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TMI Blog2011 (6) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... ONER OF INCOME-TAX [ 2007 (2) TMI 148 - SUPREME COURT] , and have held that satisfaction that undisclosed income belongs to the person other than the one who is searched u/s.132, has to be arrived at by the AO before proceeding to hand over seized document to the AO of the person who was not searched. We therefore hold, following the decision of the ITAT Delhi Bench referred to above, that the AO has to record satisfaction regarding existence of undisclosed income before proceeding u/s.153-C. Whether satisfaction about undisclosed income of the Assessee have been arrived at by the AO? - The assessee has been declaring income from letting out of the property regularly in its books of account. The factum of the assessee receiving income in the form of rent is very much in the knowledge of the department HELD THAT:- In our view, the satisfaction required for proceedings under section 153C cannot be reduced to a mere formality of forwarding the documents found in the course of search which did not belong to the person searched and which belonged to the person against whom proceedings under section 153C are sought to be initiated. In the present case we are of the view that that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t giving proper opportunity of hearing." 2. The facts material for adjudication of the aforesaid grounds are as follows. The assessee is a company. It is engaged in the business of real estate development and dealing in properties. A search and seizure operation under section 132 of the Income Tax Act, 1961 (the Act) was initiated on 4/10/2006 in the case of one M/S.Rehab Housing Pvt. Ltd., and M/S.Secure safe valuts Ltd., at Gitaneel Arcade, 5th floor, Hill Road, Bandra(W), Mumbai - 50. In the course of such search, among others, two documents were found namely a copy of the lease deed dated 6/8/2000 by which the premises bearing 401, 4th Floor Vintage Pearl Co-Op. Hsg. Society Ltd., 29th Road, Bandra (W), Mumbai owned by the assessee was given on lease to a company named M/s. Reddiff.Com India Ltd. Another document which was found was the memorandum and article of association of the assessee company. The DDI(Inv), Unit 7(2) who had conducted the search had called upon the assessee to explain the loose papers seized at the time of search in the case of M/s. Secure Safe Valuts Ltd., which is a sister company of the assessee. The assessee by its reply dated 22/3/2007 addressed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year- (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.]" 5. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment made under this section ; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. 6. The provisions of section 153A of the Act were introduced by the Finance Act, 2003 with effect from 1-6-2003. In respect of searches carried out under section 132 of the Act or requisition of books and other documents made under section 132A of the Act after 31-5-2003 the Assessing Officer shall issue a notice calling upon assessee to furnish return of income in respect of six assessment years immediately preceding assessment year relevant to the assessment year in which search is conducted or requisition is made. The Assessing Officer is empowered to re-assess the total income in respect of each assessment year falling with such six assessment years under the second proviso to section 153A of the Act. If in respect of any assessment year falling within the six assessment years referred to earlier, any assessment or re-assessment is pending on the date of initiation of the search under section 132 of the Act or making of requisition under section 132A, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer submitted as follows: "Regarding Point No.5 & 6 during the course of assessment proceedings notices issued u/s. 153A by the then AO, Central Circle 10 Mumbai have been corrected as 153C in both the notices as well as returns filed in agreement with the Accountant of the assessee, and the assessment have been passed u/s. 153C r.w.s. 143(3), wherein the satisfaction of the AO have been incorporated in the body of assessment order itself in first para thereof. It is also a fact that in Search loose papers mentioned above were seized pertaining to the assessee. During the course of inspection by the assessee the satisfaction recorded by the AO was misplaced, therefore on the date of inspection. It could not be made available. However, it is traced out and found that the then AO CC 10, had kept all the satisfaction notes of the group cases in a separate folder." 9. On consideration of the remand report the CIT(A) was of the view that there was a proper satisfaction recorded for proceedings under section 153C of the Act. The CIT(A) held as follows: "6. I have carefully considered the above facts and do not find any merit in the contentions of the appellant. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. Apart from such facts, it is rightly pointed out that the provisions of section 292B of the Act take care of such mistake to which the proceedings could not be considered invalid. 6.2 Considering the totality of facts and circumstances of the case and the legal position stated above, I do not find any infirmity in the action of the AO in assuming jurisdiction u/s. 153C of the Act and in framing the assessment order. The appellant has been accorded adequate opportunity of hearing and also the order is not time barred. The grounds in this respect fail." 10. Before us ld. Counsel for the assessee reiterated the same stand as was put forth before the CIT(A). Apart from the above, he also made submission that even assuming that satisfaction was recorded by the erstwhile AO, the same is not proper and will not confer jurisdiction for the AO to proceed u/s.153-C of the Act. The satisfaction contemplated by the provision of Sec.153-C is regarding existence of income or documents, which would not or have not been disclosed to the Department. The learned counsel for the Assessee in this regard pointed out that the Assessee has duly declared income from lease of the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income of the person who was not subjected to a search to hand over the seized material to the AO of the person to whom the seized document belongs or is alleged to belong. 13. The ITAT Delhi in the case of M/S.Jindal Stainless Steel Vs. ACIT ITA No.3480 and 3481/Del/2006 in its order dated 25/4/2008 had dealt with this issue and have held that provisions of Sec.153-C of the Act are akin to Sec.158BD of the Act. (vide para 46 of the order). The Hon'ble Tribunal further held that the AO has to follow the condition precedent for proceeding u/s.153-C of the Act in the same manner as the AO would do for proceeding u/s.158BD of the Act. The Hon'ble Tribunal in this regard referred to the decision of the Hon'ble Supreme Court in the case of Manish Maheshwari Vs. ACIT 289 ITR 341(SC) and have held that satisfaction that undisclosed income belongs to the person other than the one who is searched u/s.132 of the Act, has to be arrived at by the AO before proceeding to hand over seized document to the AO of the person who was not searched. We therefore hold, following the decision of the ITAT Delhi Bench referred to above, that the AO has to record satisfaction regarding existenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not belong to the person searched and which belonged to the person against whom proceedings under section 153C are sought to be initiated. In the case of Anil P.Khimani vs. DCIT ITA No.2855 to 2860/M/08 (Order dated 23.2.2010) this Tribunal had an occasion to deal with similar issue. The Tribunal held as follows: "13. A perusal of the assessment orders in all these cases, clearly demonstrate that the sole addition in question is on account of low withdrawals . This had not been made, based on any material found either during he course of search or during the course of assessment proceedings. Under the circumstances, we examine the legal position. The Delhi bench of the Tribunal in the case of Anil Kumar Bhatia vs. ACIT held as follows: "S.153 provides that where a search is initiated u/s. 132 the AO shall "assess or reassess the total income of six assessment years immediately preceding the assessment year" relevant to the previous year in which the search is conducted or requisition is made. The first proviso states that the AO shall "assess or reassess the total income in respect of each assessment year falling within such six assessment years" while the second proviso state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, hold that the necessary satisfaction does not exist for the proceedings under section 153C of the Act. On this ground the assessment is annulled. 16. As far as merits of the addition made by the AO are concerned the facts are that the assessee has been carrying on business of dealing in property. The assessee was receiving income from some of the properties, which it owned, and which was let out, as business income. According to the Assessee, the property which it owned and which was let out was purchased in the course of its business of dealing in properties and the letting was temporary and with the intention to recover part of the expenses. The properties let out did not get good price and therefore retained and let out temporarily. Since the letting was incidental to business it was claimed that income received from letting was business income. In assessment year 2001-02 as well as A.Y 2006-07 there was income on sale of property which was declared as business income. The AO in the proceedings under section 153C of the Act, treated the income in the form of rent as income from house property. Further the AO disallowed some of the expenses debited in the P&L Account on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2006-07 the assessee had income on sale of properties and in all the other AY's the Assessee has been giving advance for purchase of properties. The income from sale of properties in AY 01-02 and 06-7 has been declared as business income. In its paper book from page 244 to 533, the assessee has given a list of the various efforts it made for doing business of purchase and sale of properties. It is the plea of the assessee that business did not materialse due to various problems and the assessee continued to carry on its business and the expenses disallowed were required to be incurred by the assessee. We are of the view that in the light of the above documents it can be said that the assessee did not cease to carry on the business of purchase and sale of properties. The expenses sought to be disallowed by the AO were required to be incurred by the assessee. Therefore, notwithstanding the fact that the rental income is to be assessed under the head income from House property, still the assessee would be entitled to the deduction of the aforesaid expenses. Therefore, the impugned additions deserve to be deleted even on merits. In our view, even on merits the assessee deserves to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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