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TMI Blog2025 (1) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... 023 Ld. 'FAA') in Appeal No.CIT(A), Delhi-27/11128/2016-17 arising out of the appeal before it against the order dated 31.12.2021 passed u/s 153C r.w.s. 153A of the Act by the AO. The appeals were heard together and the facts wherever relevant have been picked from the AY 2017-18. 2. On hearing both the sides, the facts relevant for adjudication of these appeals are that the assessee is a salaried individual having sources of income from salary and interest on bank deposits during the year under consideration. Return of income u/s 139(1) was filed on 01.08.2017 at an income of Rs. 1,80,51,110/- which was processed u/s 143(1) of the Act. 2.1 A search and seizure action u/s 132(1) of the Act was carried out on 28.06.2016 in Paras Mal Lodha Group of cases. The assessment orders u/s 153A of the Act were passed in the case of Sh. Paras Mal Lodha, an alleged Hawala Operator in December 2019. A satisfaction note was recorded by the AO of the searched person (Central Circle-16, Delhi) on 02.12.2020 and books of account or seized documents purportedly pertaining to the assessee were received by the Jurisdictional AO of the assessee on 02.03.2021. Thereafter, satisfaction note for issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he item nos. (ii) and (iii) respectively, however, upheld the remaining additions of Rs. 65,896, Rs. 4,00,000, and Rs. 4,05,000, as explained at the item nos. (i), (iv), and (v) respectively. 3. The case made out before us by the ld. Counsel for assessee is that the satisfaction note recorded was a mechanical satisfaction as the same failed specify/demonstrate/mention: i. the nature of the seized data and the transactions mentioned therein; ii. to which assessment years the seized data pertained to; iii. how the seized data belonged to/related to/pertained to the assessee; iv. how the seized documents had any bearing on the determination of the total income for each assessment year including the impugned AY along with the amount and nature of escaped income culled out for each of the impugned assessment years based on that seized data; v. the nature, date, amount as well as the parties involved in the impugned transactions referred to in the seized data showing undisclosed income of the assessee; vi. any other corroborative material in the possession of the AO relating to such impugned transactions. 4. Ld. DR has however relied the orders of ld. Tax authorities. 5. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminating material. It is also a settled law that the recording of satisfaction note is not mere a formality. The satisfaction must reflect an application of mind by the jurisdictional Assessing officer of the other person that he has examined the seized material that belongs to/pertains to/relates to the other person and also state the reasons on the basis of which he reached to a conclusion that the seized material belonging to/pertaining to/relating to the other person, has a bearing on the determination of the total income of such other person. In support of the above contentions, our attention is invited to the decision of Hon'ble High Court of Delhi in case of Radhey Shyam Bansal 337 ITR 217 whereby it has been held that satisfaction has to be reasonable and objective and not capricious, erratic, irrelevant and imaginative. The satisfaction must reflect rational connection with or relevant bearing between the material available and undisclosed income of the third person. The material itself should not be vague, indefinite, distinct or remote. If there is no rational intangible nexus between the material and the satisfaction that a third person has 'undisclosed income', the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive parameters. The opinion though tentative, however, cannot be a product of imagination or speculation. It cannot be spacious or mercurial. It should not be a mere pretence and should be made in good faith rather than suspicion. Reliability, credibility or for that matter what weight has to be attached to the material, depends upon the subjective satisfaction of the Assessing Officer but definitely it is subject to scrutiny whether the satisfaction has a rational nexus or a relevant bearing to the formation of satisfaction and is not extraneous or irrelevant. The satisfaction must reflect rational connection with or relevant bearing between the material available and undisclosed income of the third person. The rational connection postulates and requires satisfaction of the Assessing Officer that a third person has 'undisclosed income' on the basis of evidence or material before him. The material itself should not be vague, indefinite, distinct or remote. If there is no rational or intangible nexus between the material and the satisfaction that a third person has 'undisclosed income', the conclusion would not deserve acceptation. Then the satisfaction is vitiated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy. " 8. Reliance was also placed by the ld. Counsel on the recent decision of the Hon'ble Delhi High Court in the case of Saksham Commodities Ltd. [2024] 464 ITR 1 (Delhi)[09-04-2024] wherein it was held that unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the department to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered. Section 153C neither mandates nor envisages a mechanical exercise of power. It was also held that it is only once Assessing Officer of non-searched entity is satisfied that material coming into its pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the AO to do so. Unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered. Section 153C neither mandates nor envisages a mechanical or an en blanc exercise of power, or to put it differently, one which is uninformed by a consideration of the factors indicated above. ...................................................................................................... ...................................................................................................... 63. On cm overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to "have a bearing on the determination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7th August, 2008 and 10th December, 2008 respectively. Thus, it is apparent that the said document had no relevance for the assessment years in Question i.e. AYs 2003-04 to 2008-09. In the circumstances, the issue to be addressed is whether proceedings under Section 153C of the Act could be initiated on the basis of this document. 33. The record slip belongs to the Assessee and, therefore, the action of the AO of the searched persons recording that the same belongs to the Assessee cannot be faulted. However, the question then arises is whether the AO of the Assessee was justified in taking further steps for reassessing the income of the Assessee in respect of the assessment years for which the assessments were concluded and in respect of which the seized document had no bearing. In our view, the same would be clearly impermissible as the seized material now available with the AO, admittedly, had no nexus with those assessments and was wholly irrelevant for the purpose of assessing the income of the Assessee for the years in question. Merely because a valuable article or document belonging to an Assessee is seized from the possession of a person searched under Section 132 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated, i.e. AY2011-12, the AO finalised the assessment at the returned income qua each Assessee without making any additions on the basis of those documents. Consequently even the second essential requirement for assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees" (iii) Hon'ble Delhi High Court in case of ARN Infrastructure India Ltd. [2017] 394 ITR 569 (Delhi)[Paras 17,18 & 19]: "17. As regards the other document seized, and mentioned in the Satisfaction Note viz., the extract of the ledger account maintained by the Petitioner concerning the payments of commission made by it to RGEPL. even if it is held to 'belong' to the Petitioner, it could hardly be said to be an 'incriminating document. This was a document relevant only for the AY 2010-11. It could not have been used for re-opening the assessments of the earlier years i.e. AYs 2007-08 to AY 2009-10, 2011-12 and 2012-13. This position again stands settled by the decision in RRJ Securities Ltd (supra). The fact that the Revenue's SLP against the said decision is vending in the Supreme Court does not make a difference sine the operation of the said decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for each assessment year including the impugned assessment year and demonstrating as to how the seized documents had bearing on the determination of total income of the assessee, the assumption of jurisdiction u/s 153C was invalid and therefore the notice u/s 153C and consequent assessment proceedings and assessment order passed for the impugned assessment year deserve to be quashed. 11. In the aforesaid context, when we examine the facts of the case, what immediately strikes is that the satisfaction note recorded by the AO of the searched person u/s 153C of the Act, copy of which is available at pages 72-77 of the paper book, when read along with the satisfaction note recorded by the AO of the appellant u/s 153C of the Act, the copy of which is available at pages 78-82 of the paper book, the two are similar in content. The narration of facts of search and seizure operation, details of documents allegedly pertaining to the assessee are mirror images except for the fact that in the satisfaction note recorded by the AO of searched person, the said AO uses the words that the allegedly the seized documents 'pertain' to a person other than the person searched and the AO of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 13. The situation in the present case also identical. Both the satisfactions recorded by the Assessing Officer of the searched person as well as the assessee or almost identically worded and in fact the Assessing Officer merely relied on the satisfaction note recorded by the Assessing Officer in the searched person. Therefore, the ratio of the decision of the Jurisdictional High Court in the case of Canyon Financial Services Pvt. Ltd. Vs. ITO (supra) applies in the circumstances of the facts of the case. 14. In continuity of the above, when we examine the notice u/s 142(1) of the Act dated 26.11.2021, copy of which is available at pages 8-29, we find that the AO of the appellant before us has done a good homework while raising queries for the assessment year 2017-18 trying to examine the documents individually and their alleged bearing on the determination of the total income of the assessee. When the satisfaction notes are compared with the notice u/s 142(1) of the Act along with the annexure having analysis of the seized material, it appears that at the time of assumption of jurisdiction by way of recording the satisfaction, the AO of the assessee before us had not applied hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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