X

Assessment U/s. 153C liable to be quashed if No satisfaction recorded by AO

These are cross appeals by the assessee and the Revenue emanating out of the orders of learned CIT(Appeals)-III, Nagpur for assessment years 2008-09 and 2009-10 respectively. Since the issues are connected and the appeals were heard together

Zaidun Leeng Sdn Bhd Artefact Projects Ltd. (JV) Vs DCIT (ITAT Nagpur)

It is evident that recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdiction for the issue of notice u/s 153C even if the AO of the searched person and the assessee are same. It is abundantly clear from the records in the case of the searched person that there is no requisite satisfaction granting the AO jurisdiction for issuing notice to the assessee u/s 153C of the T. Act. No satisfaction note whatsoever is found in the case of the searched person, namely, M/s Artefact Projects Ltd. In absence of any satisfaction note in the case of M/s Artefact Projects Ltd. that any seized material belonging to the assessee has been found which is incriminating in nature which is to be handed over to the AO of the assessee, the jurisdiction assumed in this case is illegal and the same deserves to be quashed. Accordingly in the background of the aforesaid discussion and precedent, in our considered opinion, the assessee deserve to succeed on this account and the assessments are liable to be quashed on account of lack of validity of jurisdiction. Accordingly we set aside the orders of the learned CIT(Appeals) on this aspect of jurisdiction and quash the assessments by holding that requisite satisfaction was not recorded before issue of notice u/s 153C.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

These are cross appeals by the assessee and the Revenue emanating out of the orders of learned CIT(Appeals)-III, Nagpur for assessment years 2008-09 and 2009-10 respectively. Since the issues are connected and the appeals were heard together, these are being disposed of by this common order. Common grounds of appeal raised in assessee’s appeal read as under :

1. The notice issued under section 153 C of Income Tax Act, 1961 is illegal, invalid and bad in law. Thus consequent assessment framed thereupon is liable to be cancelled.

2. The learned CIT(Appeals) erred in holding that Assessing Officer has validly assumed jurisdiction under section 1 53C of Income Tax Act, 1961.

Common grounds of appeal raised in Revenue’s appeal read as under :

1) On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in ignoring the fact that Mls Ashoka Buildcon Ltd. had admitted unrecorded payments to the assessee Company, based on the evidences found during the course of search at their premises, and also disclosed this fact before the Hon’ble Settlement Commission, though a confirmation letter was issued subsequently to the effect that the payments noted in the seized diary do not refer to any payments made to M/s Artefact Projects Ltd., or its directors, and the name of ‘Artefact’ was used to identify the project to which the expenses The confirmation does not talk about the assessee Company, i.e. Zaidun Leeng SON BHO Artefacts Ltd. (JV). Therefore, the Assessing Officer had rightly initiated action under Section 1 53C and taken into cognizance, the evidences, and addition was made in the case of the assessee Company, being project consultant to “NH 6” and “Lebad-Jawara” projects of the work done by Mls Ashoka Buildcon Ltd.

2) On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in ignoring the fact that the seized-material contained entries of unrecorded payments to a concern referred to as “Arte” and “Artefact”, and the amounts were mentioned to be made under the heads “NH 6” and “Lebad-Jawara”, as the Assessing Officer had clearly brought out in his Order, that the assessee Company is the only concern with the name “Arte” or “Artefact”, with whom the Ashoka Group had dealings in respect to the “NH 6” and “Lebad-Jawara” projects. With such evidence found in the search of Mls Ashoka Buildcon Ltd., proving the transactions recorded therein, it was not necessary that the evidences regarding these transactions should also be found at the assessee Company’s premises, at the time of subsequent search at the assessee Company’s Group.

2. Since the facts are identical, we are adjudicating the issue with regard to facts and figures of assessment year 2008-09.

3. In this case there was search operation at the premises of M/s Artefact Projects Ltd. During the course of search certain documents were found. These were observed by the AO to be related to the assessee. Hence proceedings u/s 153C were initiated against the assessee. During the course of assessment the assessee objected as to the validity of notice u/s 1 53C. However, the AO rejected this contention holding that the notices were issued to the assessee on the basis of incriminating evidence found and seized during the course of search and seizure operation and only after recording proper satisfaction that proceeding u/s 1 53C was initiated. Thereafter on merits the AO made the additions by concluding as under :

“ In view of above facts and discussions, it is clear that the unrecorded payments mentioned in the diary are actually the receipts of the Artefact group. As mentioned before, the assessee JV was the independent consultant on the projects of NHAI which were undertaken by Ashoka Buildcon group, hence, the unrecorded receipts are to be added to the income of the assessee. As per the table given above, the assessee has received Rs.1,21,00,000/- during the year from Ashoka group and this is added to assessee’s income as its undisclosed income.”

For assessment year 2009-10, similar order was passed for addition of Rs.30 lakhs.

3. Upon assessee’s appeal learned CIT(Appeals) observed that he had examined the case records as well as the satisfaction note. Learned CIT(Appeals) further observed as under :

“The case records as well as the Satisfaction Note recorded by the A.O. for issuing the notice u/s 153C have been called and examined. The Satisfaction Note is recorded on 16/2/2012 for issuing the notice u/s 153C of LT. Act 1961 in the case of assessee. In the Satisfaction Note, the A.O. has observed that document identified as Annexure B-1/6 is belonging to the assessee which was seized during the course of search at the premises of M/s.Artefact Project Ltd. The satisfaction note is reproduced hereunder for ready reference:-

SATISFACTION NOTE.

Proceedings u/s 153C of the Income tax Act, 1961 for assessment years 2005-06 to 2010-11 in the case of Zaidun Leeng SON BHD Artefact Projects (JV) 54/3, Chhatrapati Nagar Square, Wardha Road, Nagpur (AAAAZ0 1 29L)

During the course of search and seizure/survey operations in the case of M/s. Artefact Project Ltd. Group of cases of Nagpur on 10.03.2011, the following material was seized/impounded.

Annexure – B-1/6, seized/impounded during the course of action on the residential/office premises of M/s Artefact Projects Ltd. Group of cases of assessee.

I am satisfied that the above seized/impounded material belongs to Zaidum Leeng SDN BHD Artefact Projects (JV), 54/3, Chhatrapati Nagar square, Wardha Road, Nagpur (AAAAZO129L). Therefore, notice u/s 153C of the I.T. Act, 1961 are being issued for Assessment years 2005-06 to 2010-11 in the case of assessee.

Sd/-

(ANOOP SINGH)

ASSTT. COMMISSIONER OF INCOME TAX

Central Circle-2(1), Nagpur.

Nagpur,

Date : 16/02/2012.

Perusal of the ‘satisfaction note’ of the A O. reveals that the proceedings u/s 153C had been initiated for AY. 2005-06 to 2010-11 in the case of the assessee. Para 2 of the satisfaction note (Annexure B-1/6) is noting of the documents found during the course of the search at the premises of M/s. Artefact Project Ltd. Group of cases, Nagpur on  10/03/2011, on the basis of which proceedings under section 153C were initiated. On careful observation, I find that the documents in possession of the Department are belonging to the appellant which has not been denied or rebutted by the A.R. of the appellant. Further, the AO. has made the addition of RS.1 .71 crores based upon the seized documents, as is evident from the assessment order passed. Besides, it has already been observed that the AO. had a bonafide belief that the seized documents were incriminating in nature and had also properly recorded his satisfaction vide the above mentioned ‘Satisfaction Note’. Therefore I do find any infirmity in the action of the AO. as regards the legality of the issuance of the notice u/s. 1 53C of the I T Act. Therefore this ground of appeal raised by the appellant is hereby dismissed.

4. With regard to the merits of the addition, learned CIT(Appeals) accepted the contention that addition was based upon inference and not supported by legal evidence on record. Hence he deleted the addition on merits.

5. Against the above order the Revenue and assessee are in cross appeals before us.

6. First we deal with the appeal by the assessee wherein the validity of notice u/s 153C has been challenged.

7. Learned counsel of the assessee made written as well oral submissions. The written submissions are as under :

A  Satisfaction note as recorded by AO. of assessee refers to seized document inventorised as B-1/6 from the premises of M/s. Artefact Project Ltd. for assumption of jurisdiction u/s 153C of I.T. Act 1961.

B) Seized documents inventorised as B-1/6 from the premises of M/s. Artefact Project Ltd. are placed in Paper Book. (P- 50 – 74) [Vol.- I]. Compilation of B-1/6 comprises of Page Nos. 1 to 22 being the bank statements of assessee for the period commencing from 1/4/2010 till March 2011. Aforesaid bank statements are relating to account of assessee with Canara Bank, Nagpur. Aforesaid bank transactions are duly recorded in regular books of account of assessee for ending 31/03/2011. Seized documents in no manner of consideration can be construed as incriminating evidence found at the premises of M/s. Artefact Project Ltd. so as to assume jurisdiction to issue notice u/s 153C of I.T. Act 1961.

C) No addition has been made on the basis of such documents in assessment framed for the period ending 31/03/2011 for which the seized documents relate. Order passed u/s 143(3) of I.T. Act, 1961 for Asstt. Year 2011-12 is placed in Paper Book. This substantiates that documents seized are not of any incriminating nature.

D) Impugned years under appeal are assessment years 2007-08 to 2009-10. Seized documents on the basis of which notice uls 153C of LT. act 1961 is issued are in relation to assessment year 2011- Thus notice issued for assessment years 2007 -08 to 2009-10 is not in accordance with law as there being no incriminating material or evidence found relating to such assessment years in the course of search at the premises of M/s. Artefact Project Ltd.

E) Transactions in seized documents are already recorded in regular books of accounts. There is no incriminating value in the same and have no bearing on assessable income. It is settled proposition of law that proceedings under section 153C of LT. Act, 1961 can be initiated in respect to person other than searched only if incriminating material belonging to such person has been found and seized from the premises of person searched. No incriminating documents found at the person searched being M/s. Artefact Projects Ltd. no valid proceedings under section 153C of LT. Act, 1961 could have been initiated in the case of assessee.

Reliance on:

i) Hon’ble Bombay High Court order in ITA No.94 1 of 2013 in the case of Sinhgad Technical Education Society vide order dated 25/03/2015.

ii) (2011) 57 DTR 0241 (Pune) Sinhgad Technical Education Society ACIT

iii) ITAT order in ITA Nos.8628 – 8633/M/201 0 in the case of M/s. Dhananjay International Ltd. vide order dated 1 2/1 0/2015.

iv) ITAT order in ITA No.959/PN/2010 in the case of Bharati Vidyapeeth Medical Foundation vide order dated 28/04/2011.

v) Hon’ble Bombay High Court order in ITA No.923 of 2012 in the case of Bharati Vidyapeeth vide order dated 11/09/2014.

vi) ITAT order in ITA No.91 7/PN/20 10 in the case of Bharati Vidyapeeth vide order dated 28/04/2011.

vii) ITAT order in IT(SS)A Nos.84-86/Kol/201 1 in the case of Trishul Hi-Tech Industries vide order dated 24/09/20 14.

viii) ITAT order in ITA No.472/Coch/2013 in the case of M/s. Royal Cartons P. Ltd. vide order dated 16/09/2015.

F) The satisfaction notice as observed in the file of assessee refers to documents seized from the residence/office premises of M/s. Artefact Project Ltd. group of cases for issue of notice u/s 153C of LT. Act 1961 It is observed that it is no satisfaction in terms of provision of section 153C of IT Act 1961 mandatorily required to be recorded by AO. of person searched i.e. M/s. Artefact Project Ltd. It is specifically asserted that no satisfaction of seized documents belonging to assessee is recorded by AO. of person searched. Thus no valid notice u/s 153C of LT. Act 1961 is issued in case of assessee and assessment framed is bad in law and liable to be cancelled.

Reliance on:

i) (2015) 155 ITO 0501 (Delhi) CIT vs. Satkar Roadlines Pvt. Ltd.]

ii) (2015) 232 Taxman 0268 (AP) CIT vs. Shettys Pharmaceuticals & BiologicalLtd.

iii) Hon’ble Madhya Pradesh High Court order in ITA No. 44/2011 in the case of M/s. Mechmen vide order dated 10107/2015.

iv) (2014) 365 ITR 0411 (All) CIT vs. Gopi Apartment

v) Hon’ble Bombay High Court in ITA No.1337 of 2013 in the case of M/s. Ingram Micro (India) Exports Pte. Ltd. vide order dated 2 9/04/2015

vi) Hon’ble Delhi High Court in ITA 422/2015 in the case of Nikki Drugs& Chemicals Pvt. Ltd. Vide order dated 03/12/2 015.

vii) ITTA No.254 of 2014 Judgement (per Hon’ble the Chief Justice Shri Kalyan Jyoti Sengupta)

viii) ITAT order in ITA 4228/De1/2011 in the case of M/s. Shield Home Pvt. Ltd. vide order dated 24/02/2016

G) A bare discussion made in the assessment order in respect to documents seized from M/s. Ashoka Buildcon Ltd., Nashik would reveal that the aforesaid document is not belonging to assessee but name of the assessee was appearing in the document belonging M/s. Ashoka Buildcon Ltd., Nashik. Document on the basis of which addition is made being not belonging to assessee there could be no valid assumption of jurisdiction to initiate proceedings u/s 153C of I.T. Act, 1961 and making addition for the same at the hands of assessee.

H) Notices u/s 153C of I.T. Act 1961 have been issued in case of assessee on 21/02/2012 for Asstt. Year 2007-08 to 2009-10. Perusal of notice u/s 153C does not indicate the satisfaction of AO. as to documents found at premises of the person searched belonging to assessee. It does not mention as to incriminating nature of documents or its bearing on assessable income of assessee for which jurisdiction in the case of assessee u/s 153C of I.T. Act, 1961 is assumed. The notice does not satisfy the requirement of valid notice u/s 153C of I.T. Act, 1961. In view of above consequent assessment framed thereupon is liable to be cancelled.

Reliance on

i) 289 ITR 341 (SC) Manish Maheshwari vs. CIT.

I) AO. in the assessment order at para 5 has observed that proper satisfaction has been recorded for issue of notice u/s153C of I.T. Act 1961. AO. has not provided copy of satisfaction for issue of notice uls 153C in the course of assessment proceedings. No incriminating documents were found in the course of search at the premises of M/s Artefact Projects Ltd. Observation of AO. that notice has been issued pursuance to incriminating evidences found during the course of search at M/s. Artefact Projects Ltd. is factually incorrect. Consequent satisfaction as well as issue of notice u/s 153C of I.T. Act 1961 is not in accordance with law.

J) Issue covered in the favour of assessee by decision of Hon’ble ITAT, Nagpur Bench, Nagpur.

i) ITA Nos.146, 147 & 148/Nag/2014 in the case of Mansi Commodities Pvt. Ltd. vide order dated 1 9/12/2016″

8. Per contra learned D.R. relied upon the orders of the authorities below on the issue of validity of notice u/s 153C.

9. We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that the satisfaction of the AO of the searched persons as envisaged u/s 153C of the I.T. Act has not been recorded before initiating the proceedings against the assessee u/s 153C of the Act which vitiates the entire impugned assessments. For this proposition, learned counsel referred to the CBDT Circular No. 24/2015 dated 31stDecember, 2015 which has been issued on this very subject. Learned counsel submitted that from the above said CBDT Notification it is clear that in absence of appropriate satisfaction recorded by the AO of the raided party even if he is the same AO as that of assessee, the assessment will be devoid of jurisdiction. Learned counsel submitted that no satisfaction note is there as emanating from the assessment records of the searched party. That this makes it very clear that the appropriate satisfaction has not been recorded therein. He asserted that no satisfaction of seized documents being incriminating and/or belonging to the assessee is recorded by the AO of the searched person. Thus no valid notice u/s 153C is issued in the case of the assessee and assessment framed is bad in law and liable to be quashed. Learned counsel submitted that this proposition is duly supported by case laws cited above.

10. Further more learned counsel submitted that the addition has not been made on the basis of seized material. In this regard learned counsel submitted that the assessments in all these cases have been completed earlier. Hence in the absence of incriminating material found during the search, no addition is sustainable u/s 1 53C. Learned counsel further submitted that no incriminating document was found during search. He submitted that the documents seized which have been compiled in the paper book were documents relating to assessment year 2011-12. No document pertaining to the assessment years concerned in this case has been found. The documents relating to assessment year 2011-12 found are also not incriminating documents. They relate to transactions which were duly recorded in the regular books of accounts. Hence learned counsel submitted that the jurisdiction assumed in this case is invalid. For the proposition that dehorse any incriminating seized material, no addition is sustainable where assessments have already been completed earlier. Learned counsel relied upon several case laws as mentioned above in his written submission.

11. We find that at the outset we need to adjudicate the jurisdictional aspect. The first limb of argument in this regard is that there is no valid satisfaction in the case of the person searched that incriminating material found may relate to the assessee in whose case action has been taken u/s 153C. The search records of the searched person, namely, M/s Artefact Projects Ltd. were called for and No satisfaction note whatsoever was found recorded in the case of the searched person. Neither any satisfaction was mentioned in the order sheets nor any satisfaction note was found in the file which was not numbered. The fact that no satisfaction note is there in the case of the searched person is also evident from the finding of the learned CIT(Appeals) in his appellate order reproduced herein above wherein he also has referred to the satisfaction note which is recorded in the case of the assessee and not in the case of the searched person.

12. In this regard we can gainfully refer to the provisions of section 153(1) as under :

“ 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 1 53A, 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 3a[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 1 53A, 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 1 53A] :]

4[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 1 53A 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 :]

6[Provided further that the Central Government may by rules7 made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated.]

13. From the above provisions, it is clear that where the AO of the persons searched is satisfied that any money, bullion, jewellery, books of accounts or other documents etc. belong to a person other than a searched person, then such document or assets etc. shall be handed over to the AO of the other person and the later AO shall proceed against such other person to assess or reassess his income. Thus it is manifest before handing over such documents to the AO of the other person a satisfaction has to be recorded by the AO of the searched persons, that money, bullion or jewellery, etc.,found from the person searched belong to the ‘other person’. Only when such ‘satisfaction’ is recorded by the AO of the person searched and such documents or assets seized, etc., are handed over to the AO of the ‘other person’, that the later AO acquires jurisdiction to make assessment or reassessment of the ‘other person.’ It is, therefore, clear that the AO of the ‘other person’ can acquire jurisdiction to assess or reassess income of the ‘other person’ only when the AO of the persons searched records satisfaction in his case (searched person) before handing over money, bullion, jewellery, etc. to him. So, what emerges is that the recording of satisfaction by the AO of the person searched is a condition precedent for the AO of the ‘other person’ to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the ‘other person.’

In the case of Anil Kumar & Ors. vs. UOI & Ors. Reported in 155 Taxman 659 (5C),the Hon’ble Apex Court observed that “A jurisdictional fact is a fact which must exist before a court, a tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority .. It is the fact upon which an administrative agency’s power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. The existence of ‘jurisdictional fact’ is sine qua non for the exercise of power by a court of limited jurisdiction.

As noted earlier section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wherefore 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 s. 132; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 153C against such other person. The conditions precedent for invoking the provisions of s. 153C, thus, are required to be satisfied before the provisions of said section 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 s. 132A.s That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the other persons.

14. Now in this regard the CBDT has also issued notification as under :

CIRCULAR NO. 24/2015

F.No.279/Misc.l140 /2015/IT J

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, 31 st 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 Mls Calcutta Knitwears in its detailed judgment in Civil Appeal NO.3958 of 2014 dated 12.3.2014(available in NJRS at 2014-LL-03 12-51) has laid down that for the purpose of Section 15880 of the Act, recording of a satisfaction note is a prerequisite and thesatisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person uls 15880. 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 1 58BO 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 CBOT.

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 158BO /153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court. ”

15. From the above CBDT notification it is clear that even if the AO of the searched persons and the assessee are same still proper satisfaction qua the documents etc. found relating to the assessee has to be recorded in the case of the searched persons. From the perusal of the concerned records in the case of the searched persons as mentioned above it is evident that there is no such satisfaction that any bullion, jewellery, books of accounts, other documents etc. belonging to the assessee has been found and the same is being handed over to the AO of the assessee. Thus the absence of requisite satisfaction denudes the legality of jurisdiction in this case. Hence it has to be held that since proper satisfaction as envisaged u/s 153C has not been recorded, the assessments are liable to be quashed on account of lack of validity of jurisdiction. In this regard the case laws referred above by the learned counsel of the assessee support this proposition. We may gainfully refer to some of them as under :

i) CIT vs. Shetty Pharmaceuticals & Biological Ltd. 232 Taxman (Andhra Pradesh H.C.)

In this case it was held that section 153C and 153A mandates recording of satisfaction of the Assessing Officer(s) is a pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other way (See Nazir Ahmed v. King Emperor). We think the learned Tribunal has correctly followed the principle. We do not find any element of law to be decided.

Conclusion:

Recording of satisfaction of AO(s) is pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind dconsciously as documents seized must be belonging to any other person other than person referred to in S. 153-A.

ii) Hon’ble High Court of Madhya Pradesh High Court decision in the case of CIT vs. Mechmen in ITA No. 44/2011, ITA No. 45/2011 & others vide order dated 10-07-20 15.

In this case the relevant exposition from the Hon’ble High Court is as under :

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 that 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 re-assessment of his income falling within six assessment years.

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 1 53C 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).

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 arguments of the Department must be negative.

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 (suspra), 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.

iii) Hon’ble Bombay High Court decision in the case of Director of Income Tax vs. M/s Ingram Micro (India) Exports Pte Ltd. in ITA No. 1337 of 2013 & Others vide order dated 29-04-2015.

In this case it was expounded that as per provisions of section 153A and section 153C of the I.T. Act, proceedings can only be initiated after the AO arise at the satisfaction that the seized material pertains to other persons, namely, persons other than searched persons. It is only then the persons other than the searched party can be proceeded against.

If there is a satisfaction required and to be recorded as a pre-condition and which is mandatory then in the absence thereof all further steps stand vitiated.

iv) In a batch of appeals in ITA No. 60/20 16 & Others in the Principal CIT vs. Satkar Roadlines Pvt. Ltd. vide order dated January 12, 2016, the Hon’ble Delhi High Court noted as under :

It is stated by Ms. Suruchi Aggarwal, Senior Counsel for the Revenue, that in light of the Circular No. 24/2015 dated 31st December, 2015 issued by the Central Board of Direct Taxes on the subject “Recording of satisfaction note under Section 158BD/153C of the Act”, these appeals are not pressed

These appeals are, accordingly, dismissed as not pressed.

16. From the above case laws and CBDT Circular, it is evident that recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdiction for the issue of notice u/s 153C even if the AO of the searched person and the assessee are same. It is abundantly clear from the records in the case of the searched person that there is no requisite satisfaction granting the AO jurisdiction for issuing notice to the assessee u/s 153C of the T. Act. No satisfaction note whatsoever is found in the case of the searched person, namely, M/s Artefact Projects Ltd. In absence of any satisfaction note in the case of M/s Artefact Projects Ltd. that any seized material belonging to the assessee has been found which is incriminating in nature which is to be handed over to the AO of the assessee, the jurisdiction assumed in this case is illegal and the same deserves to be quashed. Accordingly in the background of the aforesaid discussion and precedent, in our considered opinion, the assessee deserve to succeed on this account and the assessments are liable to be quashed on account of lack of validity of jurisdiction. Accordingly we set aside the orders of the learned CIT(Appeals) on this aspect of jurisdiction and quash the assessments by holding that requisite satisfaction was not recorded before issue of notice u/s 153C.

17.  In this regard we further note that in similar situation when the finding was that requisite satisfaction was not there in the case of the searched person qua incriminating material relating to assessee having been found, the Revenue had withdrawn this appeal before the Hon’ble Delhi High Court in the light of Circular No. 24/2015 as referred above, CIT vs. Satkar Roadlines (supra).

18. As regards the learned counsel of the assessee’s challenge of addition on account of the plea that since the assessment had already been completed earlier, dehorse any incriminating seized material found addition is not sustainable, and other issues relating to merits of addition, we find that the same is now only of academic interest as we have already quashed the validity of jurisdiction in the preceding paragraphs. Hence we are not engaging into adjudicating these aspects of learned counsel of the assessee’s submission.

19. Since we have already allowed the assessee’s appeal on the basis of lack of validity of jurisdiction assumed, the adjudication on merits is now only of academic interest. Hence we are not engaging into the same. Hence Revenue’s appeals which are against the CIT(Appeals)’ order deleting the additions on merits have now become infructuous and the same are dismissed as such.

20. In the result, the assessee’s appeals are allowed and the Revenue’s appeals are dismissed as infructuous.

Order pronounced in the Open Court on this 22nd day of March, 2017.

Categories: Income Tax
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