Case Law Details
Brief of the Case
ITAT Delhi held In the case of ACIT vs, M/s Amrapali Grand that before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is after such satisfaction is arrived at that the document is handed over to the Assessing Officer of the person to whom the said document “belongs”. It is for the Assessing Officer to rebut that presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There, must be some cogent material available with the Assessing Officer before he /she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of “satisfaction”.
Facts of the Case
C.O. No.150/Del/14 – Legal ground
A search and seizure operation was conducted on 9.9.2010 in Amrapali Group of cases. Subsequently, a notice u/s 153C of the Act was issued on 12.4.12 to the present assessee and in response to which the assessee filed a letter stating that the return declaring income of Rs. 1,01,96,580 filed on 30.09.2009 may be treated as filed in response to the said notice. Further, notice u/s 142(1) along with questionnaire on 8.2.2012 and 7.9.2012 and another notice u/s 143(2) was issued on 7.9.12.
The Assessing Officer vide assessment order dated 18.3.2013 assessed taxable income of the assessee by making two additions viz. first addition on account of bogus purchases and second addition on account of notional interest disallowed from expenditure claimed by the assessee under the head of interest on term loan.
I.T.A. No. 6205/Del/2013 – On merits
Two grounds have been raised by revenue –
On the facts and the circumstances of the case the Ld. CIT (A) has erred in law in deleting the addition of Rs. 1,12,60,413/- made by AO on account of bogus purchases of raw material.
On the facts and the circumstances of the case the Ld. CIT (A) has erred in law in deleting the addition of Rs.1,71,85,440/- made by AO on account of interest free loan & advances.
Contention of the Assessee
C.O. No.150/Del/14 – Legal ground
The ld counsel of the assessee submitted that on the fact and circumstances of the case and in law, notice u/s 153 issued to the assessee was illegal and without jurisdiction and accordingly, the assessment order passed on the foundation of such notice is not sustainable and is liable to be quashed.
Further to support his stand, he submitted that satisfaction note does not even satisfy as to the capacity of the Assessing Officer on which personal satisfaction has been recorded. He further submitted that there are no documents belonging to the assessee found during search and seizure operation and even as per contents of the satisfaction note itself, there are no documents found belonging to the assessee.
He further submitted that in the second para of satisfaction note, the Assessing Officer writes that “therefore, the company wise information appearing in these pages will be treated as documents pertaining to all the respective companies in the said chart. Therefore, it is apparent that according to the Assessing Officer himself, there were no documents pertaining to the assessee but certain information in the form of chart was treated as documents belonging to the assessee. He further submitted that the manner in which satisfaction note has been recorded on the basis and contents of the said satisfaction note does not express any fact that any document or other article belonging to the assessee was recovered during search and seizure operation. He submitted that first requirement of law is that the Assessing Officer of the searched person is required to rebut appeal presumption u/s 132(4A)(i) and u/s 292C(1)(i) that seized documents do not belong or belongs to the searched person and then the Assessing Officer of the searched person has to draw an inference as to whom the seized documents belong to the person other than the person searched.
He further placed reliance on the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of Pepsico India Holdings Pvt. Ltd. vs ACIT (2014) 50 Taxmann.com 299 (Del) and Hon’ble High Court of Madhya Pradesh in the case of CIT vs Mechmen passed in I.T.A. No. 44/2011.
He further contended that without prejudice to the above legal contentions, it is also submitted that even if, for the sake of arguments but not admitting, it is presumed that the seized documents referred to in satisfaction note were ‘belonging to’ the assessee and that the Assessing Officer was entitled to issue notice u/s 153C, even in such a situation, the Assessing Officer was duty bound to close the proceedings after calling off returns u/s 153C because there is nothing incriminating in the seized documents. To support this contention, ld. AR placed reliance on the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of SSP Aviation vs DCIT (2012) 20 Taxman.com 214 (Delhi).
He further submitted that the provision of section 124 is only related to the territorial jurisdiction of the Assessing Officer which nowhere states about the jurisdiction of the Assessing Officer provided u/s 153A or 153C which is relevant to the present case.
On merit basis, the ld counsel of the assessee submitted that the assessee used its funds which were infused by the partners into the appellant firm for the project and advances made to these persons by the assessee were to raise capital for the purpose of business and these transactions are not in the nature of business advances. The Ld. AR vehemently contended that the interest payments made by the appellant firm to Bank of Maharashtra also do not appear to have any nexus with the money advanced as all the payments are related to the term loan from the Bank for various payments to various authorities and all the receipts are from M/s Ultra Homes as partners contribution to the appellants ongoing projects.
I.T.A. No. 6205/Del/2013 – On merits
The ld counsel of the assessee submitted that the assessee used its funds which were infused by the partners into the appellant firm for the project and advances made to these persons by the assessee were to raise capital for the purpose of business and these transactions are not in the nature of business advances. The Ld. AR vehemently contended that the interest payments made by the appellant firm to Bank of Maharashtra also do not appear to have any nexus with the money advanced as all the payments are related to the term loan from the Bank for various payments to various authorities and all the receipts are from M/s Ultra Homes as partners contribution to the appellants ongoing projects.
Contention of the Revenue
The ld counsel of the revenue submitted that the C.O. of the assessee challenging the jurisdiction of the Assessing Officer is not maintainable in the light of provisions of section 124. He placing reliance on the decision of ITAT Ahmedabad Bench in the case of DCIT vs Sandip M. Patel said to be reported in 22 Taxmann.com (AHD. TRI) submitted that independent legal ground cannot be raised by way of cross objection.
On cross objections, Ld. DR further supported the action of the Assessing Officer and submitted that the CIT (A) rightly dismissed ground no. 1,2, 3, 5 (b) and 6 (b) of the Act upholding the validity of notice u/s 153C and reassessment order passed u/s 153C r/w section 143(3) as the Assessing Officer rightly assumed jurisdiction to issue notice u/s 153C and making reassessment proceedings consequential.
He further submitted that as per amended section 153C, the word ‘pertains to’ is sufficient for valid assumption of jurisdiction, issuance of notice u/s 153C.
I.T.A. No. 6205/Del/2013 – On merits
The ld counsel of the revenue submitted that the assessee did not charge any interest in respect of advances given to them nor any goods have been received during the year and at the same time, the assessee has borrowed huge interest bearing funds and has also made payment of interest on loan to Bank of Maharashtra thus the notional interest @ 8% per annum on interest free advances was rightly disallowed from interest expenditure claimed by the assessee.
He also placed rejoinder by submitting that no remand report was called by the Ld. CIT (A) before granting relief to the assessee and assessee cannot be allowed to make a new case during appellate proceedings.
Held by CIT (A)
C.O. No.150/Del/14 – Legal ground
The CIT (A) granted relief to the assessee on both the grounds on merit and deleted both the said additions. However, the first appellate authority dismissed the legal ground of the assessee upholding the validity of notice u/s 153C as within valid jurisdiction of the Assessing Officer.
I.T.A. No. 6205/Del/2013 – On merits
CIT (A) allowed the appeal of the assessee on merits. The first appellate authority also noted that the advances made to these persons/entities by the assessee firm were to raise capital for the purpose of business and also that these transactions are not in the nature of business advances. The CIT (A) also noted that the interest payment made by the assessee to Bank of Maharashtra also does not appear to have any nexus with the money advanced as all payments.
Held by ITAT
C.O. No.150/Del/14
As per provisions of section 124, it is amply clear that this provision mandates about the territorial jurisdiction of the Assessing Officer over any one and a rider has been put about challenge of assessee regarding territorial jurisdiction by this provision, hence, we decline to accept the contention that the assessee cannot agitate validity of notice u/s 153C u/s 124. Accordingly, we proceed to decide the cross objection of the assessee challenging the validity of notice u/s 153C.
In the case of Pepsi Food Pvt. Ltd. vs ACIT (2014) 52 Taxmann.com 220(Delhi), the Hon’ble Jurisdictional High Court held that before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is after such satisfaction is arrived at that the document is handed over to the Assessing Officer of the person to whom the said document “belongs”. It is for the Assessing Officer to rebut that presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There, must be some cogent material available with the Assessing Officer before he /she arrivesat the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of “satisfaction”.
In the present case, undisputedly and admittedly, there was no satisfaction note recorded by the Assessing Officer of the person searched. This being the position, the first step prior to the issuance of notice u/s 153C has not been fulfilled by the Assessing Officer of the person searched i.e. Amrapali group. When we proceed to evaluate the validity of reasons recorded by the Assessing Officer of the other person for issuance of notice and initiation of proceedings u/s 153C, then from the reasons recorded, it is amply clear that the Assessing Officer has merely picked on pages no. 53 & 54 of the sized material which is, in fact, a chart showing detail of provision of Amrapali group company including name of the present assessee of Amrapali Grand at sl. No.1 but this cannot be held as belong to or belongs to the present assessee. It is further observed that even the Assessing Officer of the other person has not used the words “belong to or belongs to” in the reasons recorded and he has noted that the company wise information appearing in these pages will be treated as document pertaining to all the respective companies appearing in the said chart.
From the reading of pre-revised section 153C, it is clear that there were words ‘belong to’ or ‘belongs to’ a person other than the person referred to in section 153C and in the present case, the Assessing Officer of the other person has not mentioned ‘belongs to’ or ‘belong to’ in the reasons recorded clearly demonstrate that the Assessing Officer himself was not sure about the chart which was used as ‘pertain to’ the present assessee as to whether the same can be treated as ‘pertain to’ or ‘pertains to’ the present assessee. This ambiguous state of mind of the Assessing Officer of the other person clearly demonstrates that the Assessing Officer proceeded to initiate proceedings and to issue notice u/s 153C without assumption of valid jurisdiction for the same.
We further take cognizance of the dicta laid down by the Hon’ble Jurisdictional High Court in the case of Pepsico India Ltd. vs CIT (2014) 50 Taxmann.com 299 (Del) wherein speaking for the Jurisdictional High Court, their lordships in para 16 held that the “the Assessing Officer should not confuse the expression ‘belong to’ with the expression ‘relates to’ or ‘refers to’. It is further pertinent to take cognizance of decision of Madhya Pradesh High Court in the case of CIT vs Mechmen wherein their lordships after referring to the decisions of Hon’ble Delhi High Court in the case of Pepsi Food Pvt. Ltd., Pepsico Holding Pvt. Ltd., it has been held that even in cases u/s 153C , the Assessing Officer need not record satisfaction in particular at both the stages, be it Assessing Officer of the searched person or Assessing Officer having jurisdiction over such other person, the requirement of recording satisfaction is not for the benefit of the Assessing Officer but lending credence to his satisfaction and on which matters the assessee can give meaningful explanation and reason it out as and when opportunity is given to the concerned assessee.
In the totality of the facts and circumstances and our finding as noted above, about the initiation of action and issuance of notice u/s 153C, we reach to a logical conclusion that as per proposition laid down by the Jurisdictional High Court of Delhi in the case of Pepsi Food vs ACIT, Pepsico Indi Holdings Pvt. Ltd. vs ACIT which were referred to by Hon’ble Madhya Pradesh High Court in the case of CIT vs Mechmen, it is vivid that the first required step of the Assessing Officer of the person who was searched have not recorded satisfaction that the sole document viz. chart pages 53 & 54 seized during the search and seizure operation of Amrapali Group do not belong to the searched person but to the present assessee. We further observe that the reasons recorded by the Assessing Officer of the present assessee do not qualify the requirement of valid satisfaction as per provisions of section 153C (as existed in the Act at the time of recording satisfaction) as there is no mention of any allegation that the chart pages 53 & 54 belong to or belong to the present assessee. It is also relevant to mention that the so called seized document i.e. chart cannot be held as belongs to or belong to the present assessee and on this ground also, the validity of reasons recorded comes within the teeth of proposition laid down by Hon’ble Jurisdictional High Courts.. Respectfully following the proposition laid down by Hon’ble Jurisdictional High Court, we are inclined to hold that the reasons recorded for action u/s 153 and issuance of notice under the said provision was not only bad in law but void ab initio which cannot be held as sustainable and consequently, we quash the same. Accordingly, C.O. of the assessee is hereby allowed.
I.T.A. No. 6205/Del/2013 – On merits
With regard to ground no. 1, we observe that aforesaid observations of the CIT (A) have not been controverted by them. This view also finds support from the dicta laid down by Hon’ble High Court in the case of Tin Box. Accordingly, we are unable to see any valid reason to interfere with the order of the first appellate authority. Thus, Ground No. 3 of the Revenue being devoid of merits is dismissed
With regard to ground no. 2, we note that the CIT (A) has followed proposition laid down by Hon’ble Jurisdictional High Court (2012) 20 Taxman.com 214 (Delhi). in the case of SSP Aviation Ltd. vs DCIT. We further observe that after detailed discussion on the documentary evidence of the assessee, the CIT (A) rightly noted that in the eventuality when assessee failed to produce alleged vendors, the appropriate course of action for A.O was to inform VAT authorities about the tax said to be deducted by the sellers so that the deposit of VAT tax could have been verified by them. Simultaneously, the A.O of the vendors could have also been informed about the sales made and to verify whether these sales had been reflected in their respective tax returns. CIT ( A) also mentions that the A.O could also have investigated bank accounts of the parties (Vendors) available with him and none of these courses have been taken by the A.O. The First Appellate Authority rightly concluded that instead of adopting said available courses, the A.O proceeded to made disallowance and addition for non-production of vendors parties and adverse inference drawn by the A.O was pre-mature and without any sound basis.
The CIT (A) rightly concluded that u/s 153C, the A.O cannot travel beyond the satisfaction recorded and the impugned addition based on alleged bogus purchases does not pertain to or emanate from allegation of suppression of sales or receipt of unaccounted cash in the sale of flats. Accordingly, we are unable to see any perversity or any other valid reason to interfere with the impugned order and thus we uphold the same on this issue of additions in regard to purchases. Accordingly, Ground No. 2 of the Revenue fails.
Accordingly appeal of the revenue dismissed and cross appeal on legal ground of the assessee allowed.
