DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-7(2), MUMBAI vs. L.S.DEVELOPERS, MUMBAI

2 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 आदेश / O R D E R Per Shamim Yahya, A. M.: These are appeals by the Revenue against two assessee’s for the respective common order of the ld. Commissioner of Income Tax (Appeals) for the concerned assessment years. The issues are common which read as under:

1. 1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in quashing the notice issued u/s. 153C of the Act as well as the assessment order u/s. 143(3) r.w.s. 153C of the Act without appreciating the fact that the A.O. of the searched person and A.O. of the other person is the same and satisfaction note is recorded in the case of other person before assuming jurisdiction.

2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in quashing the notice issued u/s. 153C of the Act as well as the assessment order u/s. 143(3) r.w.s. 153C of the Act without appreciating the fact that section 153C does not require A.O. in searched person to prepare two satisfaction notes when the A.O. is same for both.

2. In this case, the assessment was framed u/s. 143(3) r.w.s. 153C of the I. T. Act. In its appeal before the ld. Commissioner of Income Tax (Appeals), the assessee raised issues relating to validity of notice as well as merits of the case. The ld. Commissioner of Income Tax (Appeals) quashed the assessment order for lacking jurisdiction as there was absence of satisfaction recorded by the Assessing Officer in the case of searched person in this case, i.e., Shri Suresh Deshmukh that any valuable or books of account seized in his case belongs to other person, i.e., the assessee. Hence, the ld. Commissioner of Income Tax (Appeals) held that the Assessing Officer of the assessee could not assume jurisdiction to issue notice u/s. 153C for the concerned assessment years despite the fact that satisfaction was recorded in the case

3 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 of the assessee. I may gainfully refer to the facts and order of the ld. Commissioner of Income Tax (Appeals) on the jurisdiction issue as under:

3.1 In the case of Smt. Lata Deshmukh (ITA No. 4829/Mum/2017) 5.3.1 I find that search u/s.132 was conducted in the case of Sh. Subhash Deshmukh on 28.3.201 land notice u/s.153C was issued to the appellant on 13.8.2012 after lecording following reasons/satisfaction:-

"Name : Lata Deshmukh (Proprietor of Shivam Wines) Address : Shop No.4, Goswami Niwas, Kokani Pada Kharar Village, Malad (E), Mumbai-400 097 Status : Individual PAN : AIUPD9121F Date : 13.08.2012 Reasons for invoking provisions of section 153C of the IT. Act. 1961

Consequent to the search action, during the course of assessment proceedings U/S.153A of the Act in the case of Subhash Deshmukh, it was found that the following seized documents and valuables belong to the captioned assessee. Further, it is also seen that the assessee has also made disclosure of Rs.75,00,000/- in the capacity of proprietor of M/s.Shivam Wines, it is also seen that the contents of the page no.23 to 26 and 45 of Annexure 1 seized from the premises of Sabhebrao Deshmukh Cooperative Bank are pertains to the assessee. Similarly, the contents of page no.1 to 8 of Annexure-1 as per panchanama dated 16-05-2011 are pertains to the assessee. Also, tho contents of page No.103 of Annexure-1 (loose paper file) as per panchanama dated 28-03-2011 is pertains to the assessee. I am therefore fully convinced and satisfied that this is a fit case for initiation of proceedings u/s.153C of the Act. Accordingly, notice u/s.153C is issued requiring the assessee to file return of income for A.Y. 2005-06 to 2010-11." The appellant had sought a copy of the satisfaction note of the A.O. having jurisdiction over the searched person vide letter dated 9.2.2015 addressed to the A.O. In this regard, it is observed from the letter of the A.O. (DCIT, CC-7(2), Mumbai) dated 10.2.2015, addressed to the appellant firm that the above said satisfaction note was recorded by the A.O. in the case of Lata Deshmukh for issue of notice U/S.153C of the Act.

4 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 5.3.2 During the appeal proceedings, a remand report on the additional grounds raised and the assessment records in the case of Subhash Deshmukh was called for from the A.O. The A.O has sent the assessment records in the case of Subhash Peshmukh, the searched person, for A.Y, 2005-06 to 2011-12 and the same were perused. The common order sheet has been n;aintained for A.Yrs. 2005-06 to 2010-11 in the assessment folder for A.Y. 2010-11. Notice u/s.153A in the case of Shri.Subhash Deshmukh has been issued on 8.11.2011 and assessment order u/s.143(3) r.w.s. 153A was passed for A.Y. 2005-06 to A.Y. 2010-11 on 21.3.2013. However, no satisfaction note u/s.153C was found to have been recorded in the files of Subhash Deshmukh, as per the assessment records for A.Y.s, 2005-06 to 2011-12, submitted by the A.O. 5.3.3 The appellant has contended that section 153C of the Act requires that if the Assessing Officer of the searched person, from whom money, bullion, jewellery or other valuable article or thing or books of account or documents have been seized, is satisfied that any of such seized material belong to a person other than the searched person, then he shall handover the same to the A.O. having jurisdiction over the other person. It has been submitted that no such satisfaction has been recorded by the assessing officer in his capacity as the assessing officer of Subhash Deshmukh and hence the assessment is void ab initio. 5.3.4 In this regard, I find that there is a common A.O. for the case of Shri.Subhash Deskhmukh as well as Lata Deshmukh. The above said satisfaction has been recorded by the said A.O. in the case of the other person i.e. Lata Deshmukh before issue of notice u/s.153C of the Act. However, the said A.O. was required to first record a satisfaction in the case of Shri. Subhash Deshmukh, the searched person, that some seized valuables or books of account, found and seized from his premises, belong to the appellant i.e. Lata Deshmukh and only thereafter, the A.O. could have assumed jurisdiction u/s.153C to issue notice and make assessment in the case of Lata Deshmukh. This follows from the decision of the Hon'ble High Court of M.P. in the case of CIT vs. M/s Mechmen Bhopal dated 10.7.2015 (380 ITR 591), in which, after considering the decision of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears 362 ITR 673 (SC), it has been held as under :-

18. The concomitant of this conclusion, is that, the legal position as applicable to section 158BD regarding satisfaction in the first instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; :and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in section 153A), must apply proprio vigore. The fact that 5 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 incidentally the Assessing Officer is common at both tin? stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in section 153C belongs or belong to a person (other than the person referred to in section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in section 153A)." Similar decision has been given by the Hon'ble High Court of Allahabad in the case of CIT (Central) vs Gopi Apartment 365 ITR 0411 (All). Further, in the CBDT circular No.24/2015, it has been observed as under:- "3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s,153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts." 5.3.5 In view of the above facts of the case and the decision/circular discussed in para 5.3.4 above, I am of the considered opinion that in the absence of any satisfaction recorded by the A.O., as per the provisions of section 153C, in the case of the searched person i.e. Mr.Subhash Deshmukh that any valuable or books of account seized during search in his case belong to other person i.e. the appellant, the A.O. of the appellant firm could not assume jurisdiction to issue notice u/s.153C for the A.Yrs. 2005-06 to 2010-1-1. Therefore, issue of notice u/s.153C dated 13.08.2012 in the case of the appellant for A.Y. 2005-06 to AY 2010-11 is found to be without jurisdiction. Accordingly, the notices u/s.153C as well as the Assessment Orders dated 22.3.2013 u/s.143(3) r.w.s. 153C for A.Y. 2005-06 to A.Y 2010-11 are quashed. This ground is allowed for all the six assessment years under appeal. 5.3.6 Since the assessment orders for A.Y. 2005-06 to A.Y. 2010-11 have been quashed, decision on other grounds raised by the appellant has become an academic exercise. Accordingly, these grounds are dismissed as infructuous for all the assessment years under appeal.

6 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 3.2 Similar order was passed by the ld. Commissioner of Income Tax (Appeals) in the case of M/s. L. S. Developers, which reads as under: 5.3 I have carefully examined the facts of the case, the stand taken by the A.O in the assessment order, the grounds of appeal and the written submissions filed by the appellant during the hearing proceedings. The issue regarding absence of satisfaction U/5.153C is a jurisdictional issue and is considered first. 5.3.1 I find that search u/s. 132 was conducted in the case of Shri.Subhash Deshmukh on 28.3.201 land notice u/s.153C was issued to the appellant firm on 15.6.2012 after recording following reasons/satisfaction :- "Name : M/s. L. S. Developers Address : C/o.Meenakshi Bazar Limit Shankar Mandir, Ajinkya Colony Powai Naka.Satara-415001 Status : Firm PAN : AACFL6884B Date : 15.06.2012

Reasons for invoking provisions of section 153C of the IT. Act. 1961 Consequent to the search action, during the course of assessment proceedings U/S.153A of the Act in the case of Subhash Deshmukh, it was found that the contents of page No.43, 44, 45, 46, 47, 48 and 49 of Annexure 1: Loose paper file (pages 1 to 106) seized from residential premises of Subhash Deshmukh at Flat No.1, Ground Floor, Nandini Apartment, 10t!l Road, Santacruz (E), Mumbai belongs and pertains to the captioned assessee. Further, captioned assessee has made a disclosure of Rs.1,50,00,000/-. I am therefore fully convinced and satisfied that this is a fit case for initiation of proceedings u/s.153C of the Act. Accordingly, notice U/S.153C is issued requiring the assessee to file return of income for A.Y. 2005-06 to 2010-11." The appellant had sought a copy of the satisfaction note of the A.O. having jurisdiction over the searched person vide letter dated 9.2.2015 addressed to the A.O. In this regard, it is observed from the letter of the A.O. (DCIT, CC-7(2), Mumbai) dated 10.2.2015, addressed to the appellant firm that the above said satisfaction note was recorded by the A.O. in the case of M/s. L, S. Developers for issue of notice u/s,153C of the Act. During the appeal proceedings, the assessment records in the case of Shri. Subhash Deshmukh for A.Y. 2005-06 to 2011-12 were perused. The common order sheet has been maintained for A.Yrs. 2005-06 to 2010-11 in the assessment folder for A.Y,

7 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 2010-11. Notice u/s.153A in the case of Shri.Subhash Deshmukh has been issued on 8.11.2011 and assessment order u/s. 143(3) r.w.s. 153A was passed for A.Y. 2005-06 to A.Y. 2010-11 on 21.3.2013. However, no satisfaction note U/S.153C was found to have been recorded in the files of Shri. Subhash Deshmukh, as per the assessment records for A.Yrs. 2005-06 to 2011-12, submitted by the A.O. 5.3.2 The appellant has contended that section 153C of the Act requires that if the Assessing Officer of the searched person, from whom money, bullion, jewellery or other valuable article or thing or books of account or documents have been seized, is satisfied that any of such seized material belong to a person other than the searched person, then he shall handover the same to the A.O. having jurisdiction over the other person. It has been submitted that no such satisfaction has been recorded by the assessing officer in his capacity as the assessing officer of Shri Subhash Deshmukh and hence the assessment is void ab initio. 5.3.3 In this regard, I find that there is a common.,A.O. for the case of Shri.Subhash Deskhmukh as well as M/s. L S. Developers. The above said satisfaction has been recorded by the said A.O. in the case of the other person i.e. M/s L. S. Developers before issue of notice U/S.153C of the Act. However, the said A.O. was required to first record a satisfaction in the case of Shri. Subhash Deshmukh that some seized valuables or books of account, found and seized from his premises, belong to the appellant i.e. M/s L. S. Developers and only thereafter, the A.O. could have assumed jurisdiction u/s.153C to issue notice and make assessment in the case of M/s L.S. Developers. This follows from the decision of the Hon'ble High Court of M.P. in the case of CIT vs. M/s Mechmen Bhopal dated 10.7.2015 {380 ITR 591), in which, after considering the decision of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears 362 ITR 673 (SC), it has been held as under :- "18. The concomitant of this conclusion, is that, the legal position as applicable to section 158BD regarding satisfaction in the fiijst instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in section 153C belongs or belong to a person (other than the person referred to in section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another 8 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 file which incidentally is pending before him concerning other person (person other than the person referred to in section 153A)." Similar decision has been given by the Hon'ble High Court of Allahabad in the case of CIT (Central) vs Gopi Apartment 365 ITR 0411(All). Further, in the CBDT circular No.24/2015, it has been observed as under :- “ 3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s.1530 of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

4. Against the above order, the Revenue is in appeal before the ITAT.

5. I have heard both the counsels and perused the records. The ld. Departmental Representative relied upon the orders of the Assessing Officer. But he did not dispute the proposition that there was no satisfaction in the case of searched person that the incriminating material found belonged to the assessee. and notice has been issued u/s. 153C of the I. T. Act. He claimed that search was conducted in the case of one Shri Subhash Deshmukh u/s. 132. Consequent to the search, notice u/s. 153C was issued to the assessee. The ld. Counsel of the assessee stated that as per the mandate of provisions of the Act before issue of notice u/s. 153C the Assessing Officer of the searched person should have recorded a satisfaction that any of such seized material belong to the assessee, i.e., other than the searched person.

The ld. Counsel of the assessee submitted that this satisfaction should have been recorded in the case of Shri Subhash Deshmukh. He submitted that the same has been done only in the case of the assessee. The failure to record such satisfaction in the case of searched person, i.e., Shri Subhash Deshmukh, is fatal to the validity of jurisdiction assumed in this case. He submitted that CBDT has also issued Circular to this fact. He submitted that identical issue was considered by ITAT, Nagpur Bench in the case of Zaidun Leeng Sdn Bhd Artefact Projects Ltd. (JV) vs. Dy. CIT (in & 383/Nag/2014 vide order dated 22.03.2017), in which on similar issue the assessment order passed was held to be without jurisdiction. Hence, the ld. Counsel of the assessee pleaded that accordingly there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals).

10 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 Subhash Deshmukh that the incriminating materials seized belong to the assessee. The ld. Departmental Representative has also not disputed this proposition. Hence, though the satisfaction is there in the case of assessee, i.e., there is no such satisfaction in the case of searched person that the incriminating material belongs to the assessee. In this situation, the assessment order has been held to be invalid, in the aforesaid tribunal decision. We may gainfully refer to the said decision as under:

11 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 learned counsel submitted that the jurisdiction assumed in this case is invalid. For the proposition that dehorse any incriminating seized material, no addition is sustainable where assessments have already been completed earlier. Learned counsel relied upon several case laws as mentioned above in his written submission.

13 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 otherwise does not possess. The existence of 'jurisdictional fact' is sine qua non for the exercise of power by a court of limited jurisdiction.

As noted earlier section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wherefore are: (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 153C against such other person. The conditions precedent for invoking the provisions of s. 153C, thus, are required to be satisfied before the provisions of said section are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the other persons.

"CIRCULAR NO. 24/2015 F.No.279/Misc.ll40 /2O15/IT J Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, 31 st December, 2015 Subject: Recording of satisfaction note under section 158BD/153C of the Act - reg.- The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.

14 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts.

15 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other way (See Nazir Ahmed v. King Emperor). We think the learned Tribunal has correctly followed the principle. We do not find any element of law to be decided.

Conclusion: Recording of satisfaction of AO(s) is pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind dconsciously as documents seized must be belonging to any other person other than person referred to in S. 153-A. ii) Hon'ble High Court of Madhya Pradesh High Court decision in the case of CIT vs. Mechmen in ITA No. 45/2011 & others vide order dated 10-07-2015.

In this case the relevant exposition from the Hon'ble High Court is as under :

Even for the purpose of Section 153C, the Assessing Officer before handing over the items to the Assessing Officer having jurisdiction must be "satisfied" that the items belongs or belong to the person other that the person referred to in Section 153A. That satisfaction of the concerned Assessing Officer is a sine qua non. The consequences flowing from the action to be taken on the basis of such information handed over to the Assessing Officer having jurisdiction, for the assessee, who is a person other than the person referred to in Section 153A, is drastic - of assessment or re- assessment of his income falling within six assessment years. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A, being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A).

16 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 Similarly, as there is no provision either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the arguments of the Department must be negative.

We conclude that the condition precedent for resorting to action under Section 158BC delineated by the Supreme Court in the case of Manish Maheshwari (supra) and in the recent case of Commissioner of Income- tax-III vs. Calcutta Knitwears (suspra), would apply on all fours mandating satisfaction of the Assessing Officer(s) dealing with the case at the respective stages referred to in Section 153C. iii) Hon'ble Bombay High Court decision in the case of Director of Income Tax vs. M/s Ingram Micro (India) Exports Pte Ltd. in of 2013 & Others vide order dated 29-04-2015. In this case it was expounded that as per provisions of section 153A and section 153C of the I.T. Act, proceedings can only be initiated after the AO arise at the satisfaction that the seized material pertains to other persons, namely, persons other than searched persons. It is only then the persons other than the searched party can be proceeded against. If there is a satisfaction required and to be recorded as a pre- condition and which is mandatory then in the absence thereof all further steps stand vitiated. iv) In a batch of appeals in & Others in the Principal CIT vs. Satkar Roadlines Pvt. Ltd. vide order dated January 12, 2016, the Hon'ble Delhi High Court noted as under :

It is stated by Ms. Suruchi Aggarwal, Senior Counsel for the Revenue, that in light of the Circular No. 24/2015 dated 3ist December, 2015 issued by the Central Board of Direct Taxes on the subject "Recording of satisfaction note under Section 158BD/153C of the Act", these appeals are not pressed These appeals are, accordingly, dismissed as not pressed.

17 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 in the case of M/s Artefact Projects Ltd. that any seized material belonging to the assessee has been found which is incriminating in nature which is to be handed over to the AO of the assessee, the jurisdiction assumed in this case is illegal and the same deserves to be quashed. Accordingly in the background of the aforesaid discussion and precedent, in our considered opinion, the assessee deserve to succeed on this account and the assessments are liable to be quashed on account of lack of validity of jurisdiction. Accordingly we set aside the orders of the learned CIT(Appeals) on this aspect of jurisdiction and quash the assessments by holding that requisite satisfaction was not recorded before issue of notice u/s 153C.

Accordingly, these appeals by the Revenue stand dismissed.