A.T. Varkey, Judicial Member - These six appeals by the revenue and six cross-objections by the assessee are directed against the orders of the Commissioner of Income-tax (Appeals)-II, New Delhi all dated 12.09.2013 for the assessment years 2003-04 to 2008-09.
2. The facts and circumstance in all the assessment years are similar except the difference in the additions, therefore, for the sake of brevity, we take the facts from the proceedings of the assessment year 2003-04. Brief facts of the case are that search and seizure action u/s 132 of the Income-tax Act, 1961 (hereinafter 'the Act') was carried out in the cases of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon 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, which is a private limited company were seized. On the basis of documents so found belonging to the assessee, proceedings were initiated in the case of the assessee u/s 153C, read with section 153A of the Act. The case of the assessee was initially centralized with ACIT, Central Circle 17 u/s 127 of the Act by CIT, Delhi-III, New Delhi vide order F.No. CIT-III/Centralisation/2009-10/2515, dated 29.10.2009. Notice u/s 153C, dated 08.07.2010 was issued to the assessee by the ACIT, CC 17, New Delhi requiring the assessee to file return of income within 15 days of service of the notice. Mean while the case was transferred to Central Circle 21 by an order u/s 127 of the Act issued vide F.No. CIT (C)-II/CENT/2010-11/1029, dated 19/10/2010. In response to the notice u/s 153C, the assessee filed a return for assessment year 2003-04 on 06.09.2010 declaring income of Rs. Nil. A copy of the panchnama, reasons for issuing notice u/s 153C and jurisdiction order dated 19.10.2010 u/s 127 of the Act were dispatched to the assessee on 12.11.2010 as sought by the assessee. In response to the notice, the assessee took part in the proceedings. The AO found that the assessee company belonged to the Thapar Group of cases and one of the main allegations against the group was that several concerns had been floated by the group with dummy Directors and shareholders. He observed that these concerns were basically capital formation concerns which had build-up huge reserves and surpluses over the years and these reserves and surpluses were declared invested in stocks of textiles. He further found that as and when cash was required, the stocks were sold and the money was utilized for other purposes as per required. Against this background, the AO analysed the facts of the case. The AO opened the assessment under the provisions of section 153C for the assessment year 2003-04. The AO noticed that the company was incorporated on 06.10.1997 and had been filing its returns with income tax department regularly. The AO further found that the assessee had declared a closing stock of Rs. 12,02,09,649/- as on 31.03.2002, which formed the opening stock for the previous year under consideration. During the relevant assessment year, the AO found that the assessee had purchased textile goods of Rs. 32,03,768/- and had made sales of Rs. 31,74,818/-. The AO directed the assessee to prove its trading activities and to produce sale tax records. The assessee had claimed that since it dealt with tax free goods only there was no necessity for it to file sales tax returns. Thus, the AO found that except the declaration of the assessee, there was no independent proof of sale/purchase of the goods except the bank transactions. During the course of assessment proceedings the AO asked the assessee to give break up of cash or cheque purchases. In response thereto, the assessee filed a reply in which assessee had declared its entire purchase as cash/cheque purchases of Rs. 32,03,768/- and it was also stated that it did not maintain any bank account during the year and the assessee dealt with tax free goods only there was no necessity for it to file sales tax return. The AO found that during the post search enquiries conducted by the Investigation Wing from the address of the assessee, it indicated that at least 15 (fifteen) number of concerns connected with the Thapar Group were declared as operating from the address, B-340, Hari Nagar, New Delhi and the number might be much higher also. During the course of inquiries, the AO found that the director/shareholder was not a man of means and the premises were not commercial premises. It was also reported by the investigation wing that no evidence of stock was found from any other premises of the Thapar Homes Group. During the course of assessment proceedings, the assessee claimed that the assessee had a godown at Khasra No. 34/7, Village Dera Mandi, Tehsil Mehrauli, New Delhi. But, the AO observed that the claim was non-verifiable due to lapse of so many years. The AO also found that most of the concerns of Thapar group had sought to declare this premises as their godown but no such claim was made during search proceedings. The AO observed that in the case of present assessee, all the purchases & sales were in cash. The items purchased & sold were textile & fabrics. The name and style of the textiles & fabrics were Denim, Fabrics K-III Super Fine (N), Fabric (PS), Fabric (PS) Embroidery, Fabric (PS) Excel, Fabrics, Kashmiri Fabrics-I, Kashmiri Fabrics-I (D), etc. From these items, the AO observed that the assessee was not dealing in branded items and there was no name of any company in these products. He further observed that the purchases & sales were within M/s Thapar Homes Group of cases. He found that in inventories of Fabric & Textile Goods shown in the balance sheet, the closing stock of last year stood at Rs. 12,02,09,649/- and this year the figure was Rs. 12,02,38,599/- which was almost the same. Therefore, he observed that the purchases & sales were only out of current year transactions which were held unverifiable and bogus. The AO further observed that it was highly improbable that with a huge stock inventory of goods which change in fashion and taste, the assessee had to make sales from fresh purchases only. The AO observed that the preponderance of probability suggested that the stocks were not genuine but since these were declared prior to 01.04.2002, no action was being taken for now. In view of the above, the AO observed that all cash purchases were held unverifiable and hence a sum of Rs. 32,03,768/- was disallowed u/s 69C. Similarly, the AO observed that the expenses claimed by the assessee company in P&L account were also unverifiable as such 100% of the expenses i.e. Rs. 3,92,768/- were disallowed. Aggrieved by the same, the assessee preferred an appeal before the ld. CIT (A) who was pleased to partly allow the appeal of the assessee.
3. The revenue and the assessee, being aggrieved by the order of the ld. CIT (A), are in appeal and cross objection before us.
4. The grounds of appeal taken by the revenue in assessment year 2003-04 are as follow :—
"1. The Commissioner of Income Tax (Appeal), erred in law and on facts in deleting the addition of Rs. 32,03,768/- on account of unexplained purchase u/s 69C of the Act.
2. The Commissioner of Income Tax (Appeal) erred in law and on facts in deleting the addition of Rs. 3,92,518/- on account disallowance of expenditure.
3. (a) The order of the XIT(A) is erroneous and not tenable in law and on facts.
(b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before on during the course of the hearing of the appeal."
The assessee in the cross-objection for assessment year 2003-04 has taken the following grounds of appeal :—
"1. That on the facts and circumstances of the case and the provision of law, the ld. CIT (A) 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, bad in law, time barred, 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 (A) has failed to appreciate that the ld. AO was not justified to ignore the submissions 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 LT. 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 (A) 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 LT. 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 (A) 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 only the year to which said documents relates to, and in absence of any such incriminating seized document in the case of appellant, assessment framed u/s. 153C of the LT. 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 provision of law, the ld CIT (A) 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 (A) still relying on these books/book results for giving directions to the AO for the purpose of calculating the peak from the entries in the cash book of the appellant for the relevant year.
6. That in view of the facts and circumstances of the case, CIT (A) has erred in disregarding the purchases of Rs. 32,03,768/-, the sales and the expenses of Rs. 3,92,518/-claimed by the assessee company.
7. (A) That on the facts and on the circumstances of the case and the provision of law, the ld. CIT (A) has erred in wrongly directing the AO to work out the peak from the entries in the cash book of the appellant company for the relevant year and make a singular addition of the said amount, as unexplained investment/expenditure, ignoring the fact that the same has duly been entered in the audited books of accounts of the appellant for the year under consideration.
(B) That the ld CIT (A) did not give sufficient opportunity of being heard to the appellant company and ignored the concept of 'Real Income' and wrongly directed the AO to work out the peak from the entries in the cash book of the appellant company for the relevant year, without granting the credit of the peak of financial transactions as per the cash book for the preceding years.
8. That on the facts and on the circumstances of the case and the provision of law, the CIT (A) has erred in ignoring the fact that the AO has erred both on facts and in law, in using statement of various persons without giving a copy of the same and opportunity to cross-examine.
9. That on the facts and circumstances of the case, the various observations and findings of the ld CIT (A) and Ld AO in the impugned appellate order and assessment order, respectively, is irrelevant and vitiated in the law.
10. That the CIT (A) 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/disallowances made. The additions have been sustained with preset mind of the CIT (A) and her order is based on surmises, conjectures and suspicion.
11. That on the facts and circumstances of the case the interest charged u/s 234A and 234 B has been wrongly and illegally charged and in any case is highly excessive.
12. That the respondent craves the right to amend, append, delete any or all grounds of appeal."
5. At the outset of the hearing, the ld. AR for the assessee assailed before us from the grounds of cross-objection that satisfaction of the AO of the searched person as envisaged under section 153C of the Act has not been recorded, before initiating the proceedings against the assessee u/s 153C of the Act, which vitiated the entire impugned assessments, so we deem it fit to deal with the said ground first because it goes to the root of the matter i.e., by raising this ground the assessee has questioned the very assumption of jurisdiction of AO to initiate proceedings under section 153C of the Act.
6. Ld. AR for the assessee submitted that in the present case, there is no satisfaction recorded by the AO of the raided party, as admitted by the department in RTI replies placed at pages 3 to 5 of the paper book; and the satisfaction note, at pages 1 & 2 of the paper book, is one recorded by the AO of the present assessee/other person. He submitted that the same is held to be invalid on same facts in the following cases :—
(i) Delhi ITAT, 'H' Bench order in the case of Tanvir Collections (P.) Ltd. v. Asstt. CIT [2015] 153 ITD 486/54 taxmann.com 379;
(ii) Delhi ITAT, 'C' Bench order in the case of IECS Solutions (P.) Ltd. (order, dated 13.03.2015);
(iii) Delhi ITAT, 'C' Bench order in the case of Grover Garments (P.) Ltd. (order, dated 29.04.2015);
(iv) Delhi ITAT, 'B' Bench order in the case of DSL Properties (P.) Ltd. v. Dy. CIT [2013] 60 SOT 88/33 taxmann.com 420 (URO).
Ld. AR submitted that it is now held by Hon'ble Telangana & Andhra Pradesh High Court in Shetty Pharmaceuticals case that two separate notes are must u/s 153C i.e. one/first by raided party AO and other/second by non-raided party AO even if both are same, this recording of satisfaction is a sine qua non for assumption of jurisdiction u/s 153C. He submitted that ratio of the aforesaid judgment was also relied upon by Delhi ITAT, 'H' Bench in the case of Vinita, Chaurasia order, dated 29.05.2015 and also in ITAT Mumbai, Bench 'D' in the case ofDeven Mehta (order dated 24.04.2015).
7. On the other hand, ld. DR relied on the orders of the AO and CIT (A) and was of the opinion that satisfaction has been recorded by the AO before proceedings against the assessee u/s 153C of the Act, and took our attention to page 2 of the PB where satisfaction of the AO to proceed against the assessee, dated 05.07.2010 is there, so there is no illegality as pointed out by the ld. AR. Therefore, according to ld DR, the ground raised in this behalf is not valid and needs to be rejected.
8. We have heard the rival submission and carefully gone through the records and the case laws cited before us. The main issue that was raised by the assessee is that assumption of jurisdiction by the AO before issuing notice u/s 153C of the Act is not in accordance with law and so the impugned assessment u/s 153C, read with 153A/143(3) of the Act is void ab initio and should be quashed being quarum-non-judice. A perusal of the assessment order of the assessee reveals that a search was carried out u/s 132 of the Act on Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s. Madhusudan Buildcon Pvt. Ltd., and in such search proceedings, certain documents belonging to the assessee was found which led to the making of assessment u/s 153C, read with section 153A of the Act. In order to appreciate the contention made by the ld. AR on the question of recording of proper satisfaction, it would be apposite to note down the prescription of the relevant parts of section 153(1) at the material time, as under:—
"153C. Assessment of income of any other person.- (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 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."
9. From the above provision, it is clear that where the AO of the person searched is satisfied that any money, bullion, jewellery, books of account or other documents etc., belong to a person other than the person searched, then, such documents or assets, etc., shall be handed over to the AO of the 'other person' and the later AO shall proceed against such 'other person' to assess or reassess his income. A bare perusal of the provision indicates that before handing over such documents etc. to the AO of the 'other person', a 'satisfaction' has to be recorded by the AO of the person searched that money, bullion or jewellery, etc., found from the person searched belong to the 'other person'. Only when such 'satisfaction' is recorded by the AO of the person searched and such documents or assets seized, etc., are handed over to the AO of the 'other person', that the later AO acquires jurisdiction to make assessment or reassessment of the 'other person.' It is, therefore, clear that the AO of the 'other person' can acquire jurisdiction to assess or reassess income of the 'other person' only when the AO of the person searched records satisfaction in his case (searched person) before handing over money, bullion, jewellery, etc. to him. So, what emerges is that the recording of satisfaction by the AO of the person searched is a condition precedent for the AO of the 'other person' to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the 'other person.'
10. In the case of Arun Kumar v. Union of India [2006] 155 Taxman 659, the Hon'ble Apex Court observed that "A jurisdictional fact is a fact which must exist before a court, a Tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a Tribunal or an authority. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. The existence of 'jurisdictional fact' is sine qua non for the exercise of power by a court of limited jurisdiction".
11. As noted earlier section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wherefore are : (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 153C against such other person. The conditions precedent for invoking the provisions of s. 153C, thus, are required to be satisfied before the provisions of said section are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the 'other person.'
12. Let us examine the facts of the instant case more elaborately. It is seen that some satisfaction was recorded, a copy of which is available on page 2 of the paper book, as under :—
"Satisfaction Note for issuing Notice u/s 153C of the I.T. Act, 1961 in the case of M/s. Satkar Road Lines Pvt. Ltd, Khasra No. 34/7, Village Dera Mandi, Tehsil Mehraull, New Delhi Pan No. AABCS7676J for A.Y. 2003-04 to 2008-09.
Documents at pages 91 to 116 of Annexure of A-35 seized by the party R-2 from the premises at F 6/5, Vasant Vihar, New Delhi during the course of search conducted u/s 132 of the I.T. Act, 1961 on 20/10/2008 in the case of Sh. B.K.Dhingra, Smt.Poonam Dhingra, M/s Madhusudan Buildcon P Ltd. have been found to belong to M/s Satkar Road Lines Pvt. Ltd, Khasra No. 34/7, Village Dera Mandi, Tehsil Mehrauli, New Delhi which has not been covered u/s 132 of the I.T. Act, 1961. Accordingly, in terms of provisions of section 153C of the Act, notices u/s 153C are hereby issued for the A.Y. 2003 to 2008-09 in the case of M/s, Satkar Road Lines Pvt. Ltd. The case was centralized in the Central Circle -17, New Delhi vide orders, dated 29/Oct/2009 of CIT-III, New Delhi.
05.07.2010
Sd/-
DCIT, Central Circle - 17, New Delhi"
It can be seen from the assessment order that notice u/s 153C was issued to the assessee by the ACIT, Central Circle-17 on 29/10/2009 and satisfaction was recorded on 05.07.2010. It is apparent that it was: 'Satisfaction Note for issuing Notice u/s 153C of the I.T. Act, 1961 in the case of M/s. Satkar Road Lines Pvt Ltd, Khasra No. 34/7, Village, Dera Mandi, Tehsil Mehrauli, New Delhi'. The contents of the above satisfaction note leave nothing to doubt that it was recorded by the AO of the assessee before taking up the assessment u/s 153C of the Act pursuant to the search conducted on Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt Ltd. Pages 3-5 of the paper book are the copies of the reply dated 10.06.2013 furnished by the Dy. Commissioner of Income-tax, Central Circle-17, New Delhi to Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon (P) Ltd, under the provisions of RTI Act, 2005. The relevant part of the reply dated 10.6.2013 given to Sh. B.K. Dhingra, is as under:—
"2. From the assessment records of Sh. Bhupesh Kumar Dhingra, which is covered under section 153A, for the Asst. years from 2003-04 to 2008-09 (Block period) it is noticed that there is no 'satisfaction note' available/recorded in respect of other entities."
Similar replies have been given to Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. On a consideration of the above replies given by the Department to the persons searched, it is manifest that there is 'no satisfaction note available/recorded in respect of other entities'. On a conjoint reading of the Satisfaction note and replies given by the Department to the persons searched under the RTI Act, it clearly emerges that no satisfaction was recorded by the AO in the cases of the persons searched u/s 132(1) of the Act (i.e. Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd.) that some books of account or documents etc. belonging to the assessee were found which were handed over to the AO of the 'other person' (i.e. the assessee). The satisfaction note as reproduced above has been prepared by the AO of the assessee.
13. The ld. DR was of the opinion that since the AO of the persons searched and the assessee is same, it does not make any difference whether the satisfaction is recorded in the case of the persons searched or other person. He emphasized on the factum of recording satisfaction by the AO, which condition in his opinion stood satisfied, by virtue of it having been recorded by the common AO.
14. This particular argument of the revenue was answered by the Coordinate Bench in the case of Tanvir Collections (P.) Ltd. (supra) as under:—
"16. In our considered opinion, this contention advanced on behalf of the Revenue is devoid of merit. We fail to comprehend as to how the requirement of recording satisfaction by the AO of the person searched provided by the statute can be substituted with anything else. There is an underlying rationale in providing for recording of such satisfaction by the AO of the person searched. As the money, bullion, jewellery, books of account or documents etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc. found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person searched and to the others and thus handed over to the concerned AOs of the person searched and others for making assessment. As it is only the AO of the person searched who can reach a conclusion that some of the documents etc. do not belong to the person searched but to some other person, the legislature has provided for recording of such satisfaction by the AO of the person searched. It is not permissible under the law to require the AO of the other person to record such satisfaction by the AO.
17. As regards the other argument of the ld. DR that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction by the AO of the assessee. We are again unable to appreciate this contention that the commonness of the AO would make no difference insofar as the recording of satisfaction in the case of the persons searched is concerned. What is relevant for this purpose is not the identity of the person assessing but his position and the capacity. When the law requires the AO of the person searched to record the necessary satisfaction, it is the AO having jurisdiction over the person searched who is obliged to record such satisfaction in the capacity of that AO and that too in the case of the person searched. The mere fact that the AO of the person searched and the assessee is the same person, does not, in any manner, obliterate the requirement of law necessitating the recording of satisfaction in the case of the person searched that money, bullion, jewellery, etc., found from the person searched belongs to the 'other person.' What is crucial to note is capacity of the AO and not his identity. In view of the fact that when the statutory stipulation is for recording the satisfaction by the AO of the person searched, then, it cannot be substituted with the satisfaction of the AO of the 'other person.' This contention also fails.
18. At this stage, it is relevant to note that the legislature has substituted the latter part of section 153C(1) by the Finance (No. 2) Act, 2014 w.e.f. 1.10.2014. The hitherto part of sub-section (1) : "and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person . . . . . . . . . referred to in sub-section (1) of section 153A.' has been substituted as under : -
and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section.'
19. The above substitution has the effect of now making it mandatory for the AO of the 'other person' also to record satisfaction that the books of account or documents, etc., have a bearing on the determination of the total income of such 'other person' before embarking upon the exercise of his assessment or reassessment. Therefore, now under the law, w.e.f. 1.10.2014 it has become obligatory not only for the AO of the person searched to record satisfaction before handing over books of account or documents, etc., to the AO of the 'other person', but, such AO of the 'other person' is also required to record satisfaction that the books of account or documents, etc. have a bearing on the determination of the total income of such other person. In the pre-substitution era of the relevant part of sub-section (1) of section 153C covering the period under consideration, the jurisdictional condition remains that the satisfaction is required to be recorded by and in the case of the person searched so as to enable the AO of the 'other person' to start with the proceedings for making assessment or reassessment.
20. The ld. DR contended that recording of satisfaction by the AO of the assessee at the most can be treated as a technical mistake and hence should not eclipse the assessment. Relying on certain judgments, the ld. DR submitted that the technicalities cannot be allowed to prevail in the course of indulgence of justice.
21. We agree in principle that technicalities cannot come in the way of dispensation of justice. However, it is important to note that the lack of jurisdiction by the AO cannot be put under the carpet in the guise of a technical defect. It goes without saying that no assessment or other proceedings can be lawfully taken up and completed unless the concerned authority has jurisdiction to do so. Lack of jurisdiction goes to the very root of the matter and cuts the tree of assessment if the foundation of jurisdiction is missing.
22. The ld. AR has brought to our notice two orders passed by the Delhi Benches of the Tribunal, namely,ACIT v. Inlay Marketing Pvt. Ltd. (ITA No. 4200/Del/2012), etc. and DCIT v. Aakash Arogya Mandir Pvt. Ltd. (ITA No. 5437/Del/2013), etc., in which the notices and the consequential assessments u/s 153C, under identical circumstances, have been quashed. The ld. DR contended that the above referred two Tribunal orders are per incurium and should not be followed. The main reason for declaring the Tribunal orders as per incurium was the non-consideration of the judgment of the Hon'ble jurisdictional High Court in judgment in the case ofSSP Aviation Ltd. v. DCIT (2012) 252 CTR (Del) 291.
23. Let us examine the case of SSP Aviation Ltd. (supra) for evaluating the contention that the instant assessment be declared as per law. The Hon'ble High Court in that case has held that the Assessing Officer having jurisdiction over the searched person should be satisfied that the valuable article or books of account or documents seized during the search belong to a person other than the searched person and there is no requirement in section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must conclusively reflect or disclose any undisclosed income. We find that there is no such controversy before us as was there before the Hon'ble High Court. It is not the case of the assessee before us in this ground that the documents etc. found from the persons searched did not positively indicate the existence of some income in the hands of the assessee. The argument is simply confined to non-recording of satisfaction by the AO of the persons searched. Instead of supporting the Department's case, we find that this judgment strengthens the assesasee's case by making it clear in no uncertain terms that the AO of the person searched is obliged to record the satisfaction. The relevant observations of the Hon'ble High Court contained in para 15 merit reproduction as under: —
'It needs to be appreciated that the satisfaction that is required to be reached by the Assessing Officer having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person other than the searched person. There is no requirement in section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to show to conclusively reflect or disclose any undisclosed income.'
24. It is pretty clear from the above extraction that the satisfaction as referred to it in this case is that of the Assessing Officer having jurisdiction over the searched person. As such, we are of the considered opinion that this judgment does not support the Revenue's case. Resultantly, the characterization of the above Tribunal orders as per incurium by the ld. DR, is absolutely without any legally sustainable basis.
25. Even otherwise, the judicial discipline requires a subsequent bench to follow an earlier order of a coordinate bench on the point. It is only if the subsequent bench feels itself unable to concur with the view taken earlier that it is required to refer the case for consideration by a special bench. In our considered opinion, these two orders of the co-ordinate benches are perfectly in accordance with law.
26. Coming back to facts of the instant case, it is palpable that the AO of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd., did not record any satisfaction that some money, bullion, jewellery or books of account or other documents found from these persons belonged to the assessee. The absence of such satisfaction, in our considered opinion, failed to confer any valid and lawful jurisdiction on the AO of the assessee to proceed with the matter of the assessment u/s 153C of the Act. We, ergo, set aside the initiation and the ensuing assessment on the assessee as void ab initio.
27. The reliance of the ld. DR on some decisions on other legal issues or merits is of no consequence in view of the lack of jurisdiction of the AO to proceed with the assessments u/s 153C of the Act. In view of our decision on the first legal issue, there is no need to espouse the other grounds taken by the assessee dealing with other legal issues or merits.
28. In the result, the appeal is allowed."
15. In the light of the said ratio decidendi of the aforesaid order of the Tribunal, the ld counsel for assessee, submitted that the first step itself has not been fulfilled. So according to the ld counsel, the issuance of notice u/s 153C is illegal.
16. We also take note of the recent judgment of the Hon'ble jurisdictional High Court in a similar case in Pepsico India Holdings (P.) Ltd. v. Asstt. CIT [2014] 50 taxmann.com 299/228 Taxman 116 (Mag.)/370 ITR 295 (Delhi), after considering the decisions cited by the Revenue held in para 5 as follows:—
"5. While coming to the aforesaid conclusions the court had also examined the decisions which had been cited on behalf of the Revenue and which are, once again, being reiterated by the learned counsel for the Revenue before us. Those decisions are Kamleshbhai Dharamshibhai Patel v. CIT[2013] 214 Taxman 558/31 taxmann.com 50 (Guj.); CITv. Classic Enterprises [2013] 358 ITR 465/219 Taxman 237/35 taxmann.com 244 (All.) and a decision of a Division Bench of this Court in SSP Aviation Ltd. v. Dy. CIT [2012] 346 ITR 177/207 Taxman 260/20 taxmann.com 214. This Court had indicated in its judgment in Pepsi Foods (P.) Ltd. (supra) that the case ofKamleshbhai Dharamshibhai Patel (supra) was distinguishable on facts. Those observations would apply to the present writ petitions also. As regards the decision of the Allahabad High Court in Classic Enterprises (supra), this Court had indicated that it could not agree with the conclusions and observations of the Allahabad High Court inasmuch as the decision of the Allahabad High Court was premised on a consideration of the provisions of section 158BD of the said Act which are entirely different from the provisions of section 153C of the said Act. Furthermore, with regard to the decision in SSP Aviation Ltd. (supra), this court had noted that the said decision does not militate against the view taken in Pepsi Foods (P.) Ltd. (supra).
6. The learned counsel for the Revenue has cited an additional decision before us today and that is the case ofSarvesh Kumar Agarwal v. Union of India [2013] 353 ITR 26/216 Taxman 109 (Mag.)/35 taxmann.com 85 (All). This decision also, in our view, does not advance the case of the Revenue. This would be evident from the observations of the Allahabad High Court in paragraphs 19 to 21 of the said decision, which read as under:
19. In Manish Maheshwari's case (supra) the Supreme Court observed that taxing statute must be constructed strictly. The Court, however, shall not interpret statutory provisions in such a manner, which would create an additional physical burden on a person. In case of any doubt or dispute, construction is to be made in favour of the taxpayer and against the revenue.
20. In the present case we do not find anything wrong in the satisfaction note and the forwarding of the entire matter by the Income Tax Officer, Ward-Ill (2), Ahmedabad to the Assessing Officer of the petitioner at Bareilly. All the requirements of section 153(c) were complied with by the Income Tax Officer, Ward-Ill (2), Ahmedabad. A search under section 132A was carried out and bullion was seized. The case was selected for compulsory scrutiny for six assessment years. The assessee established that the seized silver belongs to M/s Sarvesh Jewellers, Bareilly - the petitioner. The ownership and consignment of the petitioner was also confirmed by the Assessing Officer of the petitioner at Bareilly. The Income Tax Officer, Ward-Ill (2), Ahmedabad did not commit any error in law, in recording the satisfaction note requesting the petitioner's Assessing Officer to proceed under section 153(c) of the LT. Act.
21. After the assessment of the person in respect of whom search action was carried out is completed, the officer under section 153C, where he find that seized articles belong to some other person, has to forward a satisfaction note to the Assessing Officer on such person. The satisfaction in such case is in respect of the material and disclosures of the person with which the articles or assets are found and not in respect of the person who whom they belong." (Underlining Added)
7. The above extract makes it clear that a taxing statute must be construed strictly and in the case of a doubt or dispute the construction in favour of the assessee has to be adopted. Apart from this, the material observation of the Allahabad High Court in the case of Sarvesh Kumar Agarwal (supra) is to be found in paragraph 20 Page 13 of 16 thereof where it has been observed that the assessee established that the seized silver belongs to M/s. Sarvesh Jewellers, Bareilly the petitioner. In other words, the person from whom the bullion was seized was able to establish that it did not belong to him but to Sarvesh Jewellers. It is in that context that the provisions of section 153C of the Act were invoked inasmuch as the Assessing Officer would then be considered as having been satisfied that the bullion which was seized from the searched person did not belong to the searched person but to some other person (in that case M/s. Sarvesh Jewellers, Bareilly).
8. From the foregoing discussion it is evident that in order that the Assessing Officer of the searched person comes to the satisfaction that documents or materials found during the search belong to a person other than the searched person, it is necessary that he arrives at the satisfaction that the said documents or materials do not belong to the searched person. We may point out that in the course of the arguments we had asked the learned counsel for the Revenue as to whether the documents in question had been disclaimed by the Jaipuria Group. The learned counsel for the Revenue, on instructions, states that this was not the case. In other words, it follows that the Jaipuria Group did not say that the documents did not belong to them."
17. The Hon'ble Delhi High Court further held as under:—
'13. Having set out the position in law in the decision of this Court in the case of Pepsi Foods Pvt. Ltd. (supra), it must be seen as to whether the Assessing Officer of the searched person (the Jaipuria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners.
14. First of all we may point out, once again, that it is nobody's case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of section 153C of the said Act do not get attracted because the very expression used in section 153C of the said Act is that "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 . . . . " In view of this phrase, it is necessary that before the provisions of section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned.
15. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong" to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking section 153C of the said Act does not arise.
16. Thirdly, we would also like to make it clear that the Assessing Officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". A registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it "belongs to" the vendor just because his name is mentioned in the document. In the converse case if the vendor's premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy "belongs to" the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement can be said to "belong to" the petitioner.
17. In view of the foregoing discussion, we do not find that the ingredients of section 153C of the said Act have been satisfied in this case. Consequently the notices dated 02.08.2013 issued under section 153C of the said Act are quashed. Accordingly all proceedings pursuant thereto stand quashed.
18. The writ petitions are allowed as above. There shall be no orders as to costs.'
18. The Ld AR took our attention to the order of the co-ordinate Bench in Dy. CIT v. Aakash Arogya Mandir (P.) Ltd.[2015] 58 taxmann.com 293 (Delhi - Trib.) wherein on similar facts of the searched person i.e. B. K Dhingra, Smt. Poonam Dhingra, M/s Madhusudan Buildcon Pvt. Ltd., M/s. Mayank Traders (P) Ltd. and M/s Horizon Pvt. Ltd. were searched but no satisfaction was recorded like in this case, where it was held as under:
"11. . . . . . . . . The assessee falls into the jurisdiction of Hon'ble Delhi High Court in view of the case law of Pepsi Foods (P) Ltd, therefore, we held that recording of satisfaction by AO of searched persons is a necessary precondition for initiation of proceedings u/s 153C which has not been done in the present appeals. Therefore, we quash the assessment proceedings being illegal."
Thereafter, we find that the department went in appeal before the Hon'ble High Court of Delhi against the aforesaid orderAakash Arogya Mandir (P.) Ltd. case (supra) wherein, the Hon'ble High Court, while dismissing the appeal of the Revenue, held as under :—
"8. The Revenue has not placed any material to dispute the factual finding of the ITAT that the requirement of the law explained by this Court in Pepsi Foods regarding the recording of satisfaction by the AO even in respect of the searched person was not fulfilled. Consequently, the fact that it was the same AO both for the searched person and the Assessee makes no difference to the consequence of non-compliance with the legal requirement regarding the recording of satisfaction. The Court also agrees with the ITAT that even if the AO were the same, satisfaction would have to be recorded separately qua the searched person and the Assessee.
9. No substantial question of law arises for determination. The appeal are dismissed."
19. In the light of the case laws cited above and on a reading of section 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Coordinate Bench of this Tribunal in the case of DSL Properties (P.) Ltd. (supra) vide para 15 has held that if the Assessing Officer is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the Assessing Officer of such other person, he has to issue the notice u/s 153A, read with section 153C. The Assessing Officer of the searched person and such other person may be the same but these are two different assessees and therefore the Assessing Officer has to carry out the dual exercise first as the Assessing Officer of the person searched in which he has to record the satisfaction, during the course of assessment order proceedings of the person searched. We concur with the said view of the coordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in section 153C which is found during the search u/s. 132, which are seized or requisitioned belongs to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged u/s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a 'sine qua non' to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of section 153C. We could not find any mention of any seized materials like valuable articles or things or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned assessment order passed u/s. 153C is also a nullity.
20. Since we have quashed the notice u/s 153C of the Act itself, the other grounds are not adjudicated being academic.
21. As the facts and circumstances in the case of the assessee in other five assessment years i.e. 2004-05 to 2008-09 are similar to assessment year 2003-04, we order that the impugned assessment orders passed u/s 153C in assessment years 2004-05 to 2008-09 are also a nullity.
22. Before we part with this order, we were wondering whether during search, revenue authorities can resort to carte blanche seizure of anything and everything from the premises of the raided party without the said documents having any bearing in assessment of income as per law. It should be remembered that any exercise of power under section 153C has catastrophic effect on the party against whom proceedings are reopened for scrutiny for six assessment years. So the raiding party has to apply its mind at least to prima facie satisfy themselves that the documents seized have a nexus with income. Any arbitrary exercise of power which is unbridled is a sworn enemy of the Article 14 of the Constitution and such exercise of power would offend the right to privacy and Rule of Law which is a basic feature of the Constitution. Therefore, the officers conducting the search while seizing the documents has to exercise the said powers with extreme care and caution; and seizure must be used with circumspection. The Hon'ble Apex Court and the Hon'ble Delhi High Court in N.K. Textiles Mills v. CIT [1966] 61 ITR 58, has frowned upon the practice of indiscriminate seizure paving way for reopening of assessments which finally will fall in case it is not incriminating and will be an exercise of futility.
23. In the result, all the appeals preferred by the revenue are dismissed and the cross-objections filed by the assessee are allowed.