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TMI Blog2014 (12) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction in the file of the person searched, thereafter, such note along with the seized document/books of accounts is to be placed in the file of such other person and in absence of such exercise, initiation of proceedings u/s 153C of the Act itself are invalid. U/s 153C of the Act for transferring the material or evidence collected during course of search to the AO of assessee other than the person searched, what is required is that the money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized in the course of search of an assessee belonged to or related to a person other than the person searched - unlike section 158BD of the Act for transferring a file u/s 153C of the Act, there is no need to examine whether the material, documents, books of accounts or other evidence seized during the course of search of an assessee represents or disclosed undisclosed income of another assessee. Since satisfaction was recorded on 5.7.2010 and notice u/s 153C was issued on 6.7.2010, the only conclusion that can be drawn is that the AO of such other person other than searched has taken over the possession of the seized document on 5.7.2010 - t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - lump sum disallowance of expenses is not sustainable and the CIT(A) rightly deleted the addition and directing the AO to allow the depreciation for the assessee as per provisions of the Act and Income Tax Rules 1962 – Decided against revenue. Statements of various persons without confronted to the assessee have evidentiary value or not – Held that:- CIT(A) rightly held that Sh. Darshan Singh and Sh. D. Bhattacharya, whose statement is being relied upon do not appear to have any connection with the appellant co. which has been established by the AO – the order of the CIT(A) is upheld – Decided against revenue. - ITA Nos.4200/Del/2012 to 4202/Del/2012, ITA Nos.4197/Del/2012 to 4199/Del/2012, C.O. Nos. 380, 381, 382, 383, 384, 385/Del/2012,ITA Nos.4197, 4198, 4199, 4200, 4201, 4202, /Del/2012 - - - Dated:- 14-11-2014 - S. V. Mehrotra, AM And Chandra Mohan Garg, JM,JJ. For the Petitioner : Shri Sunil Bajpai, Sr DR For the Respondent : Shri Kapil Goyal, Adv. ORDER Per Banch 1. These appeals filed by the revenue and COs filed by the assessee have been preferred against the order of the CIT(A)-II, New Delhi dated 17.5.2012 in Appeal No. 504, 505, 503, 506, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without jurisdiction. COs of the assessee 6. At the outset, both the parties requested that the COs of the assessee being legal grounds may be adjudicated first, hence, we are first taking up COs of the assessee for adjudication. 7. Although the assessee has taken as many as seven COs, similarly worded in all six cases but except main CO No. 1, other COs are argumentative and supportive to the main CO No.1 which reads as under:- 1. That in view of the facts and circumstances of the case and in law the CIT(A) has erred in not holding that the notice issued u/ 153C and the assessment order passed u/s 153C/143(3) are illegal, bad in law, without jurisdiction and barred by time limitation. 8. We have heard rival arguments of both the parties and carefully perused the relevant material placed before us on record. 9. Ld. Counsel of the assessee submitted that the documents found during the search proceedings as referred to in the satisfaction note, recorded by the AO of the assessee (the person other than the person searched), do not belong to assessee as the same were part of working papers of the CA Shri B.K. Dhingra in whose office the search was conducted on 20.10.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord a specific satisfaction note as satisfaction can be inferred from other records and orders of the department. Ld. DR further pointed out that it is necessary for the person objecting to the validity of the notices to demonstrate prejudice suffered by him, otherwise validity of the notice under Section 153C of the Act cannot be held illegal, bad in law and without jurisdiction. Ld. DR also contended that the technicalities and irregularities which do not occasion failure of justice are not allowed to defeat the ends of justice, therefore, on the basis of small and curable technicalities and irregularities, entire proceedings conducted by the revenue cannot be held illegal or without jurisdiction. To support above contentions and submissions, the ld. DR has placed reliance on following decisions of Hon'ble Supreme Court, Hon'ble High Courts and the Tribunal:- (i) State Bank of Patiala Others vs S.K. Sharma (1996) AIR 1669 (Hon'ble Supreme Court) (ii) K.M. Mehboob vs DCIT(2012) TIOL-642-HC-Kerala-IT (Hon'ble Kerala High Court) (iii) CIT vs Panchjanyam Management 333 ITR 281 (Kerala) Hon'ble Kerala High Court (iv) Shirish Madhukar Dalvi vs ACIT (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Kerala High Court in the case of CIT vs Panchajayanam Management (supra) and K.M. Mehboob vs DCIT (supra), we observe that in the case of K.M. Mehboob (supra) as relied by the ld. DR, their lordships considered the ratio of the decision of Hon'ble Supreme Court in the case of Manish Maheshwari vs ACIT 289 ITR 341 (Hon'ble Supreme Court) and its own decision i.e. decision of Hon'ble Kerala High Court in the case of CIT vs Panchajayanam Management (supra) and held as under:- 5. The remaining question to be considered is appellant's challenge against the assessments completed for the six assessment years from 2003-04 to 2008-09 under Section 153C read with Section 153A(1) on the ground that the Assessing Officer who conducted search on the assessee at Mangalore under Section 132 has not recorded the satisfaction as required under Section 153C before transferring the files to the Assessing Officer of the appellant to make assessments on the appellant under Section 153C read with Section 153A of the Act. While learned counsel for the appellant has relied on the decision of the Supreme Court in Manish Maheshwari v. Asst. Commissioner of Income Tax and Anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the search and who obtained materials and evidence about the income of the Appellant rightly transferred the files to the Assessing Officer of the appellant at Kozhikode, who has jurisdiction to assess him, and it is only on receipt of such files and materials from the Assessing Officer from Mangalore, the appellant's assessments were taken up and completed under Section 153C read with Section 153A of the Act. We, therefore, do not find any merit in the contention of the appellant's counsel that satisfaction was not recorded by the Assessing Officer at Mangalore before transferring the materials and seized records to the appellant's Assessing Officer. In our view, if appellant's argument is accepted he could be placed in a worse position, because if his objections were considered and overruled while transferring the file by the Assessing Officer at Mangalore holding that goods seized or materials recovered really belong to him justifying assessment, the appellant will forfeit his right to raise same objection before his Assessing Officer who has to consider the relevance of the documents, accounts or other materials received from the Assessing Officer at Mangalore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BC of the Act. Their lordships, in this case, went on to hold that the issuance of notice under Section 158BD r/w section 158BC is a sufficient for initiation of assessment which is in that case admittedly done and the assessee had filed return in Form 2B in terms of the said notice. Speaking for Hon'ble Kerala High Court, their lordships also held that by virtue of operation of section 142 of the Act, every assessee assessed under Section 158BC and 158BD gets an opportunity to file objections and validity of assessment is not affected by the reasons of Assessing Officer's failure to record satisfaction under Section 158BD which is only for the purpose of transferring the file and once the file is transferred, the transferring officer becomes functus officio and the jurisdiction for all purposes is transferred to the officer to whom file is transferred and who has jurisdiction to assess the assessee about whom the details were obtained in the course of search of another assessee i.e. person searched. We also note that the case of Panchjanyam Management Agencies (supra) is not related to section 153A and 153C of the Act. 18. In the case of K.M. Mehboob vs DCIT (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 153C are ipso facto attracted and it is automatic that the assessments covered under all the years falling within the mandate of proviso of section 153C(1) and read with 153A(1) get attracted. Moreover, there is no legal requirement that initiation of proceedings should only be with respect to such years in respect of which there is some material. Now coming to the issue that the satisfaction note should contain some satisfaction on the part of the AO leading to undisclosed income on the basis of the seized material. In this regard also I have considered the facts of the case and in my considered opinion recording of satisfaction so as to show existence of undisclosed income is not a prerequisite under the provision of see 153C which are distinguishable from the provisions of see 15880 of the Act which is also related to block assessments. The literal meaning of sec 153C that once documents are handed over to the AO of the other person, which incidentally is the same AO, the provision of sec 153A are made applicable and therefore even if such documents etc. are recorded or disclosed to the department by such other person, the assessment may have to be framed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153C in this case on account of grounds no 1, 2, 3 5 taken by the appellant. These grounds are therefore dismissed. 20. We further observe that in the cases of DSL Properties (P) Ltd. (supra), the ITAT Delhi held that even if the Assessing Officer of the persons searched and the Assessing Officer of the such other person other than searched is the same, then the Assessing Officer has to first record the satisfaction in the file of the person searched, thereafter, such note along with the seized document/books of accounts is to be placed in the file of such other person and in absence of such exercise, initiation of proceedings under Section 153C of the Act itself are invalid. 21. In view of factual matrix of the present case, we are of the considered view that there is no need to go with conflicting decisions on the legal issue as though section 153C of the Act is analogous to the earlier provisions of section 158BD of the Act but there is a complete deviation in the newly inserted provision of section 153C of the Act inasmuch as while section 158BD of the Act stipulates that for transfer of file only when the Assessing Officer who conducted the search or who called for bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of such other person. Therefore, the short question that falls for our consideration and decision is at what stage of the proceedings should the satisfaction note be prepared by the assessing officer: whether at the time of initiating proceedings under Section 158BC for the completion of the assessments of the searched person under Section 132 and 132A of the Act or during the course of the assessment proceedings under Section 158BC of the Act or after completion of the proceedings under Section 158BC of the Act. 23. We further note that the Hon'ble Jurisdictional High Court of Delhi in the case of Pepsico India Holdings Pvt. Ltd. Vs ACIT (supra) after considering its own decision in the case of Pepsi Foods Pvt. Ltd. Vs ACIT WP(C) No. 415/2014 dated 07.08.2014 and the provisions of section 153C, 132(4A)(i) and 292 C(1)(i), it has been held thus:- Before we examine these writ petitions in detail it would be pertinent to point out that recently in the case of Pepsi Foods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax, WP (C) No.415/2014 and other connected matters, this court had occasion to examine the very provisions which are under consideration in the matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 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 I 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. 24. The coordinate bench of the Tribunal in the case of DSL Properties (P) Ltd. Vs DCIT in operative paras 15, 18 and 21 (supra) has held thus:- Held Action u/s 153C can be taken in respect of any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present assessee i.e. person other than person searched, the AO of the person searched has admitted that no satisfaction note is available in their record/files concerning person other than the present case. 26. The satisfaction note available on Paper Book No. 2of the assessee at page 51 clearly reveals ex facie that the same has been recorded by the AO in the capacity of AO of the person other than person searched., meaning thereby assessee of the instant appeals. In these circumstances, it can safely be held that no valid satisfaction was recorded by the AO of person searched so as to fulfill requirement of valid assumption of jurisdiction u/s 153C of the Act which is sine qua non for validly assumed jurisdiction u/s 153A of the Act. 27. Replying to the specific query of the Bench, ld. DR found himself unable to submit the outcome of the assessment, proceedings for AY 2009- 10 relevant to previous 2008-09, pertaining to which alleged cheque book as termed as incriminating material by the department, was related. In this situation, we can safely presume that no regular assessment order has been passed till date for the AY 2009-10 to which only seized material i.e. cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. 30. On careful consideration of above submissions, we observed that in the recent decision of ITAT 'E' Bench Mumbai in the case of SKS Ispat and Power Limited vs DCIT in ITA No. 8746/M/2010 and other appeals the order dated 7.5.2014, we observe that the issue of limitation prescribed under Section 153(1) of the Act has been decided by following the decision of ITAT, Delhi 'H' Bench in the case of V.K. Fiscal Services Pvt. Ltd. vs DCIT (supra) in favour of the assessee with following observations and conclusions:- 15. We also find that the CIT(A) made a reference to the incriminating material, which yielded disclosure of some undisclosed income. But, on perusal of the documents, we find that the CIT(A) entered into an error zone and the disclosure is only ₹ 5 crores in this case and the same relates to the lands deals. In principle this disclosure has nothing do with the impugned additions u/s 68 or 14A of the Act. In the instant case, specific to the assessee, no incriminating material with the details was referred either in the assessment order or in the order of the CIT (A) for making the impugned additions. As per the cited judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the question of making any addition or making disallowance which are not based on only material found during the search is bad in law. 31. In view of above decision and as per letter and spirit of section 153(1) of the Act, we are inclined to hold that since in this case satisfaction was recorded on 5.7.2010 and notice under Section 153C was issued on 6.7.2010, the only conclusion that can be drawn is that the Assessing Officer of such other person other than searched has taken over the possession of the seized document on 5.7.2010. Accordingly, as per section 153A(1) of the Act, the Assessing Officer can issue a notice under Section 153A of the Act for the previous year in which the search is conducted and the purpose of section 153C of the Act on the date on which the document is handed over to the Assessing Officer of the person other than the searched person for six AYs immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition or handing over of document or material is made. In the case in hand, the relevant date of handing over may easily be inferred from satisfaction note i.e. 5.7.2010 and, thus, relevant pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corroborative evidence which cannot take the place of incriminating material against the assessee. 34. Ld. DR replied that cheque book seized during the search and seizure operation conducted on Shri B.K. Dhingra and others on 20.10.2008 is undisputedly and admittedly belongs to the appellant i.e. person other than person searched and it is not obligatory on the part of Assessing Officer of the person searched to verify and to draw a conclusive finding that document which was cheque book in the present case is an incriminating material or not. The DR further contended that this is the business of the Assessing Officer of the person other than the person searched who will have full jurisdiction to appreciate evidentiary value of the books of accounts or material or goods received from the other Assessing Officer and to proceed to make assessment in his own way. 35. On careful consideration of above contentions, we are of the view that although the Assessing Officer of the person searched is not required to go into detail and to adjudicate the issue as to whether the money, bullion, jewellery, document etc. seized during the course of search operation which were found to belon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of recording of satisfaction i.e. 5.7.2010 the relevant previous year is 2010-11 and the cheque book which belonged to FY 2008-09 was certainly related to AY 2009-10 which cannot be said out of ambit of the block of relevant six assessment years. 39. The ld. DR has also placed reliance on the decision of Hon'ble High Court of Delhi in the case of Filatex India Ltd. Vs CIT 2014-TIOL-1325- HC-DEL. But on vigilant and careful reading of this decision, we respectfully reach to a conclusion that benefit of the ratio of this case is not available for the Revenue in the extant case as facts are clearly distinguishable to the present case as the case of Filatex (supra) is related to the proceedings u/s 153A of the Act and not to the proceedings u/s 153C of the Act and not to the proceedings u/s 153C of the Act and it is a well accepted proposition that the later provision is narrower in comparison to former provision and furthermore there was sufficient incriminating material found during the course of search in the case of Filatex (supra) whereas in the instant case, there was no incriminating material found or unearthed for any of the assessment year covered u/s 153C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons covered under a warrant u/s 132, there was no need to transfer the books of accounts/documents to any other officer. Thereafter jurisdiction over your case has been vested with the undersigned by virtue of order u/s 127 dated 19.10.2010 passed by the CIT(Central)-II, New Delhi. 2.2 It is informed that you are interpreting the first proviso of section 153C(1) wrongly while claiming that the six previous assessment years are to be calculated w.r.t. the date of making a reference u/s 153C. For your kind information section 153C(1) directs that the proceedings u/s 153C shall take place in accordance with the provisions of section 153A, the first proviso to section 153C(1) relates to determining the number of pending assessments proceedings which shall abate after issuing notice u/s 153C. The number of assessment years covered u/s 153C are the same, as per the provisions of section 153A only. 3. Accordingly, the assessment proceedings have been initiated for AYs 2003-04 to 2008-09 as per provisions of the Act. As regards to your contention that assessment u/s 153C cannot be equated to regular and normal assessments and need to be based on incriminating and seized documents, yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for all six assessment years under consideration in these appeals and consequently the assessment completed in pursuance to such notices is also quashed. Accordingly, cross objection of the assessee in all six cases is allowed. Appeals of the Revenue 44. From careful perusal of the grounds taken by the revenue in all six appeals, we observe that except quantum of amount, the basis, facts and contentions raised in all six appeals are similar. For the sake of clarity and transparency, the grounds raised by the revenue in these appeals read as under:- 1. That the CIT(A) erred in law and on facts of the case in deleting the addition made by the AO on account of unexplained purchase u/s 69C of the Income Tax Act, 1961. 2. That the CIT(A) erred in law and on facts of the case in not confirming the AO's observation that the entire sales of the assessee represented its income from undisclosed sources. 3. That the CIT(A) erred in law and on facts of the case in deleting the addition made by the AO by way of disallowance of 100% of expenditure and depreciation claimed by the assessee. 4. That the CIT(A) erred in law and on facts of the case in holding that statements o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y Amount (Rs.) 1. 2003-04 25,95,575/- 2. 2004-05 32,45,450/- 3. 2005-06 36,60,320/- 4. 2006-05 37.15.230/- 5. 2007-08 37,12,568/- 6. 2008-09 1,29,508/- The grounds, are therefore allowed in favour of the appellant company. 46. Ld. DR submitted that the CIT(A) erred in deleting the additions made by the Assessing Officer on account of unexplained purchases under Section 69C of the Act. Ld. Counsel of the assessee replied that when the books of accounts maintained by the assessee in the normal course of business reflects amount of purchases made by the assessee during the relevant financial year and during the assessment proceedings, no defect was pointed out by the Assessing Officer, then an inference may be drawn that the same stood accepted by the Assessing Officer. The counsel of the assessee also submitted that when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that the sale proceeds represent income from undisclosed sources on the basis of conjectures surmises. The appellant is assessed with Sales Tax department under the Delhi Sales Tax Act. Sales and purchases stood accepted by the Sales Tax Department. There is no negative observation in the Sales Tax Assessment order. Moreover, the AO has got confirmed the transaction of sales made to N.K. Textiles by issuing notice u/s 133(6) of the I.T. Act. Onus was on the AD to make enquiries if he was not satisfied. In the connection I have gone through the views of Hon'ble Madras High Court in the case of CIT vs Anandha Metal Corpn. (2006) 152 Taxman 300 (MAD). Held If that be so unless and until the competent authority under the sale tax Act differs or varies with the closing stock of the assessee, the return accepted by the commercial Tax department under the TNGST Act, is, in our opinion, binding on the income tax authorities and the Assessing officer, therefore, has no power to scrutinize the return submitted by the respondent/assessee to the commercial Tax Department under the provisions of the TNGST Act and as accepted by the said authorities unless otherwise it is varied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, when a major part of the sales were made against the opening stock and the purchases made during the year, then the sales is nothing but the conversion of stock into liquidity and that too when the profit earned from this purchase and sales activities has been already offered to tax, then it cannot be inferred that the sale proceeds represent income from undisclosed sales of the assessee. In this situation, we can easily infer that the Assessing Officer made additions on the basis of conjectures and surmises which was rightly deleted by the CIT(A). We have no reason to interfere with the findings of the CIT(A) in the impugned order in this regard. Accordingly, ground no. 2 of the revenue being devoid of merits is dismissed. Ground no. 3 52. From the impugned order, we observe that the CIT(A) granted relief for the assessee by deleting addition made by the Assessing Officer by way of 100% disallowance of expenditure and depreciation claimed by the assessee with following observations and findings: 31. I have considered the assessment order, written submissions, remand report and rejoinder to the remand report filed by the AR as well as the facts of the case and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer and the same were examined by him and no deficiency or defect has been pointed out by the Assessing Officer in the audited books of accounts of the assessee, then no disallowance of expenses claimed could be made. Ld. AR supporting the impugned order submitted that the CIT(A) was not justified in granting relief for the assessee. 55. From bare reading of the impugned order, we observe that the CIT(A) has granted relief for the assessee by relying on the books of accounts which were duly audited and there was no negative comment in the audit report. The DR has not disputed the fact that the audited books of accounts were examined by the Assessing Officer and no defect or deficiency was found by the Assessing Officer. In this situation, we are in agreement with the findings of the CIT(A) that lump sum disallowance of expenses is not sustainable and we hold that the CIT(A) rightly deleted the addition and the CIT(A) was also justified in directing the Assessing Officer to allow the depreciation for the assessee as per provisions of the Act and Income Tax Rules 1962. Accordingly, we uphold the conclusion and findings recorded by the CIT(A) and consequently gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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