SRI.MOHAMMED SHERIEF,KARUNAGAPPALLY vs. THE ACIT, CENTRAL CIRCLE, KOLLAM

Now we will adjudicate the grounds of appeal raised by the assessee in Form-36 filed originally. In ground Nos.1 to 5, assessee has challenged the jurisdiction of the AO under section 153C of the Act on the ground that no satisfaction as envisaged under section 153C of the Act has ever been recorded by the AO of searched person. Alternatively, the assessee contended that even if it is presumed that the satisfaction note dated 14.05.2017 as extracted herein below would be considered as a valid satisfaction note then also assumption of jurisdiction under section 153C of the Act is bad in law as the AO has not referred to any material, much a less incriminating material, found during the course of search relating to assessee, which condition is sine-qua-non for assuming jurisdiction under section 153C of the Act.

Learned DR has made only one submission that the AO of the assessee and the searched person are one and the same and hence the contention of the assessee that the AO of searched person has not recorded any satisfaction note is devoid of any merit.

Facts as emanating from the Orders of authorities below are that assessee is engaged in the business of trading of vegetables and fruits carrying out its business under the name and style of M/s. Koncheril Vegetables a proprietor ship concern of assessee. On 02.08.2006, a search and seizure action were conducted at the premises of the father of the assessee. Simultaneously on the same date on 02.08.2006, survey under section 133A of the Act was also carried out at the premises of the assessee. However, it is an admitted fact that from the premises of the assessee no such document as has been referred to by the AO while framing the assessment, has been found and that is why the AO has not . resorted to the provisions of section 143(3) of the Act rather invoked the provisions of section 153C on the ground that some material belonging to the assessee has been found during the course of search at the premises of the father of the assessee.

Aggrieved with the Order of the AO, assessee preferred appeal before the CIT(A) and challenged the jurisdiction of AO under section 153C of the Act but remained unsuccessful. Thereafter events as mentioned in para 2 above occurred and this is how the present proceedings are emanating.

We have considered the rival submissions and perused the material on record. The short controversy in this case which requires our consideration is as to whether the AO has correctly assumed jurisdiction under the provisions of section 153C of the Act.

We would like to extract the satisfaction note as available with us, copy of which notes have been provided to the assessee under the RTI proceedings.

Perusal of the satisfaction notes would show that they are recorded on 14.05.2007. It is pertinent to note here that search in the premises of the father of the assessee was conducted on 02.08.2006. Then material pertaining to the assessee was received by the AO of assessee on 29.12.2006 (inadvertently mentioned as 29.02.2006 in satisfaction note). These three dates i.e., date of search which is on 02.08.2006, date of transferring of the material pertaining to assessee i.e., on 29.12.2006 and recording of satisfaction on 14.05.2007 would prove beyond doubt that the impugned satisfaction note has been recorded by the AO in the capacity of the AO of assessee and not in the capacity of the AO of the searched person. Otherwise, the AO could have recorded the satisfaction note before 29.12.2006 i.e the date of transferring the material belonging to assessee for assuming jurisdiction over assessee as per the mandates of section 153C of the Act. It is now settled position of law that recording of satisfaction before transferring of material to the AO of other person is sine-qua-non for assuming jurisdiction under section 153C of the Act.

Notwithstanding this, we also observe that the satisfaction note could not depict any material pertaining to / belonging to assessee which would be incriminating in nature for assuming jurisdiction under section 153C of the Act. What the satisfaction note mentions is that document marked as Annexures B1 to B3 and KVI were impounded in survey operation. However, on the basis of these documents impounded in survey action of 153C is not permissible. Therefore, they do not have any relevance for the mandatory provisions of section 153C of the Act. In rest of the satisfaction note there is no mention of any incriminating material unearthed during search.

So far as the contention of the learned DR that AO of the assessee and searched person was the same person, we observe that it is of no relevance because under the provisions of section 153C of the Act, it is not the identity of the AO which has to be considered rather it is the capacity of the AO, which is to be examined for judging whether the AO has acted in the capacity of the searched person or in the capacity of other person. A reference can be made to the judgment of the Co-ordinate Bench in the case of Tanvir Collections Pvt. Ltd., in wherein the Co-ordinate Bench has dealt with same argument and held as follows:

In our considered opinion, this contention advanced on behalf of the Revenue is devoid of merit. We fail to comprehend as to how the requirement of recording satisfaction by the AO of the person searched provided by the statute can be substituted with anything else. There is an underlying rationale in providing for recording of such satisfaction by the AO of the person searched. As the money, bullion, jewellery, books of account or documents etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person . searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person searched and to the others and thus handed over to the concerned AOs of the person searched and others for making assessment. As it is only the AO of the person searched who can reach a conclusion that some of the documents etc. do not belong to the person searched but to some other person, the legislature has provided for recording of such satisfaction by the AO of the person searched. It is not permissible under the law to require the AO of the other person to record such satisfaction by the AO.

As regards the other argument of the ld. DR that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction by the AO of the assessee. We are again unable to appreciate this contention that the commonness of the AO would make no difference in so far as the recording of satisfaction in the case of the persons searched is concerned. What is relevant for this purpose is not the identity of the person assessing but his position and the capacity. When the law requires the AO of the person searched to record the necessary satisfaction, it is the AO having jurisdiction over the person searched who is obliged to record such satisfaction in the capacity of that AO and that too in the case of the person searched. The mere fact that the AO of the person searched and the assessee is the same person, does not, in any manner, obliterate the requirement of law necessitating the recording of satisfaction in the case of the person searched that money, bullion, jewellery, etc., found from the person searched belongs to the 'other person.' What is crucial to note is capacity of the AO and not his identity. In view of the fact that when the statutory stipulation is for recording the satisfaction by the AO of the person searched, then, it cannot be substituted with the satisfaction of the AO of the 'other person.' This contention also fails.”

We further observe that revealing of the incriminating 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. Even for the AY to which they related, i.e. AY 2011-12, the AO finalised the assessment at the returned income qua each Assessee without making any additions on the basis of those documents. Consequently even the second essential requirement for assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees”

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:-

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. Therefore, 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 quashed the assessment on the jurisdiction aspect, the penalty appeals in ITA Number 98 to 101 of 2023 become infructuous and hence the same are dismissed as infructuous.