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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 ..... ding 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 - Decided in favour of assessee. - ITA No.1547/Mum/2015 - - - Dated:- 23-8-2019 - SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER Assessee by Rushabh Shah Revenue by Sushil Kumar Poddar ORDER PER G. MANJUNATHA (A.M): This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) 36, Mumbai dated 20/10/2014 and it pertains to the Assessment Year 2010-11. 2. The assessee has raised the following grounds of appeal:- 1. The Learned CIT(A) erred in the facts and circumstances of the case and in law, in confirming the unwarranted adjustments to the Book Profits determined as per provisions of section 115JB of the Income Tax Act, 1961 2. The Learned CIT(A) erred in the facts and circumstances of the case and in law, in confirming the disallowance of the donations amounting to Rs,7,20,00,000/-and adding back the said amount to the book profit u/s.115JB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to question jurisdiction of the AO in completion of assessment without any valid satisfaction as required u/s 153C of the I.T.Act, 1961. Therefore, the same may be admitted for hearing. 5. The Ld. DR, on the other hand, strongly opposing additional grounds of appeal filed by the assessee submitted that the way in which, the assessee has taken additional grounds, after gap of more than four years from the date of filing original appeal before the Tribunal and also in recalled proceedings clearly establishes the intent of the assessee to go scot free from the proceedings. Therefore, the additional grounds of appeal filed by the assessee should not be admitted at this stage. 6. Having heard, arguments of both the sides and considered relevant materials on record, we find that the additional grounds taken by the assessee challenging validity of assessment order u/s. 143(3) r.w.s. 153C of the I.T.Act, 1961, is purely a legal issue, which goes to question jurisdiction of the AO in assessment of income u/s 153C without any valid satisfaction, as required under law. We, further noted that when additional grounds of appeal filed by the assessee is purely a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The case has been selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee has claimed various expenses including donation and provision of Doubtful Debts. Therefore, called upon, the assessee to furnish necessary evidences, including the name of Trust/Institution, who received donations, details of Long Term Capital Gain computed from sale of shares and also details of provision for Doubtful Debts. In response, the assesee has filed various details as called for by the AO, vide letter dated 04/01/2013 and explained that under wrong assumption of facts, during the course of survey, the donations have been admitted as bogus, however, the same has supported by necessary evidence, including receipts issued by the institutions. The assessee has also explained claim of provision for bad and Doubtful Debts with necessary evidences. The Ld. AO, after considering relevant facts submission of the assessee and also taken note of, facts gathered during survey proceedings and also statements recorded from statutory auditors and directors of the company, came to the conclusion that the assesee has booked various bogus expenditures, in order to reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) of the I.T.Act, 1961, has not recorded satisfaction as required u/s 153C of the I.T.Act, 1961, therefore whole proceedings, including assessment order passed by the AO is void ab-initio and liable to be quashed. The Ld. AR further submitted that the Hon ble Supreme Court in the case of CIT vs Calcutta Knitwears [214 362 ITR 673] (SC) had considered the issue of notice issued u/s 153C of the I.T.Act, 1961 and also explained the procedure to the followed by the AO before issue of notice. The Ld. AR further submitted that as per the ratio laid out by Hon ble Supreme Court in the case of CIT vs Calcutta Knitwears, the AO of the searched person must record satisfaction having regard to the books of account and other assets requisitioned during the course of search that such undisclosed income or books, belongs to a person other than a searched person, then, either at the time or along with initiation of proceedings against the searched person or in the course of assessment proceedings u/s 158BC of the I.T.Act,1961 or immediately, after the assessment proceedings are completed u/s 158BC of the Act, 1961, of the searched person, shall record satisfaction and handover such undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ka Strips Ltd. in ITA No. 4184-4188/Mum/2009 dated 28/06/2019. 12. The Ld. DR, on the other hand, submitted that there is no merit in the contention raised by the Ld. AR for the assessee that even if the AO of the searched person and the other person is one and the same, a separate satisfaction is required to be recorded before issue of notice u/s 153C of the Act, because the law is very clear as per which the AO of the searched person is required to record satisfaction before handing over books of accounts and other asset requisitioned during the course of search, but belonged to person other than the searched person. In this case, since, the AO of the searched person and the other person is one, therefore, the AO before issuance of notice u/s 153C has recorded satisfaction with reference to books of accounts and other materials found during the course of search that undisclosed income is belongs to the assessee, therefore, it is very clear that the satisfaction as required u/s 153C of the Act has been recorded by the AO before issue of notice. The Ld. DR further submitted that although the Hon ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears, (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of section 153A of the Act vitiated whole proceedings, consequently any order passed, in pursuance of such notice is void ab-initio and liable to be quashed. The provision of section 153C of the I.T.Act, 1961, is very clear, as per which the AO of the searched person is satisfied that, any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the persons referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the AO having jurisdiction over such other person. Further, the AO of such other person is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A of the Act, he shall issue a notice u/s 153C of the Act. From the reading section 153C of the Act, it is very clear from the plain reading of words contained in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her person and also the AO of other person must record satisfaction before issue of notice u/s 153C of the Act. This legal position has been accepted by the Department and accordingly, issued a circular vide Circular No.24/2015 dated 31/12/2015, where the CBDT referring to the decision of the Hon ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra), clarified the position of law that recording of a satisfaction is pre-requisite and the satisfaction note must be prepared by the AO before he transmits the record to other AO who has jurisdiction over such other person . The CBDT further clarified in para-4 of said circular 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 held by the Courts. The Board further clarified to its field officers that in view of the decision of the Hon ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra), filing of appeals on the issue recording of satisfaction note should also be decided in the light of above judgment accordingly, the Board directs the field officers that pending litigation with regard to recording satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Strips Ltd. and the heading of the order sheet entry states that reasons recorded prior to issue of notice u/s 153C of the Act. It is also not in dispute that the AO of the searched person and other person is one and the same. In this factual background, the issue needs to be resolved is whether, a separate satisfaction as required u/s 153C of the Act shall be recorded by the AO before handing over books of accounts and other assets found during the course of search but belongs to other person and also before issue notice u/s 153C of the Act, even though the AO of the searched person and other person is one and the same. As per provisions of section 153C(1) of the Act, where the Assessing Officer is satisfied that, any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, 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 and that As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied that the books of accounts or documents, are seized or requisitioned have bearing on the determination of total income of such other person, then he shall proceed to assess or reassess the income of the other person in accordance with the provisions of section 153A of the Act. From the reading of above provisions of the Act in conjunction with observations of the Hon ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra), it is very clear that the AO having jurisdiction over searched person must record satisfaction before handing over the books of account or assets of other person and also the AO of other person must record satisfaction before issue of notice u/s 153C of the Act. This legal position has been accepted by the Department and accordingly issued a circular vide Circular No.24/2015 dated 31/12/2015, where the CBDT referring to the decision of the Hon ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears (supra), clarified the position of law that recording of a satisfaction is pre-requisite and the satisfaction note must be prepared by the AO before he transmits the record to other AO who has jurisdiction over such other person . The CBD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for AY 2007-08 (the year in which search was conducted) was also need to be completed u/s 153C of the Act. Therefore, as per the provisions of section 153A r.w.s 153C of the Act, AY 2007-08, ought to have been completed u/s 153C of the Act. This also means that the AO of the person searched ought to have record satisfaction as required u/s 153C of the Act that any money or bullion, jewellery or other valuable articles or thing are seized or requisitioned belongs to or any books of accounts or documents seized or requisitioned pertains or pertains to any person other than the person referred to in section 153A of the Act. Since the AO of the searched person has not recorded satisfaction as required u/s 153C of the Act, before handing over books of accounts or assets of other person, the whole proceedings including assessment order passed u/s 143(3) r.w.s. 153C of the Act for AY 2007-08 bad in law and liable to be quashed. Hence, we quashed assessment order passed u/s 143(3) r.w.s. 153C of the Act for 2007-08 12. The assessee has challenged issues involved on merits for all assessment years. Since, we have quashed assessment order passed u/s 143(3) r.w.s. 153C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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