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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA
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.
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." 5.3.4 In view of the above facts of the case and the decision/circular discussed in para 5.3.3 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 2010-11. Therefore, issue of notice u/s.153C dated 15.6.2012 in the case of the appellant for A.Y. 2006-07 is found to be without jurisdiction. Accordingly, the notice u/s.153C as well as the Assessment Order dated 11.3.2013 u/s.143(3) r.w.s. 153CforA.Y. 2006-07 are quashed. This ground is allowed.
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).
Upon carefully consideration, I note that in the present case, it is undisputed that there is not satisfaction recorded in the case of the searched person, i.e., Shri
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:
We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that the satisfaction of the AO of the searched persons as envisaged u/s 1530 of the I.T. Act has not been recorded before initiating the proceedings against the assessee u/s 1530 of the Act which vitiates the entire impugned assessments. For this proposition, learned counsel referred to the CBDT Circular No. 24/2015 dated 3lst December, 2015 which has been issued on this very subject. Learned counsel submitted that from the above said CBDT Notification it is clear that in absence of appropriate satisfaction recorded by the AO of the raided party even if he is the same AO as that of assessee, the assessment will be devoid of jurisdiction. Learned counsel submitted that no satisfaction note is there as emanating from the assessment records of the searched party. That this makes it very clear that the appropriate satisfaction has not been recorded therein. He asserted that no satisfaction of seized documents being incriminating and/or belonging to the assessee is recorded by the AO of the searched person. Thus no valid notice u/s 153C is issued in the case of the assessee and assessment framed is bad in law and liable to be quashed. Learned counsel submitted that this proposition is duly supported by case laws cited above.
Further more learned counsel submitted that the addition has not been made on the basis of seized material. In this regard learned counsel submitted that the assessments in all these cases have been completed earlier. Hence in the absence of incriminating material found during the search, no addition is sustainable u/s 153C. Learned counsel further submitted that no incriminating document was found during search. He submitted that the documents seized which have been compiled in the paper book were documents relating to assessment year 2011-12. No document pertaining to the assessment years concerned in this case has been found. The documents relating to assessment year 2011-12 found are also not incriminating documents. They relate to transactions which were duly recorded in the regular books of accounts. Hence
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.
We find that at the outset we need to adjudicate the jurisdictional aspect. The first limb of argument in this regard is that there is no valid satisfaction in the case of the person searched that incriminating material found may relate to the assesses in whose case action has been taken u/s 1530. The search records of the searched person, namely, M/s Artefact Projects Ltd. were called for and examined. No satisfaction note whatsoever was found recorded in the case of the searched person. Neither any satisfaction was mentioned in the order sheets nor any satisfaction note was found in the file which was not numbered. The fact that no satisfaction note is there in the case of the searched person is also evident from the finding of the learned CIT(Appeals) in his appellate order reproduced herein above wherein he also has referred to the satisfaction note which is recorded in the case of the assessee and not in the case of the searched person.
In this regard we can gainfully refer to the provisions of section 153(1) as under: " 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 3a[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 (i) 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 s[sub-section (i) 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 12 to 4829/Mum/2017 and 4831 to 4834/Mum/2017 the Assessing Officer having jurisdiction over such other person :] [Provided further that the Central Government may by rulesy 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.] 13. From the above provisions, it is clear that where the AO of the persons searched is satisfied that any money, bullion, jewellery, books of accounts or other documents etc. belong to a person other than a searched person, then such document or assets etc. shall be handed over to the AO of the other person and the later AO shall proceed against such other person to assess or reassess his income. Thus it is manifest before handing over such documents to the AO of the other person a satisfaction has to be recorded by the AO of the searched persons, that money, bullion or jewellery, etc., found from the person searched belong to the 'other person1. Only when such 'satisfaction1 is recorded by the AO of the person searched and such documents or assets seized, etc., are handed over to the AO of the 'other person1, that the later AO acquires jurisdiction to make assessment or reassessment of the 'other person/ It is, therefore, clear that the AO of the 'other person1 can acquire jurisdiction to assess or reassess income of the 'other person' only when the AO of the persons searched records satisfaction in his case (searched person) before handing over money, bullion, jewellery, etc. to him. So, what emerges is that the recording of satisfaction by the AO of the person searched is a condition precedent for the AO of the 'other person1 to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the 'other person.' In the case of Anil Kumar & Ors. vs. UOI & Ors. Reported in 155 Taxman 659 (5C),the Hon'ble Apex Court observed that "A jurisdictional fact is a fact which must exist before a court, a tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority .. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it
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.
Now in this regard the CBDT has also issued notification as under :
"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.
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 (available in NJRS at 2O14-LL-0312-51) has laid down that for the purpose of Section 158BC of the Act, recording of a satisfaction note is a prerequisite and thesatisfaction 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 158BC. 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 158BD of the Act; or (b) in the course of the assessment proceedings under section 158BD of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."
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.
In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgement. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD /153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court." 15. From the above CBDT notification it is clear that even if the AO of the searched persons and the assessee are same still proper satisfaction qua the documents etc. found relating to the assessee has to be recorded in the case of the searched persons. From the perusal of the concerned records in the case of the searched persons as mentioned above it is evident that there is no such satisfaction that any bullion, jewellery, books of accounts, other documents etc. belonging to the assessee has been found and the same is being handed over to the AO of the assessee. Thus the absence of requisite satisfaction denudes the legality of jurisdiction in this case. Hence it has to be held that since proper satisfaction as envisaged u/s 153C has not been recorded, the assessments are liable to be quashed on account of lack of validity of jurisdiction. In this regard the case laws referred above by the learned counsel of the assessee support this proposition. We may gainfully refer to some of them as under: i) CIT vs. Shetty Pharmaceuticals & Biological Ltd. 232 Taxman 0268. (Andhra Pradesh H.C.) In this case it was held that section 153C and 153A mandates recording of satisfaction of the Assessing Officer(s) is a pre- condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other
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.
From the above case laws and CBDT Circular, it is evident that recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdiction for the issue of notice u/s 153C even if the AO of the searched person and the assessee are same. It is abundantly clear from the records in the case of the searched person that there is no requisite satisfaction granting the AO jurisdiction for issuing notice to the assessee u/s 153C of the I.T. Act. No satisfaction note whatsoever is found in the case of the searched person, namely, M/s Artefact Projects Ltd. In absence of any satisfaction note
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.
In this regard we further note that in similar situation when the finding was that requisite satisfaction was not there in the case of the searched person qua incriminating material relating to assessee having been found, the Revenue had withdrawn this appeal before the Hon'ble Delhi High Court in the light of Circular No. 24/2015 as referred above, CIT vs. Satkar Roadlines (supra).
As regards the learned counsel of the assessee's challenge of addition on account of the plea that since the assessment had already been completed earlier, dehorse any incriminating seized material found addition is not sustainable, and other issues relating to merits of addition, we find that the same is now only of academic interest as we have already quashed the validity of jurisdiction in the preceding paragraphs. Hence we are not engaging into adjudicating these aspects of learned counsel of the assessee's submission.
Since we have already allowed the assessee's appeal on the basis of lack of validity of jurisdiction assumed, the adjudication on merits is now only of academic interest. Hence we are not engaging into the same. Hence Revenue's appeals which are against the CIT(Appeals)1 order deleting the additions on merits have now become infructuous and the same are dismissed as such.
I find that the issue from the above decision is admittedly applicable on the facts of the case. Accordingly, respectfully following the precedent as above, I do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals).
Accordingly, these appeals by the Revenue stand dismissed.