M/S. NAU NIDH OVERSEAS PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM : Asstt. Year : 2008-09 ITA No. 6573/Del/2013 : Asstt. Year : 2009-10 ITA No. 6574/Del/2013 : Asstt. Year : 2010-11 ITA No. 6575/Del/2013 : Asstt. Year : 2011-12 Asstt. Commissioner of Income Tax, Vs M/s Nau Nidh Overseas Pvt. Central Circle-09, Ltd., D-6/13, Vasant Vihar, New Delhi New Delhi-110067 (APPELLANT) (RESPONDENT) PAN No. AABCN3865G Asstt. Year : 2011-12 M/s Nau Nidh Overseas Pvt. Vs Asstt. Commissioner of Income Tax, Ltd., D-6/13, Vasant Vihar, Central Circle-09, New Delhi-110067 New Delhi (APPELLANT) (RESPONDENT) PAN No. AABCN3865G Assessee by : Dr. Rakesh Gupta, Adv. Revenue by : Sh. Sanjay Kumar, CIT DR Date of Hearing : 04.07.2016 Date of Pronouncement : 12.07.2016 ORDER Per N. K. Saini, AM:

These appeals by the department for the assessment years 2008-09 to 2010-11 and the cross appeals by the department and the assessee for the assessment year 2011- 12 are directed against the separate orders each dated 29.09.2013 of ld. CIT(A)-XXXII, New Delhi.

2 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. 2. Since the issues involved in all these appeals are common which were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.

3. At the first instance, we will deal with the appeal in for the assessment year 2008-09. Following grounds have been raised in this appeal:

“1. The Commissioner of Income Tax (Appeals) erred in law and on facts in deleting the disallowance made by the AO u/s 37 amounting to Rs.38,83,148/-. 2. The Commissioner of Income Tax (Appeals) erred in holding the issuance of notice u/s 153C is bad in law. 3. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

4. From the aforesaid grounds it would be clear that the main grievance of the department in this appeal relates to action of the ld. CIT(A) in holding the notice issued u/s 153C of the Income Tax Act, 1961 (hereinafter referred to as the Act) as bad in law.

3 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd.

"The subject appeal fixed before your honor for today the 11-09-2013 is against order u/s. 143(3) red with section 153C of I.T. Act, 1961 dtd. 28/03/2013 passed by DCIT, Central Circle-9, New Delhi. The above said assessment was on the basis of satisfaction note recorded on 07/02/2013 by DCIT, Central Circle-9, New Delhi as a consequence of search proceedings in the case of Sh.J.P. Singh. There was search operation u/s. 132 of the Income Tax Act, 1961 on 22/4/10 at the residence of Sh. Jitender Pal Singh, director of the company. On the basis of the said search, DCIT, Central Circle- 9, New Delhi who was the Assessing Officer of Sh. J.P. Singh recorded satisfaction on 7/2/13 in the context of provisions of sec. 153C and on the basis of the said satisfaction note, notice u/s. 153C was issued on 8/2/13. The contents of satisfaction note are reproduced hereunder: Satisfaction Note u/s. 153Cofthe Income Tax Act. 1961 In the case of M/s. Nav Nidh Overseas Pvt. Ltd. PAN No. AABCN3865G M/s. Nav Nidh Motels Pvt. Ltd. PAN No. AAACN4560B D-6/1, Vasant Vihar, New Delhi.

5 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd.

6 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd.

7.1 Before addressing the grievance of the appellant company regarding the initiation of proceedings u/s 153C of the I.T. Act, 1961 it is appropriate to understand the provisions of section 153C and its applicability to the issue on 8 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. hand. For applicability of the provisions of section 153C, the following conditions are required to be fulfilled: (i) The Assessing Officer is satisfied that any money, bullion, jewellery, or other valuable article or thing or books of account or document seized or requisitioned belong to a person other than the person with respect to whom search was initiated. (ii) The books of account, document or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such person. (iii) The Assessing Officer shall proceed against each such other person in the same manner as the person searched, to make assessment or re assessment in accordance with the provisions of section 153A. It is implied that such other person shall also be assessed or reassessed for that year of search and the preceding six years. 7.1.2 The reference to the Assessing Officer" in this section 153C is the "Assessing Officer" who is making the assessment of the person searched under section 153A. The satisfaction regarding the books of account, documents or assets seized belonging to some other person is required to be formed by such Assessing Officer. It is the Assessing Officer of the searched person while appraising or scrutinizing all the seized material of the person has to be satisfied that a part of the seized material did not belong to the person 9 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. searched but to some other person. In the present case, i.e. in the case of the appellant no search u/s 132 of the IT Act 1961 was carried out by the Directorate of Income Tax(lnv.) on premises specifically occupied by the appellant company in the residence of its director Sh. Jatinder Pal Singh and no money jewellery or books of account or document or valuable article or thing pertaining or belonging to the appellant company was seized .A cash of Rs.2cr was found and seized by the CBI from the bedroom of Sh. Jatinder Pal Singh and on the basis of the information by CBI a cash of Rs. 15,74,000/- was found out of which Rs .15,00,000/- was seized by the department. On the basis of the replies given by the director Sh. Jatinder Pal Singh in his statement recorded u/s 132(4) on the date of search i.e. 22.4.2010, the Assessing Officer opined and was satisfied that Rs.10,00,000/- "belonged" to the appellant company. However, on perusal of the assessment record of Sh. Jatinder Pal Singh, i.e. the person who was searched and assessed u/s 153A, I find that the AO ignored the legal pre-requisite to drawn the satisfaction of such seized money as pertaining to the appellant company while assessing the case of Sh. Jatinder Pal Singh as no satisfaction note was found recorded in the file. Moreover the fact that such seized money of Rs. 10 lakh belonged to the appellant company could not be corroborated with the books of account of the appellant or the data on the computer to assess the nature of seizure whether disclosed or undisclosed in the hands of the appellant and is merely based only on the statement of the director of the company which he subsequently retracted 10 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. on the ground that it was his personal money. Therefore, the pre-requisite of recording or drawing a satisfaction for initiation of proceedings u/s 153C of the I.T. Act, 1961 was not adhered to by the AO. It is also seen that the AO did not confront the director of the appellant company regarding the contradictory statement given. In these circumstances the ownership of the cash cannot be said to be ascertained to be "belonged" to the appellant The satisfaction note which is recorded by the AO in the case of the appellant company ignoring the same in the case of the searched person i.e. Sh. Jatinder Pal Singh, which is a pre-requisite condition for initiation of proceedings under section 153C does not hold any legal sanctity even otherwise when the ownership of the seized money by the department seemed doubtful. 7.1.3 The second part of the section deals with the handing over of the seized material and assuming the jurisdiction of the Assessing Officer on such other person, other than the person searched. From the material on record it is seen that no document or books of account were seized from the director's residence "belonging" to the appellant company. It was stated in the assessment order that during the course of search proceedings the appellant company was asked to produce the copies of the ITRs and books of account which he failed. Subsequently, during post search enquiries again the appellant was asked to furnish the copies of ITRs and final accounts which the AR of the appellant submitted. From these facts it is evident that no document 11 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. was seized from the other person searched, pertaining to the appellant company for the Assessing Officer of the appellant company to take over from the Assessing Officer of the person searched. 7.1.4 Jurisdiction was assumed by the present Assessing Officer when the case was centralized vide order F. No. CIT-V/centralization/2010- 11/1067 dated 17.8.2010 by the CIT-Delhi- V, New-Delhi. Therefore the jurisdiction of the appellant case was conferred/transferred on the DCIT- Central Circle-9, New Delhi on 17.8.2010.The jurisdiction to initiate proceedings u/s 153C would operate only when the seized material was handed over to the present Assessing Officer who was assigned the jurisdiction of the appellant company. From the material on record, I find that the seized material was handed over to the DCIT Central Circle-9 on 07.12.2010. Precisely, the seized material is nothing other than an appraisal report containing detailed account of the search proceedings regarding the seizure of Rs. 15 lakh, statement of Sh. Jatinder Pal Singh and a detailed account of post search enquiries. Therefore, there is no material that can be defined as "seized material" or "assets seized" belonging to the appellant company from the premises of Sh. Jatinder Pal Singh. 7.1.5 There is no time limit for issuance of notice u/s 153C, but there is time limit for completion of assessment or reassessment u/s 153C as prescribed under 153B. Period of limitation has been provided in this section with reference to the 12 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. date on which the books of account, or document or asset seized are handed over under the first proviso to section 153B. Therefore in the present case the time limit for completion of proceedings u/s 153C would commence from the end of the financial year i.e. after 31.3.2011 in which such money, which belonged to the appellant company shall be handed over upto the end of 31.12.2013. 7.1.6 Therefore, in view of the above discussion, in my opinion, provisions of section 153C can be invoked with respect to the other person when the seized material belonged to other person and the Assessing Officer of the person searched records his satisfaction to this effect. In- the present case the following facts emerged to sum up where the provisions of the applicability of section 153C has been ignored. (a) No material was seized from the residence of the director of the appellant company, pertaining to the appellant company. (b) No warrant of authorization was issued in the name of the appellant company to initiate search operation u/s 132 against the appellant company with its address. (c) The ownership of cash of Rs. 10,00,000/- belonging to the appellant is doubtful as it is based on the contradictory statements of the director of the appellant company and such statement is not corroborated with any finding on record. Moreover this cash was seized from the 13 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. bedroom of Sh. Jatinder Pal Singh from the first floor. (d) Even, if the Assessing Officer is common in the case of the person searched and that of the other person, the Assessing Officer should have drawn a satisfaction note while assessing the case of Sh. Jatinder Pal Singh u/s 153A and then transferred such note to the file of the appellant company. This is not the case here as no satisfaction was drawn by the AO while assessing Sh. Jatinder Pal Singh u/s 153A regarding the appellant's case as no such satisfaction note was found on record of Sh. Jatinder Pal Singh. However, satisfaction note was drawn in the case of the appellant in its assessment record. Although the AO is common in both the cases, yet there is no transfer of such note from the file of the searched person to the file of the other person. Therefore, the pre- requisite condition for issue of notice u/s 153C is not adhered to legally. Proceedings u/s 153C was initiated in the case of the appellant company on the basis of the "statement" of the director of the appellant company i.e. Sh. Jatinder Pal Singh, but not on the basis of any sized document or asset seized belonging to it. Initiation of proceedings u/s 153C of the I.T. Act on the basis of a "statement" is not correct. (e) The date 07.12.2010 is crucial as the Assessing Officer had jurisdiction over the case as well the seized material. The Assessing Officer was in possession of the statement recorded regarding the initial ownership of a cash of Rs.10,00,000/- as stated by the director of the 14 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. appellant company on 22.4.2010 which he subsequently retracted during post search enquiry on 18.5.2010.There no time limit for issue of notice u/s 153C and in this case notice was issued on 8.2.2013 after 20 months, while assessing the case of .Sh. Jatinder Pal Singh u/s 153A. Therefore, the time limit for completion of this assessment commenced u/s 153C after 31.03.2011, i.e. the end of the financial year in which such seized document/asset was handed over upto the date of 31.03.2013. The assessment order was passed on 28.03.2013. (f) In this case, satisfaction note was drawn on 7.02.2013 in the case of the appellant and notice was issued on 8.02.2013 u/s 153C and the assessment was completed on 28.03.2013 i.e. within one and a half month approximately without affording a meaningful opportunity and sufficient time to present its case without conducting any independent enquiry by the Assessing Officer. (g) The additions made were the disallowance of the entire expenses u/s 37 of the IT. Act, 1961 without being supported by any incriminating document found at the time of search at the residential premises of Sh. Jatinder Pal Singh belonging to the appellant. 7.1.7 In view of the above discussion, and also relying on various case laws referred by the AR of the appellant, in my opinion the issuance of notice u/s 153C of IT Act 1961 is bad in law.”

15 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. 9. Now the department is in appeal. The ld. DR strongly supported the order of the AO and reiterated the observations made in the assessment order.

“The first step for initiation of proceedings under Section 153C of the Act is for the assessing officer of the searched person to be satisfied that the assets or documents seized do not belong to the searched person but to the assessee sought to be assessed under Section 153C of the Act. Once the assessing officer of the searched person is so satisfied, he is required to transfer the assets or documents, which he believes belongs to the assessee, to the assessing officer having jurisdiction over that assessee. The assessing officer of the assessee on receipt of such asset or document seized would have jurisdiction to commence proceedings under Section 153C of the Act. The assessing officer has, thereafter, to apply his mind as to whether the assets and documents received have a bearing on the determination of the total income of the Assessee and if he is so satisfied that the same have a bearing on the determination of the income of the assessee, he has to issue notice and assess or reassess the 17 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. income of the assessee in accordance with the provisions of Section 153A of the Act. Section 153A of the Act requires that a notice be issued to the person sought to be assessed, calling upon the said assessee to file his return of income in respect of each year falling within the specified six AYs. In present case, the ITAT specifically recorded that, admittedly, a satisfaction note had not been recorded by the assessing officer of the searched person. It was contended by the 'Revenue before the ITAT that the assessing officer of the searched i.e. SVP Group was not required to record such satisfaction as both the Assessee and the SVP Group were being assessed by the same officer. 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 High Court 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. It is settled that recording of such satisfaction is sine qua non for commencing any proceedings under Section 153C of the Act. Thus, the decision 18 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. of the ITAT in this regard cannot be faulted. It was sought to be contended that the assessing officer of the searched persons had, in fact, recorded the necessary satisfaction note. However, the learned counsel for the Revenue could not confirm whether such note was prepared prior to the initiation of the proceedings under section 153C of the Act. The Assessee's contention that despite its request such note had not been disclosed during the assessment proceedings has also not been controverted. In the circumstances, the categorical finding of the ITAT that it was an admitted fact that the assessing officer of the searched persons had not recorded a satisfaction note, cannot be interfered with.”

“That in the satisfaction note there was nothing to indicate that the seized documents did not belong to the J group. This was even apart from the fact that there was no disclaimer on the part of the J group in so far as the documents were concerned. Secondly, the finding of photocopies in the possession of a person in respect of whom search was conducted does not necessarily mean and imply that they “belong” to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the J group might be the owner of the photocopies of the documents it was quite possible that the originals might be owned by some other person. Unless it was established that the documents in question, whether they be photocopies or originals did not belong to the 20 to 6575 & 6627/Del/2013 Nau Nidh Overseas Pvt. Ltd. person in respect of whom search was conducted, the question of invoking section 153C would not arise. None of the three sets of documents- copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement-could be said to “belong to” the assessee. The notice under section 153C was not valid.”