Case Law Details
Shri Sushil Golecha Vs ACIT (ITAT Indore)
Conclusion: Initiation of assessment proceedings under section 153C in case of other person, i.e., assessee without issuing proper satisfaction note by AO of the searched person in favour of AO having jurisdiction of such other person, the proceedings initiated u/s 153C was void-ab-initio.
Held:
Due to search conducted in case of certain group, AO initiated proceedings under section 153C in case of other person, i.e., assessee and made addition to the total income. It was held the case of CIT Vs Calcutta Knitwears made amply clear that satisfaction note has to be prepared by the Assessing Officer of the searched person setting out properly the details of various incriminating material/document belonging to the “other person” at the time of handing over such incriminating material /documents related to the other person to the Assessing Officer having the jurisdiction of such “other person”. If this precondition of issuing proper satisfaction note by AO of the searched person in favour of AO having jurisdiction of such other person is not complied then the proceedings initiated u/s 153C are void ab initio. Respectfully following the same, it was concluded that as the revenue authorities had failed to place on record the satisfaction note issued by AO of searched person in favour of AO having jurisdiction of the other person i.e. assessee in this case, the proceedings initiated u/s 153C in the case of assessee needed to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
The above captioned two appeals are filed at the instance of assessee pertaining to Assessment Year 2008-09 and 2009-10 and are directed against the orders of Ld. Commissioner of Income Tax (Appeals) (in short ‘Ld.CIT(A)’], Ujjain dated 27.04.2015 which is arising out of the order u/s 143(3) r.w.s. 153C of the Income Tax Act 1961(In short the ‘Act’) dated 14.3.2014 framed by ACIT (1)1, Ujjain.
2. The assessee has raised following grounds of appeal;
Assessment Year 2008-09
“1. That the learned CIT(A) erred in dismissing the ground raised by the appellant regarding validity of initiation of proceedings u/s 153C.
That on the facts and in the circumstances of the case, the initiation of proceedings u/s 153C in the case of the appellant being illegal and bad in law, the assessment proceedings is liable to be quashed.
2. That the learned CIUT(A) erred in maintaining the addition of Rs.12,50,000/- made u/s 69D of IT Act by totally ignoring the facts of the case and case laws cited on this issue. The addition so maintained being illegal and wrong, the same, therefore, requires to be deleted.”
Assessment Year 2009-10
“1. That the learned CIT(A) erred in dismissing the ground raised by the appellant regarding validity of initiation of proceedings u/s 153
THAT the initiation u/s 153C is invalid:
(a) Because it is belted as the initiation was after 3 years and 3 months from the date of search.
(b) Initiation is much late by about 14 months from the date of assessment of searched person.
(c ) Satisfaction note recorded by Ld.AO is merely based on the statement of accountant recorded much after the date of search.
(d) Initiation is based on material, which did not belong to the appellant.
(e) A.O is not clear as to on the basis of which material the proceedings were being initiated that is material seized from Nilesh Ajmera from Phoenix Devcon (P) Ltd.
(f) Any other basis that may be raised at the time of hearing.
That on the facts and in the circumstances of the case, the initiation of proceedings u/s 153C in the case of the appellant being illegal and bad in law, the assessment proceedings is liable to be quashed.
2. That the learned CIUT(A) erred in maintaining the addition of Rs.48,00,000/- made by Ld.A.Ou/s 69D of IT Act by totally ignoring the facts of the case and case laws cited on this issue. The addition so maintained being illegal and wrong, the same, therefore, requires to be deleted.”
Additional Grounds as per revised grounds of appeal:
3. That the approval given by the Addl. CIT, Range-I, Ujjain to Ld.A.O is without application of mind, hence invalid.
4. That the appellant reserves its rights to amend, alter or raise any other additional grounds of appeal before or during the course of appellate proceedings”
3. As the issues raised in these appeals are common these were heard together and being disposed off by this common order for the sake of convenience and brevity.
4. We will take up the assessee’s first ground challenging the validity of initiation of proceedings u/s 153 C of the Act.
5. At the outset Ld. Counsel for the assessee submitted that for both the two years in appeal i.e. Assessment Year 2008-09 and 2009-10 the precondition for initiating the proceedings u/s 153 C of the Act is that the Learned Assessing Officer (In short ‘Ld.A.O’) of the searched person should record a satisfaction that incriminating material relating to other person (other than the searched person) has been found during the course of search but for both the years no such satisfaction has been recorded by the Ld. A.O of the searched person and therefore in view of judgment of Hon’ble High Court of Delhi in the case of Pepsico India Holding P. Ltd V. ACIT 50 Taxmann.com 299 (2014) Delhi, the proceedings initiated u/s 153C of the Act are void ab initio. Ld. Counsel for the assessee also placed reliance on the judgment of Hon’ble Apex Court in the case of CIT Vs Calcutta Knitwears (2014) 43 taxmann.com 446 (SC) and Circular No.24/2015 issued by Central Board of Direct Taxes dated 31.12.2015.
6. Per contra Ld. Departmental Representative though supported the finding of Ld.CIT(A) but failed to controvert the submissions of the Ld. Counsel for the assessee accepting that there is no satisfaction note of the Ld.A.O of searched person on record.
7. We have heard rival contentions and perused the records placed before us and carefully gone through various judgments referred and relied by the Ld. Counsel for the assessee. Sole legal issue for both the years under appeal raised by the assessee is against the validity of the proceedings initiated u/s 153C of the Act.
8. Brief facts as culled out from the records are that a search and seizure operations were carried out at various premises of Satellite Group and other associate concerns on 19.11.2009. Various documents were seized which allegedly also included documents belonging to the assessee. After recording necessary satisfaction by the Ld. A.O the assessment proceedings u/s 153 C of the Act were initiated. Return of income for respective Assessment Years were filed and the assessments u/s 143(3) r.w.s. 153C of the Act were completed on 14.3.14 after making various additions.
9. Issues raised before us by the assessee is that the pre condition for initiating the proceedings u/s 153 C of the Act is that proper satisfaction has to be made by the Assessing Officer of the searched person. Perusal of the record shows that the assessee has been requesting time and again for supply of the satisfaction note recorded by the Assessing Officer of the searched person. The extract of one of the request letter dated 31.8.2015 filed before the Ld. Assessing Officer, Ward 2(2), Ujjain is mentioned below:-
From:
Shri Sushil Golecha,
Badnagar (Dist. Juuan)
PAN: AHTPG5128M
Date: 31.08.15
To,
The Income Tax Officer,
Ward 2(2)
Ujjain
Respected Sir,
Sub: Supply of copy of satisfaction note recorded by assessing officer of searched person for issue of notice u/s 153C and copy of relevant documents mentioned in reasons recorded.
Please refer to above subject. Assessment of Shri Sushil Kumar Golecha, Badnagar, Dist. Ujjain (PAN: AHTPG5128M) was completed u/s 143(3)/153C for the Assessment Year 2008-09 & 2009-10 raised huge demand.
These two assessments are pending before Hon’ble I.T.A.T.-Indore. One of the grounds before I.T.A.T. is that initiation of proceeding u/s 153C is invalid. To substantiate this ground, it is required to produce before Hon’ble I.T.A.T., copy of satisfaction recorded of searched person, i.e. Shri Nilesh Ajmera. That copy is in your record. You are therefore humbly requested to please supply the above copy at the earliest for being produced before I.T.A.T.
It is also requested that your honor have relied on various papers for making the assessment. Following papers ujsed in assessment are not available with the applicant:
Page No.18 of LPS-502, LPA-A/233. Page No.75 of BS-8
It is requested that they should also be made available so that case can be properly defended before Hon’ble I.T.A.T. They may be supplied to the undersigned.
Thanking you,
Yours faithfully,
Sd/-
(Ajay Jain)
Chartered Accountant
For Shri Sushil Golecha
10. During the course of hearing before us sufficient opportunity was provided to the Ld. Departmental Representative to produce the satisfaction note recorded by the Assessing Officer of the searched person i.e. Nilesh Ajmera, Director of M/s. Phoenix Devcons Pvt. Ltd which was the part of Satellite Group. However Ld. Departmental Representative is fair enough to accept that after thorough examination of records no such satisfaction note was found to be recorded by the Assessing Officer of the searched person i.e. Nilesh Ajmera wherein information relating to the alleged incriminating material relating to the assessee i.e. “other person” has been found. In this situation where the basic condition before initiating the proceedings u/s 153C of the Act are initiated in the case of other person has not been complied to by way of not recording a proper satisfaction note by the Assessing Officer of the searched person then whether such proceedings initiated u/s 153C of the Act are valid or not needs to be examined in the light of judicial pronouncements.
11. We find that Hon’ble High Court of Delhi in the case of Pepsico India Holding P. Ltd V. ACIT(supra) dealing with the similar issue set out the following principles which needs to be followed so as to comply the provision of Section 153C of the Act:-
“13. Having set out the position in law in the decision of this Court in the case of Pepsi Foods Pvt. Ltd. (supra), it must be seen as to whether the Assessing Officer of the searched person (the Jaipuria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners.
14. First of all we may point out, once again, that it is nobody”s case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is that “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 …. ” In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material.(which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned.
15. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they “belong” to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise.
16. Thirdly, we would also like to make it clear that the assessing officers should not confuse the expression “belongs to” with the expressions “relates to” or “refers to”. A registered sale deed, for example, “belongs to” the purchaser of the property although it obviously “relates to” or “refers to the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it “belongs to”” the vendor just because his name is mentioned in the document. In the converse case if the vendor”s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy “belongs to” the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents _ copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement – can be said to “belong to” the petitioner.
17. In view of the foregoing discussion, we do not find that the ingredients of Section 153C of the said Act have been satisfied in this case. Consequently the notices dated 02.08.2013 issued under Section l53C of the said Act are quashed. Accordingly all proceedings pursuant thereto stand quashed.
18. The writ petitions are allowed as above. There shall be no orders as to costs.
19. All pending applications also stand disposed of”.
12. Subsequently on 31.12.2015 Central Board of Direct Taxes (CBDT) issued a Circular No.24/2015, in view of the judgment of Hon’ble Apex Court in the case of CIT Vs Calcutta Knitwears (supra) issued the following guidelines :-.
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.”
3. 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.
4. 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.
5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgement. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD /153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.
Sd/-
(Ramanjit Kaur Sethi)
DCIT (OSD) (ITJ), CBDT, New Delhi.
13. The above CBDT circular issued, following the guidelines of Hon’ble Apex Court in the case of CIT Vs Calcutta Knitwears makes amply clear that satisfaction note has to be prepared by the Assessing Officer of the searched person setting out properly the details of various incriminating material/document belonging to the “other person” at the time of handing over such incriminating material /documents related to the other person to the Assessing Officer having the jurisdiction of such “other person”. If this precondition of issuing proper satisfaction note by the Assessing Officer of the searched person in favour of the Assessing Officer having jurisdiction of such other person is not complied then the proceedings initiated u/s 153C of the Act are void ab initio. We therefore in the given facts and circumstances of the case and respectfully following the judgments of the Hon’ble courts referred above are of the considered view that as the revenue authorities have failed to place on record the satisfaction note issued by the Assessing Officer of the searched person in favour of the Assessing Officer having jurisdiction of the other person i.e. the assessee in this case, the proceedings initiated u/s 153C of the Act for Assessment Year 2008-09 and 2009-10 in the case of the assessee needs to be quashed. We accordingly allow this common legal issue in the favour of the assessee challenging the validity of initiation of assessment proceedings u/s 153C of the Act.
14. In the result Ground No.1 of the assessee for both the years are allowed.
15. As regards Ground No.2 for both the assessment years challenging the addition made u/s 69D of the Act in the assessment proceedings completed u/s 143(3) r.w.s. 153 C of the Act, in our considered view needs no adjudication as these grounds renders to be infructuous and merely academic in nature as we have already quashed the proceedings initiated u/s 153 C of the Act thereby quashing the impugned assessment order made u/s 153C of the Act.
16. In the result appeal of the assessee for both the Assessment Years are allowed.
17. In the result all the appeals of the assessee pertaining to Assessment Years 2008-09 & 2009-10 are allowed.
The order pronounced in the open Court on 18.12.2018.
