Citation Codes

Equivalent Citations

citation codes

Case Number

I.T.A Nos. 2813 to 2817 and 5293.Del/2014 Asstt. Years: 2003-04 and 2008-09 and I.T.A No. 3831.Del/2014: Asstt. Year: 2003-04

Attorney(S)

Assessee by: Sh. Kapil Goel, Adv.
Revenue by: Sh. K.K. Jaiswal, DR

Judges

N.K. Saini, A.M.
Kuldip Singh, J.M.

Acts

u/s 153C of the Income Tax Act, 1961 (hereinafter referred to as the Act),
u/s 153C of the Income Tax Act

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Smart Summary

Structured Summary of the Tribunal's Consolidated Order (Assessment Years 2003-04 to 2008-09)

Factual and Procedural Background

The appeals by the assessee for assessment years 2003-04 to 2008-09 and a cross-appeal by the department for assessment year 2003-04 were directed against separate orders dated 31.01.2011 of the learned CIT(A)-II, New Delhi. These appeals, having common issues and similar facts, were consolidated for disposal.

A search and seizure action under section 132 of the Income Tax Act was carried out on 20.10.2008 at the residential premises of Shri B.K. Dhingra, Smt. Poonam Dhingra, Mayank Traders (P) Ltd. and Horizon (P) Ltd. At the premises (F-6/5, Vasant Vihar, New Delhi) certain documents belonging to the assessee were seized. Proceedings were thereafter initiated under section 153C read with section 153A of the Act.

For assessment year 2003-04, the assessee had filed a return declaring income of Rs. 86,067/-, while the assessment was framed at Rs. 58,89,090/-. The CIT(A) partly sustained additions of Rs. 23,72,454/- out of total additions of Rs. 58,03,284/-. The assessee appealed against the sustenance of additions; the department filed a cross-appeal against relief allowed by the CIT(A).

Legal Issues Presented

Whether the initiation of proceedings and issuance of notice under section 153C of the Income Tax Act is valid where (as asserted by the assessee) no incriminating material was found during the course of search and, specifically, whether the Assessing Officer of the searched person recorded the requisite satisfaction that the seized assets/documents belonged to another person before transferring them.
Whether an assessment framed under section 153C is bad in law and time-barred, without jurisdiction, or otherwise vitiated if statutory procedures mandated by section 153C were not complied with (including recording of satisfaction by the AO of the searched person).
Whether the assessment under section 153C should be restricted to matters reflected in seized incriminating documents belonging to the assessee (i.e., limitation of scope of assessment to incriminating seized material).
Whether additions sustained by the authorities (including the addition of Rs. 23,72,454/-) were correctly calculated and justified by the material on record.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The assessment framed under section 153C of the Income Tax Act is bad-in-law because during the course of search no incriminating material belonging to the assessee was found.
The Assessing Officer of the searched person did not record the requisite satisfaction that the seized assets/documents belonged to the assessee; therefore initiation under section 153C was invalid.
The assessee relied on judicial decisions — notably CIT v. RRJ Securities Ltd. (reported at 380 ITR 612) and the ITAT Delhi Bench decision in ACIT v. Shield Home Pvt. Ltd. (ITA Nos. 4228–4233/Del/2011 and C.O's No. 364–369/Del/2011) — and placed copies of those orders on record.
The assessee also raised grounds challenging the calculation and sustenance of additions (including the addition of Rs. 23,72,454/-), alleged procedural infirmities in not admitting additional evidence, and contended that the AO/CIT(A) ignored explanations and material on record.

Respondent's (Revenue's) Arguments

The Department (represented by the learned DR) supported the CIT(A)'s order and contended that during the search certain documents belonging to the assessee were seized.
The Department argued that all conditions for initiating proceedings under section 153C were fulfilled and that the satisfaction was duly recorded by the Assessing Officer before issuance of notice under section 153C.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. RRJ Securities Ltd., reported at 380 ITR 612 (Hon'ble Jurisdictional High Court)	Held that the first and foremost step for initiation under section 153C is that the Assessing Officer of the searched person must be satisfied that the seized assets/documents belong to another person; once satisfied, the AO of the person to whom the assets/documents relate has jurisdiction to proceed under section 153C.	The Tribunal relied on RRJ Securities to state that recording of satisfaction by the AO of the searched person is essential and found that no such satisfaction was recorded in the present case; therefore initiation under section 153C could not be held valid.
ACIT v. Shield Home Pvt. Ltd. (ITA Nos. 4228–4233/Del/2011 and C.O's No. 364–369/Del/2011), ITAT Delhi Bench (order dated 24.02.2016)	Applied RRJ Securities and the principle that absence of a recorded satisfaction by the AO of the searched person renders initiation under section 153C invalid; addressed procedural and jurisdictional aspects of 153C notices.	The Tribunal found the facts of the present case identical to Shield Home and respectfully followed that order, adopting its reasoning (paras 6–10 as reproduced) to hold initiation under section 153C invalid and quash the assessment.
Calcutta Knitwears (Civil Appeal No. 3958 of 2014) — Hon'ble Supreme Court (judgment dated 12.3.2014)	Held that for section 158BD (a provision substantially similar/parimateria to section 153C), recording of a satisfaction note by the AO is a prerequisite and may be prepared at specified stages (at initiation, in the course of assessment proceedings, or immediately after completion of assessment proceedings of the searched person).	The Tribunal, via the CBDT Circular's acceptance of Calcutta Knitwears, treated the Supreme Court's guidance on recording satisfaction as applicable to section 153C and used it to support the conclusion that a satisfaction note is a pre-requisite which was missing in the present case.
CBDT Circular No. 24/2015 dated 31.12.2015	Clarified that the Supreme Court's guidelines in Calcutta Knitwears regarding recording of satisfaction under section 158BD apply to section 153C; emphasized that recording of satisfaction is prerequisite and directed that pending litigation on recording of satisfaction note should be withdrawn/not pressed if it does not meet the guidelines.	The Tribunal relied on this Circular as authoritative guidance accepted by the Board, noting it explicitly directs withdrawal of appeals where satisfaction was not recorded in compliance with the Supreme Court's guidelines; applied this to hold the initiation of proceedings under section 153C invalid in the present case.

Court's Reasoning and Analysis

The Tribunal proceeded by focusing on the threshold procedural requirement for valid initiation of proceedings under section 153C. It observed that an identical issue with similar facts had already been adjudicated by the ITAT Delhi Bench in ACIT v. Shield Home Pvt. Ltd., whose reasoning was set out and relied upon (paras 6–10 of that order were reproduced and considered).

The Tribunal identified the following chain of authority and principles that guided its analysis:

RRJ Securities Ltd. (Hon'ble Jurisdictional High Court) — the AO of the searched person must be satisfied that seized assets/documents belong to another person before transfer and issuance of notice under section 153C.
Calcutta Knitwears (Hon'ble Supreme Court) — for the cognate provision section 158BD, recording of a satisfaction note is a prerequisite; the satisfaction note may be prepared at specified stages.
CBDT Circular No. 24/2015 — accepts that the Supreme Court's guidance in Calcutta Knitwears applies to section 153C and directs withdrawal of appeals not meeting those guidelines.

Applying these authorities, the Tribunal examined the record and observed that there was no satisfaction note recorded by the Assessing Officer of the person searched in the present matter. The Tribunal noted that the Department could not produce any satisfaction recorded by the AO of the searched person. Given the absence of this mandatory preliminary step, and mindful of the CBDT's direction to withdraw appeals where the satisfaction note was not recorded in accordance with the Supreme Court's guidance, the Tribunal concluded that initiation of proceedings under section 153C was invalid.

Because the notice under section 153C was held invalid, the Tribunal logically proceeded to quash the assessment order passed pursuant to that notice. As the primary legal defect (absence of recorded satisfaction) rendered the entire exercise invalid, the Tribunal declined to examine other objections and factual/contention-based grounds on merit.

For the remaining assessment years (2004-05 to 2008-09), the Tribunal found the facts identical and applied its reasoning mutatis mutandis to hold the section 153C initiations and ensuing assessments invalid for those years as well.

Holding and Implications

Holding: The Tribunal's final disposition was to hold that the initiation of proceedings under section 153C of the Income Tax Act was invalid for lack of a recorded satisfaction by the Assessing Officer of the searched person. Consequently, the assessment orders passed pursuant to those notices were quashed.

DISPOSITION: Appeals of the assessee for the assessment years 2003-04 to 2008-09 are allowed; the department's appeal (cross appeal) in respect of assessment year 2003-04 is dismissed.

Implications

Direct effect on the parties: The assessments framed under section 153C (for the years in question) are quashed and the assessee's appeals are allowed; the department's cross-appeal is dismissed.
Procedural consequence emphasized: The decision underscores that recording of satisfaction by the AO of the searched person (in the manner indicated by higher judicial authority and the CBDT) is a mandatory pre-requisite for valid initiation under section 153C.
On merits: The Tribunal expressly stated that, because it decided the legal threshold issue in favour of the assessee, it did not give any findings on the substantive issues raised on merit.
Broader precedent: The Tribunal applied and followed existing authorities (RRJ Securities, Calcutta Knitwears via CBDT Circular, and the ITAT Shield Home decision). The opinion does not claim to lay down a new precedent beyond applying those authorities to the present facts.

This summary is strictly confined to the contents of the provided Tribunal opinion and does not add facts or inferences beyond that text.

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Bhawna Bhalla v. Cit

The appeals by the assessee for the assessment years 2003-04 to 2008-09 and the Cross appeal by the department for the assessment year 2003-04 are directed against the separate orders each dated 31.01.2011 of the ld. CIT(A)-II, New Delhi.

2. The issues involved in these appeal are common having similar facts so these are being disposed off by this consolidated order for the sake of convenience and brevity.

3. The grounds raised in ITA No. 2813/Del/2014 for the assessment year 2003-04 in assessee's appeal read as under:

“1. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the notice issued u/s 153C and assessment order passed by the Ld. AO u/s 153C/143(3) is illegal, time barred, bad in law, without jurisdiction and wrong on facts. The additions made are unjust, unlawful and arbitrary and are made against the principles of natural justice.

2. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the Ld AO was not justified to ignore the submission of the appellant that the assessment proceedings for the year under appeal was not pending on the date of the recording of satisfaction u/s 153C and since the same didn't abate, the proceedings u/s 153C of the Income Tax Act in this case are bad in law and deserves to be quashed.

3. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the assessment framed by Ld AO is against the statutory provisions of the Act and without complying the procedures prescribed u/s 153C of the Act and as such the assessment being bad in law deserves to be quashed.

4. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has failed to appreciate that the Ld AO was not justified to ignore the submissions of the appellant that assessment u/s 153C of the Income Tax Act be restricted to assessment in respect of seized documents of incriminating nature in the case of the appellant for the year under consideration and in absence of any incriminating seized document in the case of appellant, assessment framed u/s 153C of the Income Tax Act for the year under consideration, is bad in law and deserve to be quashed.

5. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has erred in not admitting the additional evidences i.e. confirmations, confirmed copies of accounts of all the parties filed during the appellate proceedings and also in not considering the remand report of the AO.

6. That on the facts and circumstances of the case and the provisions of law, the Ld CIT Appeals has erred in holding the conclusion that the ‘audited books’ notwithstanding, the book results are required to be rejected, since the narrations are artificial, sham and not reflective of the actual business/commercial transactions. However, the Ld. CIT Appeals still relying on these books/book results for the purpose of calculating the peak from the entries in the cash book and/or bank book of the appellant, amounting Rs. 23,72,454/- for the relevant year under consideration.

7. A) That on the facts and on the circumstances of the case and the provisions of law, the Ld. CIT Appeals has erred in sustaining the addition of Rs. 23,72,454/- as unexplained Investment/Expenditure, ignoring the fact that the same are duly reflected/entered in the books of the accounts of the appellant for the year under consideration;

B) That the Ld CIT Appeals has wrongly calculated the amount of Rs. 23,72,454/- for the purpose of sustaining addition as unexplained Investment/Expenditure;

C) That the Ld CIT Appeals has ignored the concept of ‘Real Income’ and wrongly confirmed/calculated the addition of Rs. 23,72,454/- without granting the credit of the peak of financial transactions as per the cash book/bank book for the preceding years.

D) That the Ld CIT Appeals did not give sufficient opportunity of being heard to the appellant.

8. That the Ld. CIT Appeals has erred in ignoring the explanation given, evidences and material placed and available on record. The same has not been properly considered and judicially interpreted and the same do not justify the additions made. The additions have been sustained with preset mind of the Ld. CIT Appeals and her order is based on surmises, conjectures and suspicion.

9. That on the facts and the circumstances of the case and the provisions of law, the various observations and findings of the Ld CIT Appeals and Ld AO in the impugned appellate order and assessment order, respectively, are irrelevant and vitiated in the law.

10. That the Appellant craves the right to amend, append, delete any or all grounds of appeal.”

4. In all other appeals of the assessee similar grounds are raised. The only difference is in the amount of sustenance of addition mentioned in Grounds No. 6 & 7.

5. At the first instance, the ld. Counsel for the assessee argued Grounds No. 1 to 4 vide which a legal issue has been raised challenging the validity of the assessment framed u/s 153C of the Income Tax Act, 1961 (hereinafter referred to as the Act), when no incriminating material was found during the course of search.

6. Facts related to this issue in brief are that a search & seizure action u/s 132 of the Act was carried out in the cases of Sh. B.K. Dhingra, Smt. Poonam Dhingra, Mayank Traders (P) Ltd. and Horizon (P) Ltd. on 20.10.2008 and during the course of search at their residential premises at F-6/5, Vasant Vihar, New Delhi, certain documents belonging to the assessee were seized. On the basis of documents so found belonging to the assessee, proceedings were initiated u/s 153C r.w.s. 153A of the Act. The assessee filed a return of income declaring an income of Rs. 86,067/- for the assessment year 2003-04. However, the assessment was framed at an income of Rs. 58,89,090/-.

7. Being aggrieved the assessee carried the matter to the ld. CIT(A) who partly sustained the addition of Rs. 23,72,454/- out of the total addition of Rs. 58,03,284/-.

8. Now the assessee is in appeal against the sustenance of the additions and the department has filed the Cross appeal against the relief allowed to the assessee. The ld. Counsel for the assessee at the very outset stated that during the course of search no incriminating material was found. Therefore, the assessment framed u/s 153C of the Act was bad-in-law. It was pointed out that this issue is covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. RRJ Securities Ltd. reported at 380 ITR 612 and the decision of the ITAT Delhi Bench in the case of ACIT v. Shield Home Pvt. Ltd. in ITA Nos. 4228 to 4233/Del/2011 and C.O's No. 364 to 369/Del/2011 for the assessment years 2003-04 to 2008-09. Copies of the said order were furnished, which are placed on record.

9. In his rival submissions the ld. DR strongly supported the order of the ld. CIT(A) and further submitted that during the course of search certain documents belonging to the assessee were seized. Thus, all the conditions for initiating the proceedings u/s 153C of the Act were fulfilled and the satisfaction was duly recorded by the AO before the issuance of notice u/s 153C of the Act.

10. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts has been adjudicated by the ITAT Delhi Bench ‘G’, New Delhi in the case of ACIT v. Shield Home Pvt. Ltd. (supra) wherein the relevant findings have been given in paras 6 to 10 which read as under:

“6. We have considered the rival submissions and have perused the relevant material placed before us. Learned CIT-DR has contended that the ground raised by the assessee before the learned CIT(A) with regard to validity of Section 153C was different than the ground raised before the ITAT. Therefore, in effect, the assessee is raising separate ground which is not permissible unless an additional ground is raised before the ITAT by duly seeking permission there for. We are unable to agree with this contention of learned CIT-DR. The assessee has raised the ground relating to validity of Section 153C before the CIT(A) which is evident from page 1 & 2 of learned CIT(A)'s order wherein grounds of appeal raised by the assessee are reproduced. From the plain reading of those grounds of appeal, it is clear that the assessee raised the ground relating to validity of initiation of proceedings u/s 153C as well as the consequential assessment order passed by the Assessing Officer. That once a ground is raised, then fresh arguments relating to such ground can always be taken at any stage. Therefore, the contention of learned CIT(A) that the assessee is raising the fresh ground is untenable.

7. Now, coming to the merit of the validity of notice u/s 153C, we find that the search had taken place at the residence of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. and, during the course of search at their premises, certain documents belonging to the assessee were seized. In reply to the Right to Information Act, the Department has intimated that no satisfaction note is recorded in the case of Shri B.K. Dhingra and Smt. Poonam Dhingra. Copy of such information is placed at page 4, 5 & 6 of the assessee's paper book. Learned CIT-DR also could not produce any satisfaction having been recorded by the Assessing Officer of the person searched. Hon'ble Jurisdictional High Court in the case of RRJ Securities Ltd. (supra) at paragraph 13 held as under:—

“13. The first and foremost step for initiation of proceedings under Section 153C of the Act is for the AO of the searched person to be satisfied that the assets or documents seized belong to the assessee (being a person other than the searched person). The AO of the assessee, on receiving the documents and the assets seized, would have jurisdiction to commence proceedings under Section 153C of the Act. The AO of the searched person is not required to examine whether the assets or documents seized reflect undisclosed income. All that is required for him is to satisfy himself that the assets or documents do not belong to the searched person but to another person. Thereafter, the AO has to transfer the seized assets/documents to the AO having jurisdiction of the assessee to whom such assets/documents belong. Section 153C(1) of the Act clearly postulates that once the AO of a person, other than the one searched, has received the assets or the documents, he is to issue a notice to assess/re-assess the income of such person-that is, the assessee other than the person searched-in accordance with provisions of Section 153A of the Act.”

(emphasis by underlining supplied by us)

From the above, it is evident that Hon'ble Jurisdictional High Court has held in clear words that first and foremost step for initiation of proceedings u/s 153C is for the Assessing Officer of the searched person to be satisfied that the assets or documents seized belong to the assessee. Admittedly, no such satisfaction is recorded by the Assessing Officer of the person searched. The CBDT, vide Circular No. 24/2015 dated 31st December, 2015, held as under:—

“Subjects: Recording of satisfaction note under section 158BD/153C of the Act-reg.-

The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.

2. The Hon'ble Supreme Court in the case of Calcutta Knitwears in its detailed judgment in Civil Appeal No. 3958 of 2014 dated 12.3.2014 (available in NJRS at 2014-LL-0312-51) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon'ble Court held that “the satisfaction note could be prepared at any of the following stages:

(a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or

(b) in the course of the assessment proceedings under section 158BC of the Act; or

3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/parimateria to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified 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.

5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.”

9. From the above, it is evident that the CBDT has accepted that the decision of Hon'ble Apex Court in the case of Calcutta Knitwears in Civil Appeal No. 3958 of 2014 dated 12th March, 2014 issued for the purpose of Section 158BD would be squarely applicable for the purpose of proceedings u/s 153C. The Circular also observed that recording of satisfaction note is a pre-requisite and the satisfaction must be prepared by the Assessing Officer before he transmits the record to the other Assessing Officer who has jurisdiction over such other person. In paragraph 4, it has been further clarified that such satisfaction note is essential even if the Assessing Officer of the searched person and the other person is the one and the same. Admittedly, in the case of the assessee, no such satisfaction is recorded by the Assessing Officer of the person searched. In paragraph 5 of the above Circular, the CBDT has directed the Revenue authorities to withdraw the appeal if there is no recording of the satisfaction note in the light of above judgment. In our opinion, the above decision of Hon'ble Jurisdictional High Court and the Circular of the CBDT are squarely applicable to the facts of the case, as no satisfaction is recorded by Assessing Officer of person searched. Respectfully following the decision of Hon'ble Jurisdictional High Court in the case of RRJ Securities Ltd. (supra) and CBDT's Circular No. 24/2015 dated 31st December, 2015, we are of the opinion that the initiation of proceedings u/s 153C cannot be held to be valid.

10. Though the learned counsel for the assessee has raised several other objections with regard to validity of the notice u/s 153C but since, in our opinion, the first and foremost step for initiation of proceedings u/s 153C i.e., the recording of the satisfaction by the Assessing Officer of the person searched is missing, the proceedings are invalid and, therefore, the other arguments of the assessee need not be examined in detail. We, therefore, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of RRJ Securities Ltd. (supra) and the Circular of CBDT No. 24/2015 dated 31st December, 2015, hold the initiation of proceedings u/s 153C to be invalid and quash the same. Since the notice u/s 153C itself has been held to be invalid, the assessment order passed in pursuance thereto is also quashed. Once the assessment order is quashed, the appeals filed by the Revenue which are with regard to the additions deleted by the CIT(A), do not survive for adjudication on merits. Accordingly, all the appeals filed by the Revenue are dismissed and the cross objections of the assessee are allowed.

11. Since the facts of the present case are similar to the facts involved in the case of ACIT v. Shield Home Pvt. Ltd. in ITA Nos. 4228 to 4233/Del/2011 and CO's No. 364 to 369/Del/2011 for the assessment years 2003-04 to 2008-09. So, respectfully following the said order dated 24.02.2016 the initiation of the proceedings u/s 153C in the assessee's case are held to be invalid and accordingly the assessment framed, thereafter u/s 153C of the Act is quashed. Since the legal issue has been decided in favour of the assessee, no finding is given on the issues raised on merit. Accordingly appeal of the assessee for the assessment year 2003-04 is allowed and Cross appeal of the department is dismissed. The facts involved in the other appeals of the assessee for the assessment years 2004-05 to 2008-09 in ITA Nos. 2814 to 2817/Del/2014 are identical to the facts involved in ITA No. 2813/Del/2014 for the assessment year 2003-04. Therefore, our findings given in the former part of this order shall apply mutatis mutandis for the assessment years 2004-05 to 2008-09. Accordingly, appeals of the assessee for the said assessment years are allowed.

12. In the result, appeals of the assessee are allowed and the appeal of the department is dismissed.

Bhawna Bhalla v. Cit

Structured Summary of the Tribunal's Consolidated Order (Assessment Years 2003-04 to 2008-09)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's) Arguments

Respondent's (Revenue's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Implications

Bhawna Bhalla v. Cit

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