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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI PAWAN SINGH
सुनवाई की तायीख / Date of Hearing : 17.6.2016 घोषणा की तायीख /Date of Pronouncement : 24.6.2016 आदेश / O R D E R PER BENCH: There are nine appeals under consideration involving the AYs 2000-01 and 2002-03 to 2005-06. There are no appeals for the AY 2001-02 and there is no appeal by the assessee for the AY 2002-03. Since, the issues raised in these appeals are identical / interconnected, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.
Briefly stated relevant facts of these cases are that the assessee was a share broker till 2002 and there was some problem to the assessee from the SEBI. Subsequently, the assessee has become a business partner with Shri Narendra R. Shah in the business of providing accommodation entries for commission. There was search action u/s 132 of the Act on Shri Narendra R. Shah dated 24.1.2000. During the course of search proceedings on Shri Shah, the search team laid their hands on some pay slips involving assessee-company. Consequently, both the assessee as well as Shri Shah was centralized with common Assessing Officer. AO made various additions in the name of the assessee u/s 153C of the Act substantively. Similar additions were made in the hands of Shri Shah on protective basis. Before us, assessee raised various grounds in all its appeals for the said assessment years. Assessment year wise adjudication is given in the following paragraphs. I. Cross appeals for the AY 2000-2001 3. This appeal filed by the Revenue on 23.1.2014 is against the order of the CIT (A)-37,dated 22.11.2013 for the AY 2000-2001.
4. Before us, at the outset, Ld Representatives of both the parties brought our attention to the ground raised
in this appeal and fairly submitted that the tax effect in this appeal is below Rs. 10 lakhs and therefore, the appeal of the Revenue is not maintainable. Considering the CBDT Circular No.21/2015, dated 10.12.2015 wherein it was submitted that the appeals filed by the Revenue with a tax effect of Rs. 10 lakhs and below are to be either dismissed by the Tribunal as not maintainable or not pressed by the Revenue. Referring to the above mentioned Board Circular No.21/2015, Ld Counsels brought our attention to para 10 and submitted that the said monetary limitation of Rs. 10 lakhs applies to all the appeals filed by the Revenue retrospectively.
5. Considering the above, the appeal filed by the Revenue, wherein the tax effect is below the above stated tax limit of Rs. 10 lakhs, is dismissed as not maintainable.
6. In the result, appeal of the Revenue is dismissed. (By assessee)
7. This appeal filed by the assessee on 22.1.2014 is against the order of the CIT (A)-37, dated 22.11.2013 for the assessment year 2000-2001. In this appeal, assessee filed concise grounds of appeal as well as additional grounds. In the additional grounds of appeal, assessee raised various legal issues and they relate to (i) failure of the assessee in recording satisfaction in the case of search party; (ii) making additions in the search assessment without having incriminating material when this is a case of unabated assessment (assessments completed in all respects and there is no time for the issuance of notice u/s 143(2) of the Act) and (iii) invalid reference to the special audit u/s 142(2A) of the Act when there are no books of account to be referred to for special audit. From all these angles, it is the prayer of the Ld Counsel for the assessee that the assessment has to be treated as null and void in view of the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Calcutta Knitwears [362 ITR 673].
8. Referring to the issue of satisfaction note, Ld Counsel for the assessee brought our attention to page 55 of the paper book furnished by the Ld DR for the Revenue dated 7.9.2015 and mentioned that the said page of satisfaction note recorded by the common AO (common to the search person and the other person) in the case of the assessee, who constitutes “other person” on 26.2.2007 for all the AYs commencing from 2000-01 to 2005-06. For the sake of completeness of this order, the contents of the said para are inserted as under:-
G.R. Pandya Share Broking Ltd Search action u/s 132 was conducted in the case of Shri Narendra R Shah on 24.1.2006. Certain loose papers and document were seized from the premises of shri Narendra R Shah. Page Nos. 73 of Annexure A5 (seized on 24.1.2006), pertains to this company M/s. G.R. Pandya Share Broking Ltd. This contents of this paper has to be verified. The assessee company‟s case has therefore to be covered u/s 153C. Issue notice u/s 153C, for assessment years 2000-01 to 2005-06.
Detailing the above page, Ld Counsel for the assessee mentioned that the said page is written for the sake of assessee, M/s. G.R. Pandya Share Broking Ltd. There is a conclusion of the AO that the said satisfaction is meant for assessee-company only, who is covered u/s 153C of the Act and certainly not for Shri Narendra R. Shah, who is otherwise covered u/s 153A of the Act. The manner of writing and the language mentioned in the same indicates in all respects that the satisfaction note is aimed at assessee-company only and not Shri Shah. Eventually, Ld Counsel for the assessee made an inference and argued stating that this is the case where the AO recorded the satisfaction in the case of the assessee-company, the other person. Referring to the absence of such satisfaction note implicating the requirement of issuing of notice u/s 153C of the Act in the case of the assessee-company, Ld Counsel for the assessee submitted that there is no satisfaction note recorded by the AO in the case of the “searched person” (Shri Narendra R. Shah), who is covered u/s 153A of the Act. Stating that the legal requirement is to record the satisfaction in the hands of the „searched person‟ and not the assessee, „the other person‟.
Further, Ld Counsel for the assessee brought our attention to the Circular of the CBDT No.24/2015, dated 31.12.2015 [380 ITR (St.) 32] and mentioned that the Board went on in issuing the said circular in view of the said binding judgment in the case of Calcutta Knitwears (supra). The said circular was issued in the context of recording a satisfaction, a pre-requisite before issuing of notice u/s 158BD / 153C of the Act. For the sake of completeness of this order, we extract the relevant portion from the said circular as under:- “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 (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 pro visions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BO 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 bv 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"
Explaining the above, Ld Counsel for the assessee submitted that the Assessing Officer of Shri Narendra Shah and the assessee-company (other persons) is one and the same. In such case, the recording of a valid satisfaction note by the AO of Shri Narendra Shah is a sin qua non and in the absence of the same, the assessing order becomes invalid. He filed a note stating that the recording of satisfaction by the AO on the person searched in the file of the searched person is a judicial requirement, a condition for assuming valid jurisdiction, the assessee- company, the other person. Considering the absence of satisfaction notice recorded by the Assessing Officer in the file of the searched person, the assessment made in the case of the assessee-company u/s 153C of the Act is required to the quashed as invalid one.
Further, to support his contention that in the absence of recording satisfaction by the Assessing Officer in the file of the searched person, AO has no jurisdiction to initiate proceedings u/s 153C of the Act, ld Counsel for the assessee relied on the decision of the ITAT, Hyderabad Bench in the case of Shri P. Yadi Reddy vs. DCIT in to 529/M/2015 (AYs 2003-04 to 2008-09), dated 15.2.2016 and read out the relevant para 8 of the said Tribunal‟s order. In the said para 8, the Tribunal observed that “8........we are of the view that the proceedings initiated u/s 153C of the Act in the cases of the assessee herein for the relevant years under appeal, deserve to be quashed in as much as the concerned Assessing Officer has admittedly not recorded any satisfaction before forwarding the files to the Assessing Oficer in whose charge, the assessee herein are assessed.....”. 13. Further also, Ld Counsel for the assessee relied on the decision of the ITAT, Delhi Bench in the case of ACIT vs. M/s. Shield Home Pvt Ltd in ITA No.422 to 433/Del/2011 (AYs 2003-04 to 2008-09), dated 24.2.2016. In support of his above contention, Ld Counsel for the assessee read out the relevant portion from para 10 of the said Tribunal‟s order and the same is extracted as under:- “10. Though the Ld 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 ie the recording of the satisfaction by the Assessing Officer of the person search 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 the 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.........” 14. On the other hand, Ld DR for the Revenue made various arguments on this issue and the same are summarized as under:- “i) Circular No.24/2015, dated 31.12.2015 is prospective in nature and cannot apply to conclude assessments. (ii) Even if a presumption is drawn that the satisfaction recorded u/s 153C of the Act is invalid, the same is curable defect and cannot render the assessment void.” 15. During rebuttable to the above, Ld Counsel for the assessee brought our attention to para 5 of the said Circular (supra) and argued that the CBDT is unambiguous in stating that this clarification applies to all the pending litigations with regard to “recording of satisfaction note”. He also submitted that it is not a curable effect therefore, prayed for remanding the objections raised by the Ld DR. 16. We have heard both the parties on the preliminary issue relating to the recording of the satisfaction note in the hands of the assessee-company, the other person, and absence of such note, in the case of searched person (Shri Narendra Shah). The twin objections raised by the Revenue in this regard relates to the prospective nature of the said Circular and curability of the defect, if any, u/s 292B of the Act. After hearing both the parties, we are of the opinion, the said Circular is very clear that the same applies to all the pending litigations, which include the present case which constitutes a pending litigation as on date. Regarding the curability, we find that the provisions of section 292B of Act do not cover the issues like satisfaction note and the same are restricted to the specified defects in the return of come, notice etc. Therefore, we need to dismiss the objections raised by the Revenue and the assessee should be given relief on this legal issue. Accordingly, the legal issue is decided in favour of the assessee and against the Revenue. Considering the relief granted to the assessee on the legal issue, we are of the opinion that the other issues as well as the grounds raised
on merits are required to be dismissed as academic. Accordingly, appeal of the assessee is partly allowed.
17. In the result, appeal of the assessee is partly allowed. II. Appeal for the AY 2002-03
18. This appeal filed by the Revenue on 23.1.2014 is against the order of the CIT (A)-37, Mumbai dated 22.11.2013 for the assessment year 2002-2003. In this appeal, Revenue raised the following grounds which read as under: “1. Whether on the facts circumstances of the case and in law, the Ld CIT (A) was right in restricting the disallowances out of administrative and other expenses to 5% as against 25% without appreciating the fact that the assessee has not furnished any details / material in respect of expenses claimed in the return.
2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) was right in deleting the addition of Rs. 1,11,96,000/- on account of share application money without appreciating the fact that the genuineness or creditworthiness of the parties concerned have not been proved.
3. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) was right in relying on the judgment in the case of CIT vs. Lovely Exports Pvt Ltd 216 CT 196 (SC) when the facts of that case are different from the facts in the present case.”
19. At the outset, Ld Counsel for the assessee briefly narrated the facts of the case. After hearing both the parties and on perusal of the orders of the Revenue Authorities as well as the relevant material placed before us, we find, all the additions made in this appeal are not supported by the incriminating material when the assessment in question is a non-abated assessment. It is now settled proposition of law that in the case of non-abated assessment, the AO has jurisdiction only on the issues supported by the incriminating material. The same view is supported by the various decision of the Tribunal and some of them are extracted for the completeness of this order.
A. [2013 36 taxmann.com 523 (Rajasthan) in the case of Jai Steel (India) vs. ACIT - From Held portion: ….The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed. ……From a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under sections 132 and 132A, it is apparent that: (a) the assessments or reassessments, which stands abated in terms of second proviso to section 153A, the Assessing Officer acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and (c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. …..The argument of the assessee that the Assessing Officer is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under section 153A is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. Para 26 of the Judgment: The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. B. [2012] 28 Taxmann.com 328 (Mumbai –Trib.) in the case of Gurinder Singh Bava vs. DCIT …. Whether since assessment under section 153A was passed by Assessing Officer on basis of material available in return of income and there was no reference to any incriminating material found during search and since no assessment was abated, assessment under section 153A was to be quashed being made without jurisdiction available under section 153A - Held, yes [Para 6.2] [In favour of assessee] Para 6.1 of the Order: The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. B. All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income- tax, Central Circle-44 [2012] 23 taxmann.com 103 (Mum.) (SB)
Para 58 of SB decisions: Thus, question No.1 before us is answered as under : (a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately ; (b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search.”
Considering the above settled position of the issue that in case of completed assessments, AO is empowered to made additions only based on the incriminating materials and not otherwise. Therefore, the objections raised by the Revenue vide Rule 27 of the IT Rules, 1962 are dismissed as not relevant. Accordingly, grounds raised
by the Revenue are dismissed. 20.1. Further also, we find it relevant to mention here that since, the assessment made u/s 153C read with 143(3) of the Act was quashed considering the absence of recording of satisfaction by the AO in the file of the searched person, the adjudication of the Revenue‟s appeal becomes academic. In that aspect also, grounds raised by the Revenue are required to be dismissed.
21. In the result, appeal of the Revenue is dismissed.