KK MOHANDAS,KANNUR vs. DCIT CENTRAL CIRCLE 2, KOZHIKODE

Relevant facts necessary to decide the present appeal are that a search under section 132 of the Act was conducted at the business premises of Rajadhani Restaurant and on the residential premises of the assessee on 26.09.2012. The AO has resorted to the provisions of section 153C of the Act on the basis that certain material pertaining to assessee has been found from the premises of the searched person. Thereafter, the AO concluded the assessment and assessed the income of the assessee at Rs.1,63,74,638/-.

Aggrieved with the Order of the AO, assessee filed appeal before the CIT(A) and challenged the Order of the AO both on the legal grounds as well as merits of the case. However, he could not get any relief from the CIT(A) and hence come up in appeal before us.

Before the Tribunal, assessee has raised around 5 grounds. However, at the time of hearing, learned Counsel for the assessee has pressed ground No.1 and contended that if the Bench would decide this legal ground, then no further adjudication of the matter is required Ld DR also acceded to the request of Ld Counsel for the assessee. Ld Counsel also pointed out that this legal ground was also raised before the CIT-(A). Therefore, we are deciding the legal aspect of the matter without touching the merits of additions.

Contending this ground, learned Counsel for the assessee firstly averted that in this case no satisfaction has been recorded by the AO of the searched person. Second contention of the learned Counsel for the assessee is that even if it is presumed that the satisfaction note which is available with the Department have some bearing on the assessee, copy of which has been supplied to the assessee, is perused carefully, then also it is not a case where action under section 153C of the Act could have been taken by the Department. Ld Counsel pointed out that this satisfaction is devoid of any discussion vis-a-vis any material much less incriminating material found during the course of search. As per ld cousel the settled position of law is that satisfaction note must exhibit the details of some incriminating material and this condition is sine-qua-non for assuming jurisdiction of section 153C of the Act. Learned DR relied upon the orders of the authorities below i.e., AO and CIT(A) and also admitted that there is no other satisfaction note with the Revenue except the one which has been produced by the assessee.

After considering the rival submissions, we observe that there are two contentions of the assessee (a) that no satisfaction has been recorded by the AO of the searched person. (b) the so called satisfaction note would not suggest any incriminating material against the assessee which is a condition precedent for 153C matters.

For the sake of convenience, we would like to quote satisfaction note recorded by the Department in the case of the present assessee :-

A perusal of this note would suggest that it has been recorded by the AO acting as the AO of the present assessee and hence it cannot be termed to be a satisfaction note recorded by the AO of the searched person and the assessee are the same. As per the guidelines of Hon’ble Supreme Court in the case of Calcutta knitwear 362 ITR reported in and the CBDT circular number 24 of 2015 dated 31.12.2015, the AO has to record satisfaction in the capacity of the searched person before handing over the material to the AO of the searched person even where the AO of searched person and other person is same person. Now, coming to the second aspect of the matter, perusal of the satisfaction note would clearly show that there is nothing in this satisfaction note which could suggest that any incriminating material has been found against the assessee. Mentioning of the material in the satisfaction note is a condition precedent for assuming the jurisdiction of section 153C of the Act as held by Hon’ble Delhi High Court in the case of Index Securities reported in 304 CTR 67. The relevant observation of the Hon’ble High Court is reproduced hereunder for the sake of convenience :

In the present case, the two seized documents referred to in the Satisfaction Note in the case of each Assessee are the trial balance and balance sheet for a period of five months in 2010. In the first place, they do not relate to the AYs for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating.

Recently coordinate Banglore Bench in the case of Anand Basspa ITA number 2222/Bang/2016 and 2223/Bang/2016 vide order dated 9.02.2022 has observed as under:- A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it belongs to or relates to the assessee. Before the Hon'ble High Court of Karnataka in the case of IBC Knowledge Park, 385 ITR 346 [Kar] the issue for consideration and adjudication was whether the Tribunal was right in holding that it was not necessary to record a satisfaction to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that "the detection of seized material leading to an inference of undisclosed income is a sine qua non for invocation of section 153C of the Act". The Hon'ble Court came to the above conclusion after considering the decision of the Hon'ble Apex Court in the cases of Manish Maheshwari Vs. ACIT (289 ITR 341) and CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 and other judgments of the Hon'ble Apex Court and other Hon'ble High Courts and CBDT, Circular No.24/2015 dated 31.12.2015. The Hon'ble High Court also took the view that the AO is expected to spell out as to how the documents were incriminating in nature and prima facie represent undisclosed income

When we examine the satisfaction note of this present assessee as reproduced above, we observe that there is no reference to any material at all in the satisfaction note. Respectfully following the above judgments, we find that in the present case, the AO has wrongly assumed jurisdiction and hence we quash the assessment proceeding on this ground alone. Since we have already . adjudicated on the legal ground, we are not deciding the other grounds as these grounds become academic. Since we have already decided the main appeal the stay petition number 127 become infructuous.

In result the appeal of the assessee is allowed. Pronounced in the open court on the date mentioned on the caption page.