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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: has been preferred by the assessee against the order dated 04/03/2009 passed by the ld. CIT (A’s)-II, New Delhi for AY 2005-06. ITA 1145 & 2322/D/09 Page 1 of 8 Singla Realters Ltd. No. 1145/Del/2009 has also been preferred by the assessee against the order dated 04/03/2009 passed by the assessee against the order dated 04/03/2009 passed by the ld. CIT(A’s)-II, New Delhi and pertains to AY 2006-07. ITA No. 2322/Del/2009 is the cross appeal preferred by the Department for AY 2006-07.
Since all the three appeals were heard together they are being disposed of through this common order.
The brief facts of the case are that search u/s 132 of the Income Tax Act, 1961 (in short ‘The Act’) was conducted at the business/residential premises of the Directors of the asseessee company on 10/11/2005. The assessments for both the years were completed u/s 153C/143(3) of the Act in which substantial additions were made. For both the years the assessee raised a primary objection before the ld. CIT (A’s) that the AO was lacking in the basic jurisdiction to invoke section 153C of the Act without fulfilling the conditions laid therein. It was the assessee’s submission that the action was incorrect and unjustified in taking recourse to action u/s 153C since no books of accounts or documents or anything else belonging to the assessee was found from the persons searched. It was the assessee’s contention that the AO had taken action u/s 153C and completed the assessment without recording satisfaction in case of the person searched and hence the assessment so made u/s 153C deserves to be annulled. However, the ld. CIT(A’s) noted that it was undisputed that the papers found in the residential premises of the two 1145 & 2322/D/09 Page 2 of 8 Singla Realters Ltd. directors namely Shri Babu Ram Singla and Shri Harish Singla were belonging to the assessee company only. The ld. CIT(A’s) also referred to some loose papers found during the course of search and noted that the transactions as appearing in these loose papers were also duly accepted by the assessee as relating to its business deals and recorded in the books. The ld. CIT (A’s) also noted that even on the day of search and subsequently both the above named Directors had deposed that these papers related to the real estate business of the assessee company only. The ld. CIT (A) also noted that not only the ownership of the papers but also the continued nexus of the transactions with the assessee company was established beyond doubt. On the issue of recording of satisfaction, the ld. CIT(A’s) noted that in this case the AO of the persons searched and the AO of the third party were one in the same person and hence the requirement of a separate satisfaction was not mandatory. Accordingly, the ld. CIT (A) held that the proceedings u/s 153C/143(3) were valid and that the assessee’s legal objection was unsustainable. On merits the ld. CIT (A’s) gave some relief to the assessee.
Now the assessee has preferred an appeal before the ITAT and although numerous grounds have been raised for both the assessment years, the ld. AR chose to address the Bench on ground no. 1 only which challenges the invocation of provision of sec. 153C. Ground no. 1 is common to both the appeals and reads as under: 1145 & 2322/D/09 Page 3 of 8 Singla Realters Ltd.
“On the facts and circumstances of the case and in law the ld. CIT (A) erred in holding that the AO has rightly invoked the provision of Sec. 153.”
The ld. AR submitted that in both the years the assessment u/s 153C was void ab initio as there was no satisfaction note on record in the case of Shri Babu ram Singla, Smt. Laxmi Singla and Shri Harish Singla for assessment years 2000- 01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09.
He referred to a communication bearing F.No. ACIT/CIRCLE 36(1)/2010-11/382 dated 31/03/2011 addressed to the ld. CIT DR-IV, ITAT, New Delhi and originating from the ACIT, Circle 36(1), New Delhi in which the ACIT has accepted that on going through the records in the cases of Shri Babu Ram Singla, Smt. Laxmi Singla & Shri Harish Singla no satisfaction note as per section 153C recorded by the AO was on record. A copy of this communication was also placed before us. The ld. AR also drew our attention to Circular No. 24/2015 dated 31/12/2015 which specifically deals with the issue of satisfaction note and submitted that in view of this Circular issued by the CBDT the Department ought to withdraw/not press pending litigation.
The ld. DR although supported the order of the ld. CIT(A’s) on the validity of proceedings u/s 153C but could not dispute the fact that the circular as aforementioned was binding in nature. , 1145 & 2322/D/09 Page 4 of 8 Singla Realters Ltd.
We have heard the rival submissions and also have perused the relevant records. At this juncture it will be a relevant to reproduce Circular No. 24/2015 issued by the CBDT which reads as under:
“CIRCULAR NO. 24/2015 F.No.279/Misc./140 /2015/ITJ
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 2. in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.2014(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) 1145 & 2322/D/09 Page 5 of 8 Singla Realters Ltd. immediately after the assessment proceedings' arc completed under section 158BC of the Act of the searched person." Several High Courts have held that the provisions of section 153C 3. 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 4. 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 5. 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. (sd/-).
On going through the relevant records, especially the impugned order, it is undisputed that no satisfaction was recorded by the AO of the searched persons in this case. A communication from the ACIT to the ld. CIT-DR IV, ITAT Delhi also confirms the contention of the assessee. It is also undoubted that the Circulars 1145 & 2322/D/09 Page 6 of 8 Singla Realters Ltd. issued by the CBDT have a binding force at least as far as the assessee’s interest are to be safe guarded. Para 4 of the circular specifically directs 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. In the light of the factual matrix of the case duly supported by the circular, we find that the assessee has a strong case on this issue. We, accordingly, hold that proceedings u/s 153C/143(3) for both the assessment years under appeal were void ab initio as the fundamental requirement of recording the satisfaction note was not complied with. Hence, the assessments for both the years are quashed and ground no. 1 of the assessee’s appeal for both the years is allowed. As other grounds have become academic in nature, they are not being adjudicated upon.
In the result, & 1145/D/09 preferred by the assessee are partly allowed.
As far as preferred by the Department for AY 2006-07 is concerned. It is seen that the Department has agitated the deletion of addition of Rs. 10 lacs only. Keeping in view the CBDT Circular No.21 of 2015 dated 10.12.2015 and also the provisions of Section 268A of Income Tax Act, 1961, we are of the view that the Revenue’s appeal is liable to be dismissed. , 1145 & 2322/D/09 Page 7 of 8 Singla Realters Ltd.
In the result, the appeal filed by the Department is dismissed.
In the final result, both the appeals of the assessee are partly allowed and the appeal filed by the Department is dismissed.
Order pronounced in the open court on 11.08.2016