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2018 (4) TMI 1005
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.... under Section 132 on 31.07.2008 in the Rajdurbar group of cases. During this operation, a hard disk containing books of accounts of the assessee were seized. After the assessee declared its total income to be NIL on 29.09.2009, a notice under Section 142(1) read with Section 153C was issued to the assessee on 23.07.2010. When it filed a reply on 27.08.2010 once again declaring its income to be NIL, further notices under Section 142(2) and 142(1) were issued. The Assessing Officer (AO, hereafter) by his order dated 28.12.2010 held the total taxable income for AY 2009-10 to be ` 1,56,99,738/-, and disallowed deductions claimed under Section 80IA. The reasons for disallowance recorded, inter alia, were as follows: "11. The above details clearly suggest that the during the F.Y. 2008-09 corresponding to the A.Y. 2009-10, only three units were located in the Industrial park which is in contravention to the condition No. 5(i) of the approval letter dated 12.4.2005 issued by Ministry of Commerce and Industry. Furthermore, the tenant namely M/s Price water house Coopers (P) Ltd is occupying an area of 34186 square feet which is more than the 50 % of the total area of the industrial Park ad....
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....ngs to. The revenue is aggrieved by the above decision of the ITAT. Submissions of Parties 5. Mr. Zoheb Hossain, learned counsel for the Revenue argued that the ITAT failed to appreciate that the notice for AY 2009-10 was issued under Section 142(1), and not under Section 153C. Therefore, a satisfaction note was not mandatory in the present case. In any event, the CIT (A) found that the AO could have reasonably determined that the seized material belonged to the assessee based on circumstances surrounding the search and seizure. Counsel relied upon the observations of the CIT (A), to the following effect: "4.2.1 It is noted that the books of accounts of the assessee firm were found in a computer found at the residence cum office premises of Mr. Narendra Kumar Aggarwal S/o Late Sh. R.C. Agarwal who was neither employee of the company nor a partner. Office Address of the assessee was different from the place where the books of accounts of the assessee's firm in the computer were located. The hard disk of the computer has been seized as Annexure A-26. In the statement recorded U/S 132(4) on 31.07.2008, Mr. Aggarwal has stated that he was an employee of V.K. Financial Serv....
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....port of his submission that the ITAT's conclusions were justified. Analysis and Conclusions 8. The satisfaction note of the AO, while issuing notice under Section 153C in this case, was as follows: "A search operation was conducted on Raj Darbar Group of cases on 31.07.2008. During the course of Search operation at the premises of i) Party A-20, Residence Cum Office of Narender Kumar Aggarwal, 1st and 2nd Floor, 7, Western Avenue, Maharani Bagh -New Delhi. Various papers were found and seized belonging to M/s N S. Softwares Pvt. Ltd. The annexures are marked as under: Party A-20 Annexure 26, Hard Disc containing Books of Accounts of M/s NS. Softwares Pvt. Ltd. Thus the proceedings u/s 153C r/w. section 153A of the Income Tax Act 1961 are being initiated in the above case." 9. The ITAT, in Sushil Kumar Jain (supra) held that issuing a notice under Section 153C for the previous search year is not mandatory, and the AO can issue a normal notice under Section 142(1) instead. The relevant extracts from the case are as follows: "However, in our view, there cannot be a mandatory jurisdiction for six back years, even for those entities, which were not in....
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....rticularly when time-limit of service of notice under s. 143(2), subject to provisions of s. 153B, would also be applicable (reasons on this aspect are given later in this order)." 10. In the same case, the Ld. ITAT went on to observe that the AO has to comply with Section 153A even if the assessment is with respect to the previous year in which the search was conducted and even if the due date for furnishing returns for that assessment year has not passed. "Further, the provisions of s. 153C(2) also provide for completion of assessment in respect of the person other than the person referred to in s. 153A in the manner provided in s.153A. No doubt, the provisions of s. 153C(2) provide for specific situations wherein the assessment in respect of the assessment year relating to the previous year in which search is conducted under s. 132 or requisition is made under s. 132A has to be made in the manner provided in s. 153A. However, in our opinion, where AO having jurisdiction over such other person receives the books of account or documents, etc. before the due date of furnishing the return of income for such assessment year, then also, the assessment would be completed in the m....
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....he other person has to proceed in accordance with provisions of Section 153A of the Act. Section 153A requires that where a search has been initiated under Section 132 of the Act, the AO is required to issue notice requiring the noticee to furnish returns of income in respect of six assessment years relevant to the six previous years preceding the previous year in which the search is conducted. As discussed hereinbefore, by virtue of second proviso to Section 153A, the assessment/reassessment pending on the date of initiation of search abate. In the context of proceedings under Section 153C of the Act, the reference to the date of initiation of the search in the second proviso to Section 153A has to be construed as the date on which the AO receives the documents or assets from the AO of the searched person. Thus, by virtue of second proviso to Section 153A of the Act as it applies to proceedings under Section 153C of the Act, the assessment/reassessment pending on the date on which the assets/documents are received by the AO would abate. In respect of such assessments which have abated, the AO would have the jurisdiction to proceed and make an assessment. However, in respect of con....
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....the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any "satisfaction" of the kind required under Section 153C of the said Act." 13. In Pepsico India Holdings Pvt. Ltd the meaning and scope of the term "belong" in Section 153C was explained as follows: "14. 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 ha....
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....fficer of the searched i.e. SVP Group was not required to record such satisfaction as both the Assessee and the SVP Group were being assessed by the same officer. This contention was rejected by the ITAT by following the decision of this Court in Pepsi Foods Pvt. Ltd v. Asstt Commissioner of Income Tax : (2014) 367 ITR 112 (Del). 18. This Court has also expressed a similar view in Commissioner of Income Tax-7 v. RRJ Securities Ltd.: (2015) 62 taxmann.com 391 (Delhi). Thus, the controversy whether it is necessary for the assessing officer of the searched person to record his satisfaction that the assets/documents seized belong to the assessee other than the searched person is no longer res integra. It is settled that recording of such satisfaction is sine qua non for commencing any proceedings under Section 153C of the Act. Thus, the decision of the ITAT in this regard cannot be faulted." 16. ARN Infrastructure India Ltd. v ACIT, New Delhi [2017] 81 taxmann.com 260 (Delhi), too affirmed the holding in RRJ Securities (supra) and held that seized material cannot be used for reopening concluded assessments under Section 153C unless the material was incriminating in nature. The Co....
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....at for all other assessment years from 2005 to 2009, the Ld. CIT recorded that the assessment was under Section 153C read with Section 143(3). It is just for AY 2009-10 that the Ld. CIT found the assessment to be done under Section 143(3) only. 18. The reliance by the revenue on Sushil Kumar Jain (supra) to say that issuing a notice under Section 153C was not necessary for AY 2009-10 because the year immediately preceding it was the search year i.e. 2008 is not apt, because that case was only concerned with non-issuance of notice under Section 153A, and not Section 153C. A normal notice issued under Section 142 can serve as a substitute for a notice under Section 153A because both these provisions serve the same purpose of directing the assessee to file returns. However, the function served by a satisfaction note under Section 153C is completely different. The special nature of Section 153C was noted in Pepsi Foods Pvt. Ltd, as follows: "Under Section 158BD the Assessing Officer's satisfaction is with regard to „undisclosed income' belonging to a person other than the searched person. It is obvious that such satisfaction under Section 158BD by its very nature has to....
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.... S. Software Pvt. Ltd. Thus the Proceedings u/s 153C r.w.s. 153A of the Income Tax Act 1961 are being initiated in the above case." 21. The CIT Order upheld the validity of the satisfaction note by providing the following reasoning: "4.2.2 I have also examined the hard disk seized from the premises of Mr. Agarwal. Apart from containing documents and books of accounts of various companies and individuals and other members of the Rajdurbar Group. Thus, the AO had to verify the correctness of the declared income from the seized books of A/c found in the hard disk. In view of this it has to be held that the proceedings u/s 153C have been rightly initiated. I have also examined the hard disk seized from the premises of Mr Agarwal. Apart from containing the books of accounts of the appellant firm, there is also a soft copy of partnership deed dated 01104/2007 (placed as Annexure-X to this order). It is not ascertainable as, to whether the said deed was executed. In this partnership deed it has been mentioned that M/s Narsi Properties Pvt. Ltd., one of the partners, vide Board resolution dated 25th of February 2007, have decided to retire from the partnership with effect from ....
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....ring company and the date of the partnership deed itself (01/04/2007). 4.2.4 Further Mr. Rakesh Kumar Garg along with other members of Rajdurbar group have been found to have indulged in several measures that have resulted in alleged suppression of income and tax evasion. The group has surrendered nearly Rs. 100 crore as 'Undisclosed income' an ago included the same in their returns of income of various members of the group. One of the methods followed by the group is to borrow funds in the hands of the company earning rental income and pay interest on such borrowed funds. However these funds are subsequently transferred to the group concerns interest free. Thus, the group has indulged in reducing tax liability on the rental income of the properties through this method.(example is that of Narendra Impex Pvt. A.Y.2009-10). In the appellant's case also the borrowed funds have been transferred to the group concerns or to the partners without charging interest. 4.2.5 Therefore, the circumstances show that the books of accounts. and other documents like Reconstitution of partnership found in possession of a person other than the employee or partner and at a place not b....
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.... records a satisfaction that the document/asset belonged to some other entity. This has been repeatedly held to be necessary for invoking jurisdiction u/s 153C by higher judicial authorities including the jurisdictional High Court. vi. Even the name of appellant has been mentioned incorrectly as N.S. Software Pvt. Ltd. In place of N.S. Software vii. The AO has mentioned in the satisfaction note that books of account of M/s N.S. Softwares Pvt. Ltd. were found and seizes. There is no such entity called M/s N.S. Softwares Pvt. Ltd. This indicates gross non application / mechanical application of mind by the assessing officer." 23. This court concurs with the impugned order. In the present case, the Ld. AO has not explained steps taken by him to determine that the seized material belonged to the Assessee Firm. The satisfaction note has been prepared in a standard mechanical format and it does not provide any details about the books of accounts which allegedly belong to the Assessee Firm. Most importantly, a satisfaction note was not recorded by the AO of Sh. Narendra Kumar from whose premises the documents were seized. In light of the decision in Nikki Drugs and Chemicals P....