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TMI Blog2015 (5) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... ving jurisdiction over searched person which has not been recorded in the present case by the AO of person searched i.e. Shri B.K. Dhingra & Others and as per RTI reply dated 8.12.2014 (PB page 4-5) the only satisfaction has not been recorded in the file of other person viz. the assessee. In view of above, it can safely be held that no valid and required satisfaction note was recorded by the AO of the persons searched so as to fulfill the requirements of valid assumption of jurisdiction u/s 153C of the Act which is a sinequanon for validly assumed jurisdiction u/s 153C r.w.s. 153A of the Act. - Decided in favour of assessee. Additions u/s 69C - unexplained purchases - disallowance of expenditure - Held that:- AO proceeded to make additions with a predetermine mind without pointing out any defects in the audited books and book results of the assessee. We reach to a logical and fortified conclusion that the AO was not justified in making impugned disallowances and additions pertains to unexplained purchases u/s 69C of the Act and disallowance of expenses in all six assessment years and addition u/s 68 of the Act in regard to share capital for A.Y. 2003-04 without any justified bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order u/s 127 of the Act dated 19/10/2010. A notice u/s 153C of the Act was issued to the assessee company for filing return for A.Y. 2003-04 to 2008-09 and in response to the said notice filed return for all six assessment years on 02/11/2010. The AO dispatched the punchnama, reasons for issuing notice u/s 153C of the Act and jurisdiction order dated 19/10/2010 u/s 127 of the Act on 10/11/2010 as sought by the assessee. 3. The AO rejected legal contentions of the assessee and made additions u/s 69C of the Act pertaining to unexplained purchases and also made disallowance of expenditure as per discussions in the respective assessment orders. 4. The assessee preferred an appeal before CIT(A) which was partly dismissed on legal contentions of the assessee but the CIT(A) partly allowed the appeal of the assessee on merits deleting the additions made by the AO. The CIT(A) also directed the AO to work out the peak from the entries in the cash book of the assessee for the relevant year to make a singular addition of the said peak amount as unexplained investment/expenditure/cash credit. Now the aggrieved Revenue is before this Tribunal against the part relief granted by the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person other than the person searched), do not belong to the assessee company as these were the part of working papers of Chartered Accountant of the assessee s company Shri B.K. Dhingra whose office was searched on 20/10/2008. The ld. AR also submitted that the proceedings have been initiated and the assessment has been framed in non-confirmation with the statutory provisions of section 143(3) read with section 153C of the Act and, therefore, the CIT(A) was not justified on facts and in law in confirming and upholding the action of the AO and rejecting the legal contentions of the assessee. 8. The ld. AR strenuously contended that the CIT(A) was not justified and grossly erred in not considering the fact that the assessment proceedings for all six assessment years under appeal were not pending on the date of recording of satisfaction u/s 153C of the Act (on 10/09/2010) and accordingly, the same did not abate for the purpose of initiation of proceedings u/s 153C of the Act and as such the reassessment order u/s 143(3) read with section 153C of the Act being bad in law, illegal and without jurisdiction deserves to be quashed. The ld. AR vehemently contended that the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed documents/papers and provision of section 153C is invokeable in this case. As the undersigned is also the jurisdictional AO of M/s Tanveer Collection Pvt. Ltd., RZ-126, West Sagar Pur, Shankar Park, New Delhi. This satisfaction note is recorded and is placed in the file before issuing notice u/s 153C. 13. It can be seen from the assessment order that notice u/s 153C was issued to the assessee by the ACIT, Central Circle-17 on 08.09.2010, being the same date on which the above satisfaction was recorded. It is apparent that it was : ' Satisfaction Note for issuing Notice u/s 153C of the I.T. Act, 1961 in the case of M/s Tanveer Collection Pvt. Ltd.' It is further noticeable from the above that : 'This satisfaction note is recorded and is placed in the file before issuing notice u/s 153C.' The contents of the above satisfaction note leave nothing to doubt that it was recorded by the AO of the assessee before taking up the assessment u/s 153C of the Act pursuant to the search conducted on Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. Pages 5-7 of the paper book are the copies of the reply furnished by the Dy. Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person searched and to the others and thus handed over to the concerned AOs of the person searched and others for making assessment. As it is only the AO of the person searched who can reach a conclusion that some of the documents etc. do not belong to the person searched but to some other person, the legislature has provided for recording of such satisfaction by the AO of the person searched. It is not permissible under the law to require the AO of the other person to record such satisfaction by the AO. 17. As regards the other argument of the ld. DR that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction by the AO of the assessee. We are again unable to appreciate this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g upon the exercise of his assessment or reassessment. Therefore, now under the law, w.e.f. 1.10.2014 it has become obligatory not only for the AO of the person searched to record satisfaction before handing over books of account or documents, etc., to the AO of the 'other person', but, such AO of the 'other person' is also required to record satisfaction that the books of account or documents, etc. have a bearing on the determination of the total income of such other person. In the pre-substitution era of the relevant part of sub-section (1) of section 153C covering the period under consideration, the jurisdictional condition remains that the satisfaction is required to be recorded by and in the case of the person searched so as to enable the AO of the 'other person' to start with the proceedings for making assessment or reassessment. 20. The ld. DR contended that recording of satisfaction by the AO of the assessee at the most can be treated as a technical mistake and hence should not eclipse the assessment. Relying on certain judgments, the ld. DR submitted that the technicalities cannot be allowed to prevail in the course of indulgence of justice. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this judgment strengthens the assesasee's case by making it clear in no uncertain terms that the AO of the person searched is obliged to record the satisfaction. The relevant observations of the Hon'ble High Court contained in para 15 merit reproduction as under: - 'It needs to be appreciated that the satisfaction that is required to be reached by the Assessing Officer having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person other than the searched person. There is no requirement in Section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to show to conclusively reflect or disclose any undisclosed income.' 24. It is pretty clear from the above extraction that the satisfaction as referred to it in this case is that of the Assessing Officer having jurisdiction over the searched person. As such, we are of the considered opinion that this judgment does not support the Revenue's case. Resultantly, the characterization of the above Tribunal orders as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h or who called for books of accounts was satisfied that the undisclosed income found therefrom belongs to any person other than the person searched who has to be assessed under Section 158BD r/w section 158BC of the Act. While under Section 153C of the Act for transferring the material or evidence collected during course of search to the Assessing Officer 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. In simpler words unlike section 158BD of the Act for transferring a file under Section 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. 22. In the decision of the Hon ble Supreme Court in the cases of Calcutta Knitwears (supra), the ratio laid down in the case reads thus:- 38. Having said that, let us revert to discussion of Section 158BD of the Act. The said provision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the matters before us. In the judgement delivered on 07.08.2014 in the case of Pepsi Foods Pvt. Ltd. (supra), after examining the provisions of Sections 153C, 132(4A)(i) 292C(1 )(i) of the said Act, this Court had observed as under: 6. On a plain reading of Section 153C, it is evident that 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. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of Section 153A. Therefore, 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 suchsatisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of any other person than person searched if AO of person searched is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents belong to person other than person searched. Therefore, recording of satisfaction by AO of person searched that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized belong to person other than person searched is a sine qua non for initiating action u/s 153C. In S. 158BD, AO of person searched is to be satisfied that any undisclosed income belong to any person other than person searched, while, in case of S. 153C, AO of person searched is to be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents belong to person other than person searched. Perusal of satisfaction note shows that paper does not indicate in whose case this satisfaction was recorded and who is officer recording satisfaction. Neither name of assessee of AO was mentioned and no seal of AO was there. AO recorded satisfaction in case of such other person which does not satisfy condition of assuming jurisdiction u/s, 153C. Moreo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heque book pertains to. Ld. DR has also not disputed the fact submitted by the assessee that the details of cheque book were duly reflected in the return of the assessee for AY 2009-10. Therefore, if the AO of the person other than person searched might have gone through the return of the assessee for AY 2009-10, which was admittedly filed on 30.09.2009, then he could have drawn a proper conclusion about further action of the proceedings for AY 2009-10 but this exercise was not conducted prior to issuance of notice u/s 153C of the Act, on 6.7.2010, hence, the initiation of proceedings and assumption of jurisdiction u/s 153C of the Act gets vitiated on account of non-recording of required satisfaction by the AO of the person searched and non application of mind by the AO of the person other than the person searched. 12. Turning to the facts of the present case, we observe that the satisfaction note available at page 5 on the paper book of the assessee clearly reveals exfacie that the same has been recorded by the AO in the capacity of the AO of the person other than the person searched, thus, the satisfaction note has been recorded by the AO of the assessee of the present cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning to the facts of the present case, undisputedly, the AO of the persons searched had not recorded any satisfaction note and the only satisfaction note available at page no. 5 of the paper book has been recorded by the AO of the person other than persons searched i.e. the assessee, does not satisfy the conditions of validly assuming jurisdiction u/s 153C of the Act. The present case is squarely covered by the decision of Hon ble High Court in the case of Pepsico (supra). Thus, assumption of jurisdiction was not valid, bad in law and void ab initio. Accordingly, cross objections from 1 to 4 of the assessee being legal contentions are hereby allowed. Cross objection nos. 5 to 12 of the assessee and ground no. 1 to 3 in A.Y. 2003-04 ground no. 1 2 of the Revenue for A.Y. 2004-05 to 2008-09 of the Revenue. 15. The ld. AR contended that the assessee or its directors have no connection or relation either directly or indirectly with Thapar Group and the assessee did not conduct any business activities or dealings on sales or purchase with Thapur Group . The ld. AR further contended that the assessee made sales and purchases during all AYs with independent tax payer concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have held that the purchases, sales and expenses made by the assessee during the relevant assessment period are bogus and unverifiable by nature. Therefore, the AO was justified and making additions in regard to unexplained purchases and expenses in all assessment years. The DR also contended that the AO was also justified in making addition u/s 68 of the Act for A.Y. 2003-04 on account of cash capital u/s 68 of the Act. The ld. DR further submitted that the CIT(A) deleted the additions made by the AO with a direction to make addition on the basis of peak entry in the books of accounts for the relevant period and to make a singular addition of the amounts are not acceptable by the Revenue. Therefore, impugned orders of the CIT(A) may be set aside by restoring that of the AO. 19. Replying to the above, the ld. AR submitted that when the books of accounts maintained by the assessee company in the normal course of business reflects amounts of purchases, sales, opening stock and closing stock which were produced before the AO and no deficiency or defect was pointed out then the only inference which can be drawn is that the books of accounts and results are accepted by the AO. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. Kailash Jewellery House, as relied by the assessee, wherein it has been held thus: 3. The Commissioner of Income Tax (Appeals) had returned a finding that the stock and cash found at the time of search had been examined by the AO and was compared with the stock and cash position as per books. The stock and cash position as per the books had been arrived at after the effect of the aforesaid cash sales. The stock position as well as the cash position as per the said books had been accepted by the AO. The Commissioner of Income Tax (Appeals) also noted that the appellant had furnished the complete set of books of accounts and the cash books and no discrepancy had been pointed out. The AO had doubted the aforesaid sales as bogus and had made the aforesaid addition. However, the Commissioner of Income Tax (Appeals) as well as the Income tax Appellate Tribunal returned findings of fact to the contrary. 4. The Tribunal also noted that the departmental representative could not challenge the factual finding recorded by the Commissioner of Income-tax (Appeals). Nor could be advance any substantive argument in support of his appeal. The Tribunal also observed that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial or substance by imagining a modus operandi at his own without any justified basis and presuming that the assessee company are basically capital formation concerned which have build up huge results and surpluses over the years which declared invested in the stock of textiles. 25. The ld. AR also pointed out that the Revenue Authorities have no reasonable cause or valid reason to doubt the commercial transactions carried out by the assessee which were duly recorded in the books of accounts maintained by the assessee. The ld. AR vehemently contended that the Revenue Authorities are not empowered to make a pure guess work in making assessment without any reference to any cogent evidence or material and there must be some incriminating material more than baseless suspicion to support additions and disallowances in the assessment order u/s 143(3) of the Act. The ld. AR also alleged that the seized material belonging to the assessee is the counter foils of the cheque book related to F.Y. 2008-09 pertaining to A.Y. 2009-10 which in fact was admitted by the department that the same stood entered in the audited books of accounts for F.Y. 2008-09 relevant to A.Y. 2009-10 and no scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and additions. The ld. AR also drawn our attention towards paragraph no. 7.15 of the impugned order and submitted that the CIT(A) was right in deleting the impugned additions but the CIT(A) directed the AO to work out peak from the entries in the cash book of the assessee without any reason or basis. The ld. AR further pointed out that the CIT(A) himself was not sure in directing the AO as to where the work out peak amount has to be added and, therefore, the CIT(A) has made a vague direction to the AO for making a singular addition either as unexplained investment or as expenditure or as cash credit. The ld. AR further pointed out that no incriminating material except counter file of cheque book pertaining to assessment year 2009-10 have been found during the search and seizure operation on 20/10/2008 and the additions made by the AO are not based on any incriminating material and the only incriminating material which pertains to A.Y. 2009-10 has been recorded in the books of accounts and results of the assessee in the respective assessment year 2009-10 and, therefore, the additions made by the AO and peak addition as directed by the CIT(A) is not justified and sustainable. 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of cash or cheque purchases. In response thereto a reply has been filed and placed on record in which assessee has declared its entire purchase as cash purchases of ₹ 35,53,545/- . Assessee company has also stated that it did not maintain any bank account during the year and the assessee deals with tax free goods only there is no necessity for it to file sales tax return. The parties from whom purchases are made are: 1) M/s Pole Star Fabrics ₹ 26,02,864/- The above is actually unit of Thapar group companies and the unit is mentioned in correspondence to hide the true persons. The above concerns is part of the Thapar group of companies having similar modus operandi. This has been assessed u/s 153C in the this circle and in these case also the business transactions has been held to be not genuine. Similar the sales are declared to have been made in cash to concerns of Thapar group only and in their individual cases the purchases are held bogus u/s 153A/153C. 8. In the case of present assessee all the purchases sales are in cash. The items purchased sold are textile fabrics. The name and style of the textiles fabrics are Denim, Fabrics K-III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11. During the year the assessee has increased share capital from 400 to 100000/-. Vide questionnaire dated 12.11.2010 the assessee was asked to file details of the shareholders, their PAN and to produce shareholder register. The assessee has not produced any detail except giving the name of shareholders. No confirmation are produced and no PAN are supplied. Further the company admittedly had no bank account and, therefore, the share capital was received in cash only. As the identity and genuineness of the shareholders has not been proved, the amount of ₹ 100000/- is held unexplained cash credit u/s 68. 30. From operative part of the impugned order of the CIT(A), we note that the CIT(A) has deleted the impugned additions made by the AO but has directed the AO to work out the peak from the entries in the cash book of the assessee with following observations and conclusions: 7.14. These findings also lead to the inescapable conclusion that eh appellant was one of the several entities in the whole scheme of network of companies, created by B.K. Dhingra to infuse unaccounted money in other companies of the group, through a well orchestrated arrangement of seemingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts by the AO is confirmed then the reliance is being placed on the transactions traversing the cash book irrespective of their amounts. The ld. CIT(A) further held that no separate addition is required to be made on account of purchase or expenditure in share capital and directed the AO to work out peak from the entries in the cash book of the assessee for the relevant assessment years and to make a singular addition of the said amount. But the CIT(A) has not given any specific direction that the amount of peak has to be added as either unexplained investment or expenditure or cash credit and the direction of the CIT(A) is vague and not sustainable. 32. Under above noted facts and circumstances, we are of the considered view that the AO proceeded to make additions with a predetermine mind without pointing out any defects in the audited books and book results of the assessee. In these cases the proceedings u/s 153C of the Act was initiated in view of counter foils of the cheque book belonging to the assessee which was seized during the search and seizure operation and the ld. DR has not disputed this fact that the details and entries of sole incriminating material i.e. counterfoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and (c) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. Though such a claim by the assessee for the first time under section 153A of the Act is not completed, the case in hand, has to be considered at best similar to a case where in spite of a search and/or requisition, nothing incriminating is found. In such a case though Section 153A of the Act would be triggered and assessment or reassessment to ascertain the total income of the person is required to be done, however, the same would in that case not result in any addition and the assessments passed earlier may have to be reiterated. 23. The reliance placed by the counsel for the appellant on the case of Anil Kumar Bhatia (supra) also does not help the case of the assessee. The relevant extract of the said judgment reads as under: 19. Under the provisions of sec. 153A, as we have already noticed, the AO is bound to issue notice to the assessee to furnish returns for each assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have reached hereinbefore. 34. On the basis of aforesaid discussion and deliberations, we reach to a logical and fortified conclusion that the AO was not justified in making impugned disallowances and additions pertains to unexplained purchases u/s 69C of the Act and disallowance of expenses in all six assessment years and addition u/s 68 of the Act in regard to share capital for A.Y. 2003-04 without any justified basis and that is too without any incriminating material and thus, we are inclined to hold that the CIT(A) was correct in deleting the same. 35. In view of above, we are inclined to hold that the AO made additions without any justify basis and incriminating material which was deleted by the CIT(A). We further hold that the CIT(A) made a vague and unsustainable directions to the AO for making additions to work out peak amount from the entries in the cash book of the assessee for the relevant assessment year and make a singular addition which is also not sustainable. 36. Finally, we are of the firm opinion and hold that the additions made by the AO in all six assessment years pertaining to unexplained purchase and in pursuant to disallowance of entire amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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