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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWALG.D. AGRAWAL & AND BEFORE SHRI G.D. AGRAWALG.D. AGRAWAL & AND SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARGSHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG
PER BENCH :- PER BENCH PER BENCH PER BENCH These appeals by the Revenue and the cross-objections by the assessee are directed against the order of learned CIT(A)-II, Delhi dated 14th July, 2011.
2 ITA-4228/D/2011 & 11 others
2. At the time of hearing before us, it is submitted by the learned counsel that by way of cross-objections, the assessee has challenged the validity of the issue of notice u/s 153C of the Income-tax Act, 1961 and consequently, the validity of the assessment order passed in pursuance thereto. Therefore, the cross-objections of the assessee should be heard and decided first. Learned CIT-DR has no objection for the hearing of cross-objections first.
3. In the cross-objections for all the years, the assessee has raised similar grounds. Therefore, we reproduce herein below the ground No.1 raised by the assessee for assessment year 2003-04 :-
“That the notice issued u/s 153C and the assessment order passed u/s 153C/143(3) are illegal, bad in law, without jurisidciton and barred by time limitation.”
4. At the time of hearing before us, it is submitted by the learned counsel for the assessee that this issue is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. RRJ Securities Ltd. – [2015] 62 taxmann.com 391 (Delhi) and CIT Vs. Kabul Chawla – [2015] 234 Taxman 300 (Delhi). He pointed out that in pursuance to the RTI application, the Revenue has informed the assessee that no satisfaction note is recorded by the Assessing Officer of the person searched. Such intimation is placed at page 4, 5 and 6 of the assessee’s paper book. He submitted that Hon'ble Jurisdictional High Court has clearly stated that recording of the satisfaction note by the Assessing Officer of the person searched is a pre-condition for assuming jurisdiction u/s 153C by the Revenue. He further pointed out that there is no incriminating material and the Assessing Officer has not based addition in any of the orders on the basis of seized material. On this ground also, in view of the decision of Hon'ble Jurisdictional High Court, the initiation of proceedings u/s 153C is not sustainable.
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5. Learned CIT-DR, on the other hand, relied upon the order of learned CIT(A) and he stated that this ground was not raised before the CIT(A). Before the CIT(A), the assessee has raised the general ground about the validity of notice u/s 153C which has rightly been decided by the CIT(A) in favour of the assessee. If the assessee wanted to raise another ground relating to Section 153C, he could have raised the additional ground. No such additional ground is raised by the assessee before the ITAT. He also stated that the search had taken place in the case of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt.Ltd. on 20th October, 2008 and during the course of search at their premises, certain documents belonging to the assessee were seized. Thus, all the conditions for initiating proceedings u/s 153C were fulfilled and the satisfaction was duly recorded by the Assessing Officer before issue of notice u/s 153C. He, therefore, submitted that the order of learned CIT(A) on this point may be sustained and the assessee’s cross-objections should be rejected.
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 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 4 ITA-4228/D/2011 & 11 others 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 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 jurisidciton 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)
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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 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:-
“Subject : 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.
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 provisions of section 153C of the Act are substantially similar/pari- materia 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 6 ITA-4228/D/2011 & 11 others
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 judgement. 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 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.
7 ITA-4228/D/2011 & 11 others 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.
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 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.
In the result, the appeals of the Revenue are dismissed and the cross-objections of the assessee are allowed. Decision pronounced in the open Court on 24.02.2016.