A bare perusal of the provision contained in Section 153C of the I .T. Act leaves no doubt that, as is provided under Section 158BD, where the Assessing Officer, while proceeding under Section 153A against a person who has been subjected to search and seizure under Section 132(1) or has been proceeded under Section 132A, 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 and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.
Thus, there are two stages:
(1) The first stage comprises of a search and seizure operation under Section 132 or proceeding under Section 1 32A against a person, who may be referred as ‘the searched person’. Based on such search and seizure, assessment proceedings are initiated against the ‘searched person’ under Section 153A. At the time of initiation of such proceedings against the ‘searched person’ or during the assessment proceedings against him or even after the completion of the assessment proceedings against him, the Assessing Officer of such a ‘searched person’, may, if he is satisfied, that any money, document etc. belongs to a person other than the searched person, then such money, documents etc. are to be handed over to the Assessing Officer having jurisdiction over ‘such other person’.
(2) The second stage commences from the recording of such satisfaction by the Assessing Officer of the ‘searched person’ followed by handing over of all the requisite documents etc. to the Assessing Officer of such ‘other person’, thereafter followed by issuance of the notice of the proceedings under Section 1 53C read with section 1 53A against such ‘other person’.
The initiation of proceedings against ‘such other person’ are dependant upon a satisfaction being recorded. Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the ‘searched person’, or even during the assessment proceedings against him or even after completion of the same, but before issuance of notice to the ‘such other person’ under Section 153C.
Even in a case, where the Assessing Officer of both the persons is the same and assuming that no handing over of documents is required, the recording of ‘satisfaction’ is a must, as, that is the foundation, upon which the subsequent proceedings against the ‘other person’ are initiated. The handing over of documents etc. in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory.
In this regard, the ratio of the judgment of the Supreme Court in the case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana (supra), as noted above, clearly applies to the proceedings under Section 153C also.
The ‘satisfaction’ has to be in writing and can be gathered from the assessment order passed in respect of the ‘searched person’, if it is so mentioned/ recorded or from any other order, note or record maintained by the Assessing Officer of the ‘searched person’. The word ‘satisfaction’ refers to the state of mind of the Assessing Officer of the person searched, which gets reflected in a tangible shape/ form, when it is reduced into writing. It is the conclusion drawn or the finding recorded on the foundation of the material available. In this regard, reference may be made to the pronouncements in the case of C.I.T. Vs. Radhey Shyam Bansal, (2011) 337 ITR 217 (Delhi) and the Division Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises reported in (2013) 358 ITR 465 (Allahabad).
In the case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax and another, (2007) 289 ITR 341 (SC), their Lordships had the occasion to consider the provisions of Sections 1 58BC and 1 58BD and held that the conditions precedent for taking recourse to a block assessment in terms of Secton 1 58BC and 1 58BD (i) were as under:
“(i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person.
(ii) . The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter 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 Section 132A of the Act.”
The ratio of the judgment in Manish Maheshwari’s case also applies to the provisions of Section 1 53C and to the facts of this case.
In the instant case, a categorical finding has been recorded by the C.I.T. (Appeals) and the I.T.A.T. that there is no material showing the recording of satisfaction by the Assessing Officer of the ‘searched person’ prior to issuance of notice under Section 153C to the respondent assessee, i.e. ‘the other person’. It was the admitted case of the Revenue before the C.I.T. (Appeals) and the I.T.A.T. that though the Assessing Officer (of the other person) in the assessment order had stated that satisfaction for issuing notice under Section 1 53C was recorded, however, on examination, recording of such satisfaction alleged to be recorded by the Assessing Officer was not available.
In view of the legal position, as already discussed above and the admitted factual position as aforesaid, we are unable to accept the contentions of Sri Agrawal.
We are also of the view that plea, which is being raised in this appeal, was not raised in the grounds of appeal before the I.T.A.T., however, even otherwise such plea does not have any merit.
The contention of Sri Agrawal that Section 1 53C is only procedural in nature, therefore, the non-recording of prior satisfaction does not vitiate the assessment order, as, such satisfaction, has been recorded in the assessment order passed subsequently with regard to the other person, is also not acceptable for the reason that the Supreme Court in the case of M/s Calcutta Knitwears (supra) has already considered this aspect of the matter in the context of Section 158BD, and after taking note of the fact that the said provision is a machinery provision has interpreted the same. In the light of the interpretation given by it and in view of the ratio laid down therein, the contention of Sri Agrawal does not hold ground. A clear and plain reading of Section 153C leaves no doubt that recording of satisfaction by the Assessing Officer of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched).
A specific query was put to Sri Agrawal as to whether, on the basis of the material collected during the search and seizure operation or during the assessment, proceedings against the ‘searched person’ or thereafter, any proceeding could be initiated against the ‘other person’ under any other provision of the Income Tax Act, he categorically replied that except Section 153C, there was no other provision under which action could be initiated against him.
The reliance placed by Sri Agrawal upon the Division Bench judgment of this Court in the case of C.I.T. Vs. Classic Enterprises (supra) far from helping his cause goes against him. We have already relied upon the said judgment to explain the concept of ‘satisfaction’ under Section 153C, which is required to be recorded in writing. However, on the other issues, the said judgment is distinguishable for the reason that in the said case, the Assessing Officer had recorded his ‘satisfaction’ and after recording the satisfaction on the subject matter on 02.08.2006 handed over the books of account and seized material, thus, the issue, which falls for consideration in this appeal, in fact, did not arise for consideration in the said appeal. In any case, the case at hand being squarely covered by the pronouncements of the Supreme Court, as already referred, the reliance placed by Sri Agrawal on the aforesaid judgment does not cut much ice.
In view of the above discussion, we find that no substantial question of law arises in the instant appeal warranting interference with the impugned judgment under Section 260-A of the Income Tax Act, 1961. It is accordingly dismissed.
Submitted by – CA Prarthana Jalan