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TMI Blog2022 (10) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... Navjeevan belongs to third party the assessee] does not exist, and the DCIT/AO of searched person wrongly assumed that the documents seized during searched on 27.10.2014 at the premises of M/s. Navjeevan Trust belongs to the assessee which was on wrong assumption of facts and therefore the foundational fact recorded by DCIT in his satisfaction note itself is bad in law. Therefore, we are of the considered opinion that the satisfaction note prepared at the first stage by AO of the searched persons [DCIT-CC-2(1)] in respect of third party assessee for initiation of proceedings u/s 153C of the Act does not satisfy the requirement of the law and consequently all actions taken pursuant thereto by the AO of the assessee i.e. ITO, Ward (4)(3) also is void-ab-initio and we hold accordingly. Penalty levied u/s 271(1)(c) - In the light of us quashing the assessments framed u/s 153C of the Act for AY 2010-11, 2011-12, 2012-13, the penalty levied also based on those assessments, has to fall because the case of assessee is squarely covered by the legal Maxim Sublato Fundamento credit opus meaning in case foundation is removed, the super-structure falls. In the case of Badarinath Vs. Tami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Circle4(3)] while framing the assessment of M/s Navjeevan charitable trust came across Ledger copies viz the ledger account of the assessee in the books of M/s Navjeevan charitable trust, and upon perusal of the same, he realized that the assessee had some transaction/purchases with M/s. Navjeevan Trust (searched party in this case) which according to the DCIT was bogus in nature. And therefore, he [DCIT Central Circle 2(1)] formed an opinion that necessary action u/s 153C of the Act need to be taken against the assessee in the light of the Ledger copy (viz the ledger account of assessee in the books of M/s. Navjeevan Trust) and therefore, prepared a satisfactory note dated 03.03.2017 (page number 8 of the paper book) that ledger documents seized from M/s Navjeevan charitable trust comprising of ledger account of the assessee in the books of M/s Navjeevan charitable trust belongs to the assessee and transferred the same [ copies of ledger account of the assessee in the books of M/s Navjeevan charitable trust] to the assessee s AO [ITO 4(3] vide letter dated 03.03.2017 which was received by ITO--4(3) on 15.03.2017. And pursuant thereto, the AO of the assessee again recorded hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 2010-11 despite the assessment year not falling in the ken of section 153C of the Act. 5. Be that as it may, we will look into the first legal issue raised by assessee i.e regarding the validity of the satisfaction note prepared by the AO [DCIT, CC-2(1)] which is found placed at page no. 8 of the P.B. We need to examine whether the satisfaction note satisfies the requirement of law or not [for all the three assessment years i.e. AY. 2010-11, 2011-12 2012-13]; and here we observe that if it is found that the satisfaction note for even one assessment year satisfies the requisite satisfaction as per law, then the first stage as envisaged under section 153C of the Act will be satisfied. With this observation, we would like to examine the legal issue raised by the assessee as to whether the ITO, Ward 4(3) (assessee s AO) had the requisite jurisdiction to initiate and then frame assessment u/s 153C of the Act for AY 2010-11, AY 2011-12 and AY 2012-13. For doing that let us have a look at Section153C of the Act and for that it would be relevant to cull out the relevant provisions of Sec. 153C i.e pre-amended (i.e applicable prior to 01.06.2015) and also the post-amended (i.e app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/45 which were found and seized in the premises of M/s. Navjeevan Charitable Trust marked Annexure-A-1/154 to 156 and A-2/45 belongs to Shri Nalin J. Vyas Prop. M/s. Brijesh Enterprises, with transaction amount of Rs.2,48,81,200/- and Rs.1,45,000/- respectively made during FY. 2010-11 relevant AY. 2011-12. Accordingly, copy of the aforementioned seized document is handed over the Assessing Officer i.e. ITO 4(3), Thane having jurisdiction over Shri Nalin J. Vyas Prop. M/s. Brijesh Enterprises for necessary action u/s 153C of the Income Tax Act. (Suhas J. Mistry) Dy. Commissioner of Income Tax Central Circle-2(1), Mumbai. Date:03.03.2017 7. From a perusal of the satisfaction note dated 03.03.2017, by the DCIT-CC-2(1) (AO of M/s Navjeevan Trust/Searched party) reveals that pursuant to execution of search warrant on 27.10.2014 at the premises of M/s. Navjeevan Trust, he (AO) had issued notice u/s 153A to M/s. Navjeevan Trust to furnish return for AY 2009-10 to AY 2014-15, and he had verified and scrutinized the material seized during search proceedings which revealed that page numbers A-1/154 to 156 at A-2/45 belongs to assessee (Shri Nalin J. Vyas who was proprietor of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15. A notice u/s. 142(1) of the income tax Act for A.Y.2015-16 is also issued for filing of return of income. R. R. Patwardhan Income Tax Officer, Ward-4(3), Thane Date 30.03.2017 9. From a perusal of the satisfaction note it reveals that AO of the assessee [ITO-4(3), Thane] records that on examination of seized documents, it reveals that Shri Nalin J. Vyas prop. Brijesh Enterprises has made transaction for FY. 2009-10 of Rs.4,86,64,449/- relevant to AY. 2010-11 FY. 2010-11 of Rs.2,48,81,200/- relevant to AY. 2011-12. Therefore, the case of Shri Nalin J. Vyas falls within the purview of provisions of section 153 of the Act . And after recording the aforesaid satisfaction on 30.03.2017, the AO of the assessee proceeded against the assessee and issued notice u/s 153C of the Act. 10. So when we examine the legal validity of the satisfaction note prepared by the AO of the searched person [DCIT-CC-2(1)] against the assessee, first we have to ascertain whether the pre-amended provision u/s 153C (ie. before 01.06.2015) is applicable or the post-amended section 153C is applicable. We note that this issue is no longer res-integra and the Hon ble Gujarat High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision. In Calcutta Knitwears (supra), the Supreme Court has held that while interpreting a machinery provision, the courts would interpret a provisions in such a way that it would give meaning to the charging provisions and that the machinery provisions are liberally construed by the courts; and that it is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose, the section should be liberally construed. The court has further held that wherever the intention to impose liability is clear, the courts ought not to be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. It is contended that the legislature having the clear intent to bring in persons other than the person searched within the ambit of section 153C of the Act even if the books of account or documents seized or requisitioned pertain to or any information therein relates to such other person, the amended provisions should be so construed as would effectuate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this question assumes significance, inasmuch as in the facts of the present case, as on the date of search, it was only if such material belonged to a person other than the searched person, that the Assessing Officer of the searched person could record such satisfaction and forward the material to the Assessing Officer of such other person. However, subsequent to the date of search, the amendment has been brought into force and based on the amendment, the petitioners who were not included within the ambit of section 153C of the Act as on the date of the search, are now sought to be brought within its fold on the ground that the satisfaction note and notice under section 153C of the Act have been issued after the amendment came into force. Therefore, this case does not relate to the interpretation of the provisions of any of the sections, but relates to the stage at which the amended section 153C of the Act can be made applicable, as to whether it relates to the date of search; or the date of recording of satisfaction by the Assessing Officer of the searched person; or the date of recording of satisfaction by the Assessing Officer of the other person; or the date of issuance of not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer having jurisdiction over the other person, therefore, there would be no question of his again forming a satisfaction as required under the amended provisions of section 153C of the Act. 19.11 In the opinion of this court, if a date other than the date of search is taken to be the relevant date for the purpose of recording satisfaction one way or the other, it would result in an anomalous situation wherein in some cases, because the notices under section 153C of the Act were issued prior to the amendment, they would be set aside on the ground that the books of account or documents seized or requisition did not belong to the other person though the same pertained to or the information contained therein related to such person, whereas in other cases arising out of the same search proceedings, merely because the notices are issued after the amendment, the same would be considered to be valid as the books of account or documents seized or requisitioned pertain to or the information contained therein relate to the other person. It could not have been the intention of the legislature to deal with two sets of identically situated persons differently, merely because in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding regarding the jurisdictional fact [ i.e, seized documents A-1/154 to 156 to A-2/45 belongs to assessee] the satisfaction note prepared by him to AO of the assessee [ITO-4(3) Thane] is vitiated. Thus we find that the jurisdictional fact [seized material from M/s Navjeevan belongs to third party the assessee] does not exist, and the DCIT/AO of searched person wrongly assumed that the documents seized during searched on 27.10.2014 at the premises of M/s. Navjeevan Trust belongs to the assessee [i.e. A-1/154 to 156 to A-2/45] which was on wrong assumption of facts and therefore the foundational fact recorded by DCIT in his satisfaction note itself is bad in law. Therefore, we are of the considered opinion that the satisfaction note prepared at the first stage by AO of the searched persons [DCIT-CC-2(1)] in respect of third party assessee for initiation of proceedings u/s 153C of the Act does not satisfy the requirement of the law and consequently all actions taken pursuant thereto by the AO of the assessee i.e. ITO, Ward (4)(3) also is void-ab-initio and we hold accordingly. 12. Therefore, all the quantum assessments u/s 153C of the Act pertaining to AY 2010-11, 2011-12, 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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