TaxTMI 
TaxTMI 
2024 (5) TMI 1677
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....reinafter "the Act") in order to frame Assessment Order u/s. 153C r.w.s.153A of the Act. The grounds of appeal raised by the Revenue are as under: 2. The Ld. CIT(A) erred in observing that the AO had passed the order u/s.153C without any valid satisfaction note and made addition without relying upon any incriminating material as mandated in the provision of Sec. 153C of the Act. 2.1 The CIT(A) erred in failing to appreciate that as per the provisions of Sec.153C w.e.f 01/04/2017, once the materials seized in the case of searched person have bearing on the determination of total income of other person, the issuance of notice for all six assessment years preceding the previous year in which search was conducted is mandatory. The Assessing officer had no option to choose any one of the assessment year based on the information in the seized material and issue notice for such assessment year only. He had to issue notice u/s.153C mandatorily for 6 assessment years. 2.2 The Ld. CIT(A) failed to appreciate that the satisfaction derived from the seized materials referred in the satisfaction note is only prima facie evidence for arriving satisfaction and initiating....
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....ailed the impugned action of the Ld. CIT(A) on the legal issue of jurisdiction of the AO to issue notice u/s.153C of the Act for AY 2014-15, we are inclined to first adjudicate the legal issue because it questions the jurisdiction of Assessing Officer to invoke jurisdiction u/s.153C of the Act and to issue notice u/s.153C of the Act against the assessee for AY 2014-15. It has to be kept in mind that the special provision for proceedings u/s.153C of the Act is an off-shoot of section 153A of the Act which gets triggered only when search u/s.132 of the Act is carried out by the department against an assessee. So, in order to adjudicate the legal issue let us examine both the provisions (Section 153A & 153C), as it stood on the date of search 15.02.2018 on Dhanalakshmi Srinivasan Charitable & Educational Trust. It is to be taken note that even though we are at present considering the appeal for A.Y. 2014-15, nevertheless, since the search happened at M/s. Dhanalakshmi Srinivasan Charitable & Educational Trust on 15.02.2018 and the amendment made by Parliament as per Finance Act 2017 w.e.f. 01.04.2017 in the relevant provisions also applies and needs to be also considered. 7. The re....
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....that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless- (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1.-For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2.-For th....
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....h search is conducted or requisition is made and] for the relevant assessment year or years referred to in sub-section (1) of section-153A: Provided that in case of such other person, the reference to the date of initiation of the search under section-132 or making of requisition under section-132A in the second proviso to sub-section (1) of section-153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made 3[and for the relevant assessment year or years as referred to in sub-section (1) of section-153A] except in cases where any assessment or reassessment has abated. (2) Where books of acco....
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....necessary for assessment in case of search or requisition. As earlier noted, section 153A of the Act is a special provision for assessment of an assessee in case of search or requisition in accordance to section 132 or 132A of the Act after the 31st day of May, 2003; and section 153C of the Act is a special provision for assessment of income of 'any other person' means a third party who is not searched by the department will be assessed u/s. 153A of the Act, provided the AO is satisfied that - a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A. 9. So, from a reading of section 153A of the Act we note that where a search u/s. 132 of the Act or requisition under section 132A of the Act is made after the 31st day of May, 2003, the jurisdictional AO of the searched person gets power to issue notice to the searched person requiring him to furnish within such period as may be specified in the notice, return of ....
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....ch u/s. 132 of the Act) and thereafter prepare the "Satisfaction Note" and then he has to hand over the seized materials, which belongs/pertains/relates to the third party to the AO having jurisdiction over such other person (third party assessee in this case), then only the AO of such other person (third party, the assessee in this case) gets jurisdiction u/s. 153C of the Act to assess the income of other person (third party) as per section 153A of the Act. The rationale behind this exercise discussed (supra) will be explained (infra). And since it is a special provision against an assessee who has not been searched by the department, the safe-guard stipulated by the provisions contained in section 153A & 153C has to be scrupulously followed. 10. According to us, the aforesaid exercise which has been discussed has to be carried out by the AO of the searched person and the condition precedent as discussed are sine qua non before the AO of the other person (third party) gets jurisdiction u/s. 153C of the Act to issue notice u/s. 153C of the Act to the third party. However, it has to be taken note that an additional requirement/satisfaction of AO has been brought in Finance Act, 2....
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....al provision for persons who are subjected to search u/s. 132 of the Act, would be triggered only against the searched party u/s. 153A of the Act and if any valuables of a third party is found in the searched premises which belongs or books/documents pertain/relate to a third party is found, then third party's assessment for six years and for relevant AY's would be subject to assessment/re-assessment as per section 153C of the Act, so the safeguards prescribed by the statute has to be scrupulously followed. Therefore, it has to be kept in mind that satisfaction of AO before proceeding against a person like assessee which has not been searched cannot be done in a casual manner. The satisfaction of Assessing Officer should be based upon cogent material. The reason for it is that section 132(4A)(i) of the Act clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search, it may be presumed that such document belongs to such person (the searched person). The presumption as to asset, books of accounts, etc. is governed by section 292C(1)(i) of the Act belong or belongs to the person from whom said assets/documents were....
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....er, on the date of search, assessment years are not pending before the AO [i.e. in case where the searched assessee's assessments are completed u/s. 143(3) or 148 or 153A/153C of the Act or if the mandatory scrutiny assessment notices u/s. 143(2) of the Act has become time barred], then those assessment years to be treated as un-abated assessment and by virtue of second proviso to section 153A(1) of the Act, assessment u/s. 153A or 153C has to be essentially based on the documents unearthed during the course of search and seizure operations. Then, the assessment under section 153A and under section 153C of the Act can be made only by considering the incriminating material found/unearthed during search. For this proposition we rely on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla in ITA 707/2014 dated 28.08.2015 wherein it has held as under: "Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the A....
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....the course of original assessment." 14. And it is noted that the department preferred an S.L.P against the aforesaid order, which has been dismissed by the Hon'ble Supreme Court. And the ratio of the decision has been upheld by the Hon'ble Supreme Court recently in the case of M/s. Abhishar Buildwell. And, when it comes to assessment of third party u/s. 153C of the Act [like assessee in this case], the concept of unabated /abated assessment are mutatis mutandis. However, only difference is when the assessment/reassessment has to be made invoking section 153C of the Act, then even though assessment /reassessment has to be carried out u/s. 153A of the Act, however, by virtue of the first proviso to section 153C by operation of law reference to the date of initiation of the search u/s. 132 of the Act or making of requisition u/s. 132A of the Act in the second proviso to sub-section (1) of section 153A shall be considered as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the AO having jurisdiction over such other person. For this, we rely on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. RRJ Securities L....
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....os thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the....
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...." 15. So as noted in this case before us, the date of 'satisfaction note' prepared by the AO u/s 153C of the Act is not dated (but since notice u/s.153C was first issued on 27.08.2019, it is presumed to be date of receipt of satisfaction, and even though the search has been conducted in respect of Charitable Trust (searched person) on 15.02.2018 (AY 2018-19) by virtue of first proviso to section 153C of the Act, the satisfaction note the AO has recorded for satisfying himself that "the other persons" (third party i.e. the assessee in this case) assets/documents belongs/pertains to the other persons (third party) was made on 27.08.2019 (AY 2020-21) and this date has to be reckoned for the purpose of assessment u/s. 153A for determining the total income for six assessment years preceding the AY 2020-21. In this assessment year i.e. AY 2014-15 it is undisputed that this assessment year was not pending before the AO on the date when the satisfaction note was prepared by the Assessing Officer i.e. 27.08.2019, then the assessment year i.e. AY 2014- 15 needs to be treated as non-abated / non-pending assessment and then any addition/disallowance u/s.153C read with sec. 153A/143(3) of th....
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....int of time and has been introduced with effect from 1st June, 2015. He however contended that Karnataka High Court is of the opinion that even without these expressions 'incriminating material' was the sine qua non for exercise of power under section 153C read with section 153A. 5. He relied upon the following views expressed in paragraph 50 of the judgment in the case of CIT v. IBC Knowledge Park (P.) Ltd. [2016] 69 taxmann.com 108 (Kar.):- "Materials such as books of account, documents or valuable assets found during a search should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said third party. Thu....
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....idences for an amount of Rs. 7,50,000/- 2. Loose sheets were seized vide annexure ANN/SM/DS/LS/S-1 dated 15.02.2018. The loose sheet contents the P&L statement of M/s. Dhanalakshmi Srinivasan Chit Funds P Lid for F. Y 2015-16 and 2016-17. On verification of return salary was not offered for taxation. I am satisfied that the seized material of books and documents vide Annexure ANN/SM/DS/LS/S-1 dated 15.02.2018 has bearing in determining true and correct income of the assessee. In view of the above, notice u/s. 153C r.w.s 153A of the Income Tax Act, 1961 has to be issued." and further the AO at Col.8 of the satisfaction note has described the assessment years involved to be AY 2012-13 to 2018-19. 17. It has to be kept in mind that when the challenge is to the validity of the satisfaction note which the AO has recorded to assume jurisdiction, we have to examine the satisfaction recorded as it is. There are case laws which throws light in the context of examining the legal validity of Satisfaction recorded by the AO while re-opening the assessment u/s. 147 of the Act. It is settled law that reasons as recorded for reopening the reassessment are to....
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....ed below with the help of chart, which will give clarity as to whether there was any incriminating material seized during search in Charitable Trust against the assessee qua the AY 2014-15. 19. We will discuss each document seized during search which according to AO is incriminating against the Assessee qua AY 2014-15. And against each such document, we will give our finding of fact whether these documents can be termed as incriminating material against the Assessee qua AY 2014-15. Sl. No. Document Seized Our finding of fact on the assessee's explanation in respect of the document seized 1. Cash amounting to Rs.9,09,300/- found in the residential premise of Shri Srinivasan Rs. 9,09,300/- was found and seized from the residential premise of the assessee during search on 05.11.2019 which relates to AY 2020-21 and therefore, not relevant for assessment of AY 2014-15, and therefore cannot be termed as 'incriminating qua assessee qua AY 2014-15 2 Loosesheets marked as Annexure ANN/SM/DS/LS/S-1 dated 15.02.2018 We note that the AO himself admits in Satisaction Note itself that contents of this loose-sheet are P&L A/c statement of M/s. Dhanalakshmi Srinivasan....
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....annot be upheld and such stand of the revenue cannot be accepted. The reasons, therefore are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by ....
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....ote of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. 19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy." (Emphasis supplied) 22. In the light of the binding 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 2014-15 does not satisfy ....