SMT G LAKSHMI ARUNA,BELLARY vs. DEPUTY COMMISSIONER OF INCOME TAX,, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘B’, BANGALORE

BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER

ITA No.1451 to 1457(Bang) 2014 (Assessment years : 2005 – 06 to 2011 – 12)

Smt. G. Lakshmi Aruna, No.8, Havambavi, Siruguppa Road, Ashok Nagar, Bellary – 583103 PAN: AFJPA5974P Appellant Vs The Deputy Commissioner of Income Tax, Central Circle - 1(3), Bangalore Respondent

Assessee by : Shri Mayank Jain & Shri Madhur Jain Advocates Revenue by : Ms. Neera Malhotra, CIT & Shri Praveen S., DCIT Central Circle – 1 (3)

Date of hearing : 26-08-2016 Date of pronouncement : 18-10-2016

O R D E R PER BENCH:

All these seven appeals are filed by the assessee directed

against the combined order of learned CIT (A) – VI, Bangalore dated

25.08.2014 for A. Ys. 2005 – 06 to 2011 – 12.

disposed of by this common order for the sake of convenience.

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of the assessment order passed u/s 153C read with section 144 of

the I. T. Act. In course of hearing of these appeals, on 27.06.2016, it

is noted by the bench as noted in the order sheet of that day that

the learned counsel for the assessee has raised a serious objection

with respect to initiation of proceedings u/s 153C of the I. T. Act by

contending that no satisfaction was recorded by the A.O. in the case

of searched person that the incriminating material found during the

course of search belongs to the assessee and therefore, the

assessment completed u/s 153C of the Act is illegal. The bench

directed the learned DR of the revenue to place the copy of

satisfaction recorded in the case of the searched person that the

incriminating material seized during the course of search pertains

to the assessee and the hearing was adjourned to 03.08.2016. The

hearing was again adjourned ton 10.08.2016 and then to

23.08.2016 and again to 26.08.2016 to enable the DR to file the

required satisfaction. On 26.08.2016, hearing was concluded with

the liberty to the DR to file written submissions on or before

02.09.2016. On 07.09.2016, learned DR of the revenue filed written

submissions and submitted that in view of “All India Bandh” on

02.09.2016, the said written submissions be accepted on

07.09.2016. We accept the same and consider it for deciding this

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technical aspect first i.e. validity of assessments u/s 153C read with section 144. 4. In course of hearing on 26.08.2016, both sides agreed that the facts on this technical aspect in the present case and in the case of the husband of the present assessee Shri Gali Janardan Reddy in ITA No. 1444 to 1450/Bang/2014 also heard on 26.08.2016 are same and the arguments are also same and these appeals can be decided on similar line. In the written submissions filed by the learned DR of the Revenue also, similar submissions are reiterated. These written submissions of the learned DR of the

revenue submitted on 07.09.2016 are reproduced as under:-

“During the course of hearing held on 26/08/2016 a request was made to allow the department to file written submissions on certain points raised during the course of hearing. The Hon'ble Bench acceded to the request and granted time up to 02/09/2016 to file the reply. As 02/09/2016 was an "All India Bandh", the A.O could not prepare the report. Accordingly, the reply is being submitted today. The delay caused may kindly be condoned due to unforeseen circumstances arising due to bandh. II. REPORT OF D.C.I. T CENTRAL CIRCLE (1)(3) Written submissions in the form of the report of Deputy Commissioner of Income Tax , Central Circle (1) (3), Bangalore along with the Paper Book containing the copies of the seized material and statements of the transporters to whom payments made were reflected in the books of accounts, which were denied by these transporters in the statements recorded. The A.O in his report has dealt with the following points discussed during the course of hearing on 26/08/2016 :

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a) Note on 1st Proviso to Section 153C (Refer pg. 2 & 3 of report of DCIT) In the Section 153A reference to date/year of search occurs "3" times viz. 153A(l)(b) which mandates the 6 years which have to be • compulsorily assessed. 2nd proviso to Section 153A(l), which governs the abatement • of pending proceedings. 3rd proviso to Section 153A(1), which provides exemption for • compulsory assessment in certain notified class of cases. The 1st proviso to Section 153C makes a direct reference ONLY to 2nd proviso to Section 153A. 2nd proviso to Section 153A deals only with the issue of abatement of pending assessment proceedings. As has been rightly pointed out by DCIT in his report the interpretation resorted to by the assessee will lead to absurd situations. For example, if the the transfer of records occurs in a Financial Year 2 years after the search date, the A.O of 153C cases losses jurisdiction over the earliest 2 A.Y s. on which he may possess seized records. On the other hand, he assumes jurisdiction over 2 new A.Ys. on which there are no seized records. There can be no assessments for the latest 2 years based on seized documents transferred. Therefore, the argument of the assessee that the 1st 2 years assessments are void are not logical vis-a-vis the provisions of the Act. b) Note on opportunity of being heard (Refer pg. 4 of report of DCIT) The report of DCIT elaborates that the assessee had not filed return of in response to notice u/s 153C even under protest and that all orders for the batch of 6 Assessment Years were best judgement assessments u/s 144 r.w.s. 153C based on material available on record due to total non-cooperation of assessee during assessment proceedings.

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c) Note on Transportation Expenses ( Refer pg. 4 to 6 of report of DCIT) The report of DCIT elaborates that AO had sent two show- cause notices dated 01/03/2013. The assessee replied on the same issue vide letter dated 16/03/2013 received on 21st March, 2013 (Page 32 to 34 of Paper Book) and raised the question of cross examination on 21st March, 2013 when the proceedings were getting barred by limitation on 31st March, 2013. The cross examination sought by the assessee is on the statement of the supposed transportation contractor engaged by the assessee herself. It is not a statement of totally unrelated party. The non- compliant approach of the assessee is also recorded by the Assessing Officer after the last question of his Show cause letter dated 0l.03.2013. Ill. WRITTEN SUBMISSION ON "RECORDING OF SATISFACTION"- [ SIMILAR SUBMISSION WAS ALREADY FILED IN THE CASE OF SHRI G. JANARDHAN REDDY (ITA Nos. 1444 to 1450/B/2014)DURING THE COURSE OF HEARING ON.26/08/2016.1 During the course of hearing held on 23.08.2016 the Hon'ble Bench had directed for production of seized material and statements of Shri Raghavacharyalu and Smt. G.Renuka, whose premises were searched u/s 132 of the I.T Act, and documents pertaining to Smt.G.Laxmi Aruna, which were seized from these premises, which formed the basis of recording of satisfaction by the A.O for issuing notice u/s 153C in the case of the appellant. In this regard the following 2 facts are of great significance which establishes the close association of these 2 individuals with the appellant and the close connection was admitted by these 2 individuals and , therefore, important documents pertaining to appellant were found from the premises of these 2 individuals: 1. Smt. G. Renuka is a Chartered Accountant by profession. Her 4irm/s G.Renuka& Co. is the Chartered Accountant for the entire Janardhan Reddy Group. 2. Shri K.Raghavacharyulu is an Advocate by profession and he is handling all the legal matters for the appellant.

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This is evident from the Power of Attorney filed by the assessee in favour of Smt G Renuka & Co for representing her during the earlier assessment proceedings (Page 12 of Paper Book). The agreement dated 26.12.2005 between Aruna and Pawan cannot be said to be not belonging to the assessee, being party to transaction. Therefore, agreement dated 26.12.2005 alone is a sufficient satisfaction for initiation for 153C proceedings. IV. CASE LAWS (A) For the assessments completed u/s 153C there is no requirement u/s 153 C(1) that the assessing officer should also be satisfied that the incriminating documents should conclusively establish that the documents seized should conclusively reflect or disclose any undisclosed income. In this regard the following case laws are relied upon: 1. SSP Aviation Ltd. Vs DCIT [2012] 20 taxmann.com 214 (Delhi) (HC) 2. All Cargo Global Logistics Ltd. [20 12] 23 taxmann.com 103 (Mum) (SB) 3. CIT Vs Chetan Das Lachman Das [2012] 25 taxmann.com 227 (Delhi) (HC) (B) In the following case laws courts have held that that satisfaction is to be made with respect to the ownership of the documents and not regarding the undisclosed income: 1. ACIT Vs Panchuram Deshmukh & Ors (ITAT Bilaspur) 33 TTD 53 V. NON - COMPLIANCE BY THE ASSESSEE TO THE NOTICE ISSUED u/s 153C FOR FILING RETURN OF INCOME AND TO THE NOTICES ISSUED DURING THE SCRUTINY PROCEEDINGS u/s 153 C A very crucial aspect in this case is the complete non- cooperation and non-compliance by the assesse to the statutory notices issued.

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(1) The assessee did not file any Return of Income in response to the notices issued u/s 153C. (2) The assessee did not file any submissions during the course of proceedings u/s 153C before the A.O. (3) The assessee did not file any evidence before the CIT(A) in support of the contentions raised. VI. DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT Vs CALCUTTA KNITWEARS 43 taxmann.com 446 (SC) & CIRCULAR OF C.B.D.T [SIMILAR SUBMISSION WAS ALREADY FILED IN THE CASE OF SHRI G.JANARDHAN REDDY (ITA Nos. 1444 to 14501B12014) DURING THE COURSE OF HEARING ON 10/08/2016] 1. Firstly, the decision of Hon'ble Supreme Court in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) , which is rendered in connection with search assessments under Chapter XIV-B (sections 158B to 158BI), which are different provisions compared to assessments of the assessee which relate to the new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. 2. Secondly, the facts in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) are different from that of the assessee as the officer of the person covered under provisions of Section 158BC was different from the officer of the person covered under provisions of Section 158BD and therefore the issue of "transmission of records" (refer Para 39) came up before the Hon'ble Court and consequently the issue of the "who should recording of satisfaction" and "at what point of time the satisfaction should be recorded was also considered". In this context the Hon'ble court stated that the satisfaction can be recorded at any of the 3 stages - (1) At the time of initiation of proceedings u/s 158BC, (2) along with the proceedings u/s 158BC and (3) immediately after concluding the proceedings u/s 158BC.

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rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. This has been reiterated by the Hon'ble Supreme Court in its decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). 4. Therefore, in view of the fact that assessing officer of the person covered under provisions of Section 153A being the same as the officer of the person covered under provisions of Section 153C and the assessing officer having recorded the satisfaction before issuing notice u/s 153C, sufficient compliance has been made by the A.O as required under the provisions of the statute. Submitted for kind consideration.”

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(a) Shri K. Raghavacharyalu, at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. (b) Smt. G.Renuka, at "Rishikes", No.36, Goldsmith Street, Bellary.

DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT Vs CALCUTTA KNITWEARS 43 taxmann.com 446 (SC) 1. Firstly, the decision of Hon'ble Supreme Court in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) , which is rendered in connection with search assessments under Chapter XIV-B (sections 158B to 158BI), which are different provisions compared to assessments of the assessee which relate to the new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. 2. Secondly, the facts in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) are different from that of the assessee as the officer of the person covered under provisions of Section 158BC was different from the officer of the person covered under provisions of Section 158BD and therefore the issue of "transmission of records" (refer Para 39) came up before the Hon'ble Court and consequently the issue of the "who should recording of satisfaction" and "at what point of time the satisfaction should be recorded was also considered". In this context the Hon'ble court stated that the satisfaction can be recorded at any of the 3 stages - (1) At the time of initiation of proceedings u/s 158BC, (2) along with the proceedings U/S 158BC and (3) immediately after concluding the proceedings U/S 158BC. 3. The aforesaid decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) is NOT applicable to the case of the assesse for the following reasons: (i) as the assessments of the assessee are completed under different provisions of the statute as they

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which relate to the new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. (ii) The assessing officer of the person covered under provisions of Section 153 A is the same as the officer of the person covered under provisions of Section 153C and ,therefore, there is NO issue of "transmission of records". Copies of assessment orders in the cases of Shri K. Raghavacharyalu and Smt. G.Renuka are enclosed to establish that the assessments are completed by the same assessing officer i.e Shri, Shivanand H. Kalakeri, DCIT Central Circle 1(3) who had done the assessments in the case of the assessee. (iii) The assessing officer has recorded satisfaction in the case of the assessee. (iv) The eventuality of an assessing officer of the person covered under provisions of Section 153BC being the same as the officer of the person covered under provisions of Section 153 BD is not examined by the Hon'ble Supreme Court in the case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). (v) It is humbly submitted that judgments must be read as a whole and observations in judgments should be considered in the context in which they are made and in the light of questions that were before the court. In CIT v. Sun Engineering Works Pvt. Ltd.(198 ITR 297) the Supreme Court observed: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try

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to ascertain the true principle laid down by the decision. This has been reiterated by the Hon'ble Supreme Court in its decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). 4. Therefore, in view of the fact that assessing officer of the person covered under provisions of Section 153 A being the same as the officer of the person covered under provisions of Section 153 C and the assessing officer having recorded the satisfaction before issuing notice u/s 153C, sufficient compliance has been made by the A.O as required under the provisions of the statute. Submitted for kind consideration.”

“Recording of satisfaction note before issuance of notice under section 153C: Name of the assessee: Sri Gali Janardhana Reddy (Ay: 2005-06 to 2010-11) A search u/s. 132 was conducted on 25/10/2010 in the case of Mr K. Raghvacharyulu at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. During the course of the search, following documents/books of account belonging to Sri Gali Janardhana Reddy were seized and the contents are explained in brief as below- RB/1 Page No.2 This page contains application filed by Mr G Janardhana Reddy before the Returning Officer while contesting for the election to the Member of Legislative Council in the State of Karnataka.

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RB/1 Pages 27-32 These pages contain details of Assets (movable, immovable, assets etc) belonging to Mr Janardhana Reddy, his spouse and dependents. RB/1Pages 116-121 This contain instruments of Partnership deed entered on 8.1.2006 between Sri B Srininivas Reddy, Sri Parameshwara Reddy, Sri B Sreeramulu, Sri G Karunakar Reddy, Sri Somashekhar Reddy, Smt G Lakshmi Aruna in the name and style of Hotel Nagarjun. A search u/s. 132 was also conducted on 25/10/2010 in the case of Smt G Renuka at 'Rishikesh' #36, Goldsmith Street, Bellary on 25-10-2010. During the course of the search, following documents/books of account belonging to Sri Gali Janardhana Reddy were seized and the contents are explained in brief as below- RN/1 Pages 179-181. These pages contain trial balance of Gali Janardhana Reddy for F.Y.2009-10. RN/1 Pages 184-185. These pages contain trial balance of Gali Janardhana Reddy for F.Y.2009-10 RN/1 Pages 129 to 139. These pages contain sale deed dated 22-10-2005 between Sri Sunil Kumar Gupta (seller) and Sri G Janardhana Reddy (purchaser) in respect of property at Plot no.1121 at Jubilee Hills, Hyderabad. In view of the above, I am satisfied that the documents and books of account belonging to Sri Gali Janardhana Reddy have been found and seized from the searched premises of Sri Raghavacharyulu and Smt G Renuka. Issue notice u/s. 153C of the Income tax Act, 1961.

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Sd/- (SHIVANAND H KALAKERI) Deputy Commissioner of Income- tax, Date: 14.12.2012 Central Circle 1(3), Bangalore."

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person, but in the case of the other person i.e., the present assessee. In our considered opinion, even if the AO of assessee and the searched person is one and the same, then also, the satisfaction note has to be recorded by the AO in his capacity as AO of the searched person and not in his capacity as AO of the other person in whose case notice u/s. 153C is required to be issued.

“5. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, we find that the ld. CIT(A) has not given any specific finding with regard to recording of satisfaction by the Assessing Officer of the searched person before initiating proceedings under section 153C of the Act. The ld. CIT(A) has rather rejected the contentions of the assessee in this regard by holding that the Assessing Officer of the searched person was not required to record satisfaction as required under section 158BD of the Act before initiating proceedings under section 153C of the Act. During the course of hearing, various opportunities were afforded to the Revenue to place some evidence in order to demonstrate that

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before initiating proceedings under section 153C of the Act against the assessee, satisfaction was recorded by the Assessing Officer of the searched person that incriminating material found during the course of search in fact relate to the assessee. But nothing has been placed on record by the Revenue. Moreover, from the orders of the lower authorities, it is apparent that satisfaction was not recorded by the Assessing Officer of the searched person before initiating proceedings under section 153C of the Act. Now the question arises whether in the absence of satisfaction recorded by the Assessing Officer of the searched person, the assessment framed under section 153C of the Act, is sustainable in the eyes of law? This question was answered by the Hon'ble jurisdictional High Court in the case of CIT (Central) vs. M/s Gopi Apartment (supra) by holding that a clear and plain reading of section 153C leaves no doubt that recording of satisfaction by the Assessing Officer of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched). The relevant observations of the jurisdictional High Court are extracted hereunder:- "We have heard Sri Bharat Ji Agrawal, learned senior counsel assisted by Sri Ashok Kumar, learned counsel for appellant and Sri Ashish Bansal, learned counsel for respondent assessee and have perused the records. The contention of Sri Agrawal is two fold. Firstly, he contends that in the instant case, the Assessing Officer of the 'searched person' and the 'other person' being the same, there was no requirement of handing over of the books of account or documents or assets seized or requisitioned, as is mentioned in Section 153C nor there was any necessity of recording a prior satisfaction before proceeding to assess the 'other person'. The satisfaction subsequently recorded in the assessment order in respect of the 'other person' was sufficient compliance of provisions of Section 153C, which, in any case, was procedural in nature. The A.O. of both the proceedings, being the same, he was neither required to handover the documents to another Assessing Officer nor he had to record any satisfaction for the purpose of any other Assessing Officer since same Assessing Officer of the same designation is having jurisdiction over both the persons, i.e. 'searched person' and the 'other person' (not searched). Sri Agrawal relied upon a Division Bench judgment

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of this Court rendered in the case of Commissioner of Income Tax Vs. Classic Enterprises, (2013) 358 ITR 465.” It was contended that the Tribunal was not justified in quashing the notice under Section 153C, instead of deciding the question on merits as to whether additions are to be made and/ or to what extent the income is to be assessed in the hands of Gopi Apartments. Sri Agrawal also contended that by the Finance Act, 2003, Amendment in Section 153A w.e.f. 01.06.2003 was made and Sections 153A and 153C were added in place of Sections 153BC and 153BD. Section 158BC is equivalent to Section 153A and Section 158BD is equivalent to Section 153C. He also contended that the reliance placed by the I.T.A.T. upon the judgment of the Supreme Court in Manish Maheshwari (supra) was misplaced and the case, at hand, was squarely covered by the Division Bench of this Court in the case of Classic Enterprises (supra). In this regard, Sri Agrawal referred to the observation in Manish Maheshwari's case to the effect that "No proceeding under Section 158BC had been initiated. There is, thus, a patent ‘non- application of mind’. Sri Ashish Bansal, learned counsel for respondent assessee, on the other hand, contended that the initiation of the proceedings under Section 153C against the respondent assessee itself was illegal, as no satisfaction was recorded by the Assessing Officer of the 'searched person' prior to initiation of such proceedings against respondent assessee as was mandatory. He invited the attention of the court to the specific finding recorded by the learned C.I.T. (Appeals), as upheld by the I.T.A.T., based on the admission by the A.O. before it, which has already been taken note of by us in the earlier part of the judgment. Sri Bansal relied upon a recent judgment of the Apex Court in the case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana passed in Civil Appeal No.3958 of 2014 decided on 12.03.2014 in support of his contention. Apart from the arguments, as noted above, no other argument was raised by the learned counsel for either of the parties nor any other judgment was cited before us in support of their respective contentions. The relevant provision in the instant case, i.e. Section 153C is as under:

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"153C. Assessment of income of any other person. (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 such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A." The aforesaid provision is contained in Chapter- XIV of the Income Tax Act, which contains the procedure for assessment. A somewhat similar provision exists in Section 158BD under Chapter XIV-B, which contains the procedure for assessment of searched cases, which reads as under: "158BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other 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 [under section 158BC] against such other person and the provisions of this Chapter shall apply accordingly." The meaning and scope of the aforesaid provision contained in Section 158BD came up for consideration before the Supreme Court in the case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana (supra). The issue that fell for consideration before the Supreme Court, as mentioned in paragraph-3 of the judgment is being quoted hereinbelow: "3. The issue that falls for our consideration and decision in all these appeals is: at what stage of the proceedings under

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Chapter XIV-B does the assessing authority require to record his satisfaction for issuing a notice under Section 158BD of the Income Tax Act, 1961 ('the Act' for short)." After considering the rival contentions, relevant provisions of the Income Tax Act and the authorities on the subject, their Lordships held as under: "41. We would certainly say that before initiating proceedings under Section 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 44. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at

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either 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; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person. 45. We are informed by Shri Santosh Krishan, who is appearing in seven of the appeals that the assessing officer had not recorded the satisfaction note as required under Section 158BD of the Act, therefore, the Tribunal and the High Court were justified in setting aside the orders of assessment and the orders passed by the first appellate authority. We do not intend to examine the aforesaid contention canvassed by the learned counsel since we are remanding the matters to the High Court for consideration of the individual cases herein in light of the observations made by us on the scope and possible interpretation of Section 158BD of the Act. 46. With these observations, the appeals are disposed of." The provisions of Section 158BD being pari materia with the provisions of Section 153C, the ratio of the aforesaid judgment clearly applies to the present case also. The reference to the assessment proceedings under Section 158BC by the Supreme Court in the extracts quoted above is with regard to the 'assessment proceedings' in relation to the 'searched person' and not the 'other person' as referred to in Section 158BD. A bare perusal of the provision contained in Section 153C of the I.T. Act leaves no doubt that, as is provided under Section 158BD, where the Assessing Officer, while proceeding under Section 153A against a person who has been subjected to search and seizure under Section 132(1) or has been proceeded under Section 132A, 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 such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.

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Thus, there are two stages: (1) The first stage comprises of a search and seizure operation under Section 132 or proceeding under Section 132A against a person, who may be referred as 'the searched person'. Based on such search and seizure, assessment proceedings are initiated against the 'searched person' under Section 153A. At the time of initiation of such proceedings against the 'searched person' or during the assessment proceedings against him or even after the completion of the assessment proceedings against him, the Assessing Officer of such a 'searched person', may, if he is satisfied, that any money, document etc. belongs to a person other than the searched person, then such money, documents etc. are to be handed over to the Assessing Officer having jurisdiction over 'such other person'. (2) The second stage commences from the recording of such satisfaction by the Assessing Officer of the 'searched person' followed by handing over of all the requisite documents etc. to the Assessing Officer of such 'other person', thereafter followed by issuance of the notice of the proceedings under Section 153C read with section 153A against such 'other person'. The initiation of proceedings against 'such other person' are dependant upon a satisfaction being recorded. Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the 'searched person', or even during the assessment proceedings against him or even after completion of the same, but before issuance of notice to the 'such other person' under Section 153C. Even in a case, where the Assessing Officer of both the persons is the same and assuming that no handing over of documents is required, the recording of 'satisfaction' is a must, as, that is the foundation, upon which the subsequent proceedings against the 'other person' are initiated. The handing over of documents etc. in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory. In this regard, the ratio of the judgment of the Supreme Court in the case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana (supra), as noted above, clearly applies to the proceedings under Section 153C also.

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The 'satisfaction' has to be in writing and can be gathered from the assessment order passed in respect of the 'searched person', if it is so mentioned/ recorded or from any other order, note or record maintained by the Assessing Officer of the 'searched person'. The word 'satisfaction' refers to the state of mind of the Assessing Officer of the person searched, which gets reflected in a tangible shape/ form, when it is reduced into writing. It is the conclusion drawn or the finding recorded on the foundation of the material available. In this regard, reference may be made to the pronouncements in the case of C.I.T. Vs. Radhey Shyam Bansal, (2011) 337 ITR 217 (Delhi) and the Division Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises reported in (2013) 358 ITR 465 (Allahabad). In the case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax and another, (2007) 289 ITR 341 (SC) , their Lordships had the occasion to consider the provisions of Sections 158BC and 158BD and held that the conditions precedent for taking recourse to a block assessment in terms of Section 158BC and 158BD (i) were as under: "(i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. 11. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter 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 Section 132A of the Act." The ratio of the judgment in Manish Maheshwari's case also applies to the provisions of Section 153C and to the facts of this case.

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In the instant case, a categorical finding has been recorded by the C.I.T. (Appeals) and the I.T.A.T. that there is no material showing the recording of satisfaction by the Assessing Officer of the 'searched person' prior to issuance of notice under Section 153C to the respondent assessee, i.e. 'the other person'. It was the admitted case of the Revenue before the C.I.T. (Appeals) and the I.T.A.T. that though the Assessing Officer (of the other person) in the assessment order had stated that satisfaction for issuing notice under Section 153C was recorded, however, on examination, recording of such satisfaction alleged to be recorded by the Assessing Officer was not available. In view of the legal position, as already discussed above and the admitted factual position as aforesaid, we are unable to accept the contentions of Sri Agrawal. We are also of the view that plea, which is being raised in this appeal, was not raised in the grounds of appeal before the I.T.A.T., however, even otherwise such plea does not have any merit. The contention of Sri Agrawal that Section 153C is only procedural in nature, therefore, the non-recording of prior satisfaction does not vitiate the assessment order, as, such satisfaction, has been recorded in the assessment order passed subsequently with regard to the other person, is also not acceptable for the reason that the Supreme Court in the case of M/s Calcutta Knitwears (supra) has already considered this aspect of the matter in the context of Section 158BD, and after taking note of the fact that the said provision is a machinery provision has interpreted the same. In the light of the interpretation given by it and in view of the ratio laid down therein, the contention of Sri Agrawal does not hold ground. A clear and plain reading of Section 153C leaves no doubt that recording of satisfaction by the Assessing Officer of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched). A specific query was put to Sri Agrawal as to whether, on the basis of the material collected during the search and seizure operation or during the assessment, proceedings against the 'searched person' or thereafter, any proceeding could be initiated against the 'other person' under any other provision of the Income Tax Act, he categorically replied that except Section 153C, there was no other provision under which action could be initiated against him.

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The reliance placed by Sri Agrawal upon the Division Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises (supra) far from helping his cause goes against him. We have already relied upon the said judgment to explain the concept of 'satisfaction' under Section 153C, which is required to be recorded in writing. However, on the other issues, the said judgment is distinguishable for the reason that in the said case, the Assessing Officer had recorded his 'satisfaction' and after recording the satisfaction on the subject matter on 02.08.2006 handed over the books of account and seized material, thus, the issue, which falls for consideration in this appeal, in fact, did not arise for consideration in the said appeal. In any case, the case at hand being squarely covered by the pronouncements of the Supreme Court, as already referred, the reliance placed by Sri Agrawal on the aforesaid judgment does not cut much ice." 6. Now it is clear from the record that satisfaction by the Assessing Officer of the searched person was not recorded before initiating proceedings under section 153C of the Act against the assessee and the impugned issue is squarely covered by the aforesaid judgment of the jurisdictional High Court. We, therefore, have no hesitation in holding that since the assessment was framed consequent to the proceedings initiated under section 153C of the Act, without recording satisfaction by the Assessing Officer of the searched person, the assessment is bad in law and deserves to be quashed. We accordingly set aside the order of the ld. CIT(A) and quash the assessment framed under section 153C read with 143(3) of the Act.”

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above shows that in the present case also, no satisfaction was recorded by the AO in his capacity as AO of the searched person

because it is seen that the so-called satisfaction note prepared by the AO is in his capacity as AO of assessee, although he happens to be

the AO of the searched persons also, it could not be shown by the

revenue that any satisfaction note was prepared by him as AO of searched persons and therefore, under these facts, this is to be

accepted that no satisfaction was recorded by the AO of searched person and therefore, this Tribunal order and those judgments of the

Hon’ble Allahabad High Court rendered in the case of M/s. Gopi

Apartment (supra) and of the Hon’ble Apex Court rendered in the case of Calcutta Knitwears (supra) and Manish Maheshwari (supra) are

applicable and therefore, respectfully following these judgments, we hold that in the present case, notice issued by the AO u/s. 153C of the

I.T. Act deserves to be quashed and accordingly, we quash these assessment orders framed by the AO u/s. 153C r.w.s. 143(3) of the I.T.

Act. Accordingly, additional ground is allowed in all the seven years.

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Order pronounced in the open court on the date mentioned on the caption page.

(SUNIL KUMAR YADAV) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER Place: Bangalore: D a t e d : 18.10.2016

am

Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file

By order, AR, ITAT, Bangalore