AI Insights
This case involves a series of appeals related to the assessments made under Section 153C of the Income Tax Act, 1961, following a search operation. The search, conducted on 26.8.2008, led to the seizure of documents from premises associated with M/s. Olivia Apparels Pvt. Ltd., which were later used to initiate proceedings under Section 153C. The primary legal contention revolved around the validity of the assessments made under this section, particularly concerning the lack of recorded satisfaction by the Assessing Officer that the seized documents pertained to undisclosed income of a person other than the searched individual. The CIT (Appeals) had partially granted relief to the assessee, which led to cross appeals by both the assessee and the revenue.
Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 115197 (ITAT-NA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-06-2016
Appeal Filed By
Assessee
Order Result
AllowedDismissed
Bench Allotted
Bangalore
Next Hearing Date
07-02-2023
Assessment Year
2005-2006
Appeal Filed On
13-08-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘ B ’ BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I.T. A. Nos.1251 to 1253/Bang/2013 (Assessment Years : 2005-06 to 2007-08) M/s. Olivia Apparels Pvt. Ltd., 208, West Minister 13, Cunningham Road, Bangalore-560 052. .... Appellant. PAN AAACO 4522F Vs. Dy. Commissioner of Income Tax, Central Circle 2(3), Bangalore. ..... Respondent. I.T. A. Nos.1211 & 1212/Bang/2013 (Assessment Years : 2005-06 & 2006-07) (By Revenue) Assessee By : Shri S. Venkatesan, C.A. Respondent By : Shri S.R. Karuppusamy, JCIT (D.R) Date of Hearing : 30.05.2016. Date of Pronouncement : 24.6.2016. O R D E R Per Bench : These are two sets of cross appeals for the Assessment Years 2005- 06 and 2006-07 and an appeal by the assessee for the Assessment Year 2 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 2007-08 directed against the composite order dt.4.4.2013 of the Commissioner of Income Tax (Appeals), Mysore. 2. There was a search under Section 132 of the Income Tax Act, 1961 (in short 'the Act') in the case of M Krishna and Others on 26.8.2008. During the course of search, certain documents were seized from the premises at 208, West Minister, 13, Cunningham Road, Bangalore. It was noticed by the Assessing Officer that certain documents belonging to the assessee M/s. Oliva Apparels Pvt. Ltd. are found. Accordingly, the Assessing Officer issued a notice under Section 153C of the Act on 25.4.2010. In response to the notice under Section 153C of the Act, the assessee filed return and declared respective incomes. While completing the assessment under Section 143(3) rws 153C of the Act, the Assessing Officer made the addition on account of bad debts written off, unexplained expenses on improvement of property and undisclosed capital gains. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) and also raised a ground of validity of assessment framed under Section 153C of the Act. The CIT (Appeals) rejected the ground raised against the validity of assessment framed 3 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 under Section 153C of the Act however, part relief was granted by the CIT (Appeals) in respect of the bad debts written off as well as the addition made on account of unexplained investment. Thus both the assessee as well as revenue are aggrieved by the impugned order of the CIT (Appeals) and filed the respective appeals though the revenue has filed the appeals only in respect of Assessment Years 2005-06 and 2006- 07. Common grounds have been raised by the assessee as well as revenue. We take the appeal for assessment year 2005-06 as a lead case for the purpose of reproducing the grounds as well as relevant facts. The grounds raised by the assessee as well as revenue are as under : Assessee's Grounds of Appeal : 1. “ The learned CIT[A] has seriously erred in law and failed to appreciate that the order passed by the learned A.O. in so far as it is against the appellant is opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case and consequently, the learned CIT[A] ought to have annulled the assessment as bad in law and void-ab-intio. 2. The learned CIT[A] failed to appreciate that the appellant who was in the lawful occupation of the premises searched and searching the premises and seizing the records of the appellant found during the course of such search qua of the appellant was patently illegal and consequently, invocation of the provisions of either section 153A or 153C of the Act is bad in law and consequential issuance of 4 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 notice, assessment and sustaining the assessment made by invoking section 153C by the learned CIT[A] are bad in law having regard to the ratio of the decision of the Hon'ble Supreme Court in the case of GKN DRIVESHAFT reported in 259 ITR 19 and consequently, the assessment requires to be annulled. 3. Without prejudice to the above, the assessment was bad in law as the mandatory conditions otherwise to invoke jurisdiction u/s.153C of the Act, did not exist in as much as, search was in the premises which was in the occupation of the appellant itself and not of any other third person and the records found and seized prima facie records belonging to the appellant was illegal and could not or could never believe as belonging to the person searched and later the learned A.O. was satisfied as belonging to the appellant to invoke jurisdiction u/s.153C of the Act and at any rate the basic requisite of exhibiting satisfaction have not been complied with and consequently, the assessment made was bad in law for want of requisite jurisdiction and therefore, the same required to have been annulled. 4. Without prejudice to the above, the assessment was bad in law as reasons for issue of notice u/s.153C of the Act have not been given and the appellant has had reasons to believe that the same has not been recorded at all and consequently, the assessment was bad in law, as mandatory conditions to assume jurisdiction was to record reasons and in the absence of the same the assessment was bad in law and liable to be cancelled by the learned CIT[A]. 5. The learned CIT[A] has erred in holding that the legal grounds raised did not stand any merit in view of the provisions of section 292BB and section 292B of the Act, as patently illegal searches and want of jurisdiction issues are not saved by the provisions of section 292BB and 292B of the Act. 6. Without prejudice to the above, the learned CIT[A] is not justified in sustaining a sum of Rs.10,00,0001- from out of the addition of 5 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 Rs.54,17,542/- made by the learned A.O. under the facts and in the circumstances of the appellant's case. 7. The learned CIT[A] has grossly erred while deleting the addition made under the head capital gains in giving certain directions that a portion of the capital gains as assessable for the assessment years 2003-04 and 2004-05 and that too in so far as the assessment year 2004-05 is concerned, as short term capital gains under the facts and in the circumstances of the case, as such power to give direction was beyond his jurisdiction and further, the provisions of section 153C of the Act, could not contemplate giving any such directions and consequently, the addition made on this count alongwith the capital gains as computed by the appellant and offered to tax also requires to be deleted consistent with the finding and direction of the learned CIT[A]. 8. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” Revenue’s Grounds of Appeal. “ Ground No.1 Whether on the facts and circumstances of the case, the learned CIT (Appeals) is correct in law and in facts by deleting the addition of Rs.30,34,124 made by the Assessing Officer towards bad 6 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 debts written off even though the assessee had not satisfied the provisions of sub-section (2) of section 36 of the Income Tax Act ? Ground No.2 : Whether on the facts and circumstances of the case, the learned CIT (Appeals) is correct in law and in facts by deleting the addition of Rs.30,34,124 without appreciating that the assessee had not furnished any details in this regard before the Assessing Officer during the scrutiny proceedings and without calling for a remand report on the submissions made by the assessee before the learned CIT (Appeals) and hence, it is prayed to set aside the issue to the file of the Assessing Officer for fresh adjudication. Ground No.3 : Whether on the facts and circumstances of the case, the learned CIT (Appeals) is correct in law and in facts by deleting the addition of Rs.44,17,542 made by the Assessing Officer towards unexplained investment. Ground No.4 : Whether on the facts and circumstances of the case, the learned CIT (Appeals) is correct in law and in facts by deleting the addition of Rs.44,17,542 without appreciating that the assessee had not furnished any details in this regard before the Assessing Officer during the scrutiny proceedings and without calling for a remand report on the submissions made by the assessee before the learned CIT (Appeals) and hence, it is prayed to set aside the issue to the file of the Assessing Officer for verification of the expenditure claimed by the assessee. Ground No.5 : Whether on the facts and circumstances of the case, the learned CIT (Appeals) is correct in law and in facts in giving directions to the Assessing Officer without giving opportunity to the Assessing Officer in respect of the Joint Development Agreement entered by the assessee for calculation of long term capital gains and short term capital gains for the Assessment Years 2003-04, 2004-05 and 2005-06 ? Ground No.6 : The appellant craves to add, delete or alter any of the grounds at the time of hearing on any other ground.” 7 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 Since the assessee has raised a legal issue regarding validity of assessment under Section 153C of the Act on the ground that the Assessing Officer has not recorded the mandatory satisfaction before initiating the proceedings under Section 153C of the Act . As this issue goes to the root of the matter therefore we will first take up this issue of validity of assessment framed under Section 153C of the Act. 3. Before us, the learned Authorised Representative of the assessee submitted that it is a mandatory condition of recording the satisfaction by the Assessing Officer that undisclosed income of the third party is detected from the material or the document seized during the search. The learned Authorised Representative has contended that recording of the reason in writing is sine qua non and the Assessing Officer has to record his satisfaction that undisclosed income is demonstrated by the material seized and belong to other than the searched person for initiating the proceedings under Section 153C of the Act. The learned Authorised Representative has pointed out that the assessee raised this issue before the CIT (Appeals) however, the CIT (Appeals) has rejected the ground of the assessee by recording the reason that the assessee did 8 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 not raise this ground before the Assessing Officer. In support of his contention, he has relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 (SC) as well as the decision of Hon’ble Allahabad High Court in the case of CIT Vs. Gopi Apartment (2014) 270 CTR (All) 447. He has also relied upon the decision of the Hon'ble jurisdictional High Court dt.28.4.2016 in the case of CIT Vs. IBC Knowledge Park Pvt. Ltd. 69 Taxman.com 108 (Kar). Thus the learned Authorised Representative has submitted that in the absence of any incriminating material found during the search operations the assessment made under Section 153C was without jurisdiction as the Assessing Officer has not recorded the mandatory satisfaction and therefore the impugned assessment passed under Section 153C is not valid and liable to be quashed. 4. Per contra, The learned Departmental Representative has submitted that the Assessing Officer has duly recorded the satisfaction vide satisfaction note dt.24.5.2010. He has filed a copy of satisfaction note for initiating the proceedings under Section 153C of the Act. Thus the ld. DR has submitted that when the Assessing Officer has recorded the 9 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 satisfaction before initiating the proceedings then the requirement of recording the satisfaction is satisfied. He has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as the relevant material on record. There is no quarrel as far as the requirement of recording the satisfaction by the Assessing Officer before initiating the proceedings under Section 153C of the Act that any valuable asset or books of accounts or documents seized or requisitioned during the search and seizure action under Section 132 pertains to or relate to a person other than the searched person and demonstrate that undisclosed income belonging to the said person other than search person. The assessee raised this issue before the CIT (Appeals) and the CIT (Appeals) rejected this ground of the assessee in brief under paras 4.2 to 4.4 as under : “4.2 At no point of time, the appellant raised any issue of jurisdiction under Section 153C nor recording of reasons not being furnished to the appellant. From the narration in the assessment order, it is clear that the Assessing Officer has followed the due procedure of law while invoking the provisions u/s.153C. 4.3 I have verified the record of the Assessing Officer. The Assessing Officer has clearly recorded his satisfaction with valid reasons while taking action under Section 153C. Hence, the case laws cited by the appellant in fact supports the action of the Assessing Officer. 10 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 4.4 The legal grounds raised, also do not stand any merit in view of provisions under Section 292 BB and Section 292 B. Accordingly these grounds are dismissed.” Thus from the finding of the CIT (Appeals), it is not clear how the Assessing Officer has complied with the mandatory conditions of recording the satisfaction. Further it is also not clear whether the Assessing Officer has recorded the alleged satisfaction during the assessment proceedings of searched person or subsequent to the completion of the assessment of the searched person. The learned D.R. has filed a copy of the satisfction note dt.24.5.2010 which reads as under : “ Satisfaction Note for initiating action u/s.153C Name of the Assessee : M/s. Olivia Apparels Pvt. Ltd. 208, West Minister Complex, 13, Cunningham Road, Bangalore. Assessment Year : 2005-06. P.A.No. : AAACO4522E 24.05.2010 : Action under Section 132 was conducted in the case of Sri M. Krishna Family and Group on 26.8.2008 based on the authorization issued by the DIT (Inv), Bangalore vide Warrant No.2167 in the name of M/s. Ind-Singh Developers P Ltd. Dt.25.8.2008. During the course of search in the case of M/s. Ind-Singh Developers P. Ltd., the following books / documents were found and seized : 11 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 Exhibit I.D. Page Nos. A2/ISD/2 84-90 A/RLK/DCK/08-09/1 41 A/RLK/DCK/08-09/2 338-358 On security of the above documents seized it is seen that the above materials belongs to M/s. Oliviya Apparels Pvt. Ltd. I am satisfied that action u/s.153C has to be initiated in the case of M/s. Oliviya Apparels Pvt. Ltd. for the A.Y. 2005-06. Hence issue notice under Section 153C of I.T. Act, 1961. Sd/- DCIT CC 2(3), Bangalore.” As it is apparent from the finding of the CIT (Appeals) that no discussion has been recorded regarding the stage of the recording of the alleged satisfaction whether it was recorded in the assessment proceedings of searched person or in the record of the assessee. It appears that the satisfaction is recorded in the assessee's own assessment record therefore, it becomes mandatory to verify the fact whether any satisfaction was recorded by the Assessing Officer having jurisdiction over the searched person. As far as the requirement of the recording of the satisfaction, the same is sine qua non as held by the Hon'ble Supreme Court as well as Hon'ble jurisdictional High Court in the cases relied upon by the assessee as under : 12 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 a) CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 (SC) b) CIT Vs. Gopi Apartment (2014) 270 CTR (All) 447. c) CIT Vs. IBC Knowledge Park Pvt. Ltd. 69 Taxman.com 108 (Kar). Thus in the absence of the relevant facts available on record before us it is not possible to decide this issue conclusively. Accordingly, in the facts and circumstances of the case, we set aside this issue to the record of the CIT (Appeals) for re-adjudication of the same by a speaking order and after considering the judgment of the Hon'ble Supreme Court as well as Hon'ble High Courts as relied upon by the assessee. 6. Since the issue of validity of proceedings under Section 153C of the Act goes to the root of the matter of assessment framed under Section 153C of the Act has been set aside to the record of the CIT (Appeals), we do not propose to go into the other issues raised by the assessee as well as the department on merits which are kept open. 13 ITA Nos.1211, 1212 & 1251 to 1253/Bang/2013 7. In the result, all appeals filed by the assessee as well as revenue are allowed for statistical purpose. Order pronounced in the open court on the 24th day of June, 2016. Sd/- (INTURI RAMA RAO) Accountant Member Sd/- (VIJAY PAL RAO) Judicial Member *Reddy gp Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File. By Order Asst. Registrar, ITAT, Bangalore
Mehul