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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals) Mumbai [in short CIT(A)] in appeal No. CIT(A)- 41/DCCC-39/IT-789 & 790/10-11 dated 29-11-2011. The Assessment was framed by Deputy Commissioner of Income Tax or Assessing Officer,
2 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) Center Circle-39, Mumbai (in short DCIT or AO) for the A.Y. 2008-09 vide order dated 29-12-2010 under section 143(3) read with section 153C of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. At the outset, Ld Counsel for the assessee stated the facts that Search and seizure action u/s 132 of the Act was undertaken in the cases of Jai Corp Group on 05.03 2009 including its employees and close associates who were closely involved in the process of acquiring land. Accordingly, search action was also undertaken in the office and residential premises of Shri Dilip Dherai who was involved in the process of acquiring land for various companies, including the assessee company. On the basis of certain documents found from the premises of Shri Dilip Dherai, proceedings u/s 153C of the Act was initiated in the case of the assessee. The assessment proceedings were concluded and order was passed u/s 143(3) read with section 153C of the Act, making an addition of Rs 51,29,90.000/-. In the appellate proceedings before CIT(A), the assessee challenged the additions as well as the assumption of jurisdiction for proceedings u/s 153C of the Act. The CIT(A) dismissed the legal ground; however, part relief on the amount of addition was granted. The present appeal is filed against the action of the CIT(A) in confirming the action of the AO. Ld. Counsel stated that while preparing the case for legal ground challenging the proceedings u/s 153C of the Act, the assessee was advised to obtain the satisfaction note. Accordingly, an application was made and the satisfaction note was obtained. On perusal of the same it is observed that the satisfaction note was recorded in the case of Krupa Land Ltd i.e. the assessee instead in the case of the searched person i.e. Shri Dilip Dherai. It was contended by Ld Counsel that although this argument can be raised as per the original grounds of appeal filed before Tribunal, but out of abundant precaution, the assessee has been advised to file an additional ground, specifically challenging the assessment proceedings. Accordingly,
3 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) assessee filed this additional ground with a prayer to admit the same, contending that in view of no satisfaction note recorded in the case of the searched person i.e. Shri. Dilip Dherai, the proceedings u/s 153C of the Act, undertaken in the case of the assessee are bad-in-law The recording of satisfaction note in the file of the other person is not as per the requirement of the Act and hence the proceedings are bad-in-law. Ld Counsel argued that the additional ground of appeal raises purely question of law and no new facts are required to be brought on record. Therefore, it was prayed that the additional ground of appeal may be admitted and adjudicated. In this regard, Ld Counsel relied on the case law of Hon’ble Supreme Court in the case of National Thermal Power Corporation v CIT [229 ITR 383 (SC)] and also of Hon’ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [199 ITR 351 (Born) (FB)]. For this assessee raised the following additional ground: -
“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have held that in the absence of satisfaction note record in the case of the searched person i.e. Shri Dilip Dherai, the assessment proceedings under section 143C of the Act are bad-in-law and void-ab-initio.”
Ld. CIT-DR could not controvert the factual and legal aspects of the case.
We have heard rival contentions and gone through the facts of the case. We are of the view that recording of satisfaction is a jurisdictional and without recording of satisfaction note in the case of searched person, no assessment can be framed u/s 153C of the Act in other assessee’s case. Hence, the additional ground raised by assessee is a purely a legal issue and accordingly, admitted.
4. At the outset, the learned Counsel for the assessee first of all drew our attention to satisfaction note recorded by the AO of the assessee, in 4 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) assessee’s own case, whereas, search was conducted in the case of Shri Dilip Dherai. The assessee filed copy of satisfaction note and the relevant Paras of satisfaction note reads as under :-
M/s Krupa Land Ltd. (i.e. the assessee)
Search and seizure action u/s 132 of the Act was carried out on 05.03.2009 in the cases of Jai Corp Group (to which the assessee belongs to), its employees and close associates who were closely involved in the process of acquiring land. The affairs of this group are managed by Jain family viz. Mr. Anand Jain, Mr. Jai Kumar Jain, Mr. Virendra Jain, Mr. Satyapal Jain, Mr. Gaurav Jain and Mr. Harsh jain.
Para 1.2 to 1.5 need no reproduction Para 1.6 In view of the above, I am satisfied that the above-mentioned seized documents (i.e. page nos. 16,60 and 66 of the Annexure A-1 seized as per panchanama dated 05.03.2009 from the residence of Mr. Dilip Dherai) belong to a person i.e. the assessee, other than the person referred to in section 153A within the meaning of provisions of section 153C of the Act. Accordingly, proceedings u/s 153C of the Act are initited in the case of the assessee.
Issue notice u/s 153C of the Act in the case of the assessee.
Sd/- (Santosh Kumar) DCIT, CC-39, Mumbai Dtd. 09-09-2010 From the above satisfaction note it is clear that search action was undertaken in the office and residential premises of Shri Dilip Dherai, who was involved in the process of acquiring land for various companies, including the assessee company. On the basis of certain documents found from the premises of Shri Dilip Dherai, proceedings u/s 153C of the Act was initiated in the case of the assessee. We have gone through the 5 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) copy of satisfaction note placed before us by assessee, on perusal of the same, we find that the satisfaction note was recorded in the case of Krupa Land Ltd i.e. the assessee instead in the case of the searched person i.e. Shri Dilip Dherai.
5. We find that Hon’ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 362 ITR 673 (SC) has held that it is clear from the provisions of section 153C of the Act that where the AO of the person searched is satisfied that any money, bullion, jewellery, books of account or other documents etc., belong to a person other than the person searched, then, such documents 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. A bare perusal of the provision indicates that before handing over such documents etc. to the AO of the 'other person', a 'satisfaction' has to be recorded by the AO of the person searched that money, bullion or jewellery, etc., found from the person searched belong to the 'other person'. Only when such 'satisfaction' 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 person', that the later AO acquires jurisdiction to make assessment or reassessment of the 'other person.' It is, therefore, amply vivid that the AO of the 'other person' can acquire jurisdiction to assess or reassess income of the 'other person' only when the AO of the person searched records satisfaction in his case before handing over money, bullion, jewellery, etc. to him. 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 person' to acquire jurisdiction. Unless such jurisdictional condition is satisfied, there can be no question of making assessment or reassessment of the 'other person.' Subsequently, the Central Board of Direct Taxes (in short CBDT) vide Circular No. 24/2015 F. No. 273/Misc./140/2015/TTJ dated 31-12-2015 for implementation of the 6 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) judgment in the case of Calcutta Knitwears (Supra), has explained the procedure in case the AO of the search person and the “the other person” is one at the same then also he is required to record his satisfaction as has been held by the Courts.
The relevant circular issued by CBDT reads as under:-
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 12.3.20 14(available in MRS at 2014-LL-0312-5 1) 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 AU who has jurisdiction over such other person u/s 15813D. 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 Sec/ion 158BC of/he 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."
7 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) 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.
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 he decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD / 153C should be withdrawn / not pressed if it does not meet the guidelines laid down by the Apex Court.”
The argument of the learned CIT Departmental Representative (in short DR) that the searched person and the assessee are being assessed by the same AO, the learned Counsel for the assessee contended that even in cases where the AO of the person searched and the assessee who is sought to be assessed u/s 153C of the Act is the same, the AO is required to record his satisfaction that the assets / documents seized belonged to a person i.e. the assessee, other than the 8 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) searched person. This view is finally settled by Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Mechmen (2016) 380 ITR 591 (MP) wherein the view is expressed in the following manner :-
“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 noticee 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 file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A). The question as to whether that may influence the opinion of the Assessing Officer having jurisdiction over such other person, also cannot be the basis to take any other view. As a matter of fact, the other Assessing Officer to whom the items are 9 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. 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 argument of the Department must be negatived.
After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him.”
10 & 632/Mum/2012 Krupa Land Limited (A.Y:2008-09) 8. In the given facts and circumstances of the case and the legal position clarified by CBDT and the case laws cited supra, we are of the view that the satisfaction in the case is not recorded by the AO of the searched party, which is a pre-condition for invoking jurisdiction u/s 153C of the Act and hence, the assessment framed u/s 153C read with Section u/s 143(3) of the Act is bad in law and hence, quashed. The jurisdictional issue of the assessee’s appeal is allowed.
The issues on merits raised by assessee and also raised by Revenue in its appeal, need no adjudication as the assessment has been quashed on the issue of jurisdiction.
In the result, the appeal of assessee is allowed and that of the Revenue is dismissed.