Case Law Details
Shri Anil Agarwal Vs ACIT (ITAT Indore)
It has been held that even when the Assessing Officer of the person searched and the other person is common, the Assessing Officer of the person searched has to necessarily form a satisfaction that the item referred to in section 153C belongs or belong to a person other than the person searched. Apparently, in the present appeals, no such satisfaction by the Assessing Officer has been found recorded. Before us, the ld. DRs vehemently argued that the appraisal report is prepared by ADIT who is an Assessing Officer and if in the appraisal report, a recording regarding a particular document belonging to a third person other than person searched is given then it should tantamount to recording of the satisfaction by the person searched. The ld. DRs have not controverted the submission of the ld. AR of the assessee that in the case of the persons searched, no satisfaction as regard to the belongingness of any document to the present assessees was recorded. In our considered view, any recording in an appraisal report cannot substitute the legal requirement of recording of satisfaction in the case of persons searched. Such a view was also held by Indore Bench in the case of ACIT vs. Chirchind Hydro Ltd. (2011) 17 ITJ 197 (Indore). We have also taken note of a Circular No.24/2015 dated 31.12.2015, issued by the CBDT, in which, the Board, following the decision of Hon’ble Supreme Court in case of M/s. Calcutta Knitwear’s (Civil Appeal No. 3958 of 2014 dated 12.03.2014), has directed that where the satisfaction by the Assessing Officer of the person searched and other person is not found recorded, the Department should not press that matter in appeal. Thus, keeping in view rival submissions in light of judicial pronouncements and particularly the decision of Hon’ble Jurisdictional High Court of M.P. CIT vs. Mechmen [2015] 60 taxmann.com 484 (MP) and CBDT Circular (supra), assessments in these cases of for the assessment year 1999-2000, 2002-03 and 2004-05 in the case of the present assessees are held as illegal and void-ab-initio.
FULL TEXT OF THE ITAT JUDGMENT
1. The above appeals are filed by the assessee against the common order of ld. Commissioner of Income tax (Appeals)-I, dtd. 22.05.2015 for the assessment year 1999-2000, 2002-03 and 2004-05.
2. The assessee has taken the ground No. 1 and 2 which read as under :- Ground No. 1 and 2 states, that on the facts and in the circumstances of the case and in law, the initiation of proceedings u/s. 153C & the assessment in pursuance to such notice are bad in law and , therefore, the assessment be kindly quashed. Ground no. 2 states that on the facts and in the circumstances of the case and in law, the finding of ld. CIT (A) in para4.5 of his order that the appellant has not requested for satisfaction note and there is no requirement of recording of satisfaction are unlawful & unjustified and, therefore, such finding be quashed and the assessment made be cancelled. These ground are common for the assessment year 1999-2000, 2002-03 and 2004-05.
- 3. Briefly, stated the facts are that the assessee is HUF of which Karta is Shri Anil Agarwal. The assessee HUF is earning income from trading in shares and interest. A search and seizure operation under section 132(1) of the Act was conducted on 02.11.2004 at the residence of Shri Anil Agarwal[individual] and his wife Smt. Tripti Agarwal. During the course of search, certain documents, gift deeds, belonging to the assessee HUF, were found and seized. Therefore, the AO issued notice under section 153C of the Act dtd. 21.04.2005 to the assessee requiring the assessee to furnish its return of income under section 153A r.w.s. 153C of the Act. In response to which the assessee furnish return of income for the assessment year 1999-00 on 28.09.2006 and for other Assessment Years on 07.05.2005. The assessment was made u/s.153C r.w.s.143(3) of the Act assessing income at Rs. 1,71,000/- for the assessment year 1999-2000, Rs. 1,78,720/- for the assessment year 2002-03 and Rs. 2,70,770/- for the assessment year 2004-05 respectively. The assessee carried matter before the Ld. CIT (A), wherein the assessee requested the ld. CIT (A) to provide copy of satisfaction note recorded by the AO for assessing the assessee. Ld. CIT (A) has called a remand report from the AO asking to provide satisfaction note if any. However, the AO submitted that case is very old one, however it was submitted that when there is the AO is same Assessing Officer for searched person then there is no need to record satisfaction note. Ld. CIT (A) held that documents being gift deed belonging to the assessee HUF were found and seized during search from the residence of Karat of HUF, hence, provisions of section 153C of the Act are attracted in this case. Ld. CIT (A) was also of view that same AO has also made assessment in the case of Shri Anil Agarwal (searched person) and in the case of the assessee HUF. Hence, it cannot be said that the AO has not recorded satisfaction note before issuing notice under section 153C of the Act. The AO having jurisdiction over the searched person Shri Anil Agarwal was also having jurisdiction over the appellant HUF covered u/s.153C of the Act and, therefore, there was no requirement of handing over documents by one Assessing Officer to another Assessing Officer and, Thus, there was no requirement of recording of satisfaction. Ld. CIT (A) also supported his view by placing reliance in the case of CIT vs. Panchajanayam Management Agencies Services [2011] 333 ITR 281 (Kerala), CIT vs. T.M. Kuriachan [2013] 32 taxmann.com 165(Ker.), TYS Securities & Finance (P) Ltd. [2014] 42 taxmann.com 441 (All), Bharat Ginning and Pressing Factory vs. ITO [2013] 32 taxmann.com 322 (Ahd- Trib). Accordingly Ld. CIT (A) upheld the validity of initiation of proceedings u/s.153C of the Act.
4. Being, aggrieved the assessee filed this appeal before the tribunal. The learned Counsel for the assessee submitted that section 153C of Income Tax Act,1961 prescribed a mandatory requirement of recording of satisfaction by the AO of searched person about the belongingness of seized material by other person. The AO of the searched person is also required to hand over such searched material to the AO of the other person who then proceed for making the assessment of other person. In the instant case, the AO of the searched person has not recorded the satisfaction in the assessment of Shri Anil Agarwal(individual). The assessee has raised this issue before Ld. CIT (A) but ld. CIT (A) has taken adverse view by holding that the AO had jurisdiction over Shri Anil Agarwal (individual ) and the appellant Anil Agarwal (HUF), there was no necessity to transfer the seized documents from one officer to another. Hence, the AO was fully empowered to initiate proceedings u/s.153C of the Act against HUF i.e. other person and no separate satisfaction was required to be recorded in such case. The learned Counsel for the assessee, referred the CBDT Circular No. 24/2015 dated 31st December 2015 regarding Recording of satisfaction note under section 158BD/153C of the Act wherein in Para 4 it was mentioned ” The guidelines of the Hon’ble Supreme Court as referred 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 held by the courts.” The learned Counsel for the assessee, submitted that the assessment proceedings carried under section153C of the Income-Tax Act, 1961 were a without recording any satisfaction by the AO. The learned Counsel contended that in the assessees’ case no satisfaction was recorded by the AO of the person searched. The assessee is also agitating that even in its own case no satisfaction was recorded as regard to its belongingness to certain incriminating documents seized from the premises of Shri Anil Agarwal. The learned Counsel for the assessee, further relied in the case of CIT vs. Mechmen [2015] 60 taxmann.com 484 (MP) wherein the HonGble High Court held as “In the present case, the concurrent finding of fact recorded by the Appellate Forum 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 Forum have further found that no addition or even observation 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, the appeal must fail.” The assessees further agitated that even the satisfaction must have been formed as regard to the undisclosed income of the assessee which has not been so formed. The learned Counsel further submitted that in the instant case neither satisfaction has been recorded by the AO in the assessment of searched person nor has any copy of recording of satisfaction note provided to the appellant. Therefore, proceedings initiated on the appellant u/s.153C are null and void.
5. On the other hand, the ld. CIT (D.R.) defended the orders of the ld. CIT(A) submitting that ld. CIT(A) has discussed the issue at para 4.5 relying on certain judicial pronouncements and reached to the conclusion that the Assessing Officer has validly made assessment u/s 153C. Therefore, orders of the ld. CIT (A) on this issue may be upheld.
6. We have heard the rival submissions and have perused the material available on record. We find that the Assessing Officer has issued notices u/s 153C of the Act on the basis of search u/s 132(1) which was carried out in the case of Shri Anil Agarwal Karta of HUF. The Assessing Officer issued notices u/s 153C and reopened assessments for the years under consideration. The provisions of section 1 53C can be invoked only after recording a satisfaction in the case of persons searched qua the assets or books or documents seized during the course of search belong to some other person. In the instant case, the Assessing Officer of other concerned assessees has not recorded any satisfaction qua the belongingness of the seized documents with the assessee and there was no satisfaction recorded, therefore, the assessments are bad in law. The similar issue had come up before the Hon’ble jurisdictional High Court of Madhya Pradesh in the case of CIT vs. Mechmen [2015] 60 taxmann.com484 (MP), wherein the Hon’ble High Court discussing the various judgments has held that the AO is obliged to record satisfaction (in case of the searched person) that the assets or documents do not belong to the searched person and these in-fact belong to some other person other than the searched person. This is sine qua non despite the fact that the AO of searched and non-searched person is same. Thereafter, he has to handover the material to the AO of non searched person having jurisdiction over him (may be the same AO). After receipt of the material and due verification, the AO of non searched person has to issue notice u/s 153C of the Act and to proceed in the matter. The relevant observations of Hon’ble M.P. High Court are as under:
“14. 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.
15. 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.
16. 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.
17. We are not inclined to accept the argument of the Department that the purpose underlying the two provisions is different. We also find that even the procedure is not different. The subject matter of the action would differ in the context of the machinery provision invoked, in the given case. That, however, cannot be the basis to extricate the Assessing Officer, who resorts to power under Section 153C of handing over the items referred to in Section 153C to the Assessing Officer having jurisdiction, of his duty to be satisfied about the jurisdictional fact that the items belongs or belong to a person other than the person referred to in Section 153A.
18. 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 pro priovigore. 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. After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him.”
7. In the above decision, it has been held that even when the Assessing Officer of the person searched and the other person is common, the Assessing Officer of the person searched has to necessarily form a satisfaction that the item referred to in section 1 53C belongs or belong to a person other than the person searched. Apparently, in the present appeals, no such satisfaction by the Assessing Officer has been found recorded. Before us, the ld. DRs vehemently argued that the appraisal report is prepared by ADIT who is an Assessing Officer and if in the appraisal report, a recording regarding a particular document belonging to a third person other than person searched is given then it should tantamount to recording of the satisfaction by the person searched. The ld. DRs have not controverted the submission of the ld. AR of the assessee that in the case of the persons searched, no satisfaction as regard to the belongingness of any document to the present assessees was recorded. In our considered view, any recording in an appraisal report cannot substitute the legal requirement of recording of satisfaction in the case of persons searched. Such a view was also held by Indore Bench in the case of ACIT vs. Chirchind Hydro Ltd. (2011) 17 ITJ 197 (Indore). We have also taken note of a Circular No.24/2015 dated 31.12.2015, issued by the CBDT, in which, the Board, following the decision of Hon’ble Supreme Court in case of M/s. Calcutta Knitwear’s (Civil Appeal No. 3958 of 2014 dated 12.03.2014), has directed that where the satisfaction by the Assessing Officer of the person searched and other person is not found recorded, the Department should not press that matter in appeal. Thus, keeping in view rival submissions in light of judicial pronouncements and particularly the decision of Hon’ble Jurisdictional High Court of M.P. CIT vs. Mechmen [2015] 60 taxmann.com 484 (MP) and CBDT Circular (supra), assessments in these cases of for the assessment year 1999-2000, 2002-03 and 2004-05 in the case of the present assessees are held as illegal and void-ab-initio. Accordingly, the grounds raised by the assessees relating to applicability of section 153C are allowed.
8. In the result, the appeal of the assessee is allowed for the assessment year 1999-2000, 2002-03 and 2004-05. Since as we have allowed ground of validity of notice under section153C of the Act, hence, other grounds of appeal does not require any adjudication and to have been allowed deemed.
9. This order has been pronounced in the open court on 16.11 .2016.
