DCIT CENTRAL CIRCLEII, NOIDA vs. APPLE COMMODITIES LTD, NOIDA

आदेश /O R D E R PER C.N. PRASAD, J.M.

“1. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) erred in applying the decision of the Hon’ble Supreme Court in the case of M /s Sinhgad Technical Education Society, which was distinguishable on the facts of the present case as the same pertained to prior period to 01.04.2005 whereas after 01.04.2005 153C notice can be issued when AO is satisfied that seized material has a bearing on the assessment of income of other person.

2. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in law while holding that there was no incriminating material for the issuance of notice u / s 153C, without appreciating that in the satisfaction note the AO had brought out the facts and circumstances, which indicated that the Assessee company has entered into transactions which remained unexplained hence such documents constituted “incriminating material” for the purpose “of the issue of notice u/s 153C in the context of assessee.

3. Whether on facts and circumstances of the case and in law, the Ld CIT(A) erred in not appreciating that after 01.4.2005 the test of issue of notice u/s 153C is availability of seized material Which has bearing on assessment of income which has to be only in nature of prima facie belief having live nexus & not in nature of absolute evidence based on detailed investigation.

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4. That the appellant craves leave to add or amend any other more ground of appeal

as state above as and when needs for doing so may arise.

5. The order of the Ld CIT(A) is erroneous in law and on facts of the case and is liable to be set aside and the order of the AO be restored.”

2. The only issue to be adjudicated in the appeals of the Revenue is as to whether the additions made by the Assessing Officer as an unexplained investment being share capital and share premium are sustainable in the absence of incriminating material seized in the course of search.

3. The Ld. Counsel for the assessee submits that additions towards share capital and share premium were made by the AO based on the ledger accounts, confirmation accounts by various parties which are all part of regular books of accounts and there is no incriminating material was seized in the course of search belonging to the assessee so as to make the additions while completing the assessments u/s 153C/144 of the Act. The Ld. Counsel submits that as there was no incriminating material seized in the course of search which belongs to the assessee the Ld.CIT(A) deleted the additions following the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Sinhagad Technical Education Society (397 ITR 344).

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4. On the other hand, the Ld. DR strongly supported the orders of the AO.

5. Heard rival contentions, perused the orders of the authorities below. We find that the Ld.CIT(A) after analyzing the satisfaction note recorded by the DCIT (Central Circle), the materials found in the course of search concluded that no incriminating documents found as a result of search which belong to the assessee company.

The Ld.CIT(A) also observed that AO failed to demonstrate that seized document belongs to the assessee company and no seized documents were found as a result of search have a bearing on the determination of total income of the assessee and, therefore, jurisdictional condition for issue of notice u/s 153C is not satisfied.

The Ld.CIT(A) while holding so observe as under: -

“5.1 Ground no. 1 to 5 for each assessment year relate to the legal validity of notice issued u/s 153C of the Act. During this appeal proceeding, Ld. A.R. of the appellant has submitted that the assessment framed u/s 153C of the Act are bad in law and without jurisdiction because of the following reasons; 5.� Notice issued u/s 153C by the A.O. is without jurisdiction and barred by limitation. ii. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no satisfaction as required u/s 153C of the Act has been recorded by the assessing officer of the searched person.

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 iii. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no document(s) belonging to the assesses was found and seized during the course of search. iv. That the proceedings initiated u/s 153C and the consequent assessment order passed are liable to be quashed as no incriminating documents material has been found and there is no co-relation of year wise incriminating documents mentioned in the assessment order. v. The additions made by the A.O. are beyond the scope of jurisdiction of section 153C of Income Tax Act, 1961. The Ld. A.R. of the appellant has also submitted that after the decision of Hon’ble Supreme Court in the case of PCIT-III, Pune Vs. Sinhgad Technical Education Society, the law is crystal clear, that issue of notice u/s 153C without incriminating material for the’ relevant assessment year is legally not sustainable. 5.2 Upon the legal challenge of Id. A.R., the AO, vide this office letter F. No. CIT (A)-IV/KNP/Remand Report/2018-19/171 dated 09.10.2018 was specifically requested to comment on the legal contention of the appellant. The letter of this office is reproduced here-in-under: “Sub: Remand; Report u/s 250(4) of the Income Tax Act In the case of M/s. Apple Commodities Ltd. for the A.Y. 2011-12 to A.Y. 2013-14 (3 Years) PAN:AADCA0300K- Regarding- “Please find enclosed herewith copies of Submission filed by the appellant before the undersigned on 01.10.2018. Vide above submissions, the appellant has challenged legal validity of the issuance of notice u/s 153C of the Act. It was submitted by (the appellant that appellant has challenged that AO of the searched person has not recorded the satisfaction that seized documents

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 belongs to the appellant. Further, it has challenged by the appellant that no incriminating material was found for above said assessment years for which notice u/s 15 3C of the Act was issued. Appellant has also submitted that satisfaction recorded by AO does not fulfill the requirement –of provisions of section 153C of the Act. The appellant also relied upon the finding given by various Hon’ble High Court/Hon’ble Supreme Court in support of its legal challenge Hence, notice issued u/s 153C of the Act and the assessment framed is ab-intio-invalid. In the context, you are requested to please go through the contents of said legal submissions and your detailed report u/s 250(4) of the income Tax Act, to this office positively by 22/10/2018. The matter may please be given ‘top priority’ keeping in view the directions given in Central Action Plan 2018-19.” 5.3 The AO submitted his report vide letter F. No. DCIT/CC-IT/Noida/Remand Report/2018-19/223 dated 22.11.2018 which is reproduced herein under:

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5.4 The comments of the appellant were also called for on the report of the AO. The appellant submitted its comments vide written submission, which is reproduced as under: “Please refer to remand report dated 22.11.2018 of the Assessing Officer, our rejoinder is as under:

1. 1. Notice issued u/s 153C by the AO is without jurisdiction and barred by limitation.

2. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no satisfaction as required u/s 153C of the Act has been recorded by the assessing officer of the searched person.

3. That the notice issued u/s 153C is bad-in-law and without jurisdiction as no document(s) belonging to the assessee was found and seized during the course of search.

4. That the proceedings initiated u/s 153C and the consequent assessment order passed are liable to be quashed as no incriminating documents material has been found and there is no co-relation of year wise incriminating documents mentioned in the assessment order.

5. The additions made by the A. O. are beyond the scope of jurisdiction of section 153C of Income Tax Act, 1961. In the remand report, the A.O. has not rebutted the appellant’s submission. The A.O. has only .made vague remarks without bringing on record any incriminating material or evidence. In our submission we have referred to provisions of law and various judicial pronouncements including those of Hon’ble Apex Court. The assessing officer has not made any rebuttal. As a matter of fact, in the remand report the A.O. has realized that on legal issues the order passed by him is not sustainable and therefore as per para 8 of the remand report the A. O. has mentioned that Quote on the legal issues raised by the appellant your goodself

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 may take appropriate decision in accordance with law Unquote. In view of the above, the orders passed by the Assessing Officer are liable to be quashed on legal issues itself. In view of the above, it is submitted that the additions made by the A.O. are liable to be deleted.” 5.5 The appellant has submitted another detailed written submission dated 28.12.2018, which is common for A.Y. 2009-10 to. A.Y. 2014-15, on the satisfaction recorded by the AO, which is reproduced as under: “In 1st para of the satisfaction note, the assessing officer has made general observation with regard to business activities of the companies and there is nothing incriminating.

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 person has been found and seized during the course of search. The documents found must be of incriminating nature. The documents found must has a bearing on the determination of income of the year for which notice u/s I53C is being issued. Thus year wise analysis of the seized material is required to be made and stated in the satisfaction Note. In the present case of the assessee, the above requirements have not been fulfilled.

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 officer has also not made any addition on the basis of these documents. Similarly Page No. 23 to 33 of LP-2 are copy of Valuation report of Property bearing no. A-248, Defence Colony, Delhi in the name of Mrs. Ruchi Garg done on behalf of State Bank of India. These are also not even pertaining to the assessee leave alone the question of belonging to the assessee. There is nothing incriminating in these documents. The Assessing Officer has also not made any addition on the basis of these documents.

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Further, Id, A.R. of the appellant has submitted the detailed page wise analysis of the seized document found, as a result of search in the case of) M/s. Apple Group of Companies ranging from LP-1 to LP-22, which is part and parcel of the appeal record. From the page wise detailed analysis Id. A.R. of the appellant has submitted that, the seized document neither belong to the appellant company nor it is incriminating in nature. Thus, the twin imperative conditions as stipulated under provision of section u/s 153C of the Act are not satisfied in the present facts of the case. 5.6 The undersigned has carefully gone through the assessment order, written submission, remand report by Assessing Officer and rejoinder filed as well as verbal arguments of the Ld. A.R. For the sake of brevity satisfaction note recorded by the A,0, is scanned and reproduced here-in-under:

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5.7 Detailed perusal and scanning of the satisfaction note recorded by the AO reveals the following facts: i. AO has not mentioned the assessment years for which, it belongs to. There appears to be only one satisfaction note recorded by AO in relation to appellant company. Thus it is presumed that, satisfaction note is common for all the A.Y. 2009-10 to A.Y. 2014-15 (6 Years). ii. AO has not mentioned the specific Seized documents, which belongs to the appellant company. Thus, no satisfaction is recorded by the AO of searched person to establish the fact that specific seized document indeed belongs to the appellant company. iii. AO has mentioned in para 4 of the satisfaction note LP-21, LP-22 and LP-1 to LP-18. Further, AO has noted seized document page 23 to 33 of LP-2 in para -5 of the satisfaction note. AO has also recorded pages 8 & 9 of IP-3 in para 5.1 of the satisfaction note. However, AO has not recorded the-finding that this seized document indeed belongs to the appellant company and is incriminating in nature. Perusal of these documents reveals that neither they belong to the appellant company nor they are in incriminating nature. AO has not made any addition on the basis of these seized documents. Ld. A.R. of the appellant vide his submission dated 28.12.2018, which is .reproduced in 18

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 para 5.5 of this order, has analyzed each seized document and correctly concluded that neither they belong to appellant nor they are incriminating in nature. iv. Further, AO has not recorded the finding in the satisfaction note that any specific seized documents have the bearing on the determination of total income or any seized document is incriminating in nature. It is observed from the assessment orders framed by the AO that additions were made on account of share capital/share premium/unsecured loans, disallowance of interest and enhancement of gross profit or unexplained foreign remittances. However, AO has not discussed or mentioned any incriminating seized document, which is found and seized, as a result of search and belonging to the appellant company for making such additions in the assessment orders. It is evident from the assessment order that all the additions made by AO are not based on any seized incriminating document. On the other hand Id. A.R. of the appellant has submitted pagewise detailed analysis of LP-1 to LP-22, which is part of appeal proceedings, to demonstrate that twin imperative conditions of provisions of section 153C of the Act i.e. i. Satisfaction of AO of searched person that seized document indeed belongs to the-person whose case is covered u/s 153C of the Act, and ii. The seized document is having its bearing on the determination of - acme meaning thereby that seized documents are incriminating in nature, isnot fulfilled in the present facts of the case. In fact, there does not exist any incriminating document as a result of search which ‘belong to’ the appellant company. The investments reflected in the balance sheet of M/s. Apple Commodities Ltd. cannot be taken as incriminating because these are the part of its regular books of account and already disclosed by the investing company as well as M/s. Apple Commodities Ltd in the return of income. All additions made by the Assessing

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Officer are either from balance sheet or from profit A loss account, for which, no incriminating document was found and seized during search action. Hence, it is concluded that there exist no incriminating seized material for these relevant assessment year to justify issue of notice u/s 153C of the Act. The AO has not made any addition on the basis of any incriminating document found and also, additions made by AO does not co-relate with satisfaction noted by him. In absence of incriminating seized material relating to assessment year under consideration, action u/s 153C of the Act cannot be treated as valid in the eye of law. 5.8 The proceedings u/s 153C of the Act are very specific and clearly explained in the Act. For the sake of clarity, relevant previsions of Act is 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,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, 69belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates 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]:]” 20

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A plain reading of provision u/s 153C makes it abundantly clear that some imperative condition need to be satisfied by the AO, prior to the issue notice u/s 153C of the Act. This pre-condition includes: i) Existence of undisclosed/unexplained asset or incriminating seized documents against the appellant, as a result of search. ii) Recording of satisfaction by the AO of the person searched that, the undisclosed assets or incriminating document found as a result of search should "belongs to" the appellant, for relevant assessment year. iii) Proper satisfaction is to be recorded by the AO for the relevant assessment year for issuance of notice u/s 153C. All the above three conditions are to be satisfied cumulatively and simultaneously as per provisions of section 153C of the Act. Non satisfaction of any of the pre- conditions mentioned here in above, would result in notice u/s 153C of the Act legally unsustainable or invalid, In the present facts of the case AO has failed to demonstrate that, seized document belongs, to the appellant company and no seized documents were found as a result of search and have bearing on the determination of total income of the appellant company. Hence, imperative jurisdictional condition for issue of notice 153C of the Act is not satisfied. 5.9 Hon'ble Supreme Court in the case of PCIT-3, Pune Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) has held that the nexus between issue of notice u/s 153C and the incriminating material found as a result of search must exist. Hon'ble Supreme Court in para 13 of the order has observed that one of the jurisdictional conditions precedent to the issue of a notice u/s 153C of the Act is that “money, bullion, jewellery or other valuable article or thing” or any “books of account or document must be seized or requisitioned for the relevant assessment year for issue of notice u/s 153C of the Act.” The observation of the Supreme Court in para 18 of the order mentioned here in above is reproduced below: 21

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“The ITAT permitted this additional ground by giving a reason that it jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.” Thus, facts of the instant case are squarely covered by the ratio of judgment mentioned here-in-above. 5.10 Hon'ble Delhi High Court in para 31 has held in the case of Index Security Pvt. Ltd [86 taxmann.com 84 (Del)] as follows: “As regards the section jurisdictional requirement viz, that the seized documents must be incriminating and must relate to the A.Ys. whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Tax-Ill, Pune Vs.

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Sinhgad Technical Education Society (Supra) settles the issue and holds this to be an essential requirement. The decision of this Court in CIT-7 Vs RRJ Securities (2016) 380ITR 612 (Del) and ARN Infrastructure India Ltd. Vs A CIT [2017] 394ITR 569 (Del) also held that in order to justify the assumption of jurisdiction under section 153Cof the Act the documents seized must be incriminating and must relate to each of the A Fs whose assessments are sought to be reopened." Thus, by now, it is a settled law that notices u/s 153C of the Act is ab-initio-invalid in absence of incriminating seized material. From the plain reading of language of section 153C of the Act and various judicial pronouncement cited herein above, it is abundantly clear that in order to reopen the assessment of other person u/s 153C of the Act for the assessment year earlier to the year of search, direct correlation must exist between existence of incriminating material and relevant assessment years. In the instance case, admittedly, additions are not based on any incriminating document found, as a result of search. Further, AO has not recorded the satisfaction for these relevant assessment years, as envisaged u/s 153C of the Act. In fact, no assessment year is mentioned in the satisfaction note recorded by the AO. 5.11 In view of the detailed discussion mentioned here in above end respectfully following the judgement of the Supreme Court in the case of Sinhgad Technical Educational Society, it is concluded that notice u/s 153C issued by the AO need to be treated as ab-initio invalid and legally not sustainable, therefore, assessment framed on the basis of legally unsustainable notice is hereby quashed and annulled. Thus, these legal grounds of appeal s i.e. for A.Y. 2009-10 to A.Y. 2014-15 are decided in favour of the appellant.”

6. It could be observed from the above, it is the finding of the Ld.CIT(A) that there is no seized materials impounded in the course

I.T.A.Nos.2241 to 2244/Del/2019 & CO Nos.124 to 127/Del/2019 of search belong to the assessee. After analyzing the satisfaction note of the DCIT (Central Circle) the Ld.CIT(A) held that the three conditions enumerated in Section 153C of the Act are not satisfied cumulatively and simultaneously. It is the finding of the Ld.CIT(A) that in the case of the assessee admittedly additions are not based on any incriminating document found as a result of search and AO has not recorded the satisfaction for the relevant assessment years as envisaged u/s 153C of the Act. It is also the observation of the Ld.CIT(A) that in fact no assessment year is mentioned in the satisfaction note recorded by the AO and, therefore, conditions stipulated in Section 153C have not been satisfied cumulatively and simultaneously. Non-satisfaction of any of the pre-conditions mentioned in the provision of Section 153C of the Act would result in notice under 153C legally unsustainable or invalid. The ratio of the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Sinhagad Technical Education Society (supra) and the decision of the Hon’ble Delhi High Court in the case of Index Security Pvt. Ltd. (86 taxmann.com 84) was rightly applied to the facts of the assessee’s case. Thus, we see no infirmity in the orders passed by the Ld.CIT(A). The same is sustained.

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Order pronounced in the open court on 29/12/2023