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TMI Blog2019 (9) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of the provision for doubtful debt* amounting to Rs. 5,01,00,000/- and adding back the said amount to the book profit u/s.115JB of the Income Tax Act, 1961. 4. The Learned CIT(A) erred in the facts and circumstances of the case and in law, in confirming the disallowance of the set off of Short Term Capital Loss suffered by the appellant on sale of shares incurred during the year. 5. The Learned CIT(A) erred in the facts and circumstances of the case and in law, in confirming the disallowance of the Capital Loss incurred on the sale of shares amounting to Rs,4,26,87,149/- and adding back the said amount to the book profit u/s 115JB of the Income Tax Act, 1961. 6. The appellant craves leave to add, amend, alter or delete the said ground of appeal. 3. The assessee, has also filed a petition for admission of additional grounds, vide letter dated 02/08/2018. The relevant additional grounds filed by the assessee are as under:- 1) On the facts and circumstances of the case as well as in Law, the Learned Assessing Officer has erred in passing the assessment order u/s, 143(3) r.w.s 153C of the Income Tax Act, 1961 which is not In compliance of The provision of law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmal Power Company Ltd. Vs. CIT (229 ITR 383), we are of the considered view that additional grounds filed by the assessee needs to be adjudicated on merits and hence, the same are admitted for hearing. 7. The brief facts of the case are that, the assessee company is engaged in the business of investment in quoted & unquoted shares and also in properties, filed its return of income for AY 2010-11 on 07/03/2011, declaring total income at Rs. 1,41,440/- under normal provision of the I.T.Act, 1961, and declared book profit of Rs. 7,42,32,550/- u/s 115JB of the I.T.Act, 1961. A search and seizure action u/s 132 of the I.T.Act, was conducted on 04/02/2011 in the case of M/s. Allied Digital Services Ltd. The assessee company being closely related and run by the cousins of the Directors of M/s Allied Digital Services Ltd., it was covered u/s 133A of the I.T.Act, 1961. During the course of survey u/s 133A, it was found that there has been a wrong/bogus claim of expenses of donations of Rs. 7,20,00,000/-, as also of provision of Doubtful Debts for Rs. 2,01,00,000/- in the books of accounts, so as to claim, the benefit of deduction u/s 80G of the I.T.Act, 1961. During the course of survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owell vs CTO 1997 (69 ECR 29) (SC) held that the assesee has suppressed book profit by booking bogus expenditure in form of donations and provision for Doubtful Debts and accordingly, recomputed book profit by adding back donations and provision for Doubtful Debts amounting to Rs. 12,21,00,000/- and determined book profit of Rs. 23,65,99,220/-. T AO has also recomputed loss of the assesee at Rs. 8,53,100/- 9. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before, the Ld.CIT(A), the assessee reiterated its arguments taken before the AO. The assessee, further contended that once books of accounts are audited under the companies Act, and the same has been approved by the shareholders in general meeting, the Ld. AO has no power to tinker with those books of accounts to recompute book profit u/s 115JB of the I.T.Act, 1961, except to the extent ,as provided in explanation 1 to section 115JB of the I.T.Act, 1961. The Ld. CIT(A), after considering relevant facts and submission of the assessee and also relied upon certain judicial precedents, including the decision of ITAT, Kochin Bench in the case of Padinjarekara Agency Pvt.Ltd. vs ACIT in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs M/s Calcutta Knitwears, (supra) in para 3 has accepted that the provisions of section 153C are in pari materia to the provisions of section 153BD of the Act. The Circular in para-4 further issued guidelines to the AO to strictly follow the decision in the case of CIT vs M/s Calcutta Knitwears (supra) for recording satisfaction and has stated that even if the AO 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 upheld by the Courts before handing over books of accounts and other materials belonging to the person other than searched person. The CBDT further clarified that any pending litigation with regard to recording of satisfaction note u/s 158BD /153C should be withdrawn/not pressed, if it does not meet the guidelines laid down by the Apex Court. The Ld. AR further submitted that in this case, it is very clear from the record that the AO of the searched person or the person whom proceedings u/s 132 has been initiated has not recorded satisfaction as required u/s 153C of the Act, having regard to books of account and other assets that such books of accounts are belong to a person other than se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt was rendered in the year 2014 and the Board has been issued circular in the year 2015, therefore, the AO cannot foreseen or anticipate the procedure required to be followed for issue of notice u/s 153C of the Act, which is otherwise not specified under the provisions of the Act. Since, the AO has recorded satisfaction before issue of notice u/s 153C of the Act, which is sufficient as per provisions of law and hence, there is no merit in the contentions of the assessee and accordingly, the legal plea raised by the Ld. AR for the assessee should be rejected. The Ld. DR, further submitted that if you look at circumstances, in which additional grounds of appeal has been taken by the assessee, it is very clear that the assessee want to go scot free from the proceedings, because the additional ground has been taken after lapse of more than four years from the assessment and also the validity of proceedings initiated u/s 153C has not been raised either before the AO or the Ld. CIT(A). Therefore, there is no merit in arguments of the assessee that in absence of satisfaction recorded, as required u/s 153C of the I.T.Act, 1961, the whole proceedings is vitiated and liable to be quashed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is satisfied that the books of accounts or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person, then he shall proceed to assess or reassess the income of other person in accordance with provisions of section 153A of the Act. The said legal position has been explained by various Courts, including the Hon'ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra), where, the Hon'ble Supreme Court in the context of provisions of section 153BD has laid down certain guidelines to the AO for issue of notice 158BD of the Act, as per the which, the AO of the searched person must record satisfaction to the effect that any money, bullion, jewellery or other valuable article or thing or any books of account or documents, seized or requisitioned, pertains to, or relates to a person other than the person referred to in section 158BC of the Act. Therefore, it is very clear from the observations of the Hon'ble Supreme Court that before handing over books of accounts or assets seized or requisitioned, if the AO is satisfied that such money, bullion or jewellery or books of account belongs to, relates to person other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o record separate satisfaction as required u/s 153C of the Act. If, no satisfaction is recorded, then whole proceedings becomes null and void. In this case, the departmental representative filed to produce satisfaction note recorded by the AO, in spite of bench directed to do so. Therefore, we are of the considered view that, there is no satisfaction was recorded by the AO of the searched person and the AO of the assessee, and hence, the assessment order passed u/s 143(3) r.w.s. 153C of the Act, cannot be held valid. 14. The assessee has relied upon the decision of ITAT, Mumbai 'H' Bench in the case of Karnataka Strips Ltd. vs DCIT in ITA No. 4184 to 4188/Mum/2009, dated 28/06/2019. We find that the coordinate bench had considered an identical issue and after considering relevant facts and also by following the decision of Hon'ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra) held that in absence of valid satisfaction as required u/s 153C of the I.T.Act, 1961, the whole proceedings including the assessment order passed u/s 143(3) r.w.s. 153C of the I.T.Act, 1961 is void ab-initio and liable to be quashed. The relevant findings of Tribunal are as under: 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the reading of the above section 153C of the Act, it is very clear from the plain reading of words contained in the said section that where the AO is satisfied that any income, any money, bullion, jewellery or any books of account or documents pertains to or relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person. Further, the AO having jurisdiction over other person, if he is satisfied that the books of accounts or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person, then he shall proceed to assess or reassess the income of other person in accordance with provisions of section 153A of the Act. The said legal position has been explained by various Courts including the Hon'ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra), where, the Hon'ble Supreme Court in the context of provisions of section 153BD has laid down certain guidelines to the AO for issue of notice 158BD of the Act, as per the which, the AO of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of above judgment accordingly, the Board directs the field officers that pending litigation with regard to recording satisfaction u/s 158BD/153C should be withdrawn/not pressed if it does not meat guidelines laid down by the Hon'ble Apex Court. From the conjoint reading of the provisions of section 153C, the decision of the Hon'ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra) and CBDT Circular No.24/2015, it is very clear that even if the AO of the searched person and the other person is one and the same, then also he is required to record separate satisfaction as required u/s 153C of the Act. In this case, on perusal of satisfaction note furnished by the Ld. DR, we find that the said satisfaction note was taken from assessment record of the assessee, which is evident from the copy of the note filed by the Ld. DR that it is an order sheet entry in the name of M/s Karnataka Strips Ltd. and the heading states that reasons recorded prior to issue of notices u/s 153C of the Act. The said satisfaction note was recorded by the AO having jurisdiction over other person i.e. in this case, the assessee, before issue of notice u/s 153C of the Act. Therefore, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o additional grounds of appeal filed by the assessee clearly expressed her inability to produce assessment records to ascertain the facts with regard to satisfaction recorded by the AO of the searched person and also the AO of the assesee. We further noted that the AO, in the said letter offered her comments in respect of assessment proceedings and conduct of the assesee, but nowhere stated about availability of satisfaction note recorded by the AO of searched person and the person other than the searched person. In absence of records and also inability of the AO to produce satisfaction note recorded during assessment proceedings, the only inference that could be drawn is that there is no satisfaction note is available with the records and consequently, the only possible inference that could go, in favour of the assessee is that the AO of the searched person and the AO of the assessee have not recorded satisfaction as required u/s 153C of the I.T.Act, 1961, before issue of notice u/s 153 of the Act. Therefore, we are of the considered view that in absence a valid satisfaction note recorded by the AO of the searched person and the AO of the assessee, the notice issued u/s 153C of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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