TaxTMI 
TaxTMI 
2025 (10) TMI 835
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the two assessees was common and identical arising from assessment framed on them u/s 153C r.w.s 153A of the Act on account of additions made to their incomes from documents found during search action undertaken u/s 132 of the Act on an alleged accommodation entry provider entity. The documents allegedly revealing both the assessees to have taken accommodation entry of capital gains earned from sale of immovable property, adopting identical modus operandi in both the cases. The assessees being found to have not disclosed capital gains to the extent of accommodation entry availed, addition of the same was made in the hands of both the assessees. The nature/ character of addition and its basis therefore, it was common ground, was identical and so also the arguments to be made by both the sides. Therefore, both the appeals were taken up together for hearing, and are being disposed of by way of this common consolidated order. 3. The penalty appeal, it was stated was filed only in the case of one assesse i.e. The Modern Construction Co. P. Ltd. and was levied on account of addition made to the income of the said assessee in the quantum proceedings. Being related to the appeal filed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... thus, the present appeal before us. 6. The assessee has raised the following grounds in its appeal before us: "1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in making an addition of Rs.3,42,41,628/- to the Capital Gain of the appellant 2. Both the lower authorities failed to appreciate that the said amount of Rs.3,42,41,628/- was never received by the appellant and hence the same cannot be said to have accrued as income in the hands of the appellant. 3. Ld. CIT(A) has further erred in not allowing opportunity to cross examine persons whose statements were used against the appellant. 4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds raised, the challenge to the validity of the assessment framed is on the ground that the satisfaction recorded by the AO for assuming jurisdiction under section 153C of the Act was not in accordance with law. Arguments at length were made before us by both the parties. The contention of the ld. counsel for the assessee primarily was to the effect that the satisfaction recorded was vague and unclear and did not reveal any material in the possession of the AO having a bearing on the determination of the total income of the assessee, which was a necessary prerequisite for assuming jurisdiction u/s 153C of the Act. More specifically,he stated, that the absence of clarity in the satisfaction note of the AO was with respect to how the documents in his possession from the search conducted on "SCL" had any bearing on determination of income of the assessee. His contention was that the satisfaction note only mentioned certain documents relating to the assessee which was found during the search on "SCL", but how those documents had an impact on the determination of the income of the assessee was not coming out from the satisfaction note. His contention was that the law in this regard is s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of sufficient information adversely impacting the determination of income of the assessee. 11.2 His contention was that the satisfaction may not have been adequately and properly worded so as to bring out all the materials leading to his satisfaction but there could be no doubt of all material being in the possession of the AO for assuming a valid jurisdiction under section 153C of the Act to frame assessment under section 153A of the Act in the present case. 11.3 The Ld. Counsel for the assessee countered by stating that courts have consistently held that the sufficiency of satisfaction of the AO for valid assumption of jurisdiction is to be determined on the basis of the satisfaction recorded by the AO in writing alone and nothing can be added to the same. 11.4 The Ld. DR countered by reiterating that admittedly there was sufficient adverse material with the AO of the assessee for being satisfied that material found during search on SCL revealed assessee to have taken an accommodation entry relating to capital gain. And there was no question of the jurisdiction assumed by the AO therefore u/s 153C of the Act being not in accordance with law. 12. Reference was made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....S.153C of the Act. "Satisfaction note" is completely "vague", "scanty" and "non-specific": * After receipt of seized material from AO of the 'person searched', - * if AO of "other person' is satisfied that such material has a bearing on determination of total income of such 'other person' * for six assessment years immediately preceding the year in which search is conducted or requisition is made, then AO of the 'other person' can assume jurisdiction u/s 153C of the Act in the case of such 'other person'. * In the present case, satisfaction note recorded by AO is completely silent on the following aspects: * How such material has bearing on determination of total income; * Income of which Assessment Year emanates from such material; * Document-wise correlation for AYs 2007-08 to 2013-14. * Thus, it is clear that the satisfaction note is absolutely "scanty", "vague" as well as "non-specific". Hence, the same cannot justify the assumption of jurisdiction u/s 153C of the Act. The "seized material in question" does not have bearing on determination of the "income for AY 2013-14": ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 153C" (as applicable at the relevant point in time), AO has to mandatorily draw a "satisfaction note". * It is well settled that - * Assumption of jurisdiction u/s 147 / 153C has to be justified strictly on the basis of contents of "reasons recorded for reopening" /"satisfaction note". * Revenue cannot improve upon such "reasons recorded for reopening" / "satisfaction note" at a later stage. * Any material / statement coming to the knowledge of the Ao concerned at a "later stage" (say, during the "consequential assessment proceedings") cannot be relied upon for justifying "assumption of jurisdiction u/s 153C". Reliance is placed on following decisions: * Prashant S. Joshi vs. ITO - 324 ITR 154 (Bom) - Para 9 (Pgs.6-13); * Kantibhai D. Narola v ACIT- 436 ITR 302 (Guj) - Para 32(i) (Pgs.14-25); * Hindustan Lever Ltd. - 268 ITR 332 (Bom) - Para 20 (Pgs.26-29); * In the facts of the present case, - * Contents of the satisfaction note do not indicate that the so-called material has a bearing on determination of total income for AY 2013-14; * In fact, there is no reference to any material....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otice issued u/s 153C of the Act deserve to be quashed. 13. Counter filed by the Department to this is as under: "The Registrar, Income Tax Appellate Tribunal D Bench ITAT Ahmedabad Sir Sub: Submission of argument of assessee and point-wise argument of the Department in the Modern Construction (ПА 3464/Abd/2015) AY 2013-14 Kindly refer to the above as directed by Hon'ble bench with respect to written submission on point wise issues raised by Ld. A.R., the following submission is being made on legal grounds and on merits. Legal Ground Proceedings u/s 153C have not been validly initiated Arguments by Assessee Change in Block Period i.e. Six AY immediately preceding year of Satisfaction note has been recorded by the learned AO on 15.09.2014 this inferred to the material collected during course of person searched set to the office of Ld. A.O. during the FY 2014-15 being AY 2015-16, thus proceedings 153C shall be applicable for the block assessment period of 2009-10 to 2014-15 (5x AY immediately preceding year of search) and not 2007-08 to 2013-14 Cases relied upon: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (SC) PCIT vs Saumya Construction (2017) 387 ITR 529 (Guj) CIT vs Kabul Chawla (2015) 380 ITR 573 (Del) PCIT vs Best Infrastructure (India) Pvt. Ltd. 397 ITR 82 (Delhi) PCIT vs Anand Kumar Jain- Manu/DE/0347/2021 (Delhi) CIT vs Harjeev Aggarwal (2016) 70 taxmann.com 95 (Delhi) Arguments on behalf of the Department The contention of assessee that seized material in question does not have bearing on determination of income for AY 2013-14 is completely baseless and lacks any justification for such. For the sake of clarity, brief facts about the seized material is as under: Return of income disclosed execution of Conveyance Deed between Assessee and Edelweiss Precious Metals Pvt. Ltd. dated 23.04.2012. The said deed was executed succeeding the Relinquishment deeds both dated 23.03.2012 between M/s Sarang Chemicals to M Sheetal Bio-Agro Tech Ltd and Edelweiss Precious Metals Pvt. Ltd as well as Deed of Cancellation of MOU dated 23.03.2012 undertaken between Assessee, M/s United Builders Corporation and M/s Sarang Chemicals Ltd. & M/s Sheetal Bio-Agro Tech Ltd. These documents had to be executed because of pre-existi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rable device on capital fain arising out of sale of immovable properties on the reserving the complete consideration (AO Order Para 8.9 pg 24) Considering the sequence of events and the connection between the parties d no room for any doubt that the assesses in order to reduce the capital gain over the of property, undertook the whole act (B) No Opportunity to Cross Examine Assessee was not given opportunity to cross-examine against the cores of key persons in absence of which no addition can be made solely on the basis of such material collected behind the back of assessee. No reasonable time for cross-examination was given Cases relied upon: Andaman Timber Industries 62 taxmann.com 3 (SC) Charters Spped P Ltd Tax Appeal 126 of 2015 Jay Ace Technologies Ltd. 154 taxman.com 45 (SC) JPM Tools Ltd. 154 taxmann.com 44 (Delhi) Arguments on behalf of the Department The persons whose statements have been recorded by the Department during the proceedings have already accepted the part in the plat Since they me moved in the process transaction, and were parties to it along with the Assessee and others, there a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is statement that cash received after discounting the cheques from En Precious Metals Pvt. Ltd. was handed over by him to some person at HK House where the office of assessee is situated, on the instructions of Shri Pratik Shah (AO Order Para 8.8 (viii) pg 24) Shri Pratik R. Shah, who managed and controlled Sarang Chemicals Ltd. & Sheet Bo-Agro Tech Ltd., could not give any satisfactory explanation to the reasons for withdrawing amount in cash in lieu of cheque received from Edelweiss Precious Metals P. Ltd. by discounting trough M/s Ansh Traders. (CIT(A) Para 5.6 pg 4 Thus, considering the sequence of events and the connection between the parties o including the connection with the place where cash transaction took place there is no man the any doubt that the assessee in order to reduce his capital gain over the sale of property undertook the whole act." 14. The Department's submission regarding the AO of the assessee and AO of the searched person being the samevide letter dated 9.5.2024 is reproduced hereunder: In this regard, it is submitted that for the sake of clarification sort by the Hon'ble Tribunal vide its order dated 01.05.2024....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Assessing Officer of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under section 153C of the Act against the other person. At the same time, the satisfaction note by the Assessing Officer of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the Assessing Officer of the other person is mandatory. However, in the case where the Assessing Officer of the searched person and the other person is the same, it is sufficient by the Assessing Officer to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of section 153C of the Act is fulfilled. In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssess income of such other person in accordance with the provisions of section 153A:]" 17.1 As per the applicable provision of law for the impugned year once the assessing officer is handed over material belonging to the assessee found during search on another person, that was sufficient to assume jurisdiction u/s 153C of the Act for framing assessment u/s 153A of the Act. Therefore on handing over of documents itself jurisdiction u/s 153C of the Act was validly assumed. 17.2 This section was amended by Finance (No.2) Act, 2014 w.e.f 0110-2014 including the requirement of the AO to be satisfied that the documents handed over had an impact on the assessment of income of the assessee, for assuming jurisdiction u/s 153C of the Act. The amended provision reads as under: "153C. [(1)] Notwithstanding anything contained in section 139 section 147 section 148, section 149, section 151 and section 153, where the Assess Officer is satisfied that any money, bullion, jewellery or other valuable article thing or books of account or documents seized or requisitioned belongs belong to a person other than the person referred to in section 153A, then the books of account or documents....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... & M/s. Sheetal Bio-Agro Tech Ltd entered through Shri Pratik R. Shah for sale of land bearing plot No 35P 36P. 37P owned by M/s United Builders Corporation and land bearing plot No 35P. 36P. 37P. 38 & 40B owned by M/s Modern Construction Company Pvt. Ltd Page No. 24 to 29 of Annexure A-1 is a Deed of cancellation of Memorandum of Understanding dated 23.03.2012 between M/s United Builders Corporation & M/s Modern Construction Company Pvt Ltd. and M/s Sarang Chemicals Ltd & M/s Sheetal Bio-Agro Tech Ltd Page No. 75 to 83 of Annexure A-1 is a Relinquishment Deed dated 23.03.2012 between M/s. Sheetal Bio- Agro Tech Ltd and M/s Edelweiss Precious Metal Pvt Ltd & M/s United Builders Corporation. In view of above facts, I am satisfied that the above documents seized from the corporate office of Sarang Chemcials Ltd at C-4/806, Anushruti Apartment, Near Jain Temple Thaltej, belongs to the assessee M/s United Builders Corporation. Since the assessee being other than the person referred to in Sec 153A of the Act. I have satisfaction to proceed against the assessee namely M/s United Builders Corporation as per the provisions of Section 153C of the Income Tax Act, 1961 Accordingly, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * Statement of the proprietor of Ansh Traders Sh Ajay Kumar Shantilal Pandey was recorded and he stated to be working for Sh Ashish Thakkar. Statement of Sh Ashish Thakker was recorded on 01-05-2013 wherein he stated to have discounted the cheques received from Sarang Chemicals Limited and handed over cash to the director of the said company Sh. Lalit Rathod. * Sh Lalit Rathod, in his statement recorded on 07-05-2013 admitted to dealing with Ashish Thakkar, a shroff. He admitted to receiving cash of Rs. 5crs from Ashish Thakkar and handing over the same at H.K House as per details provided by Pratik Shah. 17.8 Thus it is crystal clear from the above facts that the AO of the searched person had sufficient information in his possession by way of admission of directors of the searched entity's and other connected parties, that the documents found during search relating to the assessee were in relation to a modus operandi adopted by the searched entity for providing accommodation entry to the assessee by way of confirming party to a transaction of transfer of immoveable asset. Even the Ld. Counsel for the assessee does not dispute the said fact. 17.9 The AO of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udicial scrutiny of the material being sufficient would not have lead to any other conclusion but that there was adverse material against the assessee for a valid assumption of jurisdiction u/s 153C of the Act. Therefore even applying this proposition does not help the case of the assessee . 17.14 All the arguments raised by the Ld. Counsel for the assessee and the case laws relied upon we find are of no assistance to the assessee. All arguments of the Ld. Counsel for the assessee to the effect of the satisfaction recorded being vague and the seized material having no bearing on the determination of income of the assessee are, we find, of no consequence in the light of our finding that the satisfaction recorded needed to be considered alongwith the other material and statements in the possession of the AO which admittedly prima facie were adverse to the assessee. So also the argument that assumption of jurisdiction is to be strictly justified on the basis of the contents of the satisfaction note. Moreover even the case laws referred to by the Ld. Counsel for the assessee in support of the aforestated proposition are to the effect that any material /statement coming to the knowle....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... confirming cancellation of MOU dated 20-06-2011 vide deed of cancellation 23-03-2012 and releasing all rights in property . The compensation agreed to be paid was paid by Edelweiss Precious Metal Pvt. Ltd. to Sarang Chemicals Ltd./ Sheetal Bio Agro Tech Ltd. The receipt of the said compensation was also attached to these relinquishment deeds. 17.19 Further, details of payment to Sarang Chemical Ltd. and Sheetal Bio-Agro Tech Ltd by Edelweiss Precious Metal Pvt. Ltd. were called under 131(1A) of the Act and it was noted that the payment of approx. 5 crores was made to the said two concerns on the 29th March, 2012. 17.20 The conveyance deed executed for the transfer of these properties by the assessee to Edelweiss Precious Metal Pvt. Ltd was dated 23-04-2012 for total consideration of Rs. 11,63,56,500/- of which Rs. 7.96 crores was paid to Modern Construction Com. Ltd. and Rs. 3.66 crores to United Builders Corporation. 17.21 Further as per the facts noted while dealing with the additional grounds raised by the assessee, statements were recorded during search on Sarang Chemical Ltd of its director and one Mr Pratik Shah who allegedly was running the entire activity in it, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so explained in detail. The modus operandi revealed by the director in his statement conformed with the documents found during search relating to the assessee. * Banking inquiries revealed the funds received by Sarang Chemicals Limited from the party to whom it relinquished its rights, i.e Edelweiss Precious Metals Pvt .Ltd., to have been transferred to the current account of M/s Ansh Traders with Shree Vinayak Sahkari Bank Limited, Kalupur Branch, from where cash was immediately withdrawn after receipt of funds. * Statement of the proprietor of Ansh Traders Sh Ajay Kumar Shantilal Pandey was recorded and he stated to be working for Sh Ashish Thakkar. Statement of Sh Ashish Thakker was recorded on 01-05-2013 wherein he stated to have discounted the cheques received from Sarang Chemicals Limited and handed over cash to the director of the said company Sh. Lalit Rathod. * Sh Lalit Rathod, in his statement recorded on 07-05-2013 admitted to dealing with Ashish Thakkar, a shroff. He admitted to receiving cash of Rs. 5crs from Ashish Thakkar and handing over the same at H.K House as per details provided by Pratik Shah. 17.22 The above facts noted by us are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y opportunity of cross-examination to the assessee. 18. We have heard the rival contentions carefully. Undoubtedly, the entire case of the Revenue rests on statements recorded of various persons during search conducted on parties associated with the transaction of sale of immoveable property entered into with the assessee and all these persons admitted to have not entered into any genuine transaction with the assessee but to have provided only accommodation entries. As per the admission of these persons, the documents found were engineered for giving accommodation entry. The documents found during search admittedly,on a stand alone basis, are not incriminating .What transpires is that while the assessee claims the said documents were with respect to a genuinely undertaken transaction. The other parties to the transaction claimed the documents to be in relation to a modus operandi adopted for giving accommodation entry of capital gain to the assessee. It is true that the modus operandi also entails cash being withdrawn and being handed over to the assessee. Surely, there is a transfer of fund from Sarang Chemicals Ltd. to Ansh Traders and which is immediately withdrawn thereafter....