Case Law Details
ACIT Vs Rangoli Buildtech (P) Ltd. (ITAT Delhi)
The issue under consideration is whether the issuing notice u/s 153C to the person other than person against whom search is initiated, but without submitting satisfaction note is justified in law?
ITAT states that, during the course of search action under section 132 of the Act in the case of Amtek Group, certain documents belonging to the assessee i.e., M/s Rangoli Buildtech Pvt. Ltd. were found and seized from the premises of M/s Excel Infotech Pvt. Ltd., & others, 9, Tolstoy Marg, Connaught Place, New Delhi, in whose name search warrant of authorisation was issued. ITAT find, the AO issued notice under section 153C of the Act on the assessee and the assessee, in response to the said notice filed the return of income declaring nil income and showing loss . ITAT find, on the basis of seized documents the AO made addition to the total income of the assessee. In appeal, the ld. CIT(A) held that since the satisfaction note is not recorded in the file of the searched person stating that the seized documents belonged to the assessee, therefore, the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with the law. He accordingly quashed the assessment order passed under section 153C/143(3) of the IT Act. Since, in the instant case, no satisfaction has been recorded in the file of the searched person that the seized documents belonged to the other party and do not belong to the searched person, therefore, ITAT do not find any infirmity in the order of the CIT(A) on this issue holding that the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with law. ITAT accordingly uphold the same and the grounds raised by the Revenue are dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the Revenue is directed against the order dated 26th March, 2014 of the CIT(A)-33 New Delhi, relating to assessment year 2007-08.
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of purchasing and selling and developing of real estate. A search and seizure operation u/s 132 of the IT Act, 1961 was conducted by the Investigation Wing of the Department on 22.03.2011 in the Amtek Group of cases. The premises of M/s Excel Infotech Pvt. Ltd. & others, 9, Tolstoy Marg, Connaught Place, New Delhi was also covered u/s 132(1) of the Income-tax Act, 1961 which is a group company of Amtek Group. The documents belonging to the assessee, M/s Rangoli Buildtech Pvt Ltd, 1105, Akash Deep Building, Barakhamba Road, New Delhi- 110001 were also found and seized from the premises of M/s Excel Infotech Pvt Ltd & Others, 9, Tolstoy Marg, Connaught Place, New Delhi in whose name search warrant of authorization was issued. The assessee’s case was proposed for centralization by the Investigation Wing for coordinated investigation and assessment u/s 153C and subsequently it was centralized with Central Circle-14, New Delhi vide order F.No CIT(C) Centr/2012- 13/239 dated 25.04.2012. Accordingly notice u/s 153C of the Income Tax Act was issued to the assessee on 08.11.2012. In response to the said notice, the assessee filed return of income on 05.02.2013 declaring a loss of Rs.6,89,710/-.
3. During the course of assessment proceedings, the AO noted that during the course of search, certain documents were found and seized which were inventoried at Page 55-57 of Annexure A-3 and were seized from 9 Tolstoy Marg, Connaught Place, New Delhi which contains the details of finance to M/s Rangoli Buildtech Pvt. Ltd as on 29.01.2007. The page 57 shows the financing of the project undertaken jointly by M/s Rangoli Buildtech Pvt. Ltd. in the name of TDI Green, Sonipat. The first party was Sh Ravinder Taneja and Sh Parveen Jolly who are the Directors of M/s Rangoli Buildtech Pvt Ltd and the other party was M/s Gracious Projects Pvt. Ltd. which is the group company of the Amtek Group in 50:50 ratio. On page number 56 it is mentioned that cash proceeds of Rs 4.40 crores was retained outside the books by both the parties in 50:50 ratio on account of cash proceeds received along with other amounts mentioned therein. He, therefore, asked the assessee to explain the source of cash proceeds of Rs.2.20 crores received by the first party, i.e., the assessee company through its directors Shri Ravinder Taneja and Shri Parveen Jolly from the project TDI Green, Sonepat. The assessee submitted that as per that the first party, i.e., M/s Rangoli Buildtech Pvt. Ltd. has determined the cost to be borne by the 2nd party at Rs.14.98 crore and after giving credit of Rs.8.70 crore which pertained to the business of the company, the second party, i.e., Gracious Projects Pvt. Ltd. paid a sum of Rs.6.28 crores by way of two cheques mentioned in the seized material. This amount is shown in the books of account as loan and advances. It was accordingly submitted that no amount is taxable in the case of the assessee.
4. However, the AO was not satisfied with the explanation given by the assessee. He noted that in the seized material at page 56 it has been clearly mentioned that 50% share of the total cash proceeds of Rs.4.40 crores was retained outside the books of account being share of the assessee company. Since the assessee has not submitted any explanation regarding this cash receipt of Rs.2.20 crores, the AO made addition of the same to the total income of the assessee.
5. Before the CIT(A), it was submitted that the satisfaction note for initiating action under section 153C was not recorded in the case of the person searched. Relying on the decision of the Tribunal in the case of M/s DSL Properties (P) Ltd. vs DCIT, vide ITA No.1344/Del/2012, order dated 22nd March 2013, it was submitted that the Tribunal in the said decision has held that even if the assessing officer of the person searched and the person in whose hand action is to be initiated is same, necessarily, satisfaction note for initiating action under section 153C has to be recorded in the files of the person searched for valid initiation of proceedings under section 153C and documents belonging to the other person should be kept in the file of the other person. It was argued that the satisfaction note has been recorded in the case of the assessee only which is evident from two observations, i.e., (a) the name, address, PAN of the assessee is mentioned on the top of satisfaction note; and (b) At the end of the satisfaction note AO has mentioned that notice is issued in assessee’s case.
6. Based on the arguments advanced by the assessee, the Ld. CIT(A) quashed the assessment order on the ground that the jurisdiction under section 153C has not been assumed properly. He noted that on the top of the satisfaction note the name and address with PAN of the assessee has been mentioned. The documents alleged to have belonged to the assessee as per satisfaction note were seized from the premises of two assesses, namely, M/s Excel Infotech Pvt. Ltd. and M/s Amtek Auto Ltd. If the satisfaction is recorded in the file of person searched, then how name of the other person not searched along with documents appeared in the said satisfaction note. This, according to him, proves that the satisfaction was not recorded in the file of the person searched. He further noted that at the end of the satisfaction note it is written: ‘notice u/s 153C is issued to M/s Rangoli Buildtech (P) Ltd.’ This according to him can happen only in the file of appellant as notice is issued from the file of appellant and cannot be issued from other files. Referring to the decision of the Tribunal relied on by the ld. counsel in the case of DSL properties (P) Ltd. (supra), he noted that the Tribunal has set the guidelines for assuming jurisdiction under section 153C, i.e., the AO of the assessee searched under section 132 will write satisfaction note that certain documents belonged to other person and such documents/assets/books of account will be handed over to the AO of the “other person.” Then, on the basis of satisfaction of such documents/assets/books of account, the AO of other person will assume jurisdiction under section 153C to assess such other person. He observed that the satisfaction note in the instant case is not recorded in the file of the searched person and documents claimed to be owned by the assessee was transferred to the file of the appellant. Therefore, the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with the finding of the Tribunal in the case of DSL Properties Pvt. Ltd. (supra). He accordingly concluded that the jurisdiction under section 153C has not been assumed properly, therefore, he quashed the assessment order passed under section 153C of the Act.
7. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal on the following grounds:-
“1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law and on facts in quashing the order of the Assessing Officer passed under section 153 A read with 153C of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in treating a directory procedure of recording of satisfaction envisaged under section 153C of the Act as a mandatory requirement so as to affect the assumption of jurisdiction by the AO especially when it is not in dispute that documents belonging to the assessee has been found in the premises of the person searched.
3. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in holding that jurisdiction u/s 153C was not assumed properly when the AO of the assessee searched and the AO of the assessee intended to be covered under section 153C are the same and the said AO has recorded satisfaction while issuing notice under section 153A read with section 153Cof the Income Tax Act, 1961.
4. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
5. The appellant craves leave to add, alter or demand any/all of grounds of appeal before or during the course of the hearing of the appeal.”
8. The ld. DR strongly challenged the order of the CIT(A) in quashing the assessment proceedings passed under section 153C read with section 143(3). She submitted that the documents belonging to the assessee has been found in the premises of the person searched. Further, the AO of the person searched and the documents belonging to the other party are one and the same and the AO has recorded satisfaction while issuing notice under section 153C of the IT Act, 1961. Therefore, proper satisfaction was recorded and there is no assumption of invalid jurisdiction under section 153C as held by the ld. CIT(A).
9. Referring to the satisfaction note under section 153C of the Act, she submitted that the name of the assessee has clearly been mentioned with PAN number. Therefore, it is clear that satisfaction note has been correctly written. She accordingly submitted that the order of the CIT(A) should be quashed and since he has not decided the issue on merit, the matter may be restored to his file for deciding the issue on merit.
10. The ld. Counsel, on the other hand, strongly supported the order of the CIT(A). Referring to the copy of the satisfaction note, he submitted that the AO has nowhere mentioned as to how these documents are belonging to the assessee and not of the searched person. Referring to the decision of the Hon’ble Delhi High Court in the case of Pepsi Foods (P) Ltd. vs ACIT, 231 Taxman 58, he submitted that the Hon’ble High Court in the said decision has held that the satisfaction note itself must display the reasons or basis for the conclusion that the AO of the searched person is satisfied that the seized documents belonged to a person other than the searched person. Referring to the decision of the Hon’ble Delhi High Court in the case of PCIT vs. NS Software 403 ITR 259, he submitted that the Hon’ble High Court in the said decision has held that the failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the notice issued under it, vitiates the assessments. Referring to the decision of the Hon’ble Delhi High Court in the case of Pepsico India Holdings (P) Ltd. vs. ACIT, 370 ITR 295, he submitted that the Hon’ble High Court in the said decision has held that it is necessary that before the provisions of section 153C of the said Act can be invoked, the AO of the searched person must be satisfied that the seized material (which includes documents) does not belong to the searched person. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Renu Constructions (P) Limited, 399 ITR 262, the ld. counsel drew the attention of the Bench to the following observations of the Hon’ble High Court:-
“9. Consequently, this Court rejects the contention of the learned counsel for the Revenue that even prior to 1st June 2015 at the stage of initiation of proceedings under Section 153C of the Act, it is sufficient if the seized document ‘pertained to’ the other person and it is not necessary to show that the seized material ‘belonged to’ the other person. This legal position has been explained by this Court in its recent decision dated 10th July 2017 in W.P. (C) No. 3241/2015 (Canyon Financial Services Ltd. v. Income Tax Officer).”
11. Referring to the decision of the Hon’ble Delhi High Court in the case of ARN. Infrastructure India Limited vs ACIT, 394 ITR 569, he submitted that the Hon’ble Delhi High Court in the said decision has held that the documents should not only belong to the other person but also should be incriminating in nature. Referring to the decision of the Hon’ble Bombay High Court in the case of CIT vs Sinhgad Technical Education Society, 378 ITR 84, he submitted that the Hon’ble High Court in the said decision has held that the satisfaction must clearly point out that the document does belong to the assessee. He accordingly submitted that in the light of the above decisions the decision of the ld. CIT(A) quashing the assessment order passed under section 153C/143(3) due to invalid assumption of jurisdiction is legally correct and, therefore, the grounds raised by the Revenue should be dismissed.
12. Referring to the decision of the Tribunal in the case of ACIT vs. Gracious Projects Pvt. Ltd., vide ITA No.1720/Del/2015, order dated 11th December, 2019, he submitted that under identical circumstances, the Tribunal has dismissed the appeal filed by the Revenue wherein the ld. CIT(A) has quashed the assessment proceedings observing that satisfaction note has not been recorded in the file of the assessee searched under section 132 of the Act and documents claimed to be owned by the assessee was transferred to the file of the assessee. Accordingly he held that the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with the provisions of section 153C wherein satisfaction note in the searched person’s proceedings has to be recorded separately. Since, in the instant case also, the AO of the searched party and the AO of the other party is same, therefore, in view of the decision of the Tribunal the order of the CIT(A) has to be upheld and the grounds raised by the Revenue should be dismissed.
13. The Ld. DR, in her rejoinder, submitted that how can part of the books of account belonged to the assessee and the other part does not belong to the assessee. All the documents should be accepted as belonging to the assessee and it cannot be said that part of the documents belong to the assessee and the other part does not belong to the assesseee.
14. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, during the course of search action under section 132 of the Act in the case of Amtek Group, certain documents belonging to the assessee i.e., M/s Rangoli Buildtech Pvt. Ltd. were found and seized from the premises of M/s Excel Infotech Pvt. Ltd., & others, 9, Tolstoy Marg, Connaught Place, New Delhi, in whose name search warrant of authorisation was issued. We find, the AO issued notice under section 153C of the Act on the assessee on 08.11.2012 and the assessee, in response to the said notice filed the return of income declaring nil income and showing loss of Rs.6,89,710/-. We find, on the basis of seized documents the AO made addition of Rs.2,20,00,000/- to the total income of the assessee. In appeal, the ld. CIT(A) held that since the satisfaction note is not recorded in the file of the searched person stating that the seized documents belonged to the assessee, therefore, the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with the law. He accordingly quashed the assessment order passed under section 153C/143(3) of the IT Act.
15. We do not find any infirmity in the order of the CIT(A). A perusal of the satisfaction note under section 153C of the IT Act, 1961 dated 26th October, 2012 read as under:-
16. A perusal of the same shows that the name and address of the assessee with PAN numbers have been mentioned at the top of the satisfaction note and the name of the searched person is not mentioned. Further, nowhere it is mentioned that these documents are incriminating in nature. Further, there is nothing on record to suggest that any satisfaction note has been recorded in the file of the searched person. We find, the Hon’ble Delhi High Court in the case of Pepsi Foods (supra) has held that the satisfaction note itself must display the reasons or basis for the conclusion that the AO of the searched person is satisfied that the seized documents belonged to a person other than the searched person. The relevant observation of the Hon’ble High Court at para 11 of the order read as under:-
“11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word “satisfaction” or the words “1 am satisfied” in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any “satisfaction” of the kind required under Section 153C of the said Act.”
17. We find, the Hon’ble Delhi High Court in the case of NS Software (supra) has held that failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the note issued under it vitiates the assessment. We find the Hon’ble Delhi High Court in the case of Pepsico (supra) has held that before the provisions of section 153C of the Act can be invoked, the AO of the searched person must be satisfied that the seized material does not belong to the searched person. The Hon’ble Delhi High Court in the case of Canyon Financial Services Ltd. vs. ITO, 399 ITR 202, has held that in absence of conclusion either in satisfaction note that the seized documents mentioned there in belonged not to the searched person, but, to the assessee makes the 153C proceedings invalid. We find, the Hon’ble Delhi High Court in the case of ARN Infrastructure India Ltd. (supra) has held that the amendment to Section 153C of the Act is prospective with effect from 1st June, 2015. In the case of Renu Constructions Pvt. Ltd. (supra), the Hon’ble Delhi High Court has held that “pertained to” added with effect from 01.06.2015 is prospective in nature.
18. Since, in the instant case, no satisfaction has been recorded in the file of the searched person that the seized documents belonged to the other party and do not belong to the searched person, therefore, in view of the decisions cited above, we do not find any infirmity in the order of the CIT(A) on this issue holding that the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with law. We accordingly uphold the same and the grounds raised by the Revenue are dismissed.
19. In the result, the appeal filed by the Revenue is dismissed.
The decision was pronounced in the open court on 22.10.2020.
