Prashant Premchand Bafana Vs ACIT (ITAT Pune)
The assessee filed two appeals for AYs 2017-18 and 2018-19 against separate orders of CIT(A), Pune-11 dated 12.10.2022 concerning proceedings under Sections 153C/153A read with Section 143(3) of the Income Tax Act, 1961.
The appeals were heard on 05.04.2023. The Judicial Member and Accountant Member differed in their views, resulting in a reference to the Third Member nominated by the Tribunal President. The Third Member, by order dated 28.02.2025, concurred with the Judicial Member.
The dispute concerned whether the Assessing Officer had validly recorded the requisite satisfactions under Section 153C(1) for initiating proceedings against the assessee, who was a person other than the searched person. The Assessing Officer of both the searched person, Shri Sachin Nahar, and the assessee was the same.
The Third Member noted that the satisfaction recorded in the case of the searched person on 05.03.2021 stated that Bundles 1 to 11 containing notebooks and notepads related to Shri Sachin Nahar’s cash money-lending business. However, the satisfaction recorded in the assessee’s case on 22.03.2021 stated that the documents belonged to Shri Prashant Premchand Bafna and would have a bearing on his total income.
The Tribunal found these satisfactions contradictory. The satisfaction note of the searched person did not state that the seized books or documents pertained to or that information contained therein related to the assessee. The documents were described as belonging to Shri Sachin Nahar, and the assessment order itself did not establish that documents belonging to the assessee had been found.
Referring to Section 153C(1) and the Supreme Court decision in Super Malls P. Ltd. Vs. PCIT, the Third Member held that even where the Assessing Officer of the searched person and the other person is the same, he must record satisfaction that the seized documents belong to, pertain to, or contain information relating to the other person. The CBDT Circular No.24/2015 dated 31.12.2015 was also noted as requiring compliance with the satisfaction requirement.
The Third Member concluded that the mandatory satisfaction under Section 153C(1)(b) had not been recorded. Consequently, initiation of proceedings under Section 153C was held to be not in accordance with law and void ab initio. The argument based on Section 292B was rejected as inapplicable to the jurisdictional issue.
Following the majority opinion, both appeals of the assessee were allowed and the Section 153C proceedings were quashed.
FULL TEXT OF THE ORDER OF ITAT PUNE
The instant two appeals at the instance of assessee pertaining to A.Yrs. 2017-18 and 2018-19 are directed against the separate orders passed by CIT(A), Pune-11 both dated 12.10.2022 involving proceedings u/s.153C/153A r.w.s.143(3) of the Act.
2. These appeals were heard by this Tribunal on 05.04.2023 and a draft order was prepared by the Hon’ble Judicial Member but the Hon’ble Accountant Member did not agree with the view taken by the Hon’ble Judicial Member and he passed a dissenting order on 19.06.2023. Consequent to the difference of opinion among the Hon’ble Members, the matter was referred before the Hon’ble President and the Hon’ble President vide order 30.08.2024 has nominated the Hon’ble Third Member to adjudicate the dispute which arose between the view of Hon’ble Accountant Member and Hon’ble Judicial Member. The questions framed by the Hon’ble Members read as follows :
“1. Whether, in the facts and circumstances involved in both these cases, the Assessing Officer herein had rightly recorded his twin sec 153C(1)(a) and (b) satisfactions, as the case may be, culminating in his corresponding as many assessments in issue both dated 24.12.2021 or not ?
In addition to the above common question, hon’ble Accountant Member also refers the following twin questions separately:-
2. Whether, in the facts and circumstances and in law, the satisfactions recorded by the Assessing Officer of the searched person qualifies the test of sufficiency to set in motion the provision of section 153C of the Act against the assessee being the person other than searched person/party?
3. Whether, in the facts, circumstances and in law, the satisfaction recorded by the Assessing Officer of assessee (being person other than searched person/party) qualifies the test of sufficiency to invoke jurisdiction and assess the income u/s. 153C of the Act?
3. The Hon’ble Third Member after hearing both the parties concurred with the view expressed by the Hon’ble Judicial Member vide order dated 28.02.2025. The finding given by the Hon’ble Third Member is reproduced below:
“15. I have carefully perused the record and gone through the orders of both the Hon’ble Members. I find in the present case the Assessing Officer has completed the assessment u/s 153C of the person other than the searched person as referred to in section 153A of the Act. The issue before me is regarding the validity of satisfaction recorded by the Assessing Officer for issuance of notice u/s 153C of the Act. The provisions of section 153C of the Act have already been reproduced in the preceding paragraphs. The satisfaction so recorded by the Assessing Officer of the searched party in respect of the other party has also been reproduced in the preceding paragraphs. It is an undisputed fact that in the instant case the Assessing Officer of the “searched person” and the Assessing Officer of the “other person” is one and the same.
16. I find the Assessing Officer of the searched person vide order dated 05.03.2021 has recorded the satisfaction in respect of the other person. A perusal of the same shows that no money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to the present assessee, therefore, the provisions of clause (a) of section 153C(1) of the Act are not applicable to the facts of the present case. However, certain note books and note pads inventorized as bundled No. 1 to 11 containing the details of money lending business in cash were found and seized. Further, the notings therein are related to principal amount lent by lenders and borrowed by borrowers and contain the names of lenders and borrowers, interest component etc. It also contains the name of depositors, due date of interest and amount of cash loan. All these note books and note pads were recovered from the premises of Shri Sachin Nahar and nowhere it is mentioned that they belong to the present assessee in question. Similarly, the Assessing Officer in the satisfaction note dated 05.03.2021 has also nowhere mentioned that any books of account or documents seized or requisitioned pertains or pertain to or any information contained therein, relates to the present assessee.
17. It is also an admitted fact that the Assessing Officer while initiating proceedings u/s 153C of the Act in the case of the assessee vide satisfaction note dated 22.03.2021 has noted that the documents mentioned in table above belongs to Shri Prashant Premchand Bafna, a person other than referred to in section 153A of the Act and will have a bearing on the determination of total income of such other person. The above satisfaction recorded by the Assessing Officer is contradictory to the satisfaction recorded by the Assessing Officer of the searched person while recording the satisfaction.
18. A perusal of the amended provisions of section 153C of the Act as amended by the Finance Act, 2015 shows that there are two facets in this provision. The first one is the initiating the provision by the Assessing Authority of the First Party which is subjected to (i) there must be a search seizure operation carried out u/s. 132 of the Act upon a party other than the other party (ii) in such operation there must be some incriminating material such as (a) any money, bullion, jewellery or other valuable article or thing “belong” to and/or. (b) any books of account or documents seized or requisitioned, “pertain to and/or, any information contained therein “relate to such Other Party and (iii) On the basis of such incriminating material, as the case may be, a satisfaction note is required to be recorded by the Assessing Authority of the Searched Person in the terms of aforesaid clause (a) or (b) to section 153C(1) of the Act to set the proceedings in motion for the Other Person.
19. Now for the Assessing Authority of the Other Person he has to record a satisfaction note that such incriminating documents, as set out in the satisfaction note of the Assessing Authority of the Searched Person, have a bearing on determination of total income of such Other Person. In other words, as per provision of section 153C, if the Assessing Officer of the searched person is satisfied that any books of account or documents or assets belong or pertain to other than the searched person, then such books of account or documents or assets shall be handed over by the Assessing Officer of the “searched person” to the Assessing Officer of the “other person”. In the present case the Assessing Officer of the searched person and the Assessing Officer of the other person was same. Therefore, there was no requirement of actual handing over of the seized documents belonging to the assessee to any other Assessing Officer. Nevertheless, in order to assume jurisdiction on the case of the other person it is necessary for the common Assessing Officer to record his satisfaction that the seized material belongs/pertain/relate to the other person. Until and unless he records such satisfaction, he cannot assume the jurisdiction to initiate proceedings under section 153C in the case of other person. The condition of recording satisfaction note by the Assessing Officer of the searched person was therefore, required to be mandatorily complied in this case as well. However, in the present case, the satisfaction note of the searched person is an absolute bald one without any reference to the assessee. In other words, though he has discussed about the nature of documents found in the premises of Shri Sachin Nahar, the searched party but however, no endeavour was made by him in the satisfaction note of the searched party to the extent that those related to the assessee. I am, therefore, of the opinion that the satisfaction note of the Assessing Officer is not in accordance with law.
20. I find the Hon’ble Supreme Court in the case of Super Malls P. Ltd. Vs. PCIT (2020) 423 ITR 281 (SC) has observed as under:
“5. We have heard the learned counsel for the respective parties at length.
5.1 As observed hereinabove, the short question which is posed for the consideration of this Court is, whether there is a compliance of the provisions of Section 153C of the Act by the Assessing Officer and all the conditions which are required to be fulfilled before initiating the proceedings under Section 153C of the Act have been satisfied or not?
6. This Court had an occasion to consider the scheme of Section 153C of the Act and the conditions precedent to be fulfilled/complied with before issuing notice under Section 153C of the Act in the case of Calcutta Knitwears (supra) as well as by the Delhi High Court in the case of Pepsi Food Pvt. Ltd. (supra). As held, before issuing notice under Section 153C of the Act, the Assessing Officer of the searched person must be “satisfied” that, inter alia, any document seized or requisitioned “belongs to” a person other than the searched person. That thereafter, after recording such satisfaction by the Assessing Officer of the searched person, he may transmit the records/documents/things/papers etc. to the Assessing Officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of such other documents relating to such other person, the jurisdictional Assessing Officer may proceed to issue a notice for the purpose of completion of the assessment under Section 158BD of the Act and the other provisions of Chapter XIV-B shall apply. 6.1 It cannot be disputed that the aforesaid requirements are held to be mandatorily complied with. There can be two eventualities. It may so happen that the Assessing Officer of the searched person is different from the Assessing Officer of the other person and in the second eventuality, the Assessing Officer of the searched person and the other person is the same. Where the Assessing Officer of the searched person is different from the Assessing Officer of the other person, there shall be a satisfaction note by the Assessing Officer of the searched person and as observed hereinabove that thereafter the Assessing Officer of the searched person is required to transmit the documents so seized to the Assessing Officer of the other person. The Assessing Officer of the searched person simultaneously while transmitting the documents shall forward his satisfaction note to the Assessing Officer of the other person and is also required to make a note in the file of a searched person that he has done so. However, as rightly observed and held by the Delhi High Court in the case of Ganpati Fincap (supra), the same is for the administrative convenience and the failure by the Assessing Officer of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under Section 153C of the Act against the other person. At the same time, the satisfaction note by the Assessing Officer of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the Assessing Officer of the other person is mandatory. However, in the case where the Assessing Officer of the searched person and the other person is the same, it is sufficient by the Assessing Officer to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of Section 153C of the Act is fulfilled. In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the Assessing Officer of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.
21. However, as mentioned earlier, in the present case a perusal of the satisfaction note in the case of the searched party shows that there is no whisper in the satisfaction note that the information in such document related to the assessee. In other words, there is no reference relating to the assessee that can be ostensibly found in such note. The note only sets out the nature of documents which are used in the activities carried out by the Shri Sachin Nahar, the searched person which however, do not anyway relate to the assessee. There is no doubt or dispute that the bundle No. 1 to 11 belonged only to Shri Sachin Nahar and do not remotely belong to the assessee. In my opinion, the satisfaction note by the Assessing Officer of the searched person is clearly inadequate to initiate proceedings u/s 153C of the Act. The Assessing Officer of the searched person did not even indicate how vaguely referred documents in the satisfaction note were found to be belonging to the assessee. No mention of any documents belonging to the appellant in the assessment order ultimately passed lead to the conclusion that these documents had no relevance or belongingness to the assessee. The Assessing Officer of the searched person did not record satisfaction for initiating valid proceedings u/s 153C without referring the contents of the incriminating materials allegedly pertaining to the assessee. There is absolutely no mention in the satisfaction note that any books of account or documents seized or requisitioned from the premises of Shri Sachin Nahar pertains or pertain to or any information contained therein relates to the assessee. In absence of recording of such satisfaction, the Assessing Officer in my opinion cannot assume jurisdiction u/s 153C of the Act.
22. Now moving onto the second question of the Hon’ble Accountant Member as to the satisfaction recorded by the Assessing Officer of the other person, it is essential to consider the alleged documents which the Assessing Officer has assumed to be belonging to the assessee. A perusal of the satisfaction note of the Assessing Officer of Shri Sachin Nahar records that “I am satisfied that the Bundle No. 1 to 11 (various notebooks/notepad), seized at the residence premise of Shri Sachin Nahar at Flat No. 07, Awiskar Apartment, Sr. No. 568/19, Bibwewadi Kondhwa Road, Pune-411037, containing details of his money lending business……. “. However, a perusal of satisfaction note recorded by the Assessing Officer in case of the assessee shows that “During the course of assessment proceedings before the Assessing Officer of the searched person, the said Assessing Officer has satisfied that the documents mentioned in the table above belong to Shri Prashant Premchand Bafana, a person other than the person referred to in Section 153A and will have a bearing on the determination of the total income of such other person….” Accordingly he has recorded his satisfaction u/s 153C of the Act. Thus, as mentioned earlier, the satisfaction note recorded by the common Assessing Officer is absolutely contradictory to each other. On one hand he is saying that the incriminating materials in bundles no. 1 to 11 belong to Shri Sachin Nahar and on the other, he is recording his satisfaction that it belongs to the assessee i.e. Prashant Premchand Bafana to initiate proceedings u/s. 153C of the Act. The alleged documents in Bundle No.1 to 11 are details of money lending transactions carried out by Shri Sachin Nahar in various formats. Therefore, these documents cannot anyway belong to the assessee. It is absolutely not in dispute that no documents belonging to the assessee were found. Therefore, the recording of satisfaction of the Assessing Officer that the documents found in course of search in the residence of Shri Sachin Nahar, the materials specified as Bundle No. 7 (Page 18 and 32). Bundle No. 8 (Page 5). and Bundle No. 9 (Page 2 and 22) belonged to the assessee for initiating proceedings u/s. 153C of the Act is absolutely incorrect since these documents belonged to Shri Sachin Nahar which was admitted by the Assessing Officer himself in the assessment order. In fact, there was certain information in those documents which relate to the assessee which could have called for initiation of proceedings contemplated under the provisions of s. 153C of the Income Tax Act, 1961. However, the Assessing Officer has not done so. It is the settled proposition of law that proceedings u/s 153C of the Act cannot be initiated without any satisfaction recorded in terms as mandated therein that any money, bullion, jewellery or other valuable article or thing belongs to, and/or books of accounts or documents pertain to and/or any information relate to an assessee was found in the course of the search and seizure operation of a person liable to be assessed u/s. 153A of the Act.
23. In fact, the CBDT vide circular No.24/2015 dated 31.12.2015 also makes it very clear that the Hon’ble Supreme Court’s guidelines with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance and has further made it clear that even if the Assessing Officer 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.
24. I find the Hon’ble Supreme Court in the case of Commissioner of Customs (Import) vs. M/s. Dilip Kumar and Company and Ors. (AIR 2018 SC 3606) while explaining the interpretation of statue has observed as under:
“19. The well-settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the Legislature. In Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907, it was held that if the words used are capable of one construction only then it would not be open to the Courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act.
20. In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes and penal statutes. Nevertheless, if the plain language results in absurdity, the Court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose. Not only that, if the plain construction leads to anomaly and absurdity, the court having regard to the hardship and consequences that flow from such a provision can even explain the true intention of the legislation. Having observed general principles applicable to statutory interpretation, it is now time to consider rules of interpretation with respect to taxation.
21. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocent might become victims of discretionary decision making. Insofar as taxation statutes are concerned, Article 265 of the Constitution prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/ interpreted to include those, which were not intended by the Legislature.
22. At the outset, we must clarify the position of ‘plain meaning rule or clear and unambiguous rule’ with respect of tax law. The plain meaning rule’ suggests that when the language in the statute is plain and unambiguous, the Court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase “cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio”. Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule, though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilize strict interpretation in the event of ambiguity is self-contradictory. Next, we may consider the meaning and scope of ‘strict interpretation’, as evolved in Indian law and how the higher Courts have made a distinction while interpreting a taxation statute on one hand and tax exemption notification on the other. In Black’s Law Dictionary (10th Edn.) ‘strict interpretation’ is described as under:
……….”
25. Since in the instant case a perusal of the satisfaction note recorded by the Assessing Officer of the searched person shows that no such satisfaction was specifically recorded by him in terms of clause (b) of section 153C(1) of the Act before handing over of any books of account or documents seized to the Assessing Officer of the other person i.e. the assessee in as much as there was no mention of any books of account or documents seized being pertain to the assessee or any information therein being related to the assessee, therefore, the requisite satisfaction which was mandatorily required to be recorded by the Assessing Officer of the searched person was not recorded in terms of clause (b) of section 153C(1) of the Act. Consequently, I agree with the findings of the Hon’ble Judicial Member that the initiation of proceedings u/s 153C of the Act in the case of assessee being not in accordance with law is void ab initio. In this view of the matter, I uphold the order of the Hon’ble Judicial Member in quashing the proceedings initiated u/s 153C on the person other than the person referred to in section 153A of the Act. The questions referred to me are answered accordingly.
26. So far as the argument of the Ld. DR that the provisions of section 292B of the Act will come to the rescue of the Revenue is concerned, the same in my opinion are not applicable while deciding the jurisdictional issue. Accordingly, the argument of the Ld. DR is rejected.”
4. The Hon’ble Third Member held that the requisite satisfaction which was mandatorily required to be recorded by the AO of the searched person was not recorded in terms of clause (b) of section 153C(1) the Act, for initiation of the proceedings u/s.153C of the Act in the case of the assessee for the impugned two assessment years is not in accordance with law and is void ab-initio. In consequence of the same and in view of the majority opinion, both the appeals of the assessee are allowed.
Order pronounced on this 08th day of April, 2025.
