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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Appellant by: Shri S.N Doshi
  • Respondent by: Shri A.S Singh, CIT DR
Judges
  • I.C Sudhir
  • D. Karunakara Rao
Acts
  • Bombay Public Trust Act, 1950 and Societies Registration Act, 1860.
  • provision of s. 13(1)(d)(i) of the IT Act, 1961
  • s. 251(2) of the IT Act, 1961,
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Appellant by: Shri S.N Doshi
  • Respondent by: Shri A.S Singh, CIT DR
Judges
  • I.C Sudhir
  • D. Karunakara Rao
Acts
  • Bombay Public Trust Act, 1950 and Societies Registration Act, 1860.
  • provision of s. 13(1)(d)(i) of the IT Act, 1961
  • s. 251(2) of the IT Act, 1961,
See more information ...
Smart Summary

Factual and Procedural Background

The assessee is Sinhgad Technical Education Society (STES), an educational institution registered under the Bombay Public Trust Act, 1950 and the Societies Registration Act, 1860, and registered under s.12A(a) of the Income-tax Act since assessment year 1994-95. A search and seizure under s.132 was carried out in the case of Shri M.N. Navale (president of the society) on 20 July 2005. Loose papers (bundle A-2 and others) were found and seized from Mr. Navale and simultaneous survey action was conducted at the institute.

On the basis of the seized loose papers, the Commissioner issued a show-cause notice proposing cancellation of the society’s registration under s.12AA(3). The Commissioner cancelled registration, but that cancellation was later reversed by the Tribunal on technical grounds (that registration under s.12A cannot be cancelled under s.12AA(3)).

For the society, the Assessing Officer (AO) recorded reasons and issued notices under s.153C, and carried out assessment proceedings including directing a special audit under s.142(2A). The special auditor completed the audit and computed income at Rs. 2,46,13,935. The CIT(A) partly allowed the society’s appeal against the AO; the society filed four appeals to the Tribunal challenging the CIT(A) orders. The society also raised an additional legal ground challenging the validity of the AO’s action under s.153C on the basis that the AO failed to record requisite satisfaction properly and failed to provide certified true copies of the seized documents that purportedly belonged to the society.

Legal Issues Presented

  1. Whether the notices issued under s.153C of the Income-tax Act, 1961 were validly issued — specifically, whether the Assessing Officer recorded the necessary satisfaction and had assessment-year-specific incriminating information (ASII) to reopen concluded assessments for the impugned years (2000-01 to 2003-04).
  2. Whether the AO was required to provide the certified copies of the seized documents and the satisfaction note to the assessee before proceeding under s.153C (natural justice / disclosure concerns).
  3. Whether the first proviso to s.153A(1)(b) operates automatically to permit reassessment for six years, including concluded assessments, when the seized material does not contain assessment-year-specific incriminating information.
  4. Grounds raised against the CIT(A)’s orders on substantive matters (as framed in the appeals) including:
    • Alleged failure to issue mandatory notice under s.251(2) (Ground No.1(a)).
    • Whether CIT(A) considered issues not mentioned in the assessment order (Ground No.1(b)).
    • Whether enhancement by CIT(A) exceeded the subject-matter considered by the AO (Ground No.2(c)).
    • Whether acquisition of shares in co-operative bank violated s.13(1)(d)(i) (Ground No.2).
    • Disallowance under s.40A(3) and treatment of revenue/capital expenditure (Ground No.3).
    • Treatment of donations to trust corpus as revenue income and denial of exemption under s.11 (Ground No.4).
    • Additions under s.36(1)(va) for delayed PF payment and s.2(24) issues (Ground No.5).
    • Disallowance of prior period expenditure (Ground No.6).
    • Disallowance of donations paid (Ground No.7).

Arguments of the Parties

Assessee's Arguments

  • The satisfaction note recorded by the Department (dated 18 April 2007) does not identify the AO by ward/circle and was not provided to the assessee during assessment proceedings; the satisfaction must be recorded by the AO of the searched person and be identifiable by ward/circle.
  • Natural justice requires that the assessee be provided a copy of the satisfaction note and certified copies of the seized documents alleged to belong to the assessee (citing Janki Exports International v. Union of India).
  • The seized papers (items listed in the satisfaction note) either belong to Mr. Navale personally, pertain to later years (2004-05 / 2005-06), are accounted in the regular books, or are "dumb" documents that do not prima facie indicate undisclosed income for the impugned years 2000-01 to 2003-04.
  • Nothing was seized that pertains to assessment years 2000-01 to 2003-04, and therefore no satisfaction could properly be recorded to initiate proceedings under s.153C for those years.
  • The word "belong" in s.153C implies more than a mere causal connection; it requires continuity and intimate connection (citing P. Srinivas Naik and related jurisprudence).
  • The AO should not proceed mechanically; if seized material shows transactions already disclosed or recorded in the assessee’s books, it would be unfair to initiate s.153C proceedings.
  • The proviso to s.153A does not permit automatic reopening of concluded assessments for the full six-year period; there must be assessment-year-specific incriminating information (ASII) for each year sought to be reopened (relying on LMJ International, Kumar & Co., and other Tribunal decisions).
  • Where relevant documents were received by the AO on 18 April 2007 (relevant to assessment year 2008-09), notices under s.153C should only extend to the six immediately preceding years (2002-03 to 2007-08) and not to earlier years such as 2000-01 and 2001-02 (citing Vijay M. Vimawal decision of Ahmedabad Bench).

Revenue's Arguments

  • Documents belonging to STES were seized from Mr. Navale’s premises and therefore s.153C preconditions were met; the AO validly assumed jurisdiction under s.153C.
  • There is no requirement that seized items be assessment-year specific; seizure of "any money, bullion, jewellery or other valuable article or thing or books of account or documents" belonging to the person covered under s.153C is sufficient to assume jurisdiction for the six-year period (relying on the statutory first proviso to s.153A).
  • There is no need for seizure of documents to be specifically tied to each of the six assessment years for the AO to proceed; the AO is empowered to assess or reassess the total income of the six preceding years immediately preceding the assessment year relevant to the year of search.
  • The Department relied on a prior order of the Tribunal in Kumar & Co. (IT Appeal No.1020 (Pune) of 2008, dated 2-2-2010) to support the proposition that the AO rightly assumed jurisdiction under s.153C.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC) Referenced in the grounds; original text cites it in relation to appellate limits (as framed in the appeal). The opinion lists it among the grounds but does not elaborate further application beyond noting it as cited by the assessee in grounds of appeal.
CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC) Referenced in the grounds regarding limitation on enhancement being restricted to subject-matter of assessment. Listed in the grounds; the Tribunal did not undertake separate analysis under this citation in the portions reproduced but acknowledged it as part of the grounds.
Janki Exports International Through S.P. Gupta v. Union of India [2005] 193 CTR (Del) 730 : [2005] 278 ITR 296 (Delhi) Natural justice requires that an assessee proceeded under provisions analogous to s.153C must be provided copy of the satisfaction note and certified copy of seized documents. The assessee relied on this decision to argue non-provision of the satisfaction note and seized documents; the Tribunal recorded this argument in examining procedural fairness.
P. Srinivas Naik v. Asstt. CIT [2008] 114 TTJ (Bang.) 856 Explains that 'belong' implies continuity and intimate connection; mere causal connection insufficient for s.153C invocation. The assessee invoked this reasoning; the Tribunal referenced the notion that seized material must have a sufficient nexus to the connected person and that mere passing of material is not enough.
Saraya Industries Ltd. v. Union of India [2008] 216 CTR (Delhi) 257 : [2008] 6 DTR (Delhi) 256 Seizure or requisition must be of such character as to persuade the AO to reopen closed assessments; seizure should relate to the relevant assessment years. The assessee cited this decision; the Tribunal accepted the principle that seized material must be persuasive to reopen concluded assessments and considered it in its analysis of the satisfaction note.
Manish Maheshwari v. Asstt. CIT [2007] 208 CTR (SC) 97 : [2007] 289 ITR 341 (SC) Fiscal law should be construed strictly. The Tribunal cited this Supreme Court principle to support a strict approach to construing provisions that allow reopening (i.e., not to permit automatic or unfettered reopening absent ASII).
Cit, Bombay v. M/s Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 104 CTR (SC) 243 : [1992] 196 ITR 149 (SC) Tax law should be interpreted reasonably and purposively to effectuate legislative intention. The Tribunal cited this decision in support of interpreting s.153A/153C purposively and reasonably, balancing legislative object with fairness to taxpayers.
Commissioner of Income-Tax v. Dodsal Ltd. [2008] 218 CTR (Bom.) 430 : [2008] 10 DTR (Bom.) 77 Support for purposive interpretation of tax law in consonance with justice. The Tribunal cited it alongside Gwalior Rayon to underscore the need for reasonable construction of tax provisions.
Sahara India (Firm) v. CIT [2008] 216 CTR (SC) 303 : [2008] 7 DTR (SC) 27 Principle of natural justice in tax proceedings; courts have required fairness in administrative actions. The Tribunal referred to this in arguing that initiating action contrary to natural justice is impermissible and supports the assessee's contention for procedural safeguards.
Kumar & Co. (IT Appeal No. 1020 (Pune) of 2008, dated 2-2-2010) (Tribunal) Seized documents must be not only "speaking" but also prima facie incriminating for the relevant assessment year to ignite s.153C proceedings. The Tribunal relied on the reasoning in Kumar & Co. (and reproduced para 25-26) to hold that absence of ASII means s.153C cannot be validly invoked for the concluded years; it applied this reasoning to the facts and allowed the additional ground.
LMJ International Ltd. v. Dy. CIT [2008] 119 TTJ (Kol.) 214 / 22 SOT 315 (Kol.) Where nothing incriminating is found in search relating to particular assessment years, those assessments cannot be disturbed under s.153C; the first proviso is not automatic. The Tribunal relied on LMJ International as a central precedent to hold that the AO cannot automatically reopen concluded assessments for the six-year period absent ASII; it followed LMJ in allowing the assessee's additional ground.
Anil Kumar Bhatia v. Asstt. CIT [2010] 1 ITR (Trib) 484 (Delhi) Where processing of returns under s.143(1)(a) stood completed before search and no material is found in search, no addition can be made under s.153A. The Tribunal cited this principle in discussing that concluded regular assessments should not be disturbed where seized materials do not provide incriminating information.
Suncity Alloys (P.) Ltd. v. Asstt. CIT [2009] 124 TTJ 674 (Jd.) Assessments under s.153A are not de novo; concluded regular assessments that were complete on the date of initiation of action under s.132 should not be treated as subject to new claims or adjustments unrelated to incriminating material. The Tribunal cited it as reinforcing that concluded assessments should not be routinely reopened under s.153C for unrelated routine matters.
Meghmani Organics Ltd. v. Dy. CIT [2010] 129 TTJ 255 (Ahd.) Record maintained by a person for his own purpose though referable to the assessee cannot be said to belong to the assessee for s.153C; where none of the assessments are pending on the date of action, such assessments do not abate. The Tribunal cited this to support the notion that ownership/connection of seized records must be clear and that pending status matters for applicability of s.153C.
Kailash Auto Finance Ltd. v. Asstt. CIT [2009] 32 SOT 80 (Lucknow) On processing a return and issuing acknowledgement, proceedings initiated by filing the return are terminated; notice under s.148(1) may be issued though s.143(2) proceedings were pending. The Tribunal cited it in the context of technical discussion of when assessments are pending or concluded; primarily referenced by parties in arguments about pending status of assessments.
Commissioner Of Income-Tax v. R.M.L. Mehrotra [2010] 320 ITR 403 / 186 Taxman 137 (All.) Undisclosed income in block period must be determined on basis of evidence found as a result of search or requisition and other material relatable to such evidence; AO cannot compute income on best judgment without such evidence. The Tribunal cited it for the proposition that assessments/reassessments based on search must relate to evidence found in search and cannot be arbitrary.
Nauvika Investment & Commercial Enterprises Ltd. v. Dy. CIT [2008] 5 DTR (Delhi)(Trib.) 479 (Delhi Bench) Mere passing of seized material by the AO of the searched person does not amount to recording the requisite satisfaction under s.153C. The assessee relied on this decision to argue that transmission of seized papers without a proper recorded satisfaction is insufficient; the Tribunal referenced the proposition in its analysis.
Vijay M. Vimawal v. Asstt. CIT [2009] 124 TTJ (Ahd.) 508 : [2009] 25 DTR (Ahd.)(Trib) 362 Used to argue limitation and impermissibility of issuing notices for years outside the permissible range depending on date documents were received by AO (as argued by assessee). The assessee relied on this Ahmedabad Bench decision to argue that notices for 2000-01 and 2001-02 were impermissible given dates; the Tribunal noted the argument but held it was unnecessary to decide that separate point after allowing additional ground on LMJ/Kumar reasoning.

Court's Reasoning and Analysis

The Tribunal proceeded by first addressing the additional legal ground challenging the validity of the notices issued under s.153C, because this ground went to the root of the matter. The Tribunal extracted and closely examined the AO's "satisfaction note" as reproduced in the record and noted the specific entries enumerated by the AO (vouchers, letters, balance sheets and expense details across bundles A-2 and A-4).

The Tribunal's step-by-step analysis included:

  • Recognition that it was undisputed that a satisfaction note and notices under s.153C were recorded/issued by the AO.
  • Careful scrutiny of the satisfaction note items, observing that items at serial Nos.1–5 pertained to 2004–05 or thereafter, and other items were either recorded in books, related to Mr. Navale personally, or were "dumb" documents not prima facie indicative of undisclosed income for assessment years 2000-01 to 2003-04.
  • Finding that the satisfaction note was general and lacked assessment-year-specific incriminating information (ASII) for the impugned four assessment years; the note even contained information against Mr. Navale HUF that was irrelevant to the society.
  • Application of precedents (LMJ International, Kumar & Co., and supporting Tribunal/High Court/Supreme Court authorities) for the proposition that the first proviso to s.153A(1) does not operate automatically to permit reassessment for the six preceding years; instead, reopening of concluded assessments requires ASII or seized materials that are prima facie incriminating and relatable to those specific years.
  • Consideration of the Revenue’s contention that seizure of documents belonging to the assessee suffices to reopen all six years; the Tribunal found that the AO’s reasons were silent on ASII for the impugned years and that the Revenue had not shown why the cited precedents should not be followed.
  • Conclusion that the AO’s satisfaction note failed to meet the statutory and jurisprudential requirements to validly trigger s.153C proceedings for the impugned years; accordingly, the notices were invalid insofar as they sought to disturb the concluded assessments for those years.

Having upheld the additional ground, the Tribunal considered merits issues academic and therefore declined to adjudicate the substantive additions; it dismissed the substantive grounds as academic in light of the ruling on the validity of the s.153C notices.

Holding and Implications

Holding: The Tribunal allowed the additional ground and held that the notices issued under s.153C for the impugned assessment years were invalid because the Assessing Officer's satisfaction note did not contain assessment-year-specific incriminating information required to reopen concluded assessments. As a result, the Tribunal concluded:

All four appeals of the assessee are allowed.

Implications:

  • Direct effect on the parties: The s.153C-derived notices and consequent actions contesting the concluded assessments for assessment years 2000-01 to 2003-04 (the four years under consideration) were held invalid; therefore, the substantive additions and adjustments made under those notices were set aside as the additional ground succeeded.
  • Subsequent treatment of substantive grounds: Because the additional (procedural) ground was allowed, the Tribunal treated adjudication of the substantive grounds as academic and dismissed them as such.
  • Precedential impact: The Tribunal applied existing Tribunal and court decisions (including LMJ International and Kumar & Co.) to support its conclusion; the opinion does not purport to lay down a novel legal principle but applies established jurisprudence that ASII is required to disturb concluded assessments under the first proviso to s.153A(1). The decision thus reinforces the line of authorities requiring assessment-year-specific incriminating information before reopening concluded assessments under s.153C.
Show full summary ...

    Sinhgad Technical Education Society v. Acit, Central Circle 2(2)

    D. Karunakara Rao, Accountant Member - There are four appeals filed by the assessee against the commonly dated but different orders of the CIT(A)-II, Pune. The grounds of appeal are more or less the same in these appeals and the additional ground raised by the assessee is common for all the four appeals. Therefore, all these appeals are clubbed. For the sake of convenience, the appeal for the asst. yr. 2000-01 is taken up and it is against the order of the CIT(A)-II, Pune dt. 24th Dec., 2009. Thus, the grounds in the appeal for the asst. yr. 2000-01 and the common additional ground raised by the assessee during the proceedings before us are as under :

    "Ground No. 1(a)

    On the facts and in the circumstances of the case the order of CIT(A) is bad in law and invalid as he has not issued the mandatory notice as required by s. 251(2) of the IT Act, 1961, in order to enhance the assessment thereby making the appellant liable on the grounds different from those not considered by the AO.

    Ground No. 1(b)

    On the facts and in the circumstances of the case and without prejudice to the above ground No. 1, the order of CIT(A) is bad in law and invalid as he has decided the appeal by considering the issues which are not mentioned in the assessment order—Refer CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC).

    Ground No. 2(c)

    On the facts and in the circumstances of the case and without prejudice to the above ground No. 1, the learned CIT(A) has erred in not appreciating the established legal position that his power of enhancement is restricted to the subject-matter of assessment which has been considered expressly or by clear implication by the AO. Refer CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC).

    Ground No. 2

    On the facts and in the circumstances of the case and without prejudice to ground No. 1, the CIT(A) has erred in treating the acquisition of shares in co-operative bank for Rs. 49,750 as in contravention of provision of s. 13(1)(d)(i) of the IT Act, 1961 disregarding the fact that this acquisition of shares is neither the investment nor the deposit made out of the funds of the institution and such acquisition was necessary being a precondition for availing the loan from the said co-operative bank.

    Ground No. 3

    On the facts and in the circumstances of the case and without prejudice to ground Nos. 1 to 3, the CIT(A) has erred in sustaining the disallowance of Rs. 15,130 under s. 40A(3) and treating the revenue expenditure as capital expenditure.

    Ground No. 4.

    On the facts and in the circumstances of the case and without prejudice to ground Nos. 1 to 3, the CIT(A) has erred in treating the donations received towards trust corpus as revenue income. Denial of exemption under s. 11 cannot change the basic and true nature of the receipt.

    Ground No. 5

    On the facts and in the circumstances of the case and without prejudice to the ground Nos. 1 to 3, the CIT(A) has erred in sustaining the addition of Rs. 4,43,012 proposed and made by the special auditors by invoking the provisions of s. 36(1)(va) of the Act on account of delay in payment of employees share of provident fund r/w s. 2(24).

    Ground No. 6

    On the facts and in the circumstances of the case and without prejudice to the ground Nos. 1 to 3, the CIT(A) has erred in sustaining that the disallowance of Rs. 51,505 made on account of prior period expenditure disregarding the contention that these expenses materialized in the context of their liability in the year under consideration only.

    Ground No. 7

    On the facts and in the circumstances of the case and without prejudice to the ground Nos. 1 to 3, the CIT(A) has erred in sustaining the disallowance of Rs. 50,000 on account of donations paid."

    Additional ground of appeal:

    "On the facts and in the circumstances of the case, the order of the AO passed under s. 143(3) r/w s. 153C is bad in law in as much as he has failed to record and form the necessary satisfaction as well as failed to provide the certified true copies of the documents searched and seized in an action taken under s. 132 on Shri M.N. Navale.

    This ground is legal and goes to the root of the issue involved and therefore, appellant prays that this additional ground may kindly be admitted and disposed of on merit."

    2. Briefly stated relevant facts of the case are that the assessee is an educational institution registered under Bombay Public Trust Act, 1950 and Societies Registration Act, 1860. It was also registered under s. 12A(a) of the IT Act, 1961 since the asst. yr. 1994-95. The search and seizure operation under s. 132 was carried out in the case of Shri M.N. Navale on 20th July, 2005. Shri M.N. Navale is the president of the assessee educational society. In the course of search operation, the search party found and seized certain loose papers. Simultaneously, the survey action was conducted on the institute. However, on the basis of the loose papers bundle A-2 found with and seized from Shri M.N. Navale, the CIT issued the show-cause notice stating that in view of the findings in the search operation, he had reason to believe that the nothings in the said loose papers are in respect of capitation fees/donations and therefore, CIT proposed that the registration of the institution was to be cancelled on both the limbs namely, the activity of the trust are not genuine and that these are not being carried on in accordance with the object of the trust. After hearing the assessee, the CIT cancelled the registration under s. 12AA(3). This order of the CIT was challenged before the Hon'ble Tribunal and the same was reversed on technical grounds i.e. the registration granted under s. 12A cannot be cancelled under s. 12AA(3) of the Act.

    3. Coming to the search assessment proceedings of the society, the AO issued the notice under s. 153C of the Act after recording the reasons and the assessee filed the return claiming the exemption under s. 11 of the Act. In the course of assessment proceedings, the AO made the reference for special audit under s. 142(2A) of the Act. In due course, the special auditor completed the audit. However, there is an allegation by the assessee that the special auditor conducted the audit totally in contrast to the terms and references made by the AO for conducting the special audit. The AO on the basis of the order of cancellation of registration held that the assessee has to be treated as AOP and it would not be entitled to the claim of exemption under s. 11 of the Act. AO assessed the income at Rs. 2,46,13,935 as computed by special auditor.

    4. Aggrieved with the above order of the AO, the assessee filed an appeal before the CIT(A) and made various submissions. CIT(A) allowed the appeal of the assessee partly. Aggrieved with the said decision of the CIT(A), the assessee filed the present appeal before us and made various submissions. Further, learned counsel raised an additional ground as narrated above and argued stating that the same is legal in nature and there is no need for any investigation into the matter for deciding the same by the Tribunal. Some of them are extracted from the written submissions of the assessee and the same are as under :

    "(1) In the paper book filed by the Departmental Representative on 31st Aug., 2010, it is found that the satisfaction note is made on 18th April, 2007. It is however not clear as to the ward/circle of the AO who has recorded this note. The satisfaction note has to be made by the AO of the searched person i.e. Mr. M.N. Navale. On the date of search, AO of M.N. Navale was Ward 1(3) and of the appellant was Circle-6, Pune.

    (2) Even though on 18th April, 2007, when the satisfaction note is made and the AO was one and the same both for Mr. M.N. Navale and the appellant, it is necessary to have the mention, in the satisfaction note as to who is the AO i.e., the ward/circle. It is the ward/circle which gets the jurisdiction and not an individual who governs or administers the said ward/circle.

    (3) This satisfaction note has not been provided to the appellant at any time in the course of assessment proceedings or thereafter till 31st Aug., 2010 on which date the paper book is filed by the Department.

    It is necessary for the AO of the appellant to inform about the satisfaction so recorded as well as to provide the copies of the seized documents and the appellant must be given a reasonable opportunity to object to the same Refer : Janki Exports International Through S.P. Gupta v. Union of India [2005] 193 CTR (Delhi) 730 : [2005] 278 ITR 296 (Delhi).

    This view is taken by Delhi High Court in the case of Janki International v. Union of India (supra). Although it is ss. 158B and 158BC, nonetheless natural justice demands that the assessee who is proceeded under s. 153C must be provided with the copy of the satisfaction note as well as the certified copy of the document seized. (See page No. 29)

    Neither in the notice under s. 153C, there is any mention about the satisfaction of the AO. In the absence of such a satisfaction the assessment completed on the basis of such notice would be invalid. In this notice there is no mention of the specific papers etc. only the general statement is made. Neither the notice is enclosed with the satisfaction note.

    (4) As per the satisfaction note it is clear that both the satisfaction note and notice under s. 153C are dt. 18th April, 2007.

    (5) It is also not known as to the date on which this document belonging to the appellant was received by the AO of the appellant. Search on 20th July, 2005 on which date, AO of searched person was ITO, Ward 1(3) and that of the appellant was ITO, Circle-6.

    As the satisfaction note is made on 18th April, 2007 and assuming the said date as the date of receiving the documents alleged to be belonging to the appellant the AO of the appellant can issue the notice for six preceding assessment years. As the documents are received on 18th April, 2007 relevant to the asst. yr. 2008-09, the AO of the appellant can issue notices under s. 153C for the asst. yrs. 2002-03 to 2007-08.

    In the case of the appellant notices under s. 153C are issued for asst. yrs. 2000-01 to 2001-02 which is not permissible, refer the judgment of Allahabad (sic—Ahmedabad) Bench in the case of Vijay M. Vimawal v. Asstt. CIT [2009] 124 TTJ (Ahd.) 508 : [2009] 25 DTR (Ahd.)(Trib) 362. Copy enclosed. (See p. 31 of the paper book-Ahmedabad Bench).

    The assessment of asst. yr, 2003-04 has been completed under s. 143(3) on 30th March, 2006. Hence on the date relevant documents were received by the AO i.e. 18th April, 2007, this assessment was not pending and made under s. 153(c) therefore is invalid.

    (6) The assessment has been made under s. 153C r/w s. 143(3). In fact the assessment should have been made under s. 153C r/w s. 153A.

    (7) Neither the documents mentioned in the said satisfaction note stated to be belonging to the appellant have been provided to the appellant with due certification thereon.

    (8) In para 2 of the satisfaction note it is stated that as per Panchnama dt. 22nd July, 2005 the various pages mentioned at serial Nos. 1 to 9 belong to the appellant. We explain the nature of these pages as under :

    (a) Page Nos. 11 to 15 mentioned at serial Nos. 1 to 5, the contents are in respect of the payments made by Shri M.N. Navale for purchase of certain property from one Shree Amir Mohidin Sheikh by issuing cheques from his personal bank account with Central Bank of India, STES Extension Counter. However Shri M.N. Navale has obtained the acknowledgement erroneously by using the printed management vouchers of STES. The fact however remains that these papers do not relate to the appellant. (See page Nos. 7 to 19 of this paper book).

    (b) Page No. 45 mentioned at serial No. 6 is the copy of the letter dt. 23rd June, 2001 written by the appellant's College of Pharmacy to the Directorate of Technical Education, Mumbai. The contents do not suggest even remotedly that there could be any hidden income. The fixed deposit mentioned in the said letter are duly accounted in the Regular books of account of the appellant. (See page No. 20).

    (c) Page No. 35 mentioned at serial No. 7 is a piece of paper bearing dt. 25th June, 2005 and it shows certain figures. It is a dumb paper and does not convey anything. (See page No. 21).

    (d) Page No. 50 mentioned at serial No. 8 shows the details of staff arrangements made by the appellant and explaining the admission process for the financial year 2003-04. (See page No. 22).

    (e) Page No. 54 mentioned at serial No. 8 is an extract of G.R. dt. 5th Sept., 2003 issued by Government of Maharashtra showing the names of new colleges of appellant for which permissions are granted. (See page No. 23).

    (f) Pages Nos. 58 to 60 mentioned at serial No. 9 show the expenditure incurred by Shri M.N. Navale who hosted the party in Hotel Aurora on 29th Aug., 2004 and the amount mentioned therein of Rs. 55,811.94 is paid in cash by Shri M.N. Navale and the same has been debited to his capital account in his return of income. (See page Nos. 24 to 26).

    None of these pages suggest prima facie belief of hidden income. These papers relate to financial year 2004-05 that too of Shri M.N. Navale and none of these papers therefore are related to financial years 1999-2000 to 2002-03 i.e. (asst. yrs. 2000-01 to 2003-04). Therefore on the basis of these documents pertaining to the financial year 2005-06 by any standard, there could be any suggestion that even prima facie there is some hidden income in the asst. yrs. 2000-01 to 2003-04, warranting issue of notice under s. 153C. Therefore the AO should not have proceeded mechanically in issuing the notices under s. 153C.

    (9) Nothing is seized pertaining to asst. yrs. 2000-01 to 2003-04 obviously there is no question of recording satisfaction note and forwarding those seized materials to the Assessing Officer of the appellant.

    In absence of any seizure of any asset, documents etc. proceeding cannot be initiated against the appellant under s. 153C(1) r/w s. 153A. Refer P. Srinivas Naik v. Asstt. CIT [2008] 114 TTJ (Bang.) 856 : [2008] 1 DTR (Bang.)(Trib.) 347. (See page No. 53).

    (10) Though the s. 153C only requires the satisfaction to the effect that documents etc., seized belong to the connected person nonetheless it is necessary that seizure or requisition must be of such a character as to persuade the AO to even reopen the closed assessments. Refer Delhi High Court judgment in the case of Saraya Industries Ltd. v. Union of India [2008] 216 CTR (Delhi) 257 : [2008] 6 DTR (Delhi) 256. Also refer the Supreme Court judgment in the case Manish Maheshwari v. Asstt. CIT [2007] 208 CTR (SC) 97 : [2007] 289 ITR 341 (SC) where the Apex Court has held that fiscal law should be construed strictly. (See page Nos. 40 and 44).

    The term 'belong' implies something more than a causal connection and it involves the notion of continuity involving intimate connection over a period of time. Refer Bangalore Tribunal Bench judgment in the case of Srinivas Naik v. Asstt. CIT (supra). (See page No. 53).

    (11) Mere passing of the seized material by the AO of the searched person does not amount to recording of requisite satisfaction and proceeding under s. 153C(1) in such a case will be treated as without jurisdiction. Refer Nauvika Investment & Commercial Enterprises Ltd. v. Dy. CIT [2008] 5 DTR (Delhi)(Trib.) 479 Delhi High Court (sic—Bench). Copy enclosed. (See page No. 58).

    (12) The issue of notice under s. 153C(1) in the absence of the requirement of prima facie belief that there could be some hidden income it would not be within the predominant object of assessing the undisclosed income for which ss. 153A and 153C are brought on statute.

    (13) It is true that s. 153C(1) provides that on receiving the requisite satisfaction from the AO, the AO of the connected person 'shall' proceed against the connected person for making the assessment or reassessment under s. 153A. The word 'shall' is indicative of enabling the AO with the power to proceed against the connected person and that word is not indicative of a mandatory duty.

    Submitted that the word 'shall' should be interpreted as only directory. There is a logic to make this proposition. It is because certain documents belonging to the connected person are found with the searched person and if the AO finds that the transactions mentioned in the seized material have already been duly disclosed by the connected person or duly recorded in the books of accounts regularly maintained, in that case it would be incorrect or unfair for the AO to proceed against the connected person causing unnecessary inconvenience and trouble.

    (14) It is a known fact that in the course of search while effecting the seizure, the search officials need not have to find out whether the valuable document etc., belonging to the connected person are duly disclosed by him or otherwise and naturally these documents, valuables, etc., are also seized. Therefore mere act of seizure does not by itself lay the foundation for the reasonable prima facie belief that there is some undisclosed income. The seizure must be of such a character as to persuade the AO to even reopen the completed assessment Saraya Industries Ltd. v. Union of India [2008] 216 CTR (Delhi) 257 : [2008] 6 DTR (Delhi) 256 : [2008] 306 ITR 189 (Delhi). (See page No. 40).

    The tax law will be interpreted reasonably and in consonance with justice, adopting a purposive approach to effectuate the legislative intention. Cit, Bombay v. M/S Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 104 CTR (SC) 243 : [1992] 196 ITR 149 (SC) and Commissioner Of Income-Tax v. Dodsal Ltd. [2008] 218 CTR (Bom.) 430 : [2008] 10 DTR (Bom.) 77. (See page Nos. 67 to 75 and Page Nos. 76 to 78).

    The object behind s. 153A and s. 153C is undisputedly to being to tax undisclosed income and therefore where the AO of the connected person is satisfied that the seized materials received by him does not prima facie indicate the existence of undisclosed income he need not subject the connected person to needless inconvenience by initiating an action under s. 153C r/w s. 153A.

    Such an action of the AO would be contrary to the principle of natural justice and has been so held by the Supreme Court in several cases. Refer the judgment of Supreme Court in Sahara India (Firm) v. CIT [2008] 216 CTR (SC) 303 : [2008] 7 DTR (SC) 27. On the same analogy it will be logical and fair on the part of the AO of the connected person to at least get himself satisfied that the transaction noted in the document are of such a nature suggesting non-disclosure of income and for that purpose such AO may call the connected person and ensure that whether those transactions are in fact disclosed and accounted in the regular books of account or otherwise."

    5. On the other hand, learned Departmental Representative for the Revenue argued stating that there exists the seizure of the various documents belonging to Sinhgad Technical Education Society (STES) from the premises of Mr. Navale and those documents undoubtedly belong to the assessee and in such circumstances, requirement of the law as mentioned in s. 153C of the Act are met and therefore, the AO validly assumed jurisdiction under s. 153C of the IT Act. Further, as per the Departmental Representative, there is no need for seizure of 'any money, bullion, jewellery or other valuable articles or thing or books of account or documents' with assessment year specific. Learned Departmental Representative is of the view that mere seizure of 'any money, bullion, jewellery or other valuable articles or thing or books of account or documents' belonging to the person covered under s. 153C of the Act is sufficient for the AO to assume jurisdiction in respect of all the six years as per the proviso to s. 153A of the Act and there is requirement of the law that there must exist seizure of any of the list mentioned above belonging to all six years before assuming jurisdiction under s. 153C of the Act. Further, learned Departmental Representative relied on the order of this Bench in the case Kumar & Co. [IT Appeal No. 1020 (Pune) of 2008, dated 2-2-2010] for the proposition that the AO rightly assumed jurisdiction and he read out the contents of para 24 of some of the findings of the Tribunal.

    6. During the time for rebuttal, learned counsel relied on another order of the Tribunal in the case Kumar & Co. (supra) and read out para 25 of the said order for the proposition that the AO cannot assume jurisdiction under s. 153C unless the documents seized belong to the assessee must not only be a speaking one but also the prima facie incriminating one and the such incriminating material should pertain to the six assessment years attempted to be disturbed by issue of notice under s. 153C of the Act. As per learned counsel, the provisions of s. 153C cannot be invoked automatically in respect of the six assessment years, unless there exists incriminating documents for all the six assessment years and the provision of s. 153C cannot be invoked based on the routine information or already accounted information disclosed to the Department. Further, it is mentioned that unless some seized papers are available with incriminating document, settled and completed assessment should not be disturbed routinely and automatically merely for the reasons of the first proviso to s. 153A of the IT Act. Further, he reiterated the argument that considering the fact that the documents are received by the AO on 18th April, 2007 relevant to the asst. yr. 2008-09, the AO of the appellant can issue notices under s. 153C for the asst. yrs. 2002-03 to 2007-08 and the issue of notices under s. 153C for asst. yr. 2000-01 to 2001-02 is not permissible as held in the judgment of Ahmedabad Bench in the case of Vijay M. Vimawal v. Asstt. CIT [2009] 124 TTJ (Ahd.) 508/34 SOT 34 (Ahd.)(URO). Further he reiterated that the assessment of asst. yr. 2003-04 was completed under s. 143(3) on 30th March, 2006. Hence on the date relevant documents were received by the AO i.e. 18th April, 2007, this assessment was not pending and made under s. 153 therefore, the notice is invalid. Further also he summed up stating that the reasons recorded and the incriminating papers relate to the asst. yr. 2005-06 and none of these papers therefore are related to financial years 1999-2000 to 2002-03 i.e. (asst. yr. 2000-01 to 2003-04) and therefore, the notices issued in respect of the assessment years upto 2003-04 should be quashed.

    7. We have heard the parties and perused the orders of the Revenue. Further, we have gone through the voluminous paper books, written submissions, plenty of citations filed by both the parties to advance, their respective arguments. On consideration of the original grounds and the additional grounds, we find it relevant to consider the additional ground first as it relates to the legal issue and it goes into the root of the matter. It questions the validity of the notice issued under s. 153C of the Act for all the four assessment years under consideration. The relevant discussion is given in the following paras of this order.

    8. Additional ground : Invalid notices under s. 153C : In this regard, we have perused the reasons recorded by the AO of the assessee. We find that there exists the reasons for issue of notice under s. 153C of the Act and it is an undisputed fact. We also find that there are common reasons for all six assessment years including the four assessment years under consideration. The counsel for the assessee argued vehemently that AO issued notices under s. 153C simply relying on the contents of s. 153A(1)(b) of the Act and also its first proviso ignoring various settled legal propositions i.e. the concluded assessments, which fall in the bunch of six assessment years, should not be disturbed unless there exists incriminating material relevant for the said assessment years or concluded assessments and such incriminating material should be of that nature it should not be a dumb document. In this regard, the stand of the Revenue is that the express provisions are clear on the proposition that the AO is empowered under the statute to "assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted". (First proviso). Considering the contrary stands of the Parties, without going into the merits of the additions, we have decided to adjudicate the legal issue i.e. additional ground and it involves the study of the details of the reasons recorded by the AO based on which the AO issued the impugned notices under s. 153C of the Act for the impugned four assessment years. For this purpose, we have extracted the relevant Portion of the reasons and the same reads as follows :

    "Satisfaction note for proceedings under s. 153C of the IT Act, 1961 in the case of STES, Pune.........

    (1) Page 11-this is voucher of STES, dt. 17th Jan., 2004 for cheque Payment of Rs. 2.80 lacs to Amir Moiddin Shaikh.

    (2) Page 12-this is voucher of STES, dt. nil for cheque payment of Rs. 1 lac to Amir Moiddin Shaikh.

    (3) Page No. 13-this is voucher of STES, dt. 30th Jan., 2005 for cheque Payment of Rs. 2 lacs to Shaikh Amir Shaikh.

    (4) Page No. 14-this is voucher of STES, dt. 27th Sept., 2004 for cash Payment of Rs. 1 lac to Shaki Amir Shaikh.

    (5) Page No. 15-this is voucher of STES dt. nil for cheque payment of Rs. 50,000 to Shaikh Amir Shaikh.

    (6) Page No. 45-this is an office copy of letter dt. 23rd June, 2007 written to director of DTE, Mumbai by Sinhgad College of Pharmacy, owned by STES.

    Bundle No. A-2

    (7) Page No. 35-these are the balances available to various institutes of STES on or before 25th June, 2005.

    Bundle No. A-4

    (8) Page Nos. 50 and 54-these pages contain the details of staff arrangements made by the STES college of engineering for admission process for financial year 2003-04.

    (9) Page Nos. 58 to 60-these pages contain the details of expenses incurred by STES."

    9. From the above, it is demonstrated by the learned counsel that the items at serial Nos. 1 to 5 above belongs to the asst. yr. 2004-05 or thereafter. Referring to the rest of the items at serial Nos. 6 to 9 above, the counsel mentioned the said documents seized are either recorded in the books of account or involves cheque transactions. Thus, he summed up stating that the documents in question are neither the incriminating ones nor unaccounted transactions of the assessee nor they relate to the impugned four assessment years. In such circumstances, the AO not only assumed jurisdiction invalidly but also erred in disturbing the settled and completed assessments. Accordingly, AO should not assume jurisdiction in respect of such assessment years in the absence of any incriminating information or transactions specific to any of the impugned four assessment years i.e. 2000-01 to 2003-04. The contrary argument from the side of the Revenue is that the overall approach in matters of concealment by the group assessees and all the discoveries of the search on Mr. Navale and it concerns, have to be taken into account while forming the satisfaction within the meaning of s. 153C of the Act. Considering the divergent views of the parties, we have examined the said satisfaction note very closely and found that the impugned reasons mentioned by the AO are silent insofar as any assessment year-specific-incriminating-information (ASII) or others i.e. unaccounted or undisclosed or hidden information to the Revenue by the assessee. In our opinion, the impugned satisfaction note is very general one for six years. It is surprising to note that the AO has narrated some information against the Mr. Navale HUF, which is not relevant for the present assessee. In the process, the AO totally missed the requirements of the law i.e. only the assessment year with the pending assessments and the assessment year with the assessment year specific incriminating documents/transactions or seized asset should only be reopened under the provisions of the first proviso to s. 153A of the Act and not otherwise.

    10. In this regard, we have perused various legal propositions. First, we have perused the decision of this Tribunal in the case of Kumar & Co. case (supra) and para 26 of Kumar & Co's. case (supra) for the asst. yr. 2000-01 and the same reads as follows :

    "25. Thus, we find that the seized documents belong to the assessee by way of limited ownership and they are not dumb documents as advocated by the learned counsel for the reason mentioned above. However, they are not found to be incriminating documents for the asst. yr. 2000-01. The document may not be a dumb document and therefore a speaking one, but they must be the document with prima facie incriminating information too. Such incriminating nature of the seized document is an essential factor for switching on the proceeding under s. 153C. In other words, the document seized must not only be a 'speaking one' but also be prima facie 'incriminating one' for igniting the proceedings under s. 153C. Unlike other assessment years, there is nothing made out by the AO what is called incriminating for the current assessment year under consideration. When the impugned documents merely contains the notings of entries, which are already found place in the books of account or subjected to scrutiny of the AO in the past in regular assessment under s. 143(3) of the Act, such document cannot be said to be containing the incriminating information. What is the point in disturbing the settled assessment when the Revenue does not have incriminating information for an assessment year and the information what is available is only routine one and when the AO merely makes an addition in the assessment under s. 153C based on change of opinion and when such additions are likely to be deleted in view of the settled nature of the issues ? Income-tax provisions are not merely for the issue of notice under s. 153C but it is essentially for taxing the income of the person. What is the point in issuing notice under s. 153C on flimsy grounds and finally tax nothing ? Such proceedings only create avoidable nuisance both to the overburdened taxman and the much hazzled taxpayers. In the instant case, provisions of s. 153C are invoked merely to apply the provisions of s. 45(4) in this year, the issue which was already examined and concluded as inapplicable to the facts of the case. Such issue of notice is unwarranted and such reopening of the assessment for the asst. yr. 2000-01 is uncalled for.

    26. Therefore, the proceedings initiated under s. 153C is not valid in view of the decision in the case of LMJ International (supra). Under these circumstances, we are of the opinion, the AO has invalidly issued the notice under s. 153C for the asst. yr. 2000-01 on the wrong presumption that AO can assume jurisdiction in respect all the six assessment years automatically even without any incriminating documents in respect of the concluded issues too. Accordingly, the relevant grounds of the assessee are allowed."

    11. From the above, it is our finding that the reasons recorded by the AO as extracted above do not contain anything incriminating for the assessment years upto 2003-04. It is the settled position of the law based on the decision of the Tribunal in the case of LMJ International Ltd. v. Dy. CIT [2008] 119 TTJ (Kol.) 214/ 22 SOT 315 (Kol.) that the issue of notice under the provisions of the first proviso to s. 153A(1) of the Act is not automatic and there is need for assessment year-specific incriminating information (ASII) in the possession of the AO to be the fountainhead for springing satisfaction to him that there exists some income or asset to be assessed in the hands of any other person, who are referred to in s. 153C of the Act. Reason for this kind of interpretation was already given in paras 25 and 26 of our order in the case of Kumar & Co. (supra) for the asst. yr. 2000-01. In this regard, we posed question to ourselves if it is fair to reopen the assessment which is already concluded without any reason or logic thereby encroach on the rights of the taxpayers ? Should the AO be given unfettered or arbitrary powers to issue notice for the six assessment years specified in the first proviso to s. 153A(1) of the Act when the impugned assessments for the said six assessment years are otherwise reached finality after due process of law. In our opinion, the answer is negative and it is in favour of the assessee. In any case, Departmental Representative has not brought anything on record to demonstrate that the decisions given by the Tribunal in the case of LMJ International Ltd. (supra) and Kumar & Co's. case (supra) are not to be followed in this case. Our perusal of another order of the Tribunal in the case of Kumar & Co. (supra) relied upon by the learned Departmental Representative is found distinguishable insofar as the existence of the incriminating document for the relevant assessment year is concerned. Whereas, in the instant case, first of all, there is no mention of any document in the said reasons relatable to the impugned four years and the incriminating nature of the same is out of question. Therefore, reliance of the Departmental Representative on the said case is misplaced.

    12. Further, we have examined various other judicial propositions mentioned by the learned counsel and some of them are reproduced as under :

    (1) Anil Kumar Bhatia v. Asstt. CIT [2010] 1 ITR (Trib) 484 (Delhi)

    Conclusion : "In respect of an assessment under s. 153A, where processing returns under s. 143(1)(a) stood completed in respect of returns filed in due course before search and no material is found in search thereafter, no addition can be made."

    (2) Suncity Alloys (P.) Ltd. v. Asstt. CIT [2009] 124 TTJ 674 (Jd.)

    Conclusion : "Assessments or reassessments made pursuant to notice under s. 153A are not de novo assessment and therefore no new claim of deduction or allowance can be made by assessee where admittedly the regular assessments are shown as completed assessments on the date of initiation of action under s. 132."

    (3) Meghmani Organics Ltd. v. Dy. CIT [2010] 129 TTJ 255 (Ahd.)

    Conclusion : "Record maintained by a person for his own purpose though referable to the assessee cannot be said to be belonging to the assessee within the meaning of s. 153C. Further, where none of the assessments are pending on the date of action under s. 153C, such assessments do not abate."

    (4) LMJ International Ltd's. case (supra)

    Conclusion : "Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be distributed; items of regular assessment cannot be added back in the proceedings under s. 153C when no incriminating documents were found in respect of the disallowed amounts in the search proceedings."

    (5) Kailash Auto Finance Ltd. v. Asstt. CIT [2009] 32 SOT 80 (Lucknow)

    Conclusion : "A notice under s. 148(1) can be issued even where notice under s. 143(2) has been pending and not closed. By processing the return and by issuing acknowledgement as token of accepting the return, the proceedings initiated by filing the return are terminated and no proceedings, therefore, remain pending."

    (6) Commissioner Of Income-Tax v. R.M.L Mehrotra [2010] 320 ITR 403 / 186 Taxman 137 (All.)

    Conclusion : "Undisclosed income of the block period has to be 'determined on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence; AO cannot compute the income on the basis of best Judgment."

    13. From the above, it is evident that the where nothing assessment year and assessee specific incriminating "money, jewellery or other valuable article or thing or books of account or documents", the assessments for assessment years cannot be disturbed. Further, the concluded assessments should not be disturbed merely for making routine additions, which could have been otherwise done in the regular assessment and of course, the pending assessments fall under exceptions. As stated by the learned counsel point No. 9 of his note reproduced above, "nothing is seized pertaining to asst. yrs. 2000-01 to 2003-04 obviously there is no question of recording satisfaction note". On this reasoning itself, we find that the assessee has to succeed. Therefore, we do not examine the other arguments of the counsel. Otherwise, the counsel argued that the reopening of the assessment for the asst. yrs. 2000-01 to 2001-02 is impermissible in view of the judgment of Ahmedabad Bench in the case of Vijay M. Vimawal (supra). Further, he also argued that the assessment of asst. yr. 2003-04 was actually completed under s. 143(3) on 30th March, 2006 i.e. prior to receipt of the impugned documents by the AO on 18th April, 2007, this assessment was not pending. Attending to these arguments of the counsel is superfluous and merely an academic exercise as we have upheld the applicability of the decision of the Tribunal in the case of LMJ International Ltd. (supra) for the proposition that the "where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed" and other local decision cited above. Accordingly, the additional ground raised by the assessee for all the four appeals under consideration is allowed and in favour of the assessee.

    14. As the additional ground for all the four years is allowed in favour of the assessee, we are of the considered opinion the adjudication of the grounds relating to the merits of the additions is merely an academic exercise. Therefore, the relevant grounds in all the four appeals are dismissed as academic.

    15. In the result, all four appeals of the assessee are allowed.

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    Sinhgad Technical Education Society v. Acit, Central Circle 2(2)
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