ARUNACHALAM SRINIVASAN,PERAMBALUR vs. ACIT, CENTRAL CIRCLE-1 , TRICHY

आदेश / O R D E R

PER ABY T. VARKEY, JM: These are appeals preferred by the Revenue in ITA

No.1527/Chny/2023 and by the assessee in ITA No.1607/Chny/2023

against the order of the Learned Commissioner of Income Tax (Appeals)-

19 (hereinafter "Ld.CIT(A)"), Chennai-34, dated 27.10.2023 &

30.10.2023 for AY 2014-15. Cross Objection filed by the assessee in CO

No.13/Chny/2025 for AY 2014-15 in ITA No.1527/Chny/2023.

of the Ld.CIT(A) in holding that the AO did not have the power to usurp

jurisdiction u/s.153C of the Income Tax Act, 1961, (hereinafter "the Act")

in order to frame Assessment Order u/s.153C r.w.s.153A of the Act. The

grounds of appeal raised by the Revenue are as under:

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 3 ::

examine and consider all the seized material while completing the assessment u/s.153C. 2.3 The Ld.CIT(A) failed to appreciate that the addition was made on the basis of materials seized vide annexure ANN/BVAK/KM/LOOSE/S- S.No.1 reflecting details of sale consideration paid by M/s.V.V Minerals for purchase of M/s.Dhanalakshmi Srinivasan Sugars Limited and the reference to seized material is clearly mentioned in the assessment order.

the Revenue conducted a search on 15.02.2018 u/s.132 of the Act in the

case of M/s. Dhanalakshmi Srinivasan Educational Trust; and during the

search, according to the AO, certain incriminating material pertinent to

the assessee, Shri A. Srinivasn [who was the Chairman of the Charitable

Trust] was discovered. According to the AO, Shri A. Srinivasan/assessee

was holding 80% of shares in M/s.Dhanalakshmi Sugars Ltd (a company

incorporated on 03.08.2007 and hereinafter in short "M/s.DSL") and the

remaining 28% of shares was held by P.Neelraj. According to the AO,

M/s.DSL was sold to M/s.VV Minerals Group between June-July, 2013 for

a total consideration of Rs.4,10,93,00,000/-. According to the AO, in this

transaction there was on-money given to the assessee to the tune of

Rs.37.50 Crs. and since, assessee was shareholder of 80% of M/s.DSL, he

added a sum of Rs.30 Crs. (being 80% of Rs.37.50 Crs) in assessee’s

hand for AY 2014-15, treating the same to be his share of unaccounted

income from the transaction.

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 4 ::

wherein, the assessee raised the legal issue of assumption of jurisdiction

by the AO u/s.153C of the Act, qua assessee qua AY 2014-15 and also

the consequent addition of Rs.30 Crs as bad in law for non-satisfaction of

conditions precedent to usurp such a jurisdiction; and the Ld.CIT(A) was

pleased to allow both the legal issues as well as on merits.

No.1527/Chny/2023; and assessee has preferred CO No.13/Chny/2024

supporting the action of the Ld.CIT(A) allowing the legal issues as well as

on merits. And ITA No.1607/Chny/2023 is an appeal preferred by the

assessee against the interest levied u/s 234A & 234B by AO u/s 154 of

the Act.

Ld.CIT(A) on the legal issue of jurisdiction of the AO to issue notice

u/s.153C of the Act for AY 2014-15, we are inclined to first adjudicate the

legal issue because it questions the jurisdiction of Assessing Officer to

invoke jurisdiction u/s.153C of the Act and to issue notice u/s.153C of the

Act against the assessee for AY 2014-15. It has to be kept in mind that

the special provision for proceedings u/s.153C of the Act is an off-shoot of

section 153A of the Act which gets triggered only when search u/s.132 of

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 5 ::

the Act is carried out by the department against an assessee. So, in order

to adjudicate the legal issue let us examine both the provisions (Section

153A & 153C), as it stood on the date of search 15.02.2018 on

Dhanalakshmi Srinivasan Charitable & Educational Trust. It is to be taken

note that even though we are at present considering the appeal for A.Y.

2014-15, nevertheless, since the search happened at M/s.Dhanalakshmi

Srinivasan Charitable & Educational Trust on 15.02.2018 and the

amendment made by Parliament as per Finance Act 2017 w.e.f.

01.04.2017 in the relevant provisions also applies and needs to be also

considered.

reproduced below:

153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall-

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause

(b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years;

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 6 ::

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years:

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate:

Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases 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 and for the relevant assessment year or years:

Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless-

(a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years;

(b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and

(c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.

Explanation 1.-For the purposes of this sub-section, the expression “relevant assessment year” shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made.

Explanation 2.-For the purposes of the fourth proviso, “asset” shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account.

(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 7 ::

the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner:

Provided that such revival shall cease to have effect, if such order of annulment is set aside.

Explanation.-For the removal of doubts, it is hereby declared that,-

(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;

(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.

153C. (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,—

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates 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 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 2[for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in sub-section (1) 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 sub-section (1) 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 the Assessing Officer having jurisdiction over such other person :

Provided further that the Central Government may by rules 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

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 8 ::

immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made 3[and for the relevant assessment year or years as referred to in sub-section (1) of section-153A] except in cases where any assessment or reassessment has abated.

(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section-132 or requisition is made under section-132A and in respect of such assessment year—

(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section-142 has been issued to him, or

(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section-143 has been served and limitation of serving the notice under sub-section (2) of section-143 has expired, or

(c) assessment or reassessment, if any, has been made,

before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section-153A.

Finance Act, 2003 w.e.f. 1.6.2003. It replaced the provisions relating to

block assessment contained in Chapter XIVB and introduced the new

procedure for making assessment u/s. 153 of the Act, which is now a part

of Chapter XIV of the Act, "Procedure for Assessment" and contains

provisions from section 139 - 158A of the Act. The sub-heading of Section

153A of the Act is "Assessment in case of Search or requisition" which is a

special provision for assessment in case of an assessee against whom

search u/s. 132 or requisition under section 132A of the Act is carried out

by the department; Section 153B of the Act prescribes the time limit for

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 9 ::

completion of assessment under section 153A and 153C of the Act;

Section 153C of the Act bears the heading "Assessment of income of any

other person" is a special provision in respect of assessment of income of

"any other person" (third party) against whom no search u/s. 132 or

requisition u/s. 132A of the Act was carried out provided certain condition

precedents are satisfied as envisaged under section 153C of the Act; and

section 153D of the Act is the provision regarding approvals if necessary

for assessment in case of search or requisition. As earlier noted, section

153A of the Act is a special provision for assessment of an assessee in

case of search or requisition in accordance to section 132 or 132A of the

Act after the 31st day of May, 2003; and section 153C of the Act is a

special provision for assessment of income of 'any other person' means a

third party who is not searched by the department will be assessed u/s.

153A of the Act, provided the AO is satisfied that -

a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A. 9. So, from a reading of section 153A of the Act we note that where a

search u/s. 132 of the Act or requisition under section 132A of the Act is

made after the 31st day of May, 2003, the jurisdictional AO of the

searched person gets power to issue notice to the searched person

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 10 ::

requiring him to furnish within such period as may be specified in the

notice, return of income in respect of each assessment order falling within

six assessment years and for the relevant assessment year or years

immediately preceding the assessment year relevant to the previous year

in which search is conducted or requisition is made. However, during the

search u/s. 132 or requisition under section 132A of the Act if it is found

that any third party’s money, bullion, jewellery or other valuable articles

or things seized or requisitioned belongs to or any books of account or

documents seized or requisitioned pertains to or any information

contained therein relates to “other than the person” searched u/s. 153A

of the Act, [i.e a third party in this case the ‘assessee’ foundation], then

the AO of the searched person has to record his satisfaction that the

money, bullion, jewellery or other valuable articles or things seized or

requisitioned belongs to the other person (third party, the assessee

foundation in this case) or any books of account or documents seized or

requisitioned pertains to the other persons (third party, the assessee in

this case) or any information contained therein relates to the other person

(third party, the assessee in this case), then the AO of the searched

person has to prepare a satisfaction note that during the search u/s. 132

of the Act of a person (Charitable Trust in this case), the search team has

found/un-earthed money, bullion, jewellery or valuable articles or things,

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 11 ::

which were seized and the AO has found that among the such seized

material, certain specific valuable article or thing belongs to a third party

(other person as referred in section 153C of the Act who was not

searched and in this case, the assessee) or books of account or

documents seized contained information, pertained or relates to that of

the other person (third party in this case the assessee), and for recording

such a satisfaction note the AO of the searched person has to segregate

the seized material of the other person (third party in this case the

assessee) from that of the searched person (Charitable Trust); and then

the AO of the searched person should examine the seized material and

should be able to satisfy himself that the segregated seized assets belong

to the third party (in this case that of the assessee) or

books/documents/information, pertains or relates to the third party (in

this case the assessee who was not covered by the search u/s. 132 of the

Act) and thereafter prepare the “Satisfaction Note” and then he has to

hand over the seized materials, which belongs/pertains/relates to the

third party to the AO having jurisdiction over such other person (third

party assessee in this case), then only the AO of such other person (third

party, the assessee in this case) gets jurisdiction u/s. 153C of the Act to

assess the income of other person (third party) as per section 153A of the

Act. The rationale behind this exercise discussed (supra) will be explained

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 12 ::

(infra). And since it is a special provision against an assessee who has not

been searched by the department, the safe-guard stipulated by the

provisions contained in section 153A & 153C has to be scrupulously

followed.

to be carried out by the AO of the searched person and the condition

precedent as discussed are sine qua non before the AO of the other

person (third party) gets jurisdiction u/s. 153C of the Act to issue notice

u/s. 153C of the Act to the third party. However, it has to be taken note

that an additional requirement/satisfaction of AO has been brought in

Finance Act, 2014 w.e.f. 01.10.2014 which is an additional conditional

precedent inserted by the Parliament which also need to be complied

before the AO of the other persons (third party, the assessee in this case)

before he issues notice to assess or reassess income of such “other

persons”. By this amendment in section 153C of the Act, the following

part of the earlier provision/section has been substituted (pre-

amendment) which reads “and that Assessing Office 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”. And this part of Section 153C was substituted by insertion

by the Finance (No.2) Act, 2014 with the following amendment w.e.f

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 13 ::

01.10.2014 which reads “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”. [Emphasis given

by us]

153C of the Act, the Parliament has stipulated another condition-

precedent before the Assessing Officer of the third party, (i.e, the

assessee in this case) can resort to issue notice u/s 153C read with 153A

of the Act only when he (AO) is satisfied from a perusal of the books of

account or documents or assets seized or requisitioned have a bearing in

the determination of the total income of the such other person (third

party, the assessee in this case) then he should proceed as per sec.

153C(2) of the Act and assess or reassess the total income of such other

person, (the assessee in this case )in the manner provided in section

153A of the Act. So in this case before us, since the AO of the searched

person as well as that of the other/third party/assessee are the same,

he/AO of assessee can issue notice u/s 153C of the Act only after

satisfaction of this condition precedent also in addition to the requirement

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 14 ::

of Satisfaction of searched person of AO as discussed supra. [Emphasis

given by us]

discussed in Para 6 (supra) is because, the special provision for persons

who are subjected to search u/s. 132 of the Act, would be triggered only

against the searched party u/s. 153A of the Act and if any valuables of a

third party is found in the searched premises which belongs or

books/documents pertain/relate to a third party is found, then third

party’s assessment for six years and for relevant AY’s would be subject to

assessment/re-assessment as per section 153C of the Act, so the

safeguards prescribed by the statute has to be scrupulously followed.

Therefore, it has to be kept in mind that satisfaction of AO before

proceeding against a person like assessee which has not been searched

cannot be done in a casual manner. The satisfaction of Assessing Officer

should be based upon cogent material. The reason for it is that section

132(4A)(i) of the Act clearly stipulates that when inter alia any document

is found in the possession or control of any person in the course of a

search, it may be presumed that such document belongs to such person

(the searched person). The presumption as to asset, books of accounts,

etc. is governed by section 292C(1)(i) of the Act belong or belongs to the

person from whom said assets/documents were found during the course

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 15 ::

of search u/s. 132 or survey u/s. 133A of the Act. In other words,

whenever an asset/ document is found from a person who is being

searched, the normal presumption is that the said asset/document

belongs to that person. It is for the Assessing Officer to rebut that

presumption and come to a conclusion or 'satisfaction' that the

asset/document in fact belongs/pertains/relates to somebody else (third

party like assessee in this case). There must be some cogent material

available which was unearthed during search with the Assessing Officer

before he/she arrives at the satisfaction that the seized asset/document

does not belong to the searched person but to somebody else. Surmise

and conjecture cannot take the place of 'satisfaction' and the same

interpretation has been given by various Hon’ble courts. [refer 55 [2019]

taxmann.com 202 (Gujarat) PCIT v. Himanshu Chandulal Patel (Para 20,

21)].

Assessing Officer gets jurisdiction to assess six assessment years prior to

the previous year on which search is conducted. The assessment under

section 153A of the Act can be broadly divided in two categories, one is in

respect of "completed assessment" on the date of search by the AO

already made under section 143(3)/147/153A/153C and will also cover

those years which period of notice u/s. 143(2) of the Act has expired and

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 16 ::

only processing of return u/s. 143(1) of the Act has been made. The

second category "Pending Assessment" is related to the years for which

the assessments are pending before the AO on the date of search

meaning notices have been issued by the AO u/s. 143(2)/ 148 have been

issued. For determining the abated/unabated assessment the date of

search is significant since as per second proviso to Section 153A of the

Act, if any, assessment year falling within the period of six assessment

years of an assessee who has been subjected to search are pending

before the AO on the date of search, then the assessment for those years

need to be treated as abated and the AO is at liberty to frame assessment

or reassessment. In other words, it is open to the AO to complete the

assessment by verifying the contents of the original return as well as the

income unearthed out of the incriminating material/documents seized

from search conducted on the assessee. However, on the date of search,

assessment years are not pending before the AO [i.e. in case where the

searched assessee's assessments are completed u/s. 143(3) or 148 or

153A/153C of the Act or if the mandatory scrutiny assessment notices

u/s. 143(2) of the Act has become time barred], then those assessment

years to be treated as un-abated assessment and by virtue of second

proviso to section 153A(1) of the Act, assessment u/s. 153A or 153C has

to be essentially based on the documents unearthed during the course of

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 17 ::

search and seizure operations. Then, the assessment under section 153A

and under section 153C of the Act can be made only by considering the

incriminating material found/unearthed during search. For this proposition

we rely on the judgment of Hon’ble Delhi High Court in the case of CIT vs.

Kabul Chawla in ITA 707/2014 dated 28.08.2015 wherein it has held as

under:

“Summary of the legal position

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 18 ::

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

aforesaid order, which has been dismissed by the Hon’ble Supreme Court.

And the ratio of the decision has been upheld by the Hon’ble Supreme

Court recently in the case of M/s.Abhishar Buildwell. And, when it

comes to assessment of third party u/s. 153C of the Act [like assessee in

this case], the concept of unabated /abated assessment are mutatis

mutandis. However, only difference is when the

assessment/reassessment has to be made invoking section 153C of the

Act, then even though assessment /reassessment has to be carried out

u/s. 153A of the Act, however, by virtue of the first proviso to section

153C by operation of law reference to the date of initiation of the search

u/s. 132 of the Act or making of requisition u/s. 132A of the Act in the

second proviso to sub-section (1) of section 153A shall be considered as

reference to the date of receiving the books of account or documents or

assets seized or requisitioned by the AO having jurisdiction over such

other person. For this, we rely on the decision of the Hon’ble Delhi High

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 19 ::

Court in the case of CIT Vs. RRJ Securities Ltd. (2015) 62 taxmann.Com

391 (Delhi), wherein the Hon’ble Delhi High Court held as under:

“1. As discussed hereinbefore, once the AO of the searched person is satisfied that the seized assets/documents belong to another person and the said assets/documents have been transferred to the AO of such other person, the proceedings for assessment/reassessment of income of the other person has to proceed in accordance with provisions of Section 153A of the Act. Section 153A requires that where a search has been initiated under Section 132 of the Act, the AO is required to issue notice requiring the notice to furnish returns of income in respect of six assessment years relevant to the six previous years preceding the previous year in which the search is conducted. As discussed hereinbefore, by virtue of second proviso to Section 153A, the assessment/reassessment pending on the date of initiation of search abate. In the context of proceedings under Section 153C of the Act, the reference to the date of initiation of the search in the second proviso to Section 153A has to be construed as the date on which the AO receives the documents or assets from the AO of the searched person. Thus, by virtue of second proviso to Section 153A of the Act as it applies to proceedings under Section 153C of the Act, the assessment/reassessment pending on the date on which the assets/documents are received by the AO would abate. In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of concluded assessments, the AO would assume jurisdiction to reassess provided that the assets/documents received by the AO represent or indicate any undisclosed income or possibility of any income that may have remained undisclosed in the relevant assessment years. This Court in CIT v. Kabul Chawla [2015] 61 taxmann.com 412 (Delhi) has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments. This Court had summarized the legal position in respect of Section 153A of the Act as under:—

'37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 20 ::

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

iv Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.'

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 21 ::

prepared by the AO u/s 153C of the Act is not dated (but since notice

u/s.153C was first issued on 27.08.2019, it is presumed to be date of

receipt of satisfaction, and even though the search has been conducted in

respect of Charitable Trust (searched person) on 15.02.2018 (AY 2018-

19) by virtue of first proviso to section 153C of the Act, the satisfaction

note the AO has recorded for satisfying himself that “the other persons”

(third party i.e. the assessee in this case) assets/documents

belongs/pertains to the other persons (third party) was made on

27.08.2019 (AY 2020-21) and this date has to be reckoned for the

purpose of assessment u/s. 153A for determining the total income for six

assessment years preceding the AY 2020-21. In this assessment year i.e.

AY 2014-15 it is undisputed that this assessment year was not pending

before the AO on the date when the satisfaction note was prepared by the

Assessing Officer i.e. 27.08.2019, then the assessment year i.e. AY 2014-

15 needs to be treated as non-abated / non-pending assessment and

then any addition/disallowance u/s.153C read with sec. 153A/143(3) of

the Act can be made only on the basis of incriminating material unearthed

during search qua the assessee (third party) qua the assessment year as

held by the Hon’ble Calcutta High Court in the case of CIT Vs.

Veeraprabhu Marketing ltd. (2016) 73 taxman.com (Cal) as under:

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 22 ::

“1. The subject matter of challenge is a judgment and order dated December 28, 2007 by which the learned Income Tax Appellate Tribunal, "E" Bench, Kolkata, in CIT v. Veerprabhu Marketing Ltd. ITA Nos.2172 and 2174/Kol/2006, pertaining to the assessment years 1998-99 and 1999-2000, and I.T.(SS) A. Nos.61-63/Kol/2007, pertaining to the assessment years 2001-02, 2002-03 and 2003-04, allowed the appeals preferred by the assessee.

The aggrieved revenue has come up in appeal.

……….

(a) The assessment under section 153C read with section 153A read with section 144 of the Income Tax Act was altogether without jurisdiction because such assessment was made for all the five years on the basis of survey conducted under section 133A of the Income Tax Act. He submitted that the power under section 153C read with section 153A cannot be exercised on the basis of any discovery made during survey under section 133A.

(b) His next submission was that in any event, during the survey, no incriminating material was found which may have led the revenue to exercise power under section 153C read with section 153A.

"Materials such as books of account, documents or valuable assets found during a search should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said third party. Thus, where no material belonging to a third party is found during a search, but only an inference of an undisclosed income is drawn during the course of enquiry, during search or during post-search enquiry, Section 153C would have no application. Thus, the detection of incriminating material leading to an inference of undisclosed income is a sine qua non for invocation of Section 153C of the Act."

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 23 ::

………

the legal issue raised before us. In order to test the validity of the

jurisdiction of AO to legally usurp the jurisdiction u/s. 153C against a third

party who has not been searched as well as to test whether Assessing

Officer satisfied the condition-precedent before issue of notice u/s.153A

read with Section 153C of the Act, we need to examine the ‘satisfaction

note’ recorded by the AO dated 27.08.2019 which is reproduced as under:

6.5.8 The AO at Col 7 of the satisfaction note has narrated the following:-

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 24 ::

I am satisfied that the seized material of books and documents vide Annexure ANN/SM/DS/LS/S-1 dated 15.02.2018 has bearing in determining true and correct income of the assessee. In view of the above, notice u/s. 153C r.w.s 153A of the Income Tax Act, 1961 has to be issued." and further the AO at Col.8 of the satisfaction note has described the assessment years involved to be AY 2012-13 to 2018-19.

the satisfaction note which the AO has recorded to assume jurisdiction,

we have to examine the satisfaction recorded as it is. There are case laws

which throws light in the context of examining the legal validity of

Satisfaction recorded by the AO while re-opening the assessment u/s. 147

of the Act. It is settled law that reasons as recorded for reopening the

reassessment are to be examined on a ‘stand-alone’ basis. Neither

anything can be added to the reasons so recorded nor any thing can be

deleted from the reasons so recorded. The Hon’ble Bombay High Court in

the case of Hindustan Lever Ltd. (2004) 268 ITR 332 have, inter alia, held

“it is needless to mention that the reasons are required to be read as they

were recorded by the AO. No substitution or deletion is permissible. No

addition can be made to those reasons. No inference can be allowed to be

drawn on the basis of reasons not recorded by him. He has to speak

through the reasons.” Their Lordships added that “ the reason recorded

should be self explanatory and should not keep the assessee guessing for

reasons. Reasons provided the link between the conclusion and the

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 25 ::

evidence…..”. Therefore, reasons are to be examined only on the basis of

reasons as recorded by the AO. This analogy/ratio decidendi of the

Hon’ble High court is applicable to the ‘Satisfaction-Note’ prepared by the

AO when he recorded his satisfaction note in respect of a third person

(assessee in this case) against whom he/AO proposed to invoke the

special provision and issue notice under section 153C of the Act. For that

the AO of the searched person (Charitable Trust in this case) is duty

bound to record his satisfaction that during search conducted on those

persons, the third party (assessee’s) assets which belongs to it (assessee)

or documents, pertained/relates to the third party/ other person/assessee

as envisaged in section 153C of the Act was seized; and therefore there is

a need to proceeded against the said party (assessee in this case). And

that the Satisfaction Note spelling out these facts are sine qua non for

usurping the jurisdiction u/s. 153C of the Act; and an additional condition

precedent is also required to be satisfied by the AO of the assessee w.e.f.

01.10.2014 which has been discussed (supra) by virtue of Finance Act,

2014, (refer para 8 supra). The AO of the assessee before issuing notice

u/s. 153C of the Act should also record the additional-satisfaction that the

assets/documents seized from the searched person,

belong/pertains/relates to the assessee and have a bearing on the

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 26 ::

determination of the total income of the assessee. [Emphasis given by

us].

satisfaction note dated 27.08.2019 (supra) which are discussed below

with the help of chart, which will give clarity as to whether there was any

incriminating material seized during search in Charitable Trust against the

assessee qua the AY 2014-15.

according to AO is incriminating against the Assessee qua AY 2014-15.

And against each such document, we will give our finding of fact whether

these documents can be termed as incriminating material against the

Assessee qua AY 2014-15.

Sl.No. Document Seized Our finding of fact on the assessee’s explanation in respect of the document seized

2 Loosesheets marked as We note that the AO himself admits in Satisaction Annexure ANN/SM/DS/LS/S-1 Note itself that contents of this loose-sheet are P&L dated 15.02.2018 A/c statement of M/s.Dhanalakshmi Srinivasan Chits Pvt. Ltd., for FY 2015-16 & 2016-17. Therefore, we find that Annexure ANN/SM/DS/LS/S-1 cannot be termed as an incriminating material qua assessee qua AY 2014-15.

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 27 ::

cash/loose sheet referred supra are in no way related to AY 2014-15 and

so it cannot be termed as incriminating material for AY 2014-15. Since

there was no incriminating material/jurisdictional fact stated in the

Satisfaction Note against the assessee qua AY 2014-15, the satisfaction

note prepared by the AO does not satisfy the requirement of law as

stipulated u/s. 153C of the Act; and since the legal requirement has not

been met in the “satisfaction note” recorded by the AO, the very

assumption of the jurisdiction for AY 2014-15 is bad in the eyes of law as

held by the Hon’ble Supreme Court in the case of CIT Vs. Singhad

Technical Education Society 397 ITR 344 (SC) and, therefore, we hold

that AO without requisite jurisdiction usurped jurisdiction u/s 153C to

assess for AY 2014-15, which is bad in law. We note that the Hon’ble

Apex Court in the case of Singhad Technical Education Society (supra)

had passed the judgment with specific reference to the invocation of

jurisdiction u/s. 153C, and while doing so their Lordship has upheld the

decision of the Hon’ble Bombay High Court in CIT Vs. Sinhgad Technical

Education Society (2015) 63 taxmann. Com 14/235 Taxman 163 (Bom)

wherein the Hon’ble Supreme Court observed as under;-

“6. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document- wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan

:: 28 ::

that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and therefore the satisfaction which is recorded in the satisfaction note is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefore are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions, we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon.

by the Hon'ble Supreme Court by observing as under:

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 29 ::

provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.

(supra), and having found that ‘Satisfaction Note’ prepared by the AO to

invoke jurisdiction u/s 153C of the Act for AY 2014-15 does not satisfy the

requirement of law as stipulated u/s. 153C of the Act, the very

assumption of the jurisdiction u/s 153C of the Act for assessment of AY

2014-15 is held to be bad in the eyes of law as rightly held by the Ld

CIT(A), which impugned action is confirmed and Revenue Appeal stands

dismissed. And since we have concurred with the impugned action of Ld

CIT(A) on the legal issue (supra), the other grounds raised by Revenue on

merits are academic and doesn’t deserve adjudication.

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 30 ::

CO No.13/Chny/2024: 23. Cross-objection filed by the assessee is only supporting the decision

of Ld.CIT(A), which we have upheld; and hence, it is infractous and is

dismissed.

ITA No.1607/Chny/2023 for AY 2014-15:

dated 30.10.2023 for AY 2014-15 confirming the action of AO passed

u/s.154 of the Act dated 21.01.2022, wherein, the AO rectified the

assessment order passed on 19.12.2019 u/s. 153C of the Act.

invoke jurisdiction u/s.153C of the Act for AY 2014-15 and consequently,

the assessment order dated 19.12.2019 is null/non-est in eyes of law;

and the AO had rectified the assessment order dated 19.12.2019,

exercising his power u/s 154 of the Act, making impugned adjustments

u/s 234A/B of the Act, the additions made are also non-est in eyes of law,

because, the case of assessee is squarely covered by the legal maxim

“sublato Fundmento Credit opus” meaning in case a foundation is

removed, the super-structure falls. In Badarinath v. Tamil Nadu AIR 2000

SC 3243, the Hon’ble Supreme Court held that once the basis of

proceedings is gone, all consequential orders & acts would fall on the

ground automatically which is applicable to judicial and quasi judicial

ITA No.1527/Chny/2023 (AY 2014-15) CO No.13/Chny/2024 (AY 2014-15) ITA No.1607/Chny/2023 (AY 2014-15) Arunachalam Srinivasan :: 31 :: proceedings. Therefore, it is held that the order of AO passed u/s.154 of the Act dated 21.01.2022 is also null/non-est in the eyes of law.

Order pronounced on the 31st day of May, 2024, in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 31st May, 2024. TLN, Sr.PS आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR 6. गाड�फाईल/GF