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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: SHRI JASON P. BOAZ (AM) & SHRI RAM LAL NEGI (JM)
These are Cross appeals by Revenue and the assessee for Asst. year 2007-08 and an appeal by revenue for Asst. year 2006-07, all directed against the common order CIT(Appeals), Central-VII, Mumbai dt. 02/07/2009. Since these appeals having interconnected issues, were heard together, they are being disposed off by way of this common order.
The facts of the case, briefly, are as under:-
2.1 The assessee is a firm in the Haresh Patel Group and was engaged in the development of a project by the name of Giriraj Horizon, at Kharghar, Navi Mumbai. Search action u/s 132 of the Income Tax Act, 1961(in short ‘the Act’) was carried in the case of Shri. Haresh N. Patel and connected persons on 10/01/2007. As Shri. Haresh Patel was a partner in the assessee firm, a simultaneous survey action u/s 133A of the Act was carried out at the assessee’s premises.
2.2 In the course of survey proceedings, a diary was found which contained evidence of ‘on money’ collected that was not recorded in the regular books of account. As per nothing in the said diary, such unaccounted money received by the assessee firm worked out to Rs. 2,09,00,000/-. On being queried in this regard, the partner of the assessee firm admitted to the cash receipts but claimed that there are cash expenditures also and admitted an amount of Rs. 150 lakhs as additional income for the financial year relevant to Asst. year 2007-08.
Further, in the survey proceedings, another diary was found which contained evidence of cash transaction in the sale of shop no. 3 in the residential building complex, wherein the cash component was Rs. 21,12,500/-.
2.3 The case was taken up for scrutiny and the assessee was issued notices u/s 153C of the Act for the relevant Asst. years. The assessment for Asst. years 2006- 07 and 2007-08 was completed u/s 143(3) r.w.s.153C of the Act vide orders dt.
30/12/2008. The additions made to the returned income of the assessee was on the following grounds:- (i) Income admitted on account of cash sales in flats; (ii) Income attributed on account of cash sales in shops.
2.3.1 Income admitted on account of cash sales in flats Based on the noting found in the diary during the survey proceedings and also on the disclosure of additional income admitted by the assessee, the amount of Rs. 1,50,00,000/-was added to the income of the assessee for Asst. year 2007- 08.
2.3.2 Income attributed on account of cash in shops Based on the noting found in another diary during the survey proceedings, evidencing cash receipts of Rs. 21,12,500/- for shop No. 3, the assessing officer (‘AO’) attributed an amount of Rs. 20 Lakhs of unaccounted cash receipts for each of the shops sold and worked out the unaccounted income from the shops as under :- Asst. year 2006-07 Rs. 40,00,000/- Asst. year 2007-08 Rs. 5,20,00,000/- plus + 21,12,500(for shop no. 3)
3.1 On appeal, the Ld. CIT(A) upheld the addition of Rs. 1,50,00,000/- made towards cash receipts on sale of flats as admitted by the assessee for Asst. year 2007-08. As regards the addition made towards cash receipts in respect of sale of shops, (i) The Ld. CIT(A) observed that the assessee had sold only 9 shops in the Asst. year 2007-08 and restricted the addition towards ‘ on money’ in respect of the sale these 9 shops.
(ii) The Ld. CIT(A) observed that there was no evidence of ‘on money’ receipts in the earlier year and therefore deleted the addition of Rs. 40,00,000/- made in respect of cash receipts on sale of 2 shops. (iii) The Ld. CIT(A) held that there is no basis for adopting ‘on money’ receipts of Rs. 20 lakhs per shop and directed that for Asst. year 2007-08 the ‘ on money’ receipts on sale of these 9 shops is to be computed @ Rs. 21,12,500/- per shop, as per the sale available in the diary for shop no. 3.
4. Aggrieved by the order of the CIT(A) Central-VII, Mumbai for Asst. year 2006- 07 and 2007-08 dt. 02/07/2009, both the assessee and Revenue are in appeal before us.
5. Asst. year 2006-07 5.1 The grounds raised by Revenue in its appeal for Asst. year 2006-07 are as under:-
“ I. On the facts and circumstances of the law the Ld. CIT(A) erred in deleting the additions amounting to Rs. 40,00,000/- on account of unaccounted income as on-money.
II. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in not accepting the fact that the evidence brought on record for addition on account of unaccounted sales of shops for A.Y. 2007-08 can also be used it for arriving at unaccounted sale of shops for A.Y. 2006-07, applying the ration of the decision of the Hon’ble Supreme Court in the case of CST vs. H.M.Esufali H.M. Abdualili (1973) 90 ITR 271.
III. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in not accepting the fact that there were unaccounted sales pertaining to shop nos. S-15 and S-16 for A.Y. 2006-07.
IV. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in not accepting the fact that assessee has formally entered into agreement for all shops sold has received advances and has assigned names against the shops and this was established during the assessment proceedings.
V. The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A), Central VII, Mumbai may be set aside and that of the Assessing Officer restored.
VI. The appellant craves leave to add, amend, alter or delete any or all the grounds of appeal, if need be.”
5.2. Even though the assessee has got the relief it sought entirely pursuant to the impugned order of the Ld. CIT(A), the assessee has preferred the following grounds challenging the assumption of jurisdiction by the Assessing Officer while passing the order of assessment u/s 143(3) r.w.s. 153C of the Act dt. 30/12/2008:-
The learned Assessing Officer erred in reopening assessment by issue of notice u/s 153C and the same is without jurisdiction and bad a law.
2. The learned Assessing Officer failed to appreciate that conditions for issue of notice u/s 153C were not satisfied and that the assessment order u/s 143(3) r.w.s. 153C is without jurisdiction and bad in law, 3. The assessee prays that the order of the Commissioner of Income Tax (Appeals) may be affirmed.
Asst. year 2007-08
6.1 The grounds of appeal raised by revenue are as under:-
I. In the facts and circumstances of the law the Ld. CIT(A) erred in reducing the addition made on account of unaccounted income as on money from 26 shops to 9 shops. II. In the facts and circumstances of the law the Ld. CIT(A) erred in not accepting the fact that there was an unaccounted sale of 26 shops which was established during the assessment proceedings. III. The appellant craves leave to add, amend, alter or delete any or all the grounds of appeal, if need be. IV. The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A), Central VII, Mumbai may be set aside and that of the Assessing Officer restored.
6.2.1 The assessee, in its appeal for Asst. year 2007-08, has raised the following grounds:-
1. “ (a) The learned CIT(Appeals) erred in law and facts in confirming the action of Assessing Officer in estimating undisclosed income to the extent of Rs. 1,90,12,500/- with respect to sale of shops during the previous year.
(b) The learned CIT(Appeals) erred in appreciating the fact that no incriminating evidence was found in respect of shops on account of which the addition of alleged on-money receipt is made during the year.
(c) The learned CIT(Appeals) erred in facts by ignoring the fact that the income offered by the appellant during the course of survey was sufficient estimate to cover all the discrepancies including the receipt of alleged on money especially in view of the facts that no evidence of unexplained undisclosed assets, cash investments, expenditure or creditors was found during the course of survey on the appellant as search on partner.
2. Your appellant prays that (a) The said addition of Rs. 1,90,12,500/- made on estimated basis be deleted. (b) The income as returned by the appellant be accepted. (c) Such other relief as may be deemed fit in the matter be granted.
3. The appellant craves leave to add, amend, alter or delete any or all grounds of appeal.”
6.2.2 The assessee has also raised the following additional grounds of appeal:-
1. “The learned Assessing Officer erred in making assessment u/s 143(3) and the same is without jurisdiction and bad in law.
2. The learned Assessing Officer failed to appreciate that notice u/s. 143(2) was not issued within time permitted and that the assessment order u/s 143(3) is without jurisdiction and bad in law.
3. The assessee prays that the assessment order may be cancelled as being without jurisdiction.”
7.1 The ld. AR for the assessee was heard on the additional grounds for both Asst. year’s 2006-07 and 2007-08 (supra). The issue raised therein are as under:-
(i) The notice issued u/s 153C of the Act and the assessment made pursuant thereto is without jurisdiction. (ii) No incriminating evidence relating to the assessee firm was found during the search of the residence of the partner of the firm. The diaries based on which the additions are made were found during the course of survey action in the business premises of the assessee firm and therefore, proceedings u/s 153C of the Act are not tenable. (iii) The notice u/s 143(2) of the Act was not issued in time and as the notice issued was beyond time, the order of assessment for Asst. year 2007-08 passed u/s 153C r.w.s 143(3) of the Act is invalid.
7.2. It was submitted by the Ld.AR for the assessee that the additional grounds raised (supra) are legal issues and therefore can be raised at any stage of appellate proceedings. In support of this contention, the Ld.AR placed reliance on the following judicial pronouncements:- (i) NTPL vs. CIT (1998) 229 ITR 383(SC) (ii) Ahmadabad Electricity Co. Ltd., 199 ITR 351(Bom)
7.3 The Ld. DR opposed the admission of the additional grounds raised by the assessee.
7.4.1 We have heard the rival contention and perused and carefully considered the issues raised and the material on record; including the judicial decisions cited. We find that the additional grounds raised by the assessee are purely legal grounds and since the same go to the very root of the matter, we are inclined to admit the same for consideration and adjudication in this appeal.
7.4.2 It is a settled principle that a legal question/issues can be raised at the appellate state and such a question need not be raised as a ground. It is also a settled principle that when a legal question/issues is raised, the Tribunal has to consider the same in accordance with law and cannot refuse to entertain the same. As all the facts relating to the additional grounds taken before us are already on record, we are inclined to entertain the additional grounds which are purely legal in nature and accordingly proceed to decide the same.
7.4.3 Now coming to the issues on hand in the case of the assessee, we find that the legal questions raised go to the root of the matter and therefore require to be addressed first. We, therefore, proceed to examine, consider and adjudicate the additional grounds raised.
Notice u/s 153C of the Act is without jurisdiction
8.1 It is the contention of the assessee that no incriminating evidence relating to the assessee firm was found during the search action u/s 132 of the Act at the residence of the partner of the assessee firm. It was submitted that the two diaries which were used as evidences for the ‘on money’ receipts for flats and shops were found and impounded during the survey action u/s 133A of the Act in the business premises of the assessee firm. As the incriminating materials against the assessee firm was not found in the course of search action, the initiation of proceedings u/s 153C of the Act was not tenable. It was also submitted that any declaration or admission of income in statements u/s 132(4) of the Act cannot be considered as “material” found in the course of search action.
8.2.1 We have heard both the Ld. AR for the assessee and the Ld. DR for revenue in the matter and perused and carefully considered the material on record. Section 153C of the Act reads as under:-
“153C. [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A. Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to 5[sub- section (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.”
8.2.2 The scope of Section 153C of the Act has been well explained in the decision of the Hon’ble Madhya Pradesh High Court in the case of CIT vs. M/s. Mechmen, and others dt. 10/07/2015. On the cited case also, search action u/s 132 of the Act was conducted against the partners of the firm and survey u/s 133A of the Act was conducted at the business premises of the firm. The Assessing Officer issued notice u/s 153C of the Act and completed the assessment u/s 143(3) r.w.s.143 (3) of the Act. The Hon’ble High Court held that the proceedings u/s 153C of the Act should emanate from search action u/s 132 of the Act. The relevant paragraph dealing with the scope of Section 153C of the Act are extracted hereunder:-
“4.……………………………………………………………………………………………………… ………………………………. The Tribunal, in turn, relied on its decision in the case of M/s Chirchind Hydro Power Limited- IT(SS) A.No. 171.172 and 174/Ind/2008 and also M/s. Gwalior Tanks & Vessels Limited-IT(SS) A No. 175 to 181/Ind/2008. Paragraph Nos. 78 to 82 of the said decision has been reproduced by the Tribunal for dealing with the question about the scope of Section 153C of the IT Act and the efficacy of notices issued by the Assessing Officer against the respondent therein. The same reads thus:-
"78. We have considered the rival contentions, carefully gone through the orders of the authorities below and deliberated on the case laws referred by the lower authorities in their respective orders and by the respective counsels during the course of hearing before us. From the record we find that the search was carried out at the residential premises of directors/partners of these concerns and not at the premises of these concerns. After the search was carried out at the residence of directors/partners of these associate concerns, assessment was framed in respect of these concerns u/s 153C of the Act on the plea that incriminating material was found during the course of search at the residence of partners/directors. The assumption of power by the Assessing Officer u/s 153C of the Act for framing the assessment is subject to the condition that the Assessing Officer assessing the search party, is satisfied that the jewellery or other valuable articles or things or books of accounts or documents or assets, seized or requisitioned, pertain to some person other than the person referred to in section 153A, then the books of accounts or the documents or assets seized or requisitioned, shall be handed over by the Assessing Officer of searched person to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each of such persons and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A of the Act. The opening word of section 153C speaks that not-with-standing anything contained in sections 139, 147, 148, 149, 151 and 153, where the Assessing Officer is "satisfied" that any money, jewellery or books of accounts or documents seized or requisitioned belongs to a person other than the person referred to in section 153A, meaning thereby the Assessing Officer is to record a satisfaction to the effect that such jewellery or document so seized does not belong to the searched person but to some other person referred to in section 153A of the Act. Thus, the pre- requisite of section 153C is that the Assessing Officer making the assessment of the searched person has to satisfy himself that some material found during the course of search and seizure belongs to some person other than the searched person. Then the Assessing Officer making the assessment of searched person has to hand-over the said incriminating material belonging to some person other than the searched person to the Assessing Officer having jurisdiction over the said other person. Thereafter, the Assessing Officer having the jurisdiction over the person other than the searched person shall issue a notice u/s 153C to such other person and assess his income in terms of the provisions of section 153A of the Act. Thus, the notice u/s 153C of the Act is to be issued only after recording of satisfaction. The assumption of jurisdiction to issue notice and frame assessment under section 153C read with section 153A is acquired by the Assessing Officer only after having been satisfied and such satisfaction is recorded in writing. These provisions of section 153C are in pari materia with the provisions of section 158BD which provides that the Assessing Officer making the assessment of the searched person has to satisfy himself that some undisclosed income found by him belongs to some person other than the searched person and then he or the Assessing Officer having jurisdiction over such other person after receipt of record from the Assessing Officer of the searched person has to issue notice u/s 158BD of the Act and has to assess income of such other person. The provisions of section 158BD of the Act were examined in detail by the Hon'ble Supreme Court in the case of Manish Maheshwari; 208 CTR 97. The said Hon'ble Supreme Court decision was followed by the Hon'ble Delhi High Court in the case of New Delhi Auto Finance Limited; 300 ITR 83. The Hon'ble Supreme Court has laid down a proposition that the Assessing Officer making the assessment of the searched person has to necessarily record in writing the specific objective satisfaction which is mandatory to the effect that the undisclosed income found by him, on the basis of seized material, belongs to some person other than the searched person. Insofar as the provisions of section 153C of the Act are in pari material with the provisions of section 158BD of the Act with regard to the requirements of recording necessary satisfaction by the Assessing Officer of searched person, the law laid down by the Hon'ble Supreme Court in the case of Manish Maheshwari (supra) shall apply with full force in case of initiation of proceedings u/s 153C. The assumption of jurisdiction and framing of assessment by the Assessing Officer u/s 153C without recording such satisfaction is void ab initio. Applying the proposition of law laid down by the Hon'ble Supreme Court, as discussed above, it is quite evident that recording of satisfaction before issue of notice u/s 153C is mandatory and in case where no such satisfaction has been recorded by the Assessing Officer in the case of searched person to the effect that some incriminating material so found belongs to some other person, the assessment framed u/s 153C will be liable to be quashed. However, detailed finding has been recorded by the learned Commissioner of Incometax (Appeals) after examining the assessment records of the concerned person/parties to the effect that no satisfaction has been recorded by the Assessing Officer of the searched person. This finding of the learned Commissioner of Income tax (Appeals) has not been controverted by the department by bringing any positive material on record. Accordingly, applying this proposition of law, the assumption of jurisdiction and framing of assessment in the instant cases by the Assessing Officer u/s 153C were bad in law. 79&80………………………………………………………………………… 81. We have deliberated upon the contentions of the learned CIT DR, Shri K.K. Singh and learned counsel for the assessee, Shri
H.P. Verma, with regard to interpretation of recording of satisfaction while assuming jurisdiction u/s 153C of the Act. Even in the new scheme of framing of assessment in case of search cases, the legislature has clearly stipulated the requirement for recording of satisfaction while assuming jurisdiction to issue notice and frame assessment u/s 153C of the Act which requires that satisfaction to be recorded with reference to the documents and other materials found during the course of search belonging to a person other than the searched person. Prima facie, Assessing Officer of searched person should form an opinion with regard to any document, valuable, etc. as found during the course of search that such document, which is declined by the searched person, actually belongs to some other person against whom proceedings u/s 153C are required to put into operation. After such recording, of satisfaction, the documents so seized should be handed over to the Assessing Officer of such other person. The legal requirement of recording of such satisfaction cannot be substituted by appraisal note which is prepared by the search party after completion of search insofar as such appraisal note is a secret document prepared by the department for their internal use, contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. The appraisal note so prepared by the department is meant to monitor after the search proceedings are over so as to ensure exhaustive assessment of all searched person with respect to their correct income and to plan a strategy for further deep inquiry and investigation of documents found during the course of search. Since copy of such appraisal note is not supplied to the assessee, it cannot be taken at par with the requirement of recording of satisfaction note as stipulated u/s 153C of the Act, which is a mandatory requirement……………..”
Further, the Hon’ble High Court in its order has observed that:-
“ 8. The respondent, on the other hand, has supported the opinion of the Tribunal. That, the principle underlying the mandate of Section 158BD would apply on all fours to the procedure specified in Section 153C of the I.T. Act. Because, the purpose of both the provisions is the same and the person against whom such notice is issued suffers the same consequence. The respondents have then invited our attention to the finding of fact recorded by the First Appellate Authority and affirmed by the Tribunal that no satisfaction has been recorded by the Assessing Officer having jurisdiction before issuing notice under section 153C. Further, none of the material adverted to, belong to the respondent or can be said to belong to it. Further, no addition or even observation has been made by the Assessing Officer having jurisdiction in any of the orders for the concerned assessment years on the basis of the material found during the course of search. Even for that reason, no action under Section 153C could have been initiated against the respondent. The respondent submits that the Assessing Officer who seized or requisitioned the material during the search of a person referred to in Section 153A as also the Assessing Officer having jurisdiction over the respondent have acted without jurisdiction.
Reliance was placed on the judgments of the Supreme Court and of different High Courts by the counsel appearing for the parties to buttress their arguments. The two decisions of the Supreme Court
are in respect of scope of Section 158BD. In case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax & another and in the case of Commissioner of Income Tax-III Vs. Calcutta Knitwears . Even the Tribunal has referred to the decision of the Supreme Court on the scope of Section 158BD as no direct judgment of the Supreme Court on Section 153C was referred to. Besides the Supreme Court decisions on Section 158BD, reliance has been placed on the decisions of different High Courts with reference to the same provisions on Section 158BD. To wit, Amity Hotels (P) Ltd. and others Vs. Commissioner of Income Tax and others dated 5.10.2004, New Delhi Auto Finance (P) Ltd. Vs. Joint Commissioner of Income Tax dated 22.2.2008, Commissioner of Income Tax Vs. Dawn View Farms (P) Ltd. dated 16.10.2008, Commissioner of Income Tax Vs. Panchajanyam Management Agencies and Services dated 15.11.2010, Commissioner of Income Tax Vs. Late Raj Pal Bhatia dated 29.11.2010, Commissioner of Income Tax Vs. Bimbis Creams and Bakes dated 29.3.2012, Creative Co- operative Credit Society Ltd. Vs. Amal Garg, Deputy Commissioner of Income-Tax dated 26.2.2014, Asstt. Commissioner of Income Tax Vs. J.B. Enterprises and others dated 26.6.2014. Since there is no direct judgment of the Supreme Court on Section 153C, reliance has been placed on the decisions of different High Courts on Section 153C, namely- of SSP Aviation Ltd. Vs. Deputy Commissioner of Income-tax dated 29.3.2012, Commissioner of Income Tax Vs. Classic Enterprises Cantt Road Lucknow dated 17.4.2013, Commissioner of Income Tax (Central) Vs. Gopi Apartment, dated 1.5.2014, Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax dated 7.8.2014, Pepsico India Holdings Pvt. Ltd. Vs. Assistant Commissioner of Income Tax and another dated 14.8.2014 and lastly Commissioner of Income Tax Vs. Madhi Keshwani dated 11.3.2015. 10………………………………………………………………………………….
The moot question is: whether there is any distinction or dissimilarity between Section 158BD and Section 153C of the I.T. Act? If we accept the argument of the Department, that the purpose underlying the two provisions is completely different, further investigation into the scope of Section 153C may become necessary.”
As the scope of Section 158BD has already been considered by the Supreme Court, we may first advert to the decision in the case of Manish Maheshwari (supra). After analyzing the relevant provisions for amplifying the efficacy of Section 158BD, in Paragraph No.7, the Court observed thus:-
“7. Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are: (i) Satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction http://www.itatonline.org 19 over such other person; and (iii) The AO has proceeded under Section 158BC against such other person. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act.”
In a recent decision of the Supreme Court in the case of Commissioner of Income Tax-III Vs. Calcutta Knitwears (supra), although the question considered was at what stage the Assessing Officer must record his satisfaction as envisaged in Section 158BD. The observed thus:- “38. Having said that, let us revert to discussion of Section 158BD of the Act. The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under Sections 132 or 132A of the Act. Under Section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132 A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD of the Act, the other provisions of XIV-B shall apply.
The opening words of Section 158BD of the Act are that the assessing officer must be satisfied that “undisclosed income” belongs to any other person other than the person with respect to whom a search was made under Section 132 of the Act or a requisition of books were made under Section 132A of the Act and thereafter, transmit the records for assessment of such other person. Therefore, the short question that falls for our consideration and decision is at what stage of the proceedings should the satisfaction note be prepared by the assessing officer: whether at the time of initiating proceedings under Section 158BC for the completion of the assessments of the searched person under Section 132 and 132A of the Act or during the course of the assessment proceedings under Section 158BC of the Act or after completion of the proceedings under Section 158BC of the Act. 40………………………………………………………………………………… 41. We would certainly say that before initiating proceedings under Section 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers’ satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 42…………………………………………………………………………………. 43………………………………………………………………………………….
In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either 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; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person.”
Thus, as envisaged by Section 158BD, “satisfaction” of the Assessing Officer before he transmits the material/records to other Assessing Officer having
jurisdiction over such other person is sine qua non. Sans such satisfaction, the Assessing Officer cannot validly take recourse to the machinery provision.
We may now turn to Section 153C. No doubt, the form of Section 153C is dissimilar to that of Section 158BD. It is also true that the two provisions are embedded under different chapters. For, Section 153C is in Chapter XIV providing for procedure for assessment, whereas Section 158BD is found in Chapter XIV-B providing for special procedure for assessment of search cases. Further, Section 153C opens with non-obstante clause. However, the non-obstante clause in Section 153C is necessitated to give power to the Assessing Officer having jurisdiction to proceed against the person other than the person referred to in Section 153A, inspite of the action under Section 139, 147, 148, 149, 151 and 153 of the I.T. Act. However, on closer scrutiny of the two provisions, it is indisputable that, these provisions are machinery provisions and have been provided for in the statute book for the purpose of carrying out assessment of a person other than the searched person under Section 132 or 132A of the I.T. Act in relation to Section 158BD; and Section 153A in relation to Section 153C. Notably, the purpose underlying both these provisions is similar, even though Section 153C does not specifically refer to the expression “undisclosed” income. However, in both the situations, the Assessing Officer engaged in carrying on search of the assessee within his jurisdiction, if seizes or requisitions the items (books of account or other documents or any assets for Section 158BD; and money, bullion, jewellery or other valuable article or thing or books of account or documents for Section 153C), is expected to handover those items to the Assessing Officer having jurisdiction over such other person and thereafter the Assessing Officer having jurisdiction has to proceed against such other person within his jurisdiction. Even for the purpose of Section 153C, the Assessing Officer before handing over the items to the Assessing Officer having jurisdiction must be “satisfied” that the items belongs or belong to the person other than the person referred to in Section 153A. That satisfaction of the concerned Assessing Officer is a sine qua non. The consequences flowing from the action to be taken on the basis of such information handed over to the Assessing Officer having jurisdiction, for the assessee, who is a person other than the person referred to in Section 153A, is drastic – of assessment or reassessment of his income falling within six assessment years.
Suffice it to observe that the dissimilarity of the form of two provisions would make no difference to the purpose underlying. The power bestowed on the Assessing Officer having jurisdiction – be it under Section 153C or Section 158BD – is identical.
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The concomitant of this conclusion, is that, the legal position as applicable to Section 158BD regarding satisfaction in the first instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A). The question as to whether that may influence the opinion of the Assessing Officer having jurisdiction over such other person, also cannot be the basis to take any other view. As a matter of fact, the other Assessing Officer to whom the items are handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. Similarly, as there is no provision either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the argument of the Department must be negatived. 19…………………………………………………………………………………………………… 20…………………………………………………………………………………………………...
We conclude that the condition precedent for resorting to action under Section 158BD delineated by the Supreme Court in the case of Manish Maheshwari (supra) and in the recent case of Commissioner of Income Tax-III Vs. Calcutta Knitwears (supra), would apply on all fours mandating satisfaction of the Assessing Officer(s) dealing with the case at the respective stages referred to in Section 153C. 22……………………………………………………………………………………………………. 23 In the present case, the concurrent finding of fact recorded by the Appellate Forums is that, no satisfaction has been recorded by the Assessing Officer before issuing of notice under section 153C. Further, none of the papers seized belongs or belong to the assessee (noticee). The Appellate Forums have further found that no addition or even observations have been made by the Assessing Officer in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified. These findings of fact need no interference and have not been questioned before us. Considering the above, these appeals must fail.
8.2.3 The Hon’ble Apex Court in the case of M/s. Calcutta knitwears in CA No. 3958 of 2014, in the context of Section158BD had at paras 41,42,and 44 of its order held as under:-
“ 41. We would certainly say that before initiating proceedings under section 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers’ satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person.
Further, Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after 01.01.1997. The said section does neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation the satisfaction note under Section 158BD and consequent issuance of notice to the other person. 43…………………………………………………………………………...... 44. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either 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; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person.”
8.2.4 The CBDT has accepted the above decision of the Hon’ble Apex Court in the case of Calcutta Knitwears in Civil Appeal No: 3958 of 2014 dt. 12/03/2014 and consequently issued CIRCULAR NO. 24/2015 dt. 30/12/2015 (in F.No. 279/Misc/140/2015/ITJ) on the subject of recording of satisfaction note u/s 158BD/153C of the Act. This CBDT Circular reads as under:-
CIRCULAR NO. 24/2015 F.No.279/Misc./140 /2015/ITJ
Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, 31st December, 2015
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.
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 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 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.