ORDER

Deepak R. Shah, Accountant Member. - All these appeals by the Revenue and cross-objections by the assessee are directed against the orders of the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad, dated 29-3-2007 in appeals against assessment framed under section 143(3) read with section 153C of the Income-tax Act. In the cross-objections, the assessee has raised a legal plea as to the validity of assessment framed under section 153C of the Income-tax Act, 1961.

2. When similar plea was raised before the learned Commissioner of Income-tax (Appeals) and various decisions were cited, the learned Commissioner of Income-tax (Appeals) held that there is a vast change in provision relating to framing assessment under sections 153C and 158BD of the Income-tax Act, 1961. He held that there was a search at the group premises as noted by the Assessing Officer and, hence, proceedings under section 153C of the Income-tax Act, 1961 were justifiably initiated and the case law relied upon are not applicable to these cases.

3. Learned counsel for the assessee submitted that a search warrant was issued in the name of Shri Subhash Gambhir Surat. Only a survey was conducted at the premises of the assessee. Neither during the search at the premises of Shri Subhash Gambhir nor during the course of survey at the premises of the assessee any valuable article or books of account or documents revealing undisclosed income were either found or seized. No valuable article or thing or any books of account or documents seized or requisitioned belongs to the present assessee and, hence, merely because there was a search in the group cases action under section 153C cannot be invoked so as to frame assessment under section 153A of the Income-tax Act, 1961. He further submitted that for invoking the provisions of section 153C, it is a condition precedent that the Assessing Officer must have satisfaction that any money, bullion, jewellery or other valuable article or thing or books of account seized or requisitioned belongs to some person other than the one with respect to whom search has been initiated under section 132. However, such satisfaction is only a prima facie satisfaction that in the search operation some material has been found which shows that any seized or requisitioned asset or books of account is related to third person. Before issuing notice or before starting proceedings under section 153A, there may not be any firm or conclusive satisfaction. Such satisfaction should, however, be based on materials gathered during course of search or requisition. Further, such satisfaction should be an objective satisfaction rather than merely a subjective satisfaction. Thus the power of the Assessing Officer under section 153C cannot be invoked in a light and arbitrary manner and without complying with the basic pre-requisites specified in section 153C. The object underlying the provisions of section 153C is not to give unbridled power to the Assessing Officer to proceed against any person without reaching satisfaction in an objective manner based on the cogent material/document seized at the time of search. The satisfaction of the Assessing Officer is not a mere formality but it should be positive satisfaction that the seized material pertains to the other person and reveals undisclosed income of that other person. The provision of section 153C shows that the search provisions can be invoked only if the Assessing Officer is satisfied that any undisclosed income belongs to some person other than the one with respect to whom search was made under section 132, such satisfaction must be arrived at by the Assessing Officer before invoking the provisions of section 153C on the basis of material found in the course of search of other person and any material coming into the course of search of other person and any material coming into the possession of the Assessing Officer after invoking section 153C cannot be considered for exercising such jurisdiction. In the absence of such satisfaction, the assessment made on any other person would, be illegal and void ab initio since jurisdiction to assess other person can be exercised validly only in accordance with the provisions of section 153C of the Income-tax Act, 1961.

4. The learned Departmental representative, on the other hand, relied upon the finding of the learned Commissioner of Income-tax (Appeals). He also filed before us a copy of notice issued under section 153C of the Income-tax Act, 1961 for initiating action under section 153A of the Income-tax Act, 1961. A query has been raised from the Bench as to whether any money, bullion, jewellery or any other valuable article or thing or books of account or documents seized or requisitioned belonged to the present assessee which has been handed over to the Assessing Officer having jurisdiction over the present assessee. The learned Departmental representative submitted that from the assessment order it cannot be said that any such material belonging to the assessee was either seized or handed over to the Assessing Officer having jurisdiction over the assessee.

5. We have carefully considered the relevant facts and arguments advanced.

6. Almost identical issue arose before the Income-tax Appellate Tribunal, Ahmedabad Bench "A" in ITA Nos. 2938 to 2942/Ahd/2008 dated 16-3-2009 in the case of Meghmani Organics Ltd. v. Dy. CIT [2010] 129 TTJ (Ahd.) 255 to which one of us (Accountant Member) was a party. The Tribunal in the said case held as under (page 366) :

"10. We have carefully considered the relevant facts, arguments advanced and the decisions cited. The provisions of sections 153A, 153B and 153C were inserted by the Finance Act, 2003 with effect from June 1, 2003. Originally section 153A of the Act did not have any sub-section. However, sub-section (2) of section 153A was inserted by the Finance Act, 2008 with retrospective effect from June 1, 2003. Section 153A provides for assessment in the case of a person in whose case a search is initiated under section 132 of the Act or documents or assets are requisitioned under section 132A of the Act after May 31, 2003. Section 153B provides for time-limit for completion of assessment under sections 153A and 153C of the Act. Section 153C provides for assessment of income of person other than a person in respect of whom warrant of authorisation is issued under section 132 of the Act. Sections 153A and 153C are extracted hereinbelow :

153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall—

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause ( b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b) 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 or requisition is made :

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years :

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search, under section 132 or making of requisition under section 132A, as the case may be, shall abate.

(2) If any proceeding initiated or any order of assessment or re-assessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) of section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner :

Provided that such revival shall cease to have effect, if such order of annulment is set aside.

Explanation.—For the removal of doubts, it is hereby declared that—

(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;
(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.

153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.

(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—

(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or
(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or
(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.

11. The Assessing Officer assumes jurisdiction for framing assessment under section 153C of the Act where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs to or belong to a person other than the person in whose case search is conducted under section 132(1) of the Act. Therefore, for initiating action under section 153C of the Act for framing assessment under section 153A, the pre-requisite is that the satisfaction of the Assessing Officer that the money, etc., and documents, etc., belongs to a person other than the person searched under section 132 of the Act. The Assessing Officer in the assessment order has categorically held that pages 87 to 91 of annexure A-4 seized from Lalit K. Patel are his own hand written estimate for the proposed work of the assessee. Therefore, though these documents may refer to the work proposed on behalf of the assessee, the same cannot be considered as 'documents belonging to the assessee'. If a person makes some jottings/notes, etc., for his own purpose and which have no nexus to hold that it belongs to other person and also does not contain a material which reveals any income therein, cannot be used so as to initiate action under section 153C of the Act. Similarly, pages 84 to 86 of annexure A-4 seized from the residence of Lalit K. Patel are records maintained by Lalit K. Patel for his own purpose. The said documents do not belong to the assessee though they may refer to the work carried out on behalf of the assessee. If the assessee has engaged the services of a professional and if the professional maintains his own record for the purpose of rendering his services, the documents cannot be said to be belonging to such other person. Shri Lalit K. Patel was engaged by the assessee and he was expected to verify the bills raised by independent contractors so as to certify that the bills raised are in accordance with the terms of contract and also contain deductions for materials supplied by the assessee. This being the documents maintained by Lalit K. Patel for his personal purpose, though may be referrable to the assessee, cannot be considered as 'belonging to the assessee'. It is also admitted by the Assessing Officer that the seized documents do not reveal any specific undisclosed income. It is also an admitted fact that none of the assessments in the present appeals were pending on the date of initiation of action under section 153C of the Act, i.e., on April 14, 2006. Though the appeals before the Commissioner (Appeals) or the Tribunal were pending, the same do not come within the parameters of the second proviso to section 153A as those assessments shall not abate. Only the assessment or re-assessments which are pending before the Assessing Officer on the date of initiation of search shall abate. The Central Board of Direct Taxes in its Circular No. 7 of 2003 in paragraph 65.5 clarify as under ([2003] 263 ITR (St.) 62, 107) :

65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. The assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section 153B and 153C, all other provisions of this Act shall apply to the assessment or reassessment made under section 153A. It is also clarified that assessment or reassessment made under section 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect of an assessment year under the section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. (Emphasis Supplied)

12. The assessee has filed a chart for all the years. It demonstrates that the original assessments were completed prior to initiation of action under section 153C of the Act. The following table will reveal the said fact :

13. In the present assessment orders no addition has been made on account of documents stated to be pertaining to the assessee. However, deductions claimed under sections 80HHC and 80-IA of the Act have been recalculated. From the table filed in all the years, we find that the deduction under section 80HHC of the Act was reduced on the following grounds :

(i) Inclusion of excise duty and sales tax etc., in total turnover.
(ii) Ignoring loss from export trade while computing deduction under section 80HHC.
(iii) Eligibility of deduction under section 80HHC of the Act qua the assessee and not unit-wise.
(iv) Deduction under section 80HHC in accordance with the provisions of section 80-IA(9) of the Act, and
(v) As regards deduction under section 80-IA of the Act, the same was reduced by excluding duty draw back, premium on sale of licence, etc., in eligible profits.

14. All these issues were subject matter of earlier proceedings in original assessment and were in further litigation before the Commissioner of Income-tax (Appeals) and the Tribunal. Though all these assessments have been decided in further appeal and settled by the Commissioner of Income-tax (Appeals) or the Tribunal, the same are subject matter of the litigation. In our opinion the Assessing Officer could not have done so since all these assessments have not been abated. As per the second proviso to section 153A of the Act only those assessments or reassessments falling within the period of six assessment years referred to in sub-section (1) of section 153A of the Act and pending on the date of initiation of search shall abate. Since, the original assessments were not pending the same have not been abated. The Assessing Officer was not competent to assume jurisdiction under section 153C of the Act as (i) none of the documents found during the course of search of other person belong to the assessee, (ii) the original assessments have not abated. What were pending were only the appeals. However, since the appeals do not abate the original assessments survive and hence cannot be reopened under section 153C proceedings. We, therefore, set aside all the assessments made under section 153C of the Act.

15. The procedure of assessment contained in Chapter XIV visualises various types of assessments; section 143(1) provides for assessment on the basis of return filed by the assessee; section 143(3) visualises assessment on the basis of return filed as scrutinised and examined by the Assessing Officer; section 144 visualises best judgment assessments; section 147 provides for reassessment where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment; section 153A of the Act is titled as 'assessment in case of search or requisition', where warrant of authorisation is issued in the case of such person; section 263 of the Act empowers the Commissioner to revise any order which is found to be erroneous in so far as it is prejudicial to the interests of the revenue. Thus, all the different types of assessments envisage different situations.

16. The Hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 , observed as under (page 10) : 'It has been said that the taxes are the price that we pay for civilisation. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

17. The Hon'ble Supreme Court in the case of Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd. [1992] 198 ITR 297 held that the scope of reassessment is only with regard to the income escaping assessment. The matters which have attained finality in original assessment cannot be reagitated in reassessment proceedings. If the assessee is precluded from reagitating the issue in reassessment proceedings, in the similar fashion the Assessing Officer is also precluded from reagitating the issue which has attained finality in original assessment proceedings. The original assessment proceedings are subject to further appeals. Therefore, as per section 153A, the same has not been abated. The Assessing Officer is also, therefore, precluded from reagitating the assessments that have attained finality in original assessment proceedings, though pending in further appeals. So far as the Assessing Officer is concerned, his jurisdiction is ousted and is a 'functus officio' so far as the original assessments are concerned. Therefore, reagitating the concluded issues in section 153C proceedings without any documents relating there to belonging to the assessee cannot be considered in such assessment under section 153C of the Act.

18. Sections 153A to 153C of the Act are substituted in place of erstwhile Chapter XIV-B providing procedure in computation of undisclosed income in case of search under section 132 of the Act.

19. The Hon'ble Finance Minister in his Budget speech while introducing sections 153A to 153C of the Act observed that the existing provisions of Chapter XIV-B which provide for single assessment of undisclosed income for block period were introduced for avoidance of disputes, early finalisation of such assessments and reduction in multiplicity of proceedings. However, since there were parallel proceedings namely regular assessment proceedings as well as assessment of block assessments for undisclosed income had amounted to multiplicity of proceedings. In order to avoid multiplicity of proceedings and to have only single assessment and in respect of pending assessments, section 153A to section 153C of the Act were proposed to be introduced. If that be the intention, in assessments under section 153C the issue can be considered only if the pending assessment is abated and not otherwise. If the original assessments are completed which are the subject matter of further litigation and if those very assessments are reagitated under section 153C proceedings the same will not only multiply assessment proceedings but will multiply even the appellate proceedings. This can never be the intention of the Legislature.

20. The decision of the Income-tax Appellate Tribunal Calcutta Bench in the case of LMJ International Ltd. [2009] 119 TTJ 214 relied on by learned counsel for the assessee squarely applies. In the said case the assessments were sought to be made under section 153A read with section 153C of the Act. The Tribunal in this case held as under :

A reading of section 153A reveals apparent contradiction in the first proviso and the second proviso. The proviso provides that the assessment or reassessment shall be done by the Assessing Officer in respect of each assessment year falling within six assessment years preceding the year of search. The second proviso, on the other hand, provides that the assessment/reassessment pending on the date of search shall abate. In other words, the assessments which are not pending, shall hold the field. The language of section 153A is not unambiguous and is not susceptible to only one meaning. In the circumstances, the principle of literal construction is of no help. One of the salutary rule is rule of harmonious construction. According to this rule, a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment. The meaning of assessment/reassessment does not always mean taking recourse to the whole procedure laid down in the Act for computing the tax liability. It is possible to effect reconciliation of the two provisos appended to section 153A by restricting the meaning of the term 'assess or reassess' appearing in the first proviso. After the search, the total income of the assessee is to be recomputed on the basis of the undisclosed income unearthed during search and the same is to be added with the regular income assessed under section 143(3) or computed under section 143(1) for each of the six preceding assessment years. Where any prepaid taxes are there, the same are required to be given credit for computing the further tax payable by the assessee. The assessee is also required to pay interest under sections 234A and 234B on the tax due on the basis of new calculation. Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed. The construction that the Department seeks to place on the impugned provisions would lead to serious hardship, inconvenience, injustice, absurdity and anomaly. Suppose in the course of a search, nothing incriminating was found, does this mean that an honest citizen be unduly harassed by facing automatic reopening of the concluded assessments merely because there was search action against him? The absurdity of the construction gets all the more pronounced when say, no incriminating material is found relating to the 'other person' but the material found indicates disclosed income. Suppose, loan confirmations relating to loans duly disclosed in the return of income of A are found at the time of search in the premises of B, should the assessments of A be reopened for all the six preceding years merely because search action has been initiated against B? In selecting out of different interpretations, the courts shall adopt that which is just, reasonable and sensible rather than that which is none of those things. One may also refer to the Central Board of Direct Taxes Circular No. 7 of 2003, dated September 5, 2003. A reading of the circular clearly indicates that the appeal, revision, etc., arising out of earlier assessments shall not abate. In other words, there is no merger of the earlier assessments with the assessments done under the new scheme,i.e., section 153A or 153C. The amendment made in sections 234A and 234B does not help the case of the Department. The submission of the Commissioner of Income-tax-Departmental representative that section 153A starts with a non obstante clause and excludes application of sections 147 and 148 relating to reopening of assessments is tenable. But at the same time, the scheme of the Act is very clear the regular assessments are made in terms of sections 139, 142 and 143, concluded assessments can be reopened as per sections 147 and 148 in case the Assessing Officer has "reasons to believe" that the income chargeable to tax has escaped assessment and the provisions of sections 153A to 153C can be resorted to for the assessment of undisclosed income in search cases. All the three procedures of assessment operate in different fields and have different purposes to be fulfilled altogether. Items of regular assessment cannot be added back in the proceedings under section 153C when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. The additions made by the Assessing Officer being all relating to regular assessments are hereby deleted.

21. The Income-tax Appellate Tribunal, Bangalore Bench in the case of P. Srinivas Naik v. Asst. CIT [2008] 306 ITR (AT) 411 ; 24 SOT 10 held that if any documents found though pertaining to the assessee, if not belonging to such assessee, the action under section 153C read with section 153A cannot be invoked. The Tribunal in this case held as under (page 414) :

7. We have heard both the parties. It is an undisputed fact that books of account or documents does not belong to the assessee, as these were seized from the premises of Shri Reddy. It is nowhere stated that these books of account or documents showed that all the transactions belonging to the assessee. Such books of account or documents contained the transactions relating to the group concerns of Shri Reddy. No valuable belonging to the assessee has been seized during the course of search. The term belonging implied something more than the idea of casual association. It involves the notion of continuity and indicates one more or less intimate connection with the person over a period of time. The books of account or documents seized during the course of search have a close association with the group concern of Shri Reddy. It records the transaction carried out by that group. It does not record the transaction carried out by the assessee. Under the Wealth-tax Act, assets belonging to the assessee were taxable. The expression belonging to the assessee connotes both the complete ownership and limited ownership of interest. Of course, belonging to is capable of connoting interest, which is less than absolute perfect legal title. However, there should be some limited ownership of interest, if it is to be permitted that the assets belong to the assessee. In the instant case, documents or books of account found during the course of search and seized cannot be termed to be indicating any limited interest of the ownership of the assessee in such books of account or documents. The language used in section 153C is materially different from the language used under section 158BD. As per section 158BD, if any undisclosed income relates to other person, then action against such other person can be taken provided such undisclosed income is referable to the documents seized during the course of search. However, section 153C says that if valuable article or thing or books of account or documents belonging to other persons are seized then action under section 153C can be taken against that person. In the instant case, we are satisfied that books of account or documents do not belong to the assessee and, therefore, the Assessing Officer was not justified in initiating action under section 153A read with section 153C of the Income-tax Act. The Assessing Officer is free to take proper remedial measure as per law.

22. The decisions relied upon by the learned Departmental representative will not apply in this case as in both cases the facts are that the assessments were framed under section 153A of the Act, i.e., the assessee was the person in whose case search was initiated under section 132(1) of the Act. It is also found that the assessments were pending in those cases and it was also observed that 'it is not the complaint of the assessee that any income which is already subjected to the assessment under section 143(3)/148 of the Act which was completed prior to search has also been included in the assessments framed under section 153A of the Act'. Therefore, both the cases relied upon by the learned Departmental representative will not help the case of the revenue. In view of our above finding and applying the decision of the Income-tax Appellate Tribunal, Calcutta Bench in the case of LMJ International Ltd. [2009] 119 TTJ 214, since we have found that the documents found during the search at the residential premises of Shri Lalit K. Patel and Kantilal M. Patel do not 'belong to the assessee' the Assessing Officer was not competent to initiate action under section 153C of the Act so as to frame assessment under section 153A of the Act. We, therefore, set aside the assessments.

23. The doubt raised by the learned Departmental representative that if the original assessment abates and if subsequently the Tribunal holds that even the assessments under section 153A of the Act are also invalid, the entire assessment including original assessment stands cancelled. The doubt is now dispelled by amendment to section 153A of the Act whereby sub-section (2) is included by the Finance Act, 2008 with retrospective effect from June 1, 2003. In such a situation the assessments shall stand revived with effect from the date of receipt of order of such annulment. Therefore, in the present case, since we have held that assessment under section 153A read with section 153C does not survive, the original assessment stands revived."

7. In the present case, it is seen that when the search was conducted at the premises of Shri Subhash Gambhir, no amount of money, bullion, jewellery or other valuable article or thing or books of account or documents seized belonged to the present assessee. Nothing is handed over to the Assessing Officer having jurisdiction over the present assessee. No such valuable article or thing or any books of account or documents have been referred even in the assessment order for framing assessment under section 153C of the Income-tax Act, 1961. Since for all these years, the returns were originally filed and processed and since no additional material is found pertaining to the assessee which is held to be belonging to the assessee, the Assessing Officer does not assume jurisdiction for framing assessment under section 153C read with section 153A of the Income-tax Act, 1961. We, therefore, cancel all the assessments made for all these years. Since we have cancelled the assessments, we do not propose to deal with grounds raised by the revenue in appeals and ground raised by the assessee in cross-objections on the merits.

8. In the result, all the appeals of the Revenue are dismissed and all the cross-objections filed by the assessee are allowed.