TaxTMI 
TaxTMI 
2026 (2) TMI 920
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....essing Officer lacked jurisdiction to invoke the provisions of section 153C of the Act. 3. Brief facts of the case are as follows: 4. The assessee is an individual and is a film director by profession. The assessee filed its return of income for the AY 2017-18 on 11.01.2018 admitting a total income of Rs..48,42,310/-. A search and seizure operation under section 132 of the Act was conducted in the Shri G.N.Anbuchezian & others on 05.02.2020. During the search proceedings, various incriminating materials were seized in which Shri G.N.Anbuchezian had noted down the details of daily cash transactions, he had with so many parties that happened from his Chennai office. On examination of the same, the search parties viewed that the assessee has entered into loan transaction with Shri G.N. Anbuchezian, who is the main financier of the Tamil Nadu Film Industry. On analysis of seized material, the Department was of the view that the assessee had entered into cash transaction with Shri. G.N. Anbuchezhian, which had a bearing on determination of total income of the assessee. Therefore, the case was centralized vide notification no. 125/2021-22 dated 27.03.2022 and proceedings under sect....
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....der. The explanations of the assessee has been rejected by the Assessing Officer at para 3.3.4 of the assessment order. The Assessing Officer, from the entry found in the incriminating materials, inferred that the assessee had repaid in cash the loan to Shri G.N. Anbuchezhian to the tune of Rs..92,50,000/- and treated the same as unexplained money under section 69A of the Act for the AY 2017-18. 6. Similarly, for the assessment year 2019-20, on an identical facts and circumstances, the Assessing Officer made addition of Rs..90,00,000/- under section 69A of the Act. 7. The assessee preferred an appeal before the CIT(A) and filed detailed ground-wise written submissions which are reproduced from page 10 to 20 of the impugned order. After considering the submissions of the assessee and referring to various case law, the CIT(A) deleted the addition by observing as under: UPON LEGALITY 6.2.2 Before going to adjudicate the various grounds raised it is essential to bring on record the circumstances that necessitated the AO to contemplate addition in the case of the appellant. The case of the appellant emanates from the search u/s 132 of the Act carried out on 05.02....
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....s 153C is not sustainable in law. The appellant relied on the decision of Hon'ble Supreme Court in the case of M/s. Super Malls Pvt. Ltd. Vs. PCIT-8 (115 Taxmann.com 105) dated 05-03-2020. The Appellant also relied on CBDT Circular No.24/2015 dated 31-12-2015 which state that for the purpose of Sec. 158BD, the recording of satisfaction is prerequisite and satisfaction note must be prepared by AO before he transmits the record to the other AO who has jurisdiction over such person. The CBDT has also accepted the position that this principle would apply to proceedings u/s 153C also. It is a well settled law that for initiate the Proceedings u/s 153C, recording of a valid satisfaction note is mandatory and in the absence of the same, the entire assessment Proceedings would be void ab-inito. The Hon'ble supreme court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No. 3958 of 2014 dated 12-3-2014 (2014) 43 taxmann.com 446 (SC) held that "the satisfaction note could be prepared at any of the following stages: (a) at the time of or along with the intimation of proceedings against the searched person under section 158BC of the Act: o....
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.... found that the AO of the such" searched person" and the appellant were one and the same. Upon perusal of the assessment records, it is observed that the AO as the jurisdictional AO of the "searched person" has recorded satisfaction note prior to recording of satisfaction note in the case of the appellant on similar lines. Accordingly, the ground raised upon the issue of not recording satisfaction in the case of "searched person" and with respect to the non-furnishing of satisfaction to the appellant is unsustainable. 6.2.8 The appellant after receipt of the satisfaction note recorded in the case of the appellant has raised another issue that the AO has recorded common satisfaction for the years under consideration which is not valid in the eyes of law. The undersigned has carefully examined the issue raised by the appellant. During the course of appellate proceedings, the appellant made a detailed submission to support the above grounds, the relevant extract of the same is reproduced here as under. "Further, the appellant submits that the assessing officer has recorded a common satisfaction note for the assessment year 2014-15 to 2020-21. The appellant submit tha....
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....partment and mere mention of the word "satisfied" in the order sheet or the note sheet will not meet the requirement. It was held in the case of Pepsi Foods Pvt Ltd v. ACIT (2014) 52taxmann.com 220/(2015) 231 Taxmann 58(Delhi) The appellant further relied upon the decision of Hon'ble the jurisdictional tribunal in the case of ACIT, Central Circle-1, Trichy vs. Arunachalam Srinivasan in ITA No. 1527/Chny/2023 dated 31.05.2024 for the AY 2014-15 has dismissed the revenue and held as under. "in the light of the blinding judicial precedent of Hon'ble Apex Court (supra), and having found that "Satisfaction Note' prepared by the AO to invoke jurisdiction u/s 153C of the Act For AY 204-15 does not satisfy the requirement of law as stipulated u/s. 153C of the Act, the very assumption of the jurisdiction u/s 153 of the Act for assessment for AY 2014-15 is held to be bad in the eyes of law as rightly held by the Ld. CIT (A), which impugned action is confirmed and Revenue Appeal stands dismissed." The appellant submit that in the absence of separate satisfaction note discharging the ingredients provided in section 153C of the Act, the proceedings based o....
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....Act. It refers to the state of mind and it should get reflected in a tangible form when it is reduced to writing. It refers to a conclusion drawn or a finding recorded on the material available. The satisfaction should reflect that, on the basis of the material belonging to the third party, there is a prima facie case for fastening tax liability on the appellant. Such satisfaction may not be final or conclusive. It may be subjective satisfaction, but it must be capable of being tested on an objective parameter. It must have a rational nexus to the liability of the third person under the Act though not conclusive. The material on the basis of which the satisfaction is reached should not be vague, indefinite, distant or remote. This was so held in the case of CIT v. Radhey Shyam Bansal [2011] 11 taxmann.com 294/200 Taxman 138 (Mag.) (Delhi) in the context of recording satisfaction u/s 158BD. In CIT v. Smt. Nirmala Keshwani [2015] 123 DTR (AII) 177. it was held that recording of satisfaction is not a mere formality but involves application of mind. 6.2.14 It is essential, therefore, that at the stage of initiating the proceedings, the jurisdictional AO of the third party shou....
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....ar-specific and incriminating evidence-specific. It was held that the satisfaction should indicate the assessment year and the incriminating evidence relatable to that assessment year. A general satisfaction, which is vague, will not meet the requirement of law to initiate the proceedings u/s 153C. This case emphasises the need for closer scrutiny of seized papers and establishing a co-relation. While holding so, the Hon'ble High Court has observed as under.- "The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document-wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant t....
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....udgement has been affirmed by the Hon'ble Apex Court in the Case of CIT v. Sinhgad Technical Education Society [2017] 84 taxmann.com 290/250 Taxman 225 (SC) by holding as under; "18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taki....
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....w of the above discussions, the undersigned is of the considered view that the AO has passed the order u/s 153C of the Act without a valid satisfaction note and made addition without relying upon any incriminating material as mandated in the provision of section 153C of the Act. In the back drop of the above decision(s) of the Hon'ble Apex Court, and the jurisdictional tribunal, the undersigned in order to uphold the principles of Judicial Discipline, the decision of the Hon'ble Apex Court referred supra is respectably followed in the case of the Appellant too. Accordingly, the grounds raised by the Appellant upon this issue are hereby treated as allowed. As the grounds raised by the Appellant upon assumption of jurisdiction which happens to be the root cause of the addition made was allowed therefore, it is held that the AO lacked jurisdiction to invoke the provisions of section 153C of the Act for the AY(s) 2016-17 to 2020-21. UPON MERITS 6.3 Ground Nos. 4 & 5 (AY(s) 2016-17 to 2020-21) 6.3.1 During the course of the assessment proceedings, the AO observed that the seized material in the form of daily cash book maintained by Shri. G. N. Anbuchez....
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.... Shri. G. N. Anbuchezhian had acknowledged the transaction before the ITSC, further supporting its authenticity. Given the informal nature of the transaction, formal accounting was not expected. The sworn statement during the search provided clarity. Based on the evidence and the principle of the preponderance of probability, it was inferred that the assessee repaid the loan using the source of which could not be explained. 6.3.4 The AO after rejecting the above submissions of the assessee proceeded to treat the amount(s) of loan repaid as unexplained money u/s 69A of the Act and added the same to the assessee's total income for the respective assessment years. On examination of the grounds raised, it can be seen that the appellant has agitated upon the addition(s) made u/s 69A of the Act on the basis of the narrations contained in the loose sheets which was found and seized from a third party premise. As evident in the assessment order, the AO, by relying upon the narrations contained in the seized materials i.e. loose sheets seized from third party premises, alleged that the assessee had engaged in cash transactions with Shri. G. N. Anbuchezian, taking AO....
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....se papers or sheets are not sufficient to hold a person accountable for tax liabilities. 6.3.8 Further, the appellant contended that the assessment order(s) were framed based on third-party information from the searched person, without any corroboration. The addition(s) made as unexplained cash transactions under Section 69A of the Act was made solely based on these loose sheets for all years under consideration. The appellant strongly contended that the burden of proof lies with the AO to substantiate such transactions with concrete evidence, which was not done. The AO based the assessment on the doctrine of preponderance of probability, assuming the loose sheets to be valid evidence of cash transactions. The appellant contends that this doctrine cannot be the sole basis for creating a tax liability unless corroborated by other evidence, which was absent in this case. The appellant also submitted that the AO did not follow the principles of natural justice, by failing to provide an opportunity for the appellant to rebut or challenge the evidence, particularly the loose sheets. No consequential investigation or recording of the appellant's statement was carried out. ....
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....idences to conclusively prove that the appellant has borrowed funds and repaid it with interest. 6.3.12 The appellant during the course of assessment proceedings, in response to the show cause notice issued has completely denied the alleged cash transactions and has produced before the AO, books of accounts, bank statements etc and the AO has not made any findings upon it. In this scenario the question to be answered is whether the AO is right in making the addition on the basis of the noting / narration found in the loose sheet which was seized from a third-party premise. It is found appropriate to highlight that the benefit of presumption u/s 292C of the Act is only with reference to the person searched and it cannot be extended to any other person other than the person searched like that of the Appellant. Therefore, the contents of the loose sheets may possess value based on presumption u/s 292C of the Act, in the case of the searched person and by no stretch of imagination, does the same can be applied to facts and case of the Appellant. 6.3.13 It is a well-established legal principle that a loose sheet found and seized from a third-party premises, without any....
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....any independent/corroborative evidence to show that the alleged re-payments were actually made, before jumping into any conclusion. In particular the AO has failed to ascertain the amounts availed as loan so as to repay the same along with interest. In the absence of any such details, considering the repayment alone can only be a presumption. Further, the AO has observed in the assessment order that "source of repayment of cash loan along with interest needed verification. Para 3.1 of the assessment order. As evident in the assessment order, no such verification has been carried out. 6.3.18 It may be appreciated that the said loose sheet relied upon by the AO was neither seized from the premises of the Appellant nor was the same found to be in the handwriting of the Appellant. Such material seized in the case of a third party which is not in the hand writing of the Appellant does not constitute adequate evidence to draw any adverse inference against the Appellant, in the absence of any other corroborative evidence. This proposition has been laid down by the Hon'ble Delhi High Court in the case of CIT Vs Sant Lal [2020] 118 taxmann com 432 (Del), wherein it was held the....
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....ering the figures. It may be possible that a document may not be complete in all respects as the businessmen or tax evaders may choose to record minimum details on a document and keep the rest in their memory. It is the duty of the AO to carry out necessary investigations by correlating the impugned document with other documents seized, with regular books of account, with record kept by outside agencies, such as banks or financial institutions or debtors/creditors and finally, by recording the statements of concerned parties so as to fill up the gaps in confirming the inference arising from the documents for a proper charge of tax. Such correlation is necessary unless the document is capable of speaking giving full details so as to enable any intelligent person to find out the nature of transaction, the year of transaction, the ownership of the transaction and quantum thereof. Even in that situation, it is necessary to give opportunity to the assessee to offer his explanation and investigation be carried out to strengthen the direct inference arising from this document." 6.3.21 The proposition that addition cannot be made merely on the basis of entries in loose sheets foun....
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....destination of on money. The A.O failed to prove the source of the purchasers as to how the money was arranged and also failed to prove the deployment of unaccounted money by the seller by any form of evidence. Under these circumstances, based on paper jottings as conclusive evidence on money cannot be brought to tax as income from undisclosed sources." 6.3.23 As per the decisions of the Hon'ble Apex Court in the cases of CBI Vs. VC Shukla & Others (1998) 3 SCC 410, Common Cause (A Registered Society) Vs. Union of India (2017) 77 taxmann.com 254 (SC) and Dhakeshwari Cotton Mills Lids. CIT (1954) 26 ITR 775 (SC) corroborative evidence is essential to support the evidence found in third party premise. In order to properly appreciate the issue, it is useful to refer to the following extract from the decision of Hon'ble Apex Court in the case of Dakeswari Cotton Mills Ltd Vs. CIT (1954) 26 ITR 775 (SC): "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be a....
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.... Act. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money. bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money. bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. 6.6 On a plain reading of the section would reveal that it is the money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article in respect of which the appellant is found to be the owner, then the provisions of section 69A will squarely apply. Further there are two essential ingredients, i.e. the assessee should be the owner and the other is that such money, bullion, jewellery or valuable article found. Thus, to invoke the provisions, these two essentials things....
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.... must be other valuable articles." "The concept of other valuable articles' may evolve with the arrival in the market of articles, which can be treated as other valuable articles on satisfying the other tests. 6.10 The above cited judicial decisions of the Hon'ble Apex Court goes on to prove that even the fixed deposit receipts found during the course of search cannot partake the character of any money, bullion, jewellery or valuable article. In the case of the Appellant what the search team found is only loose sheets. Obviously, such evidence will not have the character of money, bullion, jewellery or valuable article as envisaged in the provisions of section 69A of the Act. 6.11 In view of the above decision of the Hon'ble Apex Court, the undersigned is of the considered view that since nothing in the form of any money, bullion, jewellery or valuable article were found during the course of search, there can be no case to treat the evidence found about the repayment of the alleged loan will fetch the character of unexplained money as provided under section 69A of the Act. In view of this the undersigned is not inclined to accept the observati....
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....unachalam Srinivasan, since the Department has preferred further appeal against the Tribunal order. 9. The ld. DR further submitted that the CIT(A) failed to consider the observations of the Assessing Officer that the receipts and payments have been recorded on day-to-day basis in the seized material meticulously, the day-wise/page-wise total was also found therein and the incriminating material seized from Shri G.N. Anbuchezhian satisfies the meaning of books of account as per the provisions of section 34 of the Evidence Act, 1872, as the Hon'ble Supreme Court in the case of Chuharmal v. CIT (1988) 38 Taxmann 190 (SC) was pleased to held that whenever a need arises, the tax authorities can invoke the provisions of the Evidence Act. He vehemently argued that the material having been found from the premises of a third party and not having entries in the handwriting of the assessee could not be used to draw adverse inference in the case of the assessee is erroneous as section 132(4A) r.w.s. 292C of the Act provides for a presumption that the contents of documents found during the course of search are true and though such presumption is rebuttable, the onus is on the assessee to fu....
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....e have considered the rival contentions and perused the material available on record. Admittedly, there was no search conducted under section 132 of the Act in the case of the assessee. But, however, in the assessment order, the Assessing Officer made addition in the hands of the assessee towards alleged various cash transactions being cash loan and its repayment of Rs..92,50,000/- to Shri G.N. Anbuchezhian based on the materials seized during the course of search conducted under section under section 132 of the Act in the case of third party viz., Shri G.N. Anbuchezhian & others on 05.02.2020 by relying upon loose sheets seized vide annexure No. ANN/KM/GNA-YOG/LS/S-56 & 65 from the premises of Shri G.N. Anbuchezhian, wherein, there is a mention of receipt of Rs..92,50,000/- from the assessee. 14. Now, the first point at issue is with regard to the assumption of jurisdiction of the Assessing Officer without recording independent satisfaction for the year under consideration. On perusal of the consolidated satisfaction note of the Assessing Officer, we find no description of the seized documents/assets, etc. without establishing any bearing on the assessee is brought on record. T....
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....tta Knitwears [(2014) 362 ITR 373 (SC)] have emphasized that the Assessing Officer must demonstrate a live and direct nexus between the seized material and the relevant assessment year in respect of the "other person," which cannot be presumed in the absence of year-specific satisfaction. 16. Further, on perusal of case law, placed at page 1 of the paper book-1 filed by the ld. Counsel for the assessee, in the case of DCIT v. Sunil Kumar Sharma (supra) at para 53 of the decision, the Hon'ble High Court of Karnataka has held as under: 53. Further, satisfaction note is required to be recorded under section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for seeking intervention as sought for by the appellant/ Revenue. On further appeal by the Department against the decision of the Hon'ble High of Karnataka in SLP (Civil) Diary No(s). 23406 of 2024, the Hon'ble Supreme Court dismissed the same as reported in 469 ITR 271 (S....