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TMI Blog2021 (10) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis and edifice for acquiring jurisdiction under section 153C of the Act and there are no other documents which were found and seized. Before adverting to the documents so referred in the satisfaction note and our analysis with regards to the same thereafter, it would be worthwhile to note that it is now a well settled proposition of law that seized documents must be incriminating and must relate to assessment year whose assessment are sought to be reopened u/s.153C. This principle has been settled in the case of Singhad Technical Education Society [ 2017 (8) TMI 1298 - SUPREME COURT] . Thus we hold that the concluded assessments cannot be interfered unless there is incriminating material discovered from the seized documents belonging or pertaining to the assessee, and further, no additions can be made where the assessments are framed u/s.153C for unabated year i.e. where no assessment is pending. The seized documents must at least clearly point out that there is some undisclosed income, which here in this case, as is discussed below, are not in the nature of incriminating material so as to warrant any addition - additions made by the Assessing Officer are beyond the scope of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee has raised following grounds of appeal in the case of M/s Dorset India Pvt. Ltd:- 1. "The order passed by the learned Commissioner of Income tax (A) in confirming the addition on substantive basis of s. 1,75,51,80,914/- is arbitrary, against law and facts on record. 2. On the facts and circumstances of the case and in law the assumption of jurisdiction u/s 153C in the absence of incriminating material and in the absence of document belonging to appellant found during the course of search has wrongly been assumed, hence the impugned assessment order passed u/s 153C r.w.s. 153A is illegal and unsustainable in law. 3. On the facts and circumstances of the case and in law the assumption of jurisdiction u/s 153C r.w.s. 153A without handing over the documents seized during the course of search to the learned Assessing Officer of the appellant and framing of assessment without issue of notice u/s 143(2) is illegal and unsustainable in law. 4. On the facts and circumstances of the case and in law the impugned order passed u/s 153C r.w.s. 153A of the Income Tax Act on the basis of borrowed satisfaction and without providing the reason to appellant which leads to satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal for merits). 2. The chronological sequence of events in the case of M/s Dorset India Pvt. Ltd. (DIPL) leading up to the instant matter, is as under: Sr. No. Particulars Date i) Date of search u/s 132 of the Act on Dorset group of cases but not on assessee. 06.12.2016 ii) Date of notice u/s 153A wrongly issued in the case of assessee, which was subsequently dropped on 27.07.2018. 13.12.2017 iii) Satisfaction Note Recorded on (at pages 367 to 370 of PB - I). 24.09.2018 iv) Notice under section 153C issued on 25.09.2018 v) Date of filing of original return of income at ₹ 6, 11, 52, 690/- (the said return of income was final on the date of recording of satisfaction note and also on the date of search) 08.02.2016 vi) Date of filing of Return of Income under section 153A of the Act. 10.01.2018 vii) Assessment u/s 153C r.w.s. 153A of the Act Date of order 30.12.2018 Income assessed: ₹ 156 crores on substantive basis in the case of M/s Modtech Industries and protective in the case of DIPL. ₹ 34 crores on substantive basis in DIPL with regards to consideration received by Mars India Pvt. Ltd. ₹ 177.48 crores on substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cker of Sh. Rajesh Kumar Bansal and Smt. Rekha Bansal being copy of Hon'ble High Court order dated 05.05.2015 in the matter of amalgamation between M/s Mars India Pvt. Ltd. (MIPL) with M/s Dorset India Pvt. Ltd. (DIPL) (said document is enclosed at pages 116 to 145 of PB - I). c) Page no 39-51 of Annexure Ad) Page nos. 53 and 54 of Annexure A-2 (-2 (locker at OBC) being copy of Business Transfer Agreement (BTA) dated 01.04.2014 between M/s Modtech Industries and M/s Mars Industries Pvt. Ltd. (kindly see pages 431 to 442 of PB - II). Locker at OBC) being copy of MOU made on 01.09.2014 in reference to the purchase price consideration of the BTA executed between M/s Dorset Kaba Security Systems Pvt. Ltd. and M/s Mars Industries Pvt. Ltd., and between M/s Dorset Kaba Security Systems Pvt. Ltd. and M/s Dorset India Pvt. Ltd. in pursuance to BTA dated 11.06.2014 (kindly see page 26 to 27 of this synopsis). e) Page no 51 to 94 of Annexure A-1 (locker at ICICI Bank) Copy of Business Transfer Agreement (BTA) dated 11.06.2014 between M/s Dorset India Pvt. Ltd. and M/s Dorset Kaba Security Pvt. Ltd (kindly see pages 443 to 529 of PB - II). f) Page no 95 to 155 of Annexure A-1 (locker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertakings (hardware businesses) of M/s Dorset India Pvt Ltd., M/s Mars Industries Pvt. Ltd and M/s Modtech Industries. e) In this regard, the net worth of the undertaking of Dorset India Pvt Ltd., Mars Industries Pvt. Ltd and Modtech Industries and sale consideration (the details in respect of which is given in para no 6 of show cause notice dated 16/11/2018 at pages 109 to 112 of PB - I) is being given below :- Net worth (Rs) Sale consideration 156 crore i) Modtech Industries 5,79,66,838 34 crore ii) Mars Industries P Ltd 15,31,41,379 4.29 iii) Dorset India P Ltd 5,19,88,719 26,30,96,935 f) From the perusal of the above it may be observed that assets of Modtech Industries of ₹ 5.79 crore have been transferred for the sum of ₹ 156 crore, assets of Mars Industries P Ltd of ₹ 15.31 crore have been acquired for ₹ 34 crore and assets of Dorset India Pvt Ltd of ₹ 5.19 crore have been acquired for ₹ 4.29 crore. g) All the concerns being Modtech Industries, Mars Industries, and Dorset India Pvt Ltd, belong to same group and are engaged in the same business. i) The details of turnover of Modtech Industries, Mars Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of satisfaction note are not incriminating documents and the same is also analyzed as below:- i) Copy of Business Transfer Agreement (BTA) dated 01.04.2014 between M/s Modtech Industries and M/s Mars Industries Pvt. Ltd. It is most humbly submitted that the business transfer agreement dated 01/04/2014 (enclosed at page nos. 431 to 442 of PB - II) is part of books of accounts of M/s Modtech Industries and is not an incriminating material, as on the basis of the said business transfer agreement dated 1/04/2014 the original return of income u/s 139(1) of the Income Tax Act have been filed by Modtech Industries and the capital gain on slump sale on the basis of said agreement have been shown in the original return of income so filed (kindly see pages 1 to 2 and 25 of PB - I). That further, M/s Modtech Industries has also e filed form no 3CEA (i.e. audit report relating to capital gain on slump sale) disclosing the fact of said transfer of business (kindly see page 5 of PB - I). In view of the above, it is most humbly submitted that the business transfer agreement dated 01/04/2014 forms part of books of accounts of M/s Modtech Industries and on the basis of BTA dated 01/04/2014 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d genuine agreement which have been performed by both the parties in its true sense" As such, it is most humbly submitted that, the business transfer agreements dated 11/06/2014 are not incriminating in nature, as the said agreements are duly disclosed and its effects duly reflected in the return of income filed prior to recording of satisfaction note or even the date of search. Similarly, it is submitted that Page nos. 53 and 54 of Annexure A-2 (locker at ICICI) being copy of MOU made on 01.09.2014 and disclosure letters in reference to the purchase price consideration of the BTA executed between M/s Dorset Kaba Security Systems Pvt. Ltd. and M/s Mars Industries Pvt. Ltd., and between M/s Dorset Kaba Security Systems Pvt. Ltd. and M/s Dorset India Pvt. Ltd. in pursuance to BTA dated 11.06.2014, is nothing but recording the mutual consent of both the parties to BTA's to give effect to the said agreement and is submitted, that it is a document in relation to BTA's, the effect of which has been, as submitted above, duly disclosed in the books of accounts and original returns of income filed by assessee company. iii) Page no. 7 to 35 of Annexure A - 2, found from ICICI Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As such it is established beyond doubt that retirement cum constitution deed dated 20/09/2014 has no financial bearing and is thus, not incriminating material. From the perusal of aforesaid facts and documents so referred in the satisfaction note, it may be observed that no incriminating material have been found during the course of search. 2.8 In view of the satisfaction note dated 24.09.2018 and documents, so referred therein, it may be pertinent to note that the satisfaction note dated 24/09/2018 does not even mention the existence of any "undisclosed income" belonging to the assessee company. Thus, the very basis for formation of belief about existence of undisclosed income is absent in the impugned matters. Therefore, the invocation of jurisdiction is vitiated in law and the assessment is void-ab-initio. 2.9 It is further submitted that the aforesaid arguments were also taken before learned AO vide reply dated 26.12.2018 (kindly see pages 244 to 245 of PB - I). However, the learned AO had not adversely commented with regards to the same in order of assessment dated 30.12.2018. However, the learned AO while issuing the show cause notice dated 16.11.2018 issued du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a bearing on total income, is contrary to the judicial discipline as laid down by Hon'ble Apex Court and Hon'ble jurisdictional high court. In support of the aforesaid arguments and proposition, reliance is placed on the following judgments: a) Judgment of the Supreme Court of India in the case of CIT vs Singhad Technical Education Society reported in 397 ITR 344. "18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. c) Judgment of High Court of Delhi in the case of CIT vs RRJ Securities Ltd. reported in 380 ITR 612 "37. As expressly indicated under Section 153C of the Act the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A of the Act. The concluded assessments cannot be interfered with under Section 153A of the Act unless the incriminating material belonging to the Assessee has been seized. 38. As indicated above, in the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment so made under section 153C of the Act and thus, the additions so made and sustained by learned CIT (A) be deleted as the same are beyond the scope of assessment under section 153C of the Act." 7. The learned Senior Counsel for the assessee during the course of hearing argued that since the satisfaction note was recorded on 24.09.2018 and notice under section 153C of the Act was issued on 25.09.2018, as such, the assessment proceedings were final in respect of the return of income filed on 08.02.2016 for the relevant assessment year namely 2015-16 on the date of recording of such satisfaction note. He further, argued that 153C proceedings can only be initiated if the documents seized are incriminating in nature i.e. documents seized during the course of search and recorded in the satisfaction note should depict undisclosed income, whereas, in the case of assessee, all the documents which form part of satisfaction note were duly recorded and disclosed in the return of income filed prior to recording of satisfaction note or even the date of search. In support of the aforesaid arguments, the learned counsel placed reliance on following judgments: i) Judgment of the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned therein related to the appellant) had a bearing on the total income of the appellant". It was further submitted that the said finding so recorded by learned CIT (A), is against the settled proposition of law so laid down by Hon'ble Apex Court and Hon'ble High Court of Delhi, as was also cited before learned CIT (A). As it has been held in by various judicial authorities that "the scope of assessment and addition in 153A/ 153C proceedings is restricted to the incriminating material i.e. material depicting undisclosed income unearthed during the course of search or recording of satisfaction note", as such, the finding of learned CIT (A) that even if a document is recorded in books of accounts and on the strength of which return of income has been filed, the same can be termed "incriminating", if it has a bearing on total income, is contrary to the settled proposition as laid down by Hon'ble Apex Court and Hon'ble jurisdictional high court. He further, argued that the aforesaid arguments were also taken before learned AO vide reply dated 26.12.2018 (at 244 to 245 of PB - I). However, the learned AO had not adversely commented with regards to the same in order of assessment dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt findings given in the impugned orders as well as material placed on record. The core issue which has been argued before us is; • Whether the documents so referred in the satisfaction note are in nature of incriminating documents, which can lead to an inference that any undisclosed income has escaped assessment or there is any element of undisclosed income so as to be roped in assessment under section 153C for the assessment year which is unabated i.e. final. 12. For the sake of ready reference the satisfaction note of the Assessing Officer for acquiring jurisdiction u/s 153C in the case of M/s Dorset India Pvt. Ltd. reads as under: "Satisfaction recorded for initiation of proceedings under section 153C o the I.T.Act,1961, in the case of M/s Dorset India Pvt. Ltd., on the.basis of separate satisfaction note recorded in the case of Sh. Rajesh Kumar Bansal and Smt. Rekha Bansal, with regard to the documents seized from their Locker No. 1537, Oriental Bank of Commerce, Hauz Khas, Delhi, as also, in the case of Sh. Takshay Bansal with regard to documents seized from his Locker No. 1945R 1810247 with the ICICI Bank, Defence Colony, Delhi and the said documents pertaining to, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goon, Haryana, between Mis Mars Industries Pvt.Ltd (Lessor) and Mis EAU Bathing Solutions Pvt.Ltd. (Lessee} 7 to 35 Copy of Hon'hie High Court of Delhi's order dated 05.05.2015 in the matter of Amalgamation of Mis Mars Industries Pvt.Ltd. with Mis Dorset India Pvt.Ltd. 39 to 51 Copy of Business Transfer Agreement (BTA) dated 01.04.2014 between Mis Modtech,lndustries and Mis Mars Industries Pvt.Ltd. 53 Copy of MOU made on 01.09.2014 in reference to the purchase price consideration of the BTA executed between Mis Dorset Ka/,a Security· Systems Pvt.Ltd. and Mis Mars Industries Pvt.Ltd. 54 Copy of MOU made on 01.09.2014 in reference to the purchase price consideration of the BTA executed between Mis Dorset Kaba Security Systems Pvt.Ltd and Mis Dorset India Pvt. Ltd In view of the aforesaid, separate satisfaction note is being recorded for initiation of proceedings under section 153C of the I.TAct, 1961, in the case of M/s Dorset India Pvt. Ltd. I have also already recorded my satisfaction w.r.t. documents seized in the case of Sh. Takshay Bansal, during search and seizure u/s 132 of the l.T.Act, 1961, conducted on 13.01.2017, of his Locker No. 1945R 18102 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Mis Mars Industries Pvt.Ltd. 91-101 Copies of disclosure letters dated l 1.06.2014 addressed to Mis Dorset Kaba Security Systems Pvt.utd. by (1) Mis Mars Industries Pvt.Ltd., (2) Mis Modtech Industries and (3) Mis Dorset India Pvt.Ltd. in terms of the Business Transfer Agreements dated l 1.06.2014 executed amongst these entities. In view of the aforesaid, separate satisfaction note is being recorded for initiation of proceedings under section l53C of the I.T.Act,196I, in the case of M/s Dorset India Pvt. Ltd. Perusal of the documents seized, as mentioned in the satisfaction recorded in the case of Sh.Rajesh Kumar Bansal and Smt. Rekha Bansal, as also, in the case of Sh, Takshay Bansal and referred to in this satisfaction note in the preceding paras, clearly show that contents of the said documents have a bearing on the determination of total income of M/s Dorset India Pvt. Ltd. including that of M/s Mars Industries Pvt. Ltd. (already amalgamated with M/s Dorset India Pvt. Ltd.) In view of the facts of the case and provisions of section l 53C read with section I53A. I am satisfied that notices u/s l 53C are required to be issued for the assessment years A.Ys 2011-12, 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. ii)CIT vs RRJ Securities Ltd. (Delhi HC) reported in 380 ITR 612. "Section 153 C only enables the Assessing Officer of a person other than the one searched, to investigate into the documents seized and/or the assets seized and ascertain that the same do not reflect any undisclosed income of the assessee (i.e., a person other than the one searched) for the relevant assessment years. If the seized money, bullion, jewellery or other valuable article or thing seized as handed over to the Assessing Officer of the assessee, are duly disclosed and reflected in the returns filed by the assessee, no further interference would be called for. Simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been scrutinized as it was part of audited financial statement of accounts; as per Kabul Chawla supra, completed assessments can be interfered only on the basis of some incriminating material unearth during the search. iv) ACIT vs Vision Town Planners Pvt. Ltd. (Delhi ITAT) in ITA No. 4460/Del/2014. 24. Thus, we hold that the concluded assessment cannot be interfered unless there is incriminating material discovered from the seized documents belonging to the assessee, and no additions can be made where the assessments are framed u/s.153C for unabated year. The seized documents must at least clearly point out that there is some undisclosed income, which here in this case, even for the sake of repetition, it is reiterated that none of the documents are in the nature of incriminating material so as to warrant any additions. v) ACIT vs Realtech Construction Pvt. Ltd. (ITAT Delhi) in ITA No. 6569/Del/2016. 16. The sequitur of the judgment of Hon'ble Jurisdictional High Court in the case of RRJ Securities Pvt. Ltd. (supra) and Index Securities Pvt. Ltd. (supra) are that, if the documents belonging to the assessee are found from the possession of a person search u/s.132, that doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is nothing but order of Hon'ble High Court of Delhi dated 05.05.2015 with regards to amalgamation of Mars Industries (P) Limited with Dorset India (P) Limited, which order is much prior to the date of search and that is how, the same was also seized during the course of search (said document is at page 116 to 145 of PB - I). We have gone through the paper book so filed by the assessee and we have found that the fact of amalgamation and its effect in books of accounts, along with the return of income was duly disclosed prior to search proceedings. The relevant pages of paper book in the case of M/s Dorset India Pvt. Ltd. are page nos. 246, 305, 315, 318 and 324 of PB - I. Thus, in view of the above we hold that the amalgamation order by Hon'ble High Court forms part of books of accounts of M/s DIPL and the original return of income have been filed by the appellant, duly disclosing the effect of the said agreement prior to the recording of satisfaction note or even the date of search and as such, the same cannot be treated as "incriminating material". b) Page no 39-51 of Annexure A-2 (locker at OBC) being copy of Business Transfer Agreement (BTA) dated 01.04.2014 between M/s Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id business transfer agreements, we have noticed that on the basis of business transfer agreement dated 11/06/2014 the original return of income have been filed by Dorset India Pvt. Ltd., as M/s Modtech Industries was taken over by M/s Mars India Pvt. Ltd. and further, M/s Mars India Pvt. Ltd. was amalgamated in M/s Dorset India Pvt. Ltd. and the said disclosures were made by M/s Dorset India Pvt. Ltd in its financial statements. The capital gains on slump sale on the basis of aforesaid agreements have been shown in the original return of income so filed by M/s Dorset India Pvt. Ltd. (at pages 247, 248 to 249, 278, 280, 326 of PB - I). Dorset India Pvt. Ltd also e filed form no 3CEA (audit report relating to capital gain on slump sale) before Income Tax department and the said form no 3CEA is with reference to slump sale on the basis of Business transfer agreements dated 11/06/2014 (at pages 253 and 255 of PB - I). The said fact of amalgamation and business transfer was also disclosed in the balance sheet by M/s DIPL including Goodwill arising as a result of Merger of M/s Mars India Pvt. Ltd. (at pages 305, 315, 318 and 324 of PB - I). Similarly, we have noticed that Page nos. 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrast referred merely to the AO being satisfied that assets/documents seized during a search belonged to a person other than one searched. It is, thus, clear that it was not necessary for the AO, at the stage of recording the satisfaction under Section 153C to come to a conclusion that seized assets which belong to another person represent any undisclosed income. If the AO of a searched person is satisfied that an asset/documents seized belong to another person, he has a duty to forward the documents or the valuable assets seized to the AO of the person concerned; apart from doing so, the AO can do nothing more. 35. The AO of the person other than the one searched also, is not, at the stage of issuing notice under Section 153C/153A of the Act, required to conclude that the assets/documents handed over to him by the AO of the searched person represent or indicate any undisclosed income of the Assessee under his jurisdiction. As explained in SSP Aviation Ltd. (supra), Section 153C only enables the AO of a person other than the one searched, to investigate into the documents seized and/or the assets seized and ascertain that the same do not reflect any undisclosed income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Section 153C of the Act." 17. We have also gone through the order of assessment and also the order of learned CIT (A) in the impugned matters and find that nowhere, the documents so referred in the satisfaction note have been alleged to have been not disclosed in the returns of income filed prior to recording of satisfaction note, rather, on reading the order of learned CIT (A) we find that, he has rather accepted the fact that documents so referred in satisfaction note are duly disclosed in the returns of income. The relevant finding of CIT (A) is extracted as under: "Para 9.9 Certainly, the action of recording satisfaction at the time of initiation of proceedings u/s 153C, is not a judicial exercise where the defense of the other party (the appellant) is called for and considered. Naturally, it is bound to have inherent subjectivity. Therefore, if such documents have been used to make entry in books of accounts and the ROI is filed before the date of search, it does not nece ..... 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