KBL Layout Vs ACIT (ITAT Bangalore)
ITAT Bangalore held that in case where AO of the searched person and the other person is the same, there can be one satisfaction note prepared by AO. Preparation of one satisfaction note will satisfy the requirement of section 153C of the Income Tax Act.
Facts- The assessee M/s KBL Layout belongs to Sri C R Lakshminarayanan and K B Lakshman group of cases. There was a search action u/s 132 of Income Tax Act conducted in the case of Sri C R Lakshminarayanan and Sri K B Lakshman group on 06.10,2009. In response to Notice u/s 153C, the assessee filed its return of income on 02.09.2011. However, the same was revised on 23.09.2011.
CIT(A) observed that it is relevant to note in the return of income filed on 23.09.2011, the appellant has himself admitted Rs.1,11,22,908/- (including Rs.75 lakhs additional income offered) as his income but claimed additional expenses of Rs.57,81,981/-. He observed that these additional expenses claimed of Rs. 57,81,9817- are clearly not allowable. These expenses or provisions cannot be allowed against income pertaining to 2006-07 and therefore are disallowed. Accordingly, CIT(A) has enhanced the income by Rs.57,81,981/- and total income determined at Rs.1,11,22,908/-. Being aggrieved, the present appeal is filed.
Conclusion- Failure by the Assessing Officer of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under Section 153C against the other person.
In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the Assessing Officer of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal originally disposed by this Tribunal vide order dated 25.7.2016. The assessee went in appeal before the High Court by raising following question of law:
1. Whether the Tribunal was justified in law in not cancelling the assessment when it has recorded a finding that records were not produced and consequently an adverse inference ought to have been drawn and cancelled the assessment on the facts and circumstances of the case?
2. Whether the assessment under section 153C of the Act, is valid when proper satisfaction is not recorded by the Assessing Officer in the manner contemplated in law before initiating proceedings under section 153C of the Act on the facts and circumstances of the case?
3. Whether the Tribunal erred in law in keeping the issues of merit open which is without jurisdiction on the facts and circumstances of the case?
4. Whether the Tribunal has power to keep issues open which it cannot subsequently adjudicate as it has become functus officio and consequently the appellant will become remedy less in future and hence the order passed by the Tribunal is bad in law on the facts and circumstances of the case?
3. The Hon’ble High Court vide judgement 23.8.2022 remitted the issue to the file of Tribunal by observing as follows:
“7. Shri A. Shankar submitted that the ITAT has remitted the matter to the Commissioner of Income Tax (Appeals) to record findings with regard to the validity of the assessment under section 153C of the Act to the extent of enhancement of assessment made by the Commissioner of Income Tax (Appeals) and kept other issues open. He contended that the ITAT has erred in passing such order because other issues could not have been kept open. Once the order is passed by the ITAT, the same attains finality and consequently, the order of Commissioner of Income Tax (Appeals) excluding the validity under section 153C of the Act, becomes final. Accordingly, he prayed that in the facts and circumstances of this case, this Court may consider setting aside the ITAT’s order and to remit entire matter to the ITAT for fresh consideration.
8. Sri E.I. Sanmathi for the Revenue, does not dispute the position of law and has no objection for remitting the entire matter to the ITAT.
9. In view of the above, we pass the following order:
ORDER
i. The appeal is allowed.
ii. The order dated 25.7.2016 in ITA No.709/Bang/2013 (Assessment year: 2006-07) by ITAT, Bengaluru, is set aside;
iii. The matter is remitted to the ITAT for re-consideration of the entire appeal on its merits;
iv. In the circumstances, the substantial question of law recorded hereinabove do not call for any answer and accordingly they are not answered;
No costs.”
2.1 Hence, this appeal is listed for fresh hearing before us. Since the earlier order of the Tribunal was set aside for reconsideration of the entire appeal on merits, we consider all the grounds raised by the assessee before this Tribunal on earlier occasion as below:
1. The order of the authorities below in so far as it is against the Appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The appellant denies itself to be assessed on a sum of Rs. 1,11,22,908/-as against a sum of Rs.16,20,956/- as declared by the appellant under the facts and circumstances of the case.
3. Without prejudice, the income ought to have been estimated at 5% or in extreme case 8% of the total turnover of Rs.3,78,54,839/- on the facts of the case.
4. Without prejudice, the income ought to have been estimated at 5% or in extreme case 8% of Rs.3,27,14,279/- on the facts of the case.
5. The CIT-A erred in enhancing the assessment by making additions of Rs.57,81,981/- on the facts of the case.
6. The enhancement made by the commissioner is on wrong appreciation of facts and requires to be made Nil under the facts of the case.
7. The authorities below failed to appreciate that the conditions mentioned under section 132 of the Act did not exist and consequently the search itself is not valid on the facts and circumstances of the case.
8. The authorities below erred and ought to have satisfied themselves that the mandatory conditions for action under section 132 exist and then only issued notices for assessments on the facts and circumstances of the case. Thus the authorities below ought to have examined the validity of search proceedings for assumption of jurisdiction under Chapter XIV of the Act.
9. The orders of the authorities below are bad in law as the mandatory conditions to invoke the jurisdiction under section 153C of the Act did not exist, or having not been complied with and consequently the orders of the authorities below are bad in law for want of requisite jurisdiction.
10. The order passed by the CIT-(A) is on a wrong appreciation of facts and is against the principles of natural justice under the facts and circumstances of the case.
11. The appellant denies itself liable to be levied to interest under section 234A, 234B and 234C of the Act and further the computation of interest was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with section 234A,234B and 234C of the Act.
12. Without prejudice, the interest levied under sections 234 A,B & C ought to have been waived on the facts of the case.
13. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
14. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity.
2.2 The assessee has raised following additional grounds:
1. “The authorities below failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153C of the Act on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of UOI vs. Ajil Jain, reported in 260 ITR 80.
2. The assessment is bad in law as reasons for issue of notice under section 153C of the Act have not been given and the appellant has reasons to believe that the same has not been recorded and consequently the assessment is bad in law. The appellant submits that mandatory conditions to assume jurisdiction is to
3. record reasons and in the absence of the same the assessment is bad in law and liable to be cancelled.
4. The order of assessment is further bad in law as the mandatory condition of recording of satisfaction is not complied with or having complied, copy of satisfaction note has not been provided to the appellant and thus the assessment has no legs to stand the test of law.
5. The assessment is further bad in law as the approval from the Joint Commissioner was not obtained or having obtained the copy of the same has not been provided to the appellant under the facts and circumstances of the case.”
3. Facts of the case are that the assessee M/s KBL Layout belongs to Sri C R Lakshminarayanan and K B Lakshman group of cases. There was a search action u/s 132 of Income Tax Act conducted in the case of Sri C R Lakshminarayanan and Sri K B Lakshman group on 06.10,2009. In response to Notice u/s 153C, the assessee filed its return of income on 02.09.2011 declaring total income of Rs.16,20,956/-. However, the same was revised on 23.09.2011 at a total income of Rs.53,40,927/- with the observations as under:-
PAN AAAAK6089J
AY 2006-eturn of income07
Sub: Revised R
3.1 The assessee – AOP had admitted an additional income of Rs.75,00,000 before Asst. DIT (Inv) vide letter dated 8.1.2010. Subsequently, assessee-AOP received a Notice dated 31.5.2011 from Mysore Urban Development Authority requiring completion of pending works in SY No.84/1, 85, 86/1-2, and 130, Avanahalli Village, Mysore Taluk. In view of this, the assessee-AOP is making revised return by declaring additional income of Rs.75,00,000/-subject to following adjustments:-
