

proceedings. It was emphasized that there was absolutely no difference

between the facts of those matters and the facts of the present appeals.

Ld. Counsel of the assessee further relied upon the recent decision of the

Tribunal dated 07.04.2017 in the case of Global Realty Creations Ltd. &

Ors. passed in ITA No. 1245/Del/2014 (AY 2005-06) & Ors. wherein on

identical facts and circumstances of the case the addition in dispute was

deleted.

8.6 The Ld AR has submitted that the Hon’ble jurisdictional High Court

has given very substantive and detailed findings on various propositions

of law concerning assessments under section 153C and 153A.

additional grounds (legal) raised by the assessee. In support of his

contention, he filed the WS on behalf of the Revenue (on admission of

Additional ground) and on merits, which read as under:-

“1. Additional Ground:

Additional ground cannot be raised at this point for the

reason the fact on which the legal point is being raised

is not before the ITAT.

Cases Relied are:

jurisdiction of the Assessee to whom the notice u/s

153C is to be issued, both are vested with the same

Assessing Officer, satisfaction recorded by the Assessing

Officer is sufficient irrespective of the fact that it in the

case of the person searched capacity of the officer of

the searched person or in capacity of the officer of the

AO of another person and there is no requirement of

hearing over and taking over of the documents.

Decisions in favour of Revenue of the High Court:

(Delhi HC) dated 29.03.2012(Para 1 & 2 )

Services 333 ITR 281 (Kerala HC) (Para 4) .

Taxmann.com 54(Kerala )(Para 5 )

03.02.2017

Decisions in favour of Revenue of ITAT

No.1 072/De1l2011, A.Y. 2008-09(Delhi F-Bench) dated

25.10.2012 (Para 2.6)

AT) (Para 6 & 8)

(Bangalore B-Bench) (Para 2.1.7)

Bench) (Para 14)

seized material, AO is bound to 'assessee' total income.

In the instant case there is a seized material Annexure

A-13 which reflects the name of the assesse appears as

companies whose shares are sold at huge premium. Is

pointed out in the CIT(A) order. Secondly, there is a

statement recorded u/s 132(4) on the date of search

where the statement of the promoter of the company

Shri Rakesh Kumar Garg has been taken on the issue of

share premium which he evaded and did not reply.

Decisions in favour of Revenue of the High Court:

HC) dated 07.08.2012(Para 19, 20, 21 & 22)

14.07.2014(Para 2, 3 & 4)

Taxmann.com 98, ITA No. 38/2014 (Karnataka HC)

dated 25.07.2014(Para 11)

dated 1.07.2014

(Andhra Pradesh HC) (Para 5)

Supreme court held that a print out of audited books of

account seized in the course of search can be used for

assessment and tax accumulated profit u/s 2(22)(e).

Decisions in favour of Revenue of ITAT

3308/De1/2010(Delhi A-Bench) dated 09.10.2014 (Para

8)

Taxmann.com 162 (Para 6.3.9)

130 TT J 700 (Chennai Bench) (Para 2.12)

assessment years irrespective of the fact that the

documents for a particular year is found in the course of

search.

Decisions in favour of Revenue of ITAT

3308/Del/201 O(Delhi A-Bench) dated 09.10.2014 (Para

9 & 12)

• Decision of Hon'ble Supreme Court in the case of

Manish Maheshwari 289 ITR 34 relates to 158 BC

proceedings and this case has already been considered

and distinguished by Hon'ble High Courts in the case of

Panchajanyam Management Agencies and Services

(Kerala HC) 333 ITR 289, Gopal Lal Bhadruka ( Andhra 35

Pradesh HC) 346 ITR 106, Dr. K. M. Mehboob (Kerala

HC) 211 Taxman 52, Panchuram Deshmukh 133 TT J 53

(Bilaspur ITAT) and many other decisions of Hon'ble

High Courts/ITAT dealing with section 153A1153C cases

and decided In favour of Revenue.

• Decisions of Hon'ble Delhi High Court in the case

of Pepsi Foods Pvt. Ltd. 270 CTR 467 and Pepsico 370

ITR 295 are not applicable as these judgments were

given on a writ petition where:-

a. Question of law was not framed.

b. The judgment is in Personem and not in rem.

c. Therefore, it has no precedential value qua the

persons who were not party before the Hon'ble High

Court.

Constitution of India is discretionary and can be

exercised in case of the violation of fundamental rights

of the individuals by the High Court.

On facts also these cases are distinguishable; in the

case of Pepsi Foods and Pepsico there was a dispute of

the documents found during the course of search

whether it belonged to the searched person or belonged

to the person to be assessed u/s 153C.

The Hon'ble High Court has observed in these cases that

in the satisfaction note there is nothing to indicate that

the seized documents do not belong to the searched

person and there is no disclaimer also on the part of the

searched person. If there is no such dispute of

ownership of document, there is no need to refer the

case of Pepsi & Pepsico.

It is a matter of fact that in the case of SSP Aviation

(Delhi High Court) the AO of the searched person and

AO of the Person of 153C proceedings are the same and

satisfaction was recorded in the file of the person to be

assessed u/s 153C after centralization of the case to the

same AO. The Hon'ble High Court considering all the

facts nowhere held that AO is lacking jurisdiction as

satisfaction has not been recorded in the case of Puri

Group but recorded in the case of SSP Aviation Ltd.

Rather, Hon'ble High Court has held assessment

proceedings of 6 years initiated as valid counting from

the previous year of date of search i.e. 05.01.2009 and

not from the date of recording of satisfaction i.e.

03.11.2010 as was held in the case of DSL Properties. If

the DSL Properties interpretation of 153C section is

correct, Hon'ble High Court would have held the

proceedings of AY. 2003-04 & 2004-05 as time barred

in the case of SSP Aviation also.

In all the orders of Hon'ble ITAT Delhi Benches relied

heavily by Assessee, jurisdictional High Court decision of

SSP aviation has not been considered where in Para 14

& 15 it is held by Hon'ble High Court that proviso of

Section 153C (1) is for the purpose of abatement of

proceedings in respect of second proviso of 153A and

not for assessment of proceedings which is also the

correct position of law.

Revenue wants to place reliance on the case of Hon'ble

Supreme Court in CIT vs. Manick Sons 74 ITR 1 where

Hon'ble Supreme Court has held that the Hon'ble

Tribunal cannot assume powers which are inconsistent

with the express provisions of the Act.

The Hon'ble Supreme Court has also held in the case of

Orissa State warehousing corporation vs. CIT (Supreme

Court) 233 ITR 589 that,

"A fiscal statute shall have to be interpreted on the

basis of the language used therein and not de hors the

same. No words ought to be added and only the 38

language used ought to be considered so as to ascertain

the proper meaning and intent of the legislation. The

Court is to ascribe natural and ordinary meaning to the

words used by the Legislature and the Court ought not,

under any circumstances, to substitute its own

impression and ideas in place of the legislative intent as

is available from a plain reading of the statutory

provisions." As there is no ambiguity in provisions of

section 153C, it does not require any interpretation

which distorts its ordinary meaning.

There is no order of Apex Court or jurisdictional or any

other High Court which says that even if the AO of the

searched person and the AO of the person who is to be

assessed under section 153C are the same, then also

there should be a handing over and taking over of the

seized material and in what manner satisfaction has to

be recorded. Rather, the case of CIT v. Panchajanyam

Management Agencies and Services 333 ITR 281

(Kerala HC) order dated 15/10/2010 is the only known

case of any High Court on this issue which is in favour

of Revenue where Hon'ble High Court considering the

case of Manish Maheshwari (SC) has held that:

"However, in this case, the facts are entirely different,

inasmuch as the very same Assessing Officer who has

jurisdiction to assess the searched assessee, namely,

managing partner of the respondent-firm, has

jurisdiction to assess the respondent-firm. Therefore

there was no question of transfer of materials seized

during search to another officer for assessment as

contemplated under section 158BD. The Assessing

Officer who has jurisdiction to assess the searched

assessee, namely, managing partner of the respondent-

firm, on verifying the records and documents seized

from him, noticed that the respondent-firm had

undisclosed income assessable under the Act by virtue

of the powers conferred under section 158BO. Therefore

he issued notice under section 158BD read with section

158BC and completed the assessment. The question to

be considered is whether the procedure adopted by the

Assessing Officer in this case leading to assessment is in

accordance with statute and if not whether the

assessment is invalid as held by the Tribunal, the

decision of the Supreme Court relied upon by the

assessee having been found not applicable to the facts

of this case. "ln the case of DSL properties and other

cases ITAT has not considered this judgment which is of

prior date and is binding to be followed being the only

known case of any High Court on this issue. Hence, the

decision of DSL Properties is per incuriam and is not

binding. In fact, the case of Piyush Infrastructure of

ITAT Delhi is prior to the case of DSL Properties of ITAT

Delhi which says that handing over and taking over of

seized documents are not required to be made where

the AO of the searched person and the person to be

assessed u/s 153C is the same and also held that

Assessment u/s 153A & 153C will be of the same year

and the year of search will be assessed u/s 143(3) (Para

2.3 & 2.6 of the case of Piyush) and by not following

this decision ITAT in the case of DSL properties has not

followed judicial proprietary.

After discussing all these judgment of Hon'ble Delhi

High Court as well as other High Courts summary of the

legal position was discussed by Hon'ble Delhi High Court

in para 37 which is as under-

On a conspectus of Section 153A(1) of the Act, read

with the provisos thereto, and in the light of the law

explained in the aforementioned decisions, the legal

position that emerges is as under:

i. Once a search takes place under Section 132 of the

Act, notice under Section 153A(1) will have to be

mandatorily issued to the person searched requiring him

to file returns for six AYs immediately preceding the

previous year relevant to the A Y in which the search

takes place.

ii.Assessments and reassessments pending on the date

of the search shall abate. The total income for such AYs

will have to be computed by the AOs as a fresh

exercise.

iii. The AO will exercise normal assessment powers in

respect of the six years previous to the relevant AY in

which the search takes place. The AO has the power to

assess and reassess the 'total income' of the

aforementioned six years in separate assessment orders

for each of the six years. In other words there will be

only one assessment order in respect of each of the six

AYs “in which both the disclosed and the undisclosed d

income would be brought to tax".

iv. Although Section 153 A does not say that additions

should be strictly made on the basis of evidence found

in the course of the search, or other post-search

material or information available with the AO which can

be related to the evidence found, it does not mean that

the assessment "can be arbitrary or made without any

relevance or nexus with the seized material. Obviously

an assessment has to be made under this Section only

on the basis of seized material."

v. In absence of any incriminating material, the

completed assessment can be reiterated and the abated

assessment or reassessment can be made. The word

'assessee' in Section 153A is relatable to abated

proceedings (i.e. those pending on the date of search)

and the word 'reassess' to completed assessment

proceedings.

vi. Insofar as pending assessments are concerned, the

jurisdiction to make the original assessment and the

assessment under Section 153A merges into one. Only

one assessment shall be made separately for each AY

on the basis of the findings of the search and any other

material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by

the AO while making the assessment under Section 153

A only on the basis of some incriminating material

unearthed during the course of search or requisition of

documents or undisclosed income or property

discovered in the course of search which were not

produced or not already disclosed or made known in the

course of original assessment.

143(1)(a) intimation is not an assessment

The observation of Hon'ble High Court in para 37 (vii)

supra clearly reveals that Hon'ble High Court has

considered the case of "completed assessments" which

are made u/s 143(3) and 147 of the act but not the

cases where assessments have not been made and only

processing u/s 143(1 )(a) is made. This has already

been held by Hon'ble Supreme Court in the case of ACIT

vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. 161 Taxman

316 and Hon'ble Delhi High Court in the case of CIT vs.

Punjab National Bank 116 Taxman 310 that intimation

u/s 143(1)(a) cannot be treated an order of

assessment. The relevant portion of the decision of

Hon'ble Supreme Court is mentioned as below-

"As a result of insertion of the Explanation to section

143 by the Finance (No.2) Act of 1991 with effect from

1-10-1991 and, subsequently, with effect from

1-6-1994, by the Finance Act, 1994, and ultimately

omitted with effect from 1-6-1999, an intimation sent to

the assessee under section 143(1)(a) was deemed to be

an order for the purposes of section 246 between 1-6-

1994 and 31-5-1999, and under section 264 between 1-

10-1991 and 31-5-1999. The expressions 'intimation'

and 'assessment order' have been used at different

places. The contextual difference between the two

expressions has to be understood in the context the

expressions are used. The assessment is used as

meaning sometimes 'the computation of income',

sometimes 'the determination of the amount of tax

payable' and sometimes 'the whole procedure laid down

in the Act for imposing liability upon the tax payer'. In

the scheme of things, as noted above, the intimation

under section 143(1)(a ) cannot be treated to be an

order of assessment. The distinction is also well brought

out by the statutory provisions as they stood at different

points of time. Under section 143(1)(a), as it stood prior

to 1-4-1989, the Assessing Officer had to pass an

assessment order if he decided to accept the return, but

under the amended provision, the requirement of

passing of an assessment order has been dispensed

with and instead an intimation is required to be sent.

Various circulars sent by the CBDT spell out the intent

of the Legislature, i.e., to minimize the departmental

work to scrutinize each and every return and to

concentrate on selective scrutiny of returns. Under the

first proviso to the newly substituted section 143(1),

with effect from 1-6-1999, except as provided in the

provision itself, the acknowledgement of the return shall

be deemed to be an intimation under section 143(1)

where (a) either no sum is payable by the assessee, or

(b) no refund is due to him. It is significant that the

acknowledgement is not given by any Assessing Officer,

but mostly by ministerial staff. No assessment can be

done by them. The intimation under section 143(1 )(a)

was deemed to be a notice of demand under section

156, for the apparent purpose of making machinery

provisions relating to recovery of tax applicable. By such

application only recovery indicated to be payable in the

intimation became permissible. And nothing more can

be inferred from the deeming provision."

The relevant portion of the decision of Hon'ble Delhi

High Court in the case of Punjab National Bank Supra is

as below -

“As a result of insertion of Explanation to section 143

with effect from 1-10-1991 and subsequently with effect

from 1-6-1994 and ultimately omitted with effect from

1-6-1999 by Explanation as introduced by the Finance

(No.2) Act, 1999, an intimation sent to the assessee

under section 143(1)(a) was deemed to be an order for

the purposes of section 246 between 1-6-1994 to 31-3-

1995, and under section 264 between 1-10-1991 and

31-5-1999. The expressions 'intimation' and

'assessment order' have been used at different places.

Contextual difference between the two expressions has

to be understood in the context the expressions are

used. The assessment is used as meaning sometimes

'the computation of income', sometimes 'the

determination of the amount of tax payable' and

sometimes 'the whole procedure laid down in the Act for

imposing liability upon the taxpayer'. In the scheme of

things, the intimation under section 143(1)(a) cannot be

treated to be an order of assessment, The distinction is

also well-brought out by the statutory provisions as they

stood at different points of time. Under section 143(1)

(a), as it stood prior to 1-4-1989, the Assessing Officer

had to pass an assessment order if he decided to accept

the return, but under the amended provision the

requirement of passing of an assessment order has

been dispensed with and instead an intimation is

required to be sent."

In the case of All Cargo Global Logistics Ltd. also

Hon'ble Special Bench has held as under-

"Thus, question raised before the Special Bench No.1 is

answered as under:

(a) In assessment that are abated, the Assessing Officer

retains the original jurisdiction as well as jurisdiction

conferred on him under section 153A for which

assessments shall be made for each of the six

assessment years separately;

(b) In other cases, in addition to the income that has

already been assessed, the assessment under section

153A will be made on the basis of incriminating

material, which in the context of relevant provisions

means - books of account, other documents, found in

the course of search but not produced in the course of

original assessment, and undisclosed income or

property discovered in the course of search. [Para 58]" .

The Hon'ble Special Bench has clearly mentioned in para

58 above that the cases which are not abated can be

assessed u/s 153A on the basis of the materials and

books of accounts and documents found during the

course of search but not produced earlier. As intimation

u/s 143(1)(a) is not an assessment and there is no case 48

of consideration of any document seized during the

course of search including regular books of accounts

and this may be considered at the time of making

assessment u/s 153A in determination of total income of

the assessee.

Hence the decision of Hon'ble Delhi High Court in the

case of Kabul Chawla is applicable only in the cases

where the assessments are completed u/s 143(3) of the

IT Act.

Jurisdiction of AO to make assessment u/s 153A is valid

after search even if no material relating to that year has

been found/seized-

Hon'ble Delhi High Court has also held in this case in

para 37 (i), (iv) & (v) that once the search is initiated in

the case of the assessee jurisdiction of AD make

assessment u/s 153A is valid and mandatory. It is only

when the assessment u/s 143(3) has already been

completed, addition u/s 153A is restricted to the seized

material. In such cases where no material is

found/seized as a result of search, the assessment

made u/s 143(3) 'should be reiterated' meaning thereby

'should be repeated'. This does not mean that

jurisdiction of AO u/s 153A is bad in law. 49

Judgment of Hon'ble Delhi High Court in the case of Anil

Bhatia (supra) and Filatex (supra) has not been over

ruled.

completion of the assessment.

The assessee has not challenged the notice u/s 153C

issued by the assessing officer rather the return of

income was filed in response to the said notice and

assessee complied with the notices and questionnaires

issued during assessment proceedings. No objection on

the jurisdiction was ever raised by the assessee before

the assessing officer. Hon'ble Delhi High Court in the

case of CIT vs. Kapil Jain 50 DTR 342 vide order dated

05.08.2010 held that

"We are in quite agreement with the aforesaid

submissions made by the learned counsel for the

Revenue. Subs. (3) of s. 124 of the Act puts a specific

embargo on the assessee from raising objection about

the jurisdiction of an AO after the expiry of one month

from the date on which he was served with notice under

sub-s. (1) of s. 142 of the Act or after completion of

assessment whichever is earlier. It is not in doubt that

the plea of the jurisdiction was not raised by the 50

assessee at all within one month from the date on which

he was served with the notice under s. 158BD of the

Act. Chapter XIV-B of the Act provides 'special

procedure for assessment of search cases'. Thus, where

the search has taken place and as a result thereof, the

assessment for the 'block period' is required, specific

procedure is provided under this chapter for completing

the assessment. If the AO is satisfied that the

documents or material seized in the search reveals

undisclosed income of any other person if premises are

not even searched, notice can be issued to that person

under s. 158BO for 'block period'.

It cannot be disputed that after service of the notice for

'block assessment' under these provisions, the

assessment is to be carried out in the manner provided

under s. 143 of the Act. Notice was duly served under

s. 143 of the Act along with detailed questionnaire by

the Dy. CIT, Circle 36(1), which was served upon the

assessee on 21st April, 2006 when the jurisdiction stood

transferred to him. Sec. 124(3) of the Act specifically

provides for limitation of one month, inter alia, from the

date of service of notice under s. 143(2). In the present

case, admittedly objection was not taken within one

month. Therefore, for this reason, we are of opinion that 51

the order of the Tribunal holding that the assessment

proceeding for the block period was without jurisdiction

is not correct. We, thus, decide the question in favour of

the Revenue and against the assessee. As a result

thereof, the impugned order passed by the Tribunal is

set aside and the matter is remanded back to the

Tribunal to decide the appeal on merits". In the group

cases of assessee Hon'ble ITAT Delhi Bench has not

considered/ followed the observation of Hon'ble Delhi

High Court (Supra).”

9.1 Ld DR also brought to the notice of the Bench two recent cases

decided by Hon’ble Delhi High Court. One is ITA number 58 of 2017 in the

case of Nau Nidh Overseas Pvt Ltd by order dated Feb 03, 2017. Through

this the Ld DR has sought to argue that Hon’ble Delhi High Court decided

this case relying upon Super Malls Pvt Ltd 2016-TIOL-2953-HC-Del-IT

dated 22/11/2016 to canvass the argument that if the AO of the searched

party and the other party in whose case action under section 153C is

taken then there should not be need of recording two satisfaction notes

i.e. one by the AO of the searched person and other by the AO of the

other person. Other point emphasized by the Ld DR was that in these

judgements it has been held that the term ‘belonged to’ must not be too

literally interpreted rather the meaning of ‘belonged to’ should be seen

akin to related to. It was also stated that these rulings held that one

should not be hyper technical with regard to satisfaction note. 52

9.2 Ld. DR reiterated the written submissions as mentioned above and

further relied upon the orders of the authorities below and stated that the

provision of section 153 of the Act has rightly been applied in the case of

the assessee on the material available with them and further stated that

the case of the assessee is covered against the assessee by the decision

dated 22.11.2016 of the Hon’ble High Court of Delhi in the case of Pr.

CIT vs. M/s Super Malls Pvt. Ltd. passed in ITA No. 449/16 & Ors.

Reported in 2016-TIOL-2953-HC-DEL-IT and decision dated 3.2.2017

passed in the case of Pr. CIT vs. M/s Nau Nidh Overseas Pvt. Ltd.

reported in 2017-TIOL-389-HCV-DEL-IT.

9.3 However, Ld. Counsel of the assessee in his counter arguments has

stated that the facts of these cases need to be understood in greater

details.

In the Super Malls case (Supra) following compelling and distinguishing facts emerge from the order;

In the Nau Nidh Overseas case (Supra) following compelling and distinguishing facts emerge from the order;

that in both the above cases, relied by Ld DR, Hon’ble Court upheld the

assumption of jurisdiction under section 153C on account very compelling

specific facts evidencing that the documents/assets not only belonged to

those person but those documents assets evidenced clear existence of

undisclosed income. Confessional statement that the assets/document

belonged to the person in whose case action under section 153C was

taken was made by the directors of the very same companies who were

subjected to the 153C proceedings. Also, there was no dispute in these

two cases (either from the searched party or the other party) as to whom

the documents/assets belonged to. On account of these compelling and

exceptional circumstances, it appears; the Hon’ble Court held that the law

should not be interpreted too literally. Hon’ble Court perhaps was also

persuaded by the admission of the assessee’s counsel that he did not

want to insist on the need for recording of separate satisfaction when the

AO of the searched person and the other person was the same. This

concession made by the counsel of the assessee was against the Board

Circular number 24/2015 dated 31/12/2015 and detailed ruling of the

Hon’ble Delhi High Court in the case of PepsiCo India Holdings (P.) Ltd v

ACIT [2014] 50 taxmann.com 299 (Delhi) & Pepsi Foods Pvt. Ltd v ACIT

[W.P. (C) 415/2014 & CM 823/2014, RRJ Securities , CIT V/s Kabul

Chawla 380 ITR 573. Law laid down by the aforesaid detailed rulings of

the Hon’ble Court can be summed up as under;

finding in the aforesaid rulings of the Hon’ble High Court lays down very

detailed propositions of law as mentioned above and it cannot be said that

that the two orders relied upon by the Ld DR in any manner overrules or

modifies those detailed and exhaustive propositions and interpretation of

law. Coming to the facts of the appeals under consideration there is no

such evidence linking the assets/ documents found or seized during the

course of search belonged to the appellants who were subjected to 153C.

In fact there is no mention whatsoever of any evidence seized with regard

to the additions made by the AO. In the facts of the present appeal,

therefore, the two cases relied by Ld CIT DR are absolutely inapplicable as

the satisfaction notes recorded by the AO in the appeals under

consideration do not mention any material which can be said to have any

indication of the undisclosed income. Even the assessment orders do not

even mention the alleged material belonging to the appellants leave alone

making any addition on the basis of those documents which were

apparently the cause of initiating action under section 153C.

10.2 It was further submitted that the case law cited by the Ld. Counsel

of the assessee that the Law laid down by the Hon’ble jurisdictional court

in the cases of PepsiCo India Holdings (P.) Ltd v ACIT [2014] 50

taxmann.com 299 (Delhi) & Pepsi Foods Pvt. Ltd v ACIT [W.P. (C)

415/2014 & CM 823/2014, RRJ Securities , CIT V/s Kabul Chawla 380 ITR

573 among other has by no stretch of imagination reviewed by the

Hon’ble High Court by way of the judgements relied upon by Ld DR. Some

of the very recent cases of the Hon’ble jurisdictional High Court which

have followed /upheld the propositions/interpretation of law as detailed

above are as under;

04/11/2016

19/10/2016

case laws relied upon by both the parties, we are of the considered view

that the additional grounds are on the assumption of jurisdiction u/s

153C of the Act besides the scope of assessment u/s 153A/153C of the

Income Tax Act, 1961. In our opinion, the additional grounds of appeal

are in the nature of legal and it is well settled law that the additional

grounds of appeal which are legal in nature or which raises question of

law or which involve interpretation of circular/notification etc can be

taken up first time at any level of adjudication. Even those additional

grounds which are based on fresh evidences are also normally admitted if

the additional evidences are found admissible in accordance with Rule 29

of the ITAT Rules. This view is fortified by the judgment of the Hon’ble

Supreme Court of India delivered in the case of National Thermal Power

Corporation Limited (1998) 229 ITR 383 (SC) wherein the Hon’ble

Supreme Court of India has held that;

“Under section 254, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner (Appeals). Both the assessee as well as the department has a right to file appeal/cross objections before the Tribunal. There is no reason why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) takes too narrow a view of the powers of the Tribunal. Undoubtedly, the 58

Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. In the instant case, therefore, the Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the lower authorities and having a bearing on the tax liability of the assessee.”

11.1 In view of the decision of the Hon’ble Supreme Court of India in the

case of NTPC Limited 229 ITR 383 (Supra) and keeping in view of the

facts and circumstances of the case circumstances of the case, we are of

the view that the additional grounds raised by the assessee are purely

legal grounds and do not require fresh facts which is to be investigated

and goes to the root of the matter. In the interest of justice, we admit

the following two common additional grounds raised by the assessee.

confirming the assessment of the appellant passed

without satisfying the substantive and procedural

requirements under section 153C of the Income Tax

Act.

CIT(A) has erred on facts and in law in confirming the

additions which were not based on the incriminating

material found and seized during the course of search.”

11.2 Keeping in view of the facts and circumstances of the case, in the

interest of justice and for the sake of convenience, we proceed to

adjudicate upon the common legal additional ground no. 2 only.

11.3 Ld. CIT(DR) has brought to our notice two recent cases decided by

Hon’ble Delhi High Court. One is ITA number 58 of 2017 in the case of

Nau Nidh Overseas Pvt Ltd by Order dated Feb 03, 2017. Through this the

Ld DR has sought to argue that Hon’ble Delhi High Court decided this case

relying upon Super Malls Pvt Ltd 2016-TIOL-2953-HC-Del-IT dated

22/11/2016 to canvass the argument that if the AO of the searched party

and the other party in whose case action under section 153C is taken then

there should not be need of recording two satisfaction notes i.e. one by

the AO of the searched person and other by the AO of the other person.

Other point emphasized by the Ld DR was that in these judgements it has

been held that the term ‘belonged to’ must not be too literally interpreted

rather the meaning of ‘belonged to’ should be seen akin to related to. It

was also stated that these rulings held that one should not be hyper

technical with regard to satisfaction note.

11.4 We find that in the case of Super Malls case (Supra) following

compelling and distinguishing facts emerge from the order;

11.5 We further find that in the case of Nau Nidh Overseas case (Supra)

following compelling and distinguishing facts emerge from the order;

11.6 From the reading of the aforesaid, it is very clear that in both the above cases, relied by Ld CIT(DR), Hon’ble High Court upheld the assumption of jurisdiction under section 153C on account very compelling specific facts evidencing that the documents/assets not only belonged to those person but those documents assets evidenced clear existence of undisclosed income. Confessional statement that the assets/document belonged to the person in whose case action under section 153C was taken was made by the directors of the very same companies who were subjected to the 153C proceedings. Also, there was no dispute in these two cases (either from the searched party or the other party) as to whom the documents/assets belonged to. On account of these compelling and exceptional circumstances, it appears; the Hon’ble Court held that the law should not be interpreted too literally.

11.7 After perusing the assessment order as well as appellate order, we find that in the present case the AO has completed the assessment u/s. 153C of the I.T. Act, 1961 and made the addition in dispute without any incriminating material found during the search and seizure operation and the addition in this case was purely based on the material already available on record, which is not sustainable in the eyes of law, hence, needs to be deleted. Also on the perusal of the assessment order undisputedly indicates that no reference whatsoever has been made to any material found/ seized during the course of search. We further note that on identical facts and circumstances of the case, the issue in dispute is also squarely covered by the Coordinate Bench decision dated 7.4.2017 passed in the case of Global Realty Creations Ltd. & Ors. In ITA No. 1245/Del/2014 (AY 2005-06) & Ors. wherein the appeal of the assessee was allowed by respectfully following the Hon’ble High Court of Delhi decision in the case of CIT vs. Kabul Chawla reported in 380 ITR 573, wherein the Hon’ble High Court has held has under:- “37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned ITA Nos. 707, 709 and 713 of 2014 of decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six Ays immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the

search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an ITA Nos. 707, 709 and 713 of 2014 of assessment has to be made under this Section only on the basis of seized material.”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the

course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

decision of the Hon’ble Jurisdictional High Court in the case of Kabul

Chawal (Supra), we delete the addition in dispute and allow the appeal of

the Assessee being ITA No. 6801/Del/2013 (AY 2003-04), because AO

has completed the assessment and made the addition in dispute without

any incriminating material found during the search and seizure operation

and the addition in this case was purely based on the material already

available on record, which is not sustainable in the eyes of law.

Accordingly, the additional legal ground no. 2 raised by the assessee in

the appeal is allowed. Since we have already deleted the addition in

dispute, the additional ground no. 1 and other grounds raised in the

appeal have become academic in nature, hence, the same are not

adjudicated upon.

(AY 2003-04) in the case of same assessee as aforesaid, the additions in

dispute involved in Appeal being ITA No.6802/Del/2013 (AY 2004-05) is

also hereby deleted and the Appeal of the assessees stand allowed.

Order pronounced in the Open Court on 31/05/2017.

Sd/- Sd/-

[O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 31/05/2017

“SRBHATNAGAR”