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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM to 2817 & 5293/Del/2014 Asstt. Years : 2003-04 & 2008-09 Bhawna Bhalla, Vs Asstt. Commissioner of Income Prop. M/s B.B. Creations, H-59, Tax, Central Circle-21, West Patel Nagar, Jhandewalan Extn. New Delhi-110008 New Delhi-110055 (APPELLANT) (RESPONDENT) PAN No. AFUPB4018E ITA No. 3831/Del/2014 : Asstt. Year : 2003-04 Deputy Commissioner of Income Vs Bhawna Bhalla, Tax, Central Circle-21, Prop. M/s B.B. Creations, H-59, Jhandewalan Extn. West Patel Nagar, New Delhi-110055 New Delhi-110008 (APPELLANT) (RESPONDENT) PAN No. AFUPB4018F Assessee by : Sh. Kapil Goel, Adv. Revenue by : Sh. K. K. Jaiswal, DR Date of Hearing : 13.04.2016 Date of Pronouncement : 25.04.2016 ORDER Per Bench:
The appeals by the assessee for the assessment years 2003-04 to 2008-09 and the Cross appeal by the department for the assessment year 2003-04 are directed against the separate orders each dated 31.01.2011 of the ld. CIT(A)-II, New Delhi.
2. The issues involved in these appeal are common having similar facts so these are being disposed off by this consolidated order for the sake of convenience and brevity.
3. The grounds raised in 2003-04 in assessee’s appeal read as under:
“1. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the notice issued u/s 153C and assessment order passed by the Ld. AO u/s 153C/ 143(3) is illegal, time barred, bad in law, without jurisdiction and wrong on facts. The additions made are unjust, unlawful and arbitrary and are made against the principles of natural justice.
That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the Ld AO was not justified to ignore the submission of the appellant that the assessment proceedings for the year under appeal was not pending on the date of the recording of satisfaction u/s 153C and since the same didn't abate, the proceedings u/s 153C of the Income Tax Act in this case are bad in law and deserves to be quashed.
3. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the assessment framed by Ld AO is against the statutory provisions of the Act 3 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla and without complying the procedures prescribed u/s 153C of the Act and as such the assessment being bad in law deserves to be quashed.
4. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the Ld AO was not justified to ignore the submissions of the appellant that assessment u/s 153C of the Income Tax Act be restricted to assessment in respect of seized documents of incriminating nature in the case of the appellant for the year under consideration and in absence of any incriminating seized document in the case of appellant, assessment framed u/s l53C of the Income Tax Act for the year under consideration, is bad in law and deserve to be quashed.
5. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has erred in not admitting the additional evidences i.e. confirmations, confirmed copies of accounts of all the parties filed during the appellate proceedings and also in not considering the remand report of the AO.
6. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has erred in holding the conclusion that the 'audited books' notwithstanding, the book results are required to be rejected, since the narrations are artificial, sham and not reflective of the actual business/commercial transactions. However, the Ld. CIT Appeals still relying on these books/book results for the purpose of calculating the peak from 4 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla the entries in the cash book and/or bank book of the appellant, amounting Rs.23,72,454/- for the relevant year under consideration. 7.A) That on the facts and on the circumstances of the case and the provisions of law, the Ld. CIT Appeals has erred in sustaining the addition of Rs.23,72,454/- as unexplained Investment/Expenditure, ignoring the fact that the same are duly reflected/entered in the books of the accounts of the appellant for the year under consideration; B) That the Ld CIT Appeals has wrongly calculated the amount of Rs.23,72,454/- for the purpose of sustaining addition as unexplained Investment/Expenditure; C) That the Ld CIT Appeals has ignored the concept of 'Real Income' and wrongly confirmed/calculated the addition of Rs.23,72,454/- without granting the credit of the peak of financial transactions as per the cash book/bank book for the preceding years. D) That the Ld CIT Appeals did not give sufficient opportunity of being heard to the appellant.
8. That the Ld. CIT Appeals has erred in ignoring the explanation given, evidences and material placed and available on record. The same has not been properly considered and judicially interpreted and the same do not justify the additions made. The additions have been sustained with preset mind of 5 ITA Nos. 2813 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla the Ld. CIT Appeals and her order is based on surmises, conjectures and suspicion.
9. That on the facts and the circumstances of the case and the provisions of law, the various observations and findings of the Ld CIT Appeals and Ld AO in the impugned appellate order and assessment order, respectively, are irrelevant and vitiated in the law.
10. That the Appellant craves the right to amend, append, delete any or all grounds of appeal
.”
4. In all other appeals of the assessee similar grounds are raised. The only difference is in the amount of sustenance of addition mentioned in Grounds No. 6 & 7.
5. At the first instance, the ld. Counsel for the assessee argued Grounds No. 1 to 4 vide which a legal issue has been raised challenging the validity of the assessment framed u/s 153C of the Income Tax Act, 1961 (hereinafter referred to as the Act), when no incriminating material was found during the course of search.
Facts related to this issue in brief are that a search & seizure action u/s 132 of the Act was carried out in the cases of Sh. B. K. Dhingra, Smt. Poonam Dhingra, M/s Mayank Traders (P) Ltd. and M/s Horizon (P) Ltd. on 20.10.2008 and during the course of search at their 6 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla residential premises at F-6/5, Vasant Vihar, New Delhi, certain documents belonging to the assessee were seized. On the basis of documents so found belonging to the assessee, proceedings were initiated u/s 153C r.w.s. 153A of the Act. The assessee filed a return of income declaring an income of Rs.86,067/- for the assessment year 2003-04. However, the assessment was framed at an income of Rs.58,89,090/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) who partly sustained the addition of Rs.23,72,454/- out of the total addition of Rs.58,03,284/-.
Now the assessee is in appeal against the sustenance of the additions and the department has filed the Cross appeal against the relief allowed to the assessee. The ld. Counsel for the assessee at the very outset stated that during the course of search no incriminating material was found. Therefore, the assessment framed u/s 153C of the Act was bad-in-law. It was pointed out that this issue is covered by the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs RRJ Securities Ltd. reported at 380 ITR 612 and the decision of the ITAT Delhi Bench in the case of ACIT Vs Shield Home Pvt. Ltd. in to 7 ITA Nos. 2813 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla 4233/Del/2011 and C.O’s No. 364 to 369/Del/2011 for the assessment years 2003-04 to 2008-09. Copies of the said order were furnished, which are placed on record.
9. In his rival submissions the ld. DR strongly supported the order of the ld. CIT(A) and further submitted that during the course of search certain documents belonging to the assessee were seized. Thus, all the conditions for initiating the proceedings u/s 153C of the Act were fulfilled and the satisfaction was duly recorded by the AO before the issuance of notice u/s 153C of the Act.
We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts has been adjudicated by the ITAT Delhi Bench ‘G’, New Delhi in the case of ACIT Vs M/s Shield Home Pvt. Ltd. (supra) wherein the relevant findings have been given in paras 6 to 10 which read as under:
“6. We have considered the rival submissions and have perused the relevant material placed before us. Learned CIT-DR has contended that the ground raised by the assessee before the learned CIT(A) with regard to validity of Section 153C was different than the ground raised before the ITAT. Therefore, in effect, the assessee is raising 8 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla separate ground which is not permissible unless an additional ground is raised before the ITAT by duly seeking permission there for. We are unable to agree with this contention of learned CIT-DR. The assessee has raised the ground relating to validity of Section 153C before the CIT(A) which is evident from page 1 & 2 of learned CIT(A)’s order wherein grounds of appeal raised by the assessee are reproduced. From the plain reading of those grounds of appeal, it is clear that the assessee raised the ground relating to validity of initiation of proceedings u/s 153C as well as the consequential assessment order passed by the Assessing Officer. That once a ground is raised, then fresh arguments relating to such ground can always be taken at any stage. Therefore, the contention of learned CIT(A) that the assessee is raising the fresh ground is untenable.
7. Now, coming to the merit of the validity of notice u/s 153C, we find that the search had taken place at the residence of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. and, during the course of search at their premises, certain documents belonging to the assessee were seized. In reply to the Right to Information Act, the Department has intimated that no satisfaction note is recorded in the case of Shri B.K. Dhingra and Smt. Poonam Dhingra. Copy of such information is placed at page 4, 5 & 6 of the assessee’s paper book. Learned CIT-DR also could not produce any satisfaction having been recorded by the Assessing Officer of the person searched. Hon'ble Jurisdictional High Court in the case of RRJ 9 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla Securities Ltd. (supra) at paragraph 13 held as under:- “13. The first and foremost step for initiation of proceedings under Section 153C of the Act is for the AO of the searched person to be satisfied that the assets or documents seized belong to the assessee (being a person other than the searched person). The AO of the assessee, on receiving the documents and the assets seized, would have jurisdiction to commence proceedings under Section 153C of the Act. The AO of the searched person is not required to examine whether the assets or documents seized reflect undisclosed income. All that is required for him is to satisfy himself that the assets or documents do not belong to the searched person but to another person. Thereafter, the AO has to transfer the seized assets/documents to the AO having jurisdiction of the assessee to whom such assets/documents belong. Section 153C(1) of the Act clearly postulates that once the AO of a person, other than the one searched, has received the assets or the documents, he is to issue a notice to assess/re-assess the income of such person – that is, the assessee other than the person searched – in accordance with provisions of Section 153A of the Act.” (emphasis by underlining supplied by us) From the above, it is evident that Hon'ble Jurisdictional High Court has held in clear words that first and foremost step for initiation of proceedings u/s 153C is for the Assessing Officer 10 ITA Nos. 2813 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla of the searched person to be satisfied that the assets or documents seized belong to the assessee. Admittedly, no such satisfaction is recorded by the Assessing Officer of the person searched. The CBDT, vide Circular No.24/2015 dated 31st December, 2015, held as under:- “Subjects: Recording of satisfaction note under section 158BD/153C of the Act – reg.- The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.
2. The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.2014 (available in NJRS at 2014-LL-0312-51) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon’ble Court held that “the satisfaction note could be prepared at any 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; or (b) in the course of the assessment proceedings under section 158BC of the Act; or 11 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person.”
Several High Courts have held that the provisions of section 153C of the Act are substantially similar/parimateria to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon’ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.
The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the “other person” is one and the same, then also he is required to record his satisfaction as has been held by the Courts.
In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.”
From the above, it is evident that the CBDT has accepted that the decision of Hon’ble Apex Court in the case of M/s Calcutta Knitwears in Civil 12 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla Appeal No.3958 of 2014 dated 12th March, 2014 issued for the purpose of Section 158BD would be squarely applicable for the purpose of proceedings u/s 153C. The Circular also observed that recording of satisfaction note is a pre-requisite and the satisfaction must be prepared by the Assessing Officer before he transmits the record to the other Assessing Officer who has jurisdiction over such other person. In paragraph 4, it has been further clarified that such satisfaction note is essential even if the Assessing Officer of the searched person and the other person is the one and the same. Admittedly, in the case of the assessee, no such satisfaction is recorded by the Assessing Officer of the person searched. In paragraph 5 of the above Circular, the CBDT has directed the Revenue authorities to withdraw the appeal if there is no recording of the satisfaction note in the light of above judgment. In our opinion, the above decision of Hon'ble Jurisdictional High Court and the Circular of the CBDT are squarely applicable to the facts of the case, as no satisfaction is recorded by Assessing Officer of person searched. Respectfully following the decision of Hon'ble Jurisdictional High Court in the case of RRJ Securities Ltd. (supra) and CBDT’s Circular No.24/2015 dated 31st December, 2015, we are of the opinion that the initiation of proceedings u/s 153C cannot be held to be valid.
10. Though the learned counsel for the assessee has raised several other objections with regard to validity of the notice u/s 153C but since, in our opinion, the first and foremost step for initiation of proceedings u/s 153C i.e., the recording of the 13 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla satisfaction by the Assessing Officer of the person searched is missing, the proceedings are invalid and, therefore, the other arguments of the assessee need not be examined in detail. We, therefore, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of RRJ Securities Ltd. (supra) and the Circular of CBDT No.24/2015 dated 31st December, 2015, hold the initiation of proceedings u/s 153C to be invalid and quash the same. Since the notice u/s 153C itself has been held to be invalid, the assessment order passed in pursuance thereto is also quashed. Once the assessment order is quashed, the appeals filed by the Revenue which are with regard to the additions deleted by the CIT(A), do not survive for adjudication on merits. Accordingly, all the appeals filed by the Revenue are dismissed and the cross objections of the assessee are allowed.
Since the facts of the present case are similar to the facts involved in the case of ACIT Vs M/s Shield Home Pvt. Ltd. in ITA Nos. 4228 to 4233/Del/2011 and CO’s No. 364 to 369/Del/2011 for the assessment years 2003-04 to 2008- 09. So, respectfully following the said order dated 24.02.2016 the initiation of the proceedings u/s 153C in the assessee’s case are held to be invalid and accordingly the assessment framed, thereafter u/s 153C of the Act is quashed. Since the legal issue has been decided in favour of the assessee, no finding is given on the issues raised on merit. Accordingly appeal of the assessee for the assessment 14 ITA Nos. 2813 to 2817, 3831 & 5293/Del/2014 Bhawna Bhalla year 2003-04 is allowed and Cross appeal of the department is dismissed. The facts involved in the other appeals of the assessee for the assessment years 2004-05 to 2008-09 in ITA Nos. 2814 to 2817/Del/2014 are identical to the facts involved in 2003-04. Therefore, our findings given in the former part of this order shall apply mutatis mutandis for the assessment years 2004-05 to 2008-09. Accordingly, appeals of the assessee for the said assessment years are allowed.
In the result, appeals of the assessee are allowed and the appeal of the department is dismissed. (Order Pronounced in the Court on 25/04/2016)