Asst.C.I.T., Mangalore V. Dr. Ali Kumble, Mangalore

ITA 1376/BANG/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5393 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 16-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SIDDAPPAJI
• Assessee Lawyers: V SRINIVASAN
• Keywords: Capital asset; Gift; Revision of order; Depreciation; Search and seizure; Document seized; Question of law; Cost of acquisition; Block assessment; Reason to believe; Documents seized; Unabsorbed depreciation
• Section: 153A; 139(5); 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH : MANGALORE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SUDANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NOS.1376 & 1377/BANG/2015 ASSESSMENT YEARS : 2009-10 & 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, MANGALURU. VS. DR. ALI KUMBLE, NO.4, WATER WOODS, SATHYAJIT NAGAR, KADRI KAIBATTAL, MANGALORE. PAN: ACAPA 5798F APPELLANT RESPONDENT ITA NOS.1378 & 1379/BANG/2015 ASSESSMENT YEARS : 2009-10 & 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, MANGALURU. VS. DR. YUSUF KUMBLE, NO.703, WEST WIND, NEAR DC BUNGALOW, COLLECTORS GATE, MANGALORE. PAN: AFHPA 0556M APPELLANT RESPONDENT REVENUE BY : SHRI R.S. SIDDAPPAJI, ADDL. CIT(DR) ASSESSEE BY : SHRI V. SRINIVASAN, ADVOCATE DATE OF HEARING : 02.02.2017 DATE OF PRONOUNCEMENT : 03.05.2017 ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 2 OF 35 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THESE APPEALS FILED BY THE REVENUE AGAINST THE DIF FERENT ORDERS OF THE CIT(APPEALS), PANAJI-2 DATED 28.07.2015 FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 IN RESPECT OF TWO ASSESSES. SINC E COMMON ISSUE IS INVOLVED IN THESE APPEALS, WE PROCEED TO DISPOSE OF THE SAME BY THIS CONSOLIDATED ORDER. 2. FOR THE SAKE OF CLARITY AND CONVENIENCE, THE FAC TS RELEVANT TO AY 2009-10 IN THE CASE OF DR.YUSUF KUMBLE IN ITA NO.13 78/BANG/2015 ARE STATED HEREIN. THE REVENUE RAISED THE FOLLOWING GR OUNDS:- 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE CIT(A) OUGHT TO HAVE UPHELD THE DECISION O F THE ASSESSING OFFICER OF TAXING THE CAPITAL GAIN ARISIN G ON THE TRANSFER OF LAND OF 1.50 ACRES CONSEQUENT UPON THE CONVERSIO N OF THE FIRM M/S MEDICITY HOSPITAL AND RESEARCH CENTRE INTO THE COMP ANY M/S MANGALORE INDIANA HOSPITAL PVT. LTD., IN THE HANDS OF THE ASSESSEE. 3. THE LEARNED CIT(A) HAS ERRED IN CONCURRING WIT H THE ASSESSEE THAT THE LAND WAS TRANSFERRED AT COST TO T HE FIRM AND THE SUBSEQUENT REVALUATION OF THE LAND AND CONVERSION O F THE FIRM INTO COMPANY WERE EFFECTED WITHIN THE LEGAL FRAMEWORK AN D THEREFORE THERE IS NO INCIDENCE OF CAPITAL GAIN IN THE HANDS OF THE ASSESSEE. 4. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT T HE CREATION OF THE FIRM AND ITS CONVERSION INTO THE COMPANY WAS A LEGAL REQUIREMENT AND THERE IS NO INFIRMITY IN THE SAME A ND THAT THE LAND WAS INTRODUCED AT COST, AS CAPITAL INTO THE FI RM AND AS IT WAS NOT SOLD AFTER REVALUATION AND THE DOCTOR BROTHERS HAD NOT RECEIVED ANY CONSIDERATION, CAPITAL GAIN DOES NOT A RISE. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 3 OF 35 5. THE LAND OF 0.64 ACRE HAS BEEN INTRODUCED AS C APITAL INTO THE FIRM AT RS.4.48 CRORES AS IS APPARENT FROM AVAI LABLE DOCUMENTS WHICH THE LEARNED CIT(A) HAS FAILED TO OB SERVE. 5. THE INCREASE IN THE VALUE OF 1.50 ACRES OF LAN D AFTER REVALUATION IN THE BOOKS OF THE FIRM HAS BEEN CREDI TED ONLY TO THE CAPITAL ACCOUNTS OF DR.ALI KUMBLE AND DR.YUSUF KUMB LE AND NOT TO THE CAPITAL ACCOUNTS OF OTHER PARTNERS ON THE BA SIS OF THEIR SHARE IN THE PARTNERSHIP. THIS IS AN INCONSISTENCY WHICH THE LEARNED CIT(A) HAS FAILED TO OBSERVE. 7. THE ASSESSEE AND HIS BROTHER DR.ALI KUMBLE HAVE RECEIVED AN ADVANCE OF RS.1 CRORE APART FROM SHARES WORTH RS .12 CRORES AS CONSIDERATION FOR THE LAND VALUED AT RS.13 CRORES, ON CONVERSION OF THE FIRM M/S MEDICITY HOSPITAL AND RESEARCH CENTRE INTO THE COMPANY M/S MANGALORE INDIANA HOSPITAL PVT. LTD. IN VIOLATION OF CLAUSE (C) OF SECTION 47(XIII) OF THE INCOME TAX ACT,1961 WHICH INFRACTION THE LEARNED CIT(A) HAS FAILED TO TAKE CO GNIZANCE. 8. THE PARTNERSHIP DEED HAS BEEN AMENDED 4 TIMES D URING 2009 AND THE DATES OF THE STAMP PAPERS ON WHICH THE VARIOUS DEEDS HAVE BEEN EXECUTED AND THE DATES OF REGISTRAT ION ARE NOT IN CONFORMITY WITH THE CHRONOLOGICAL SEQUENCE OF THE D EEDS AND THE SUPPLEMENTAL ADDENDUM TO PARTNERSHIP DEED DATED 02. 04.2009 BY WAY OF RECTIFICATION OF APPARENT ERRORS IS MADE ON 23.03.2010 WHICH IS AFTER THE CONVERSION OF THE FIRM INTO THE COMPANY M/S MANGALORE INDIANA HOSPITAL PVT. LTD. AND THEREFORE INDICATE 'MENS REA' AND SUBTERFUGE ON THE PART OF THE ASSESS EE AND THAT THE FIRM M/S MEDICITY HOSPITAL AND RESEARCH CENTRE IS A 'COLOURA BLE DEVICE' THAT WAS CREATED TO EVADE TAX AND CONSEQUEN TLY, THERE WOULD BE INCIDENCE OF CAPITAL GAINS IN THE HANDS OF THE ASSESSEE WHICH FACT THE LEARNED CIT(A) HAS FAILED TO OBSERVE . 9. THE LEARNED CIT(A) HAS ERRED IN CONCURRING WITH THE ASSESSEE THAT THE TRANSFER OF LAND TO THE COMPANY H AS BEEN DONE WITHIN THE LEGAL FRAME WORK NOTWITHSTANDING THE AFO RE CITED BLATANT INFRINGEMENT OF LEGAL TECHNICALITIES. 10. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE TH AT THE LEGISLATIVE INTENT OF SECTION 47(XIII) IS TO ENCOUR AGE BUSINESS REORGANIZATIONS TO CONTINUE THE BUSINESS OF THE FIR MS BY ALLOWING THE ADVANTAGE OF CARRYING FORWARD LOSSES AND UNABSO RBED ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 4 OF 35 DEPRECIATION ON CONVERSION OF FIRM INTO COMPANY AND NOT TO FUNCTION MERELY AS DEVICES TO SECURE A TAX ADVANTAG E. 11. FOR THESE AND SUCH OTHER GROUNDS IT IS URGED T HAT THE ORDER OF THE LEARNED CIT(A), ON THE ABOVE POINTS MAY BE S ET ASIDE AND THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 12. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF THE HEARING OF THE APPEAL. 3. THE FACTS IN BRIEF ARE THAT THE RESPONDENT-ASSES SEE IS AN INDIVIDUAL DERIVING INCOME FROM PROFESSION AS A MEDICAL DOCTOR . THE RETURN OF INCOME FOR AY 2009-10 & 2010-11 WAS FILED AND PROCESSED U/ S. 143(1) OF THE INCOME TAX ACT, 1961 [THE ACT]. SUBSEQUENTLY, TH ERE WAS SEARCH & SEIZURE OPERATION CONDUCTED IN THE RESIDENTIAL PREM ISES OF RESPONDENT- ASSESSEE ON 23.11.2011. DURING THE COURSE OF SEARC H OPERATIONS, THE INVESTIGATING WING OF THE DEPARTMENT FOUND CERTAIN MATERIAL ALLEGED TO BE INCRIMINATING MATERIAL IN THE FORM OF MINUTES OF TH E BOARD MEETING WHICH ARE EXTRACTED BELOW:- 9. EVIDENCE FROM THE SEIZED MATERIAL: 9.1. IT IS EVIDENT FROM THE SEIZED MATERIALS THAT THE ASSESSEE HAS CONSPICUOUSLY PLANNED THE PROGRAMME TO AVOID THE CA PITAL GAIN TAX ON THE LAND ACQUIRED FOR THE HOSPITAL PROJECT W ITH THE HELP OF ONE SRI. VENUGOPAL, WHO IS A PROFESSIONAL IN THIS M ATTERS. IT IS SEEN FROM THE SEIZED MATERIALS THAT THE ASSESSEE HA S TAKEN ADVICE FROM SRI. VENUGOPAL FREQUENTLY ON THE MATTERS OF IN COME TAX AND FOLLOWED HIS INSTRUCTIONS RELIGIOUSLY. ACCORDING TO THAT THE ASSESSEE HAS TAILOR MADE HIS PROGRAM THREAD BY THRE AD AND EXECUTED IT BY FORMING A FIRM ONLY IN THE PAPER AND ACQUIRED THE REQUIRED LAND AND REVALUED IT STEP BY STEP TO THE A CTUAL COST. IT IS EVIDENT FROM THE STATEMENT MENTIONED IN THE MINUTES OF MEETING ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 5 OF 35 HELD ON 21.03.2008 (THE PROJECT IS OF RS. 50 CRORE APPROXIMATELY OF WHICH THE LAND VALUE ITSELF IS ABO UT RS.12 CRORE) THAT THE ACTUAL LAND COST IS APPROXIMATELY RS. 12 CRORE 9.2. THE SEIZED MATERIAL INVENTORISED AS IHHIL/12 DATED 23.11.2011 CONTAINS COPY OF PROCEEDINGS OF THE MEET ING HELD AT ALIF INSTITUTE OF MEDICAL SCIENCES PVT. LTD., (WHIC H IS RENAMED AS INDIANA HOSPITAL & HEART INSTITUTE LTD.) ON 19.12.2 007, MINUTES OF BOARD MEETINGS OF ALIF INSTITUTE OF MEDI CAL SCIENCES PVT. LTD. HELD ON 08.02.2008, 15.03.2008 AND 21 ST MARCH, 2008. 9.3. GIVEN BELOW THE EXTRACT FROM THE PROCEEDINGS H ELD AT ALIF INSTITUTE OF MEDICAL SCIENCE LTD HELD ON 19.12.2007 THAT:- ' ..... THE PARTNERSHIP FIRM TRANSFER TO PRIVATE LI MITED.CO (FOLLOWING IT AND FOR AVOIDING CAPITAL GAIN WITHIN ONE YEAR TO PRIVATE TO PUBLIC 86 CENTS LAND PURCHASE IS ALREADY FIRM'S PRO PERTY AS PER DEED OF PARTNERSHIP. OTHER PROPERTIES TO BE TRANSFERRED TO FIRM CHANGE IN CONSULTATION AS MARCH 1 ST 2008 & BRING IT INTO COMMON STOCK. FINALLY FROM FIRM TO COMPANY FINAL PARTNERSH IP DEED CONSTANT AMENDMENT FRESH DEED BUSINESS FROM JANUARY TO MARCH 31-03-2008 REVALUE THE PARTNER ACCOUNT TO BE CREATED 01-04- 2008 TRANSFER TO PRIVATE LTD. COMPANY BUSINESS OF FIRM PLUS ALL ASSETS & LIABILITIES TO BE TRANSFERRED UNDER SECESSION AGREEMENT. TAKING LOANS FROM ABROAD - ECB GUIDELINES ATTRACTED RS.75 LAKHS SUNDARAM LOAN TO BE SUBSTITUTED PERSONAL LOAN SOURCE / IDENTITY /BUSINESS/ INCOME/ BANKER CERTIFICATE/CHEQ UE NRI A/C. LOAN OR A GIFT CLEARING LOAN SUNDARAM FINANCE ISSUE SHARES TO THE NRI IN RESPECT OF THE LOAN RS.25 LAKHS & ISSUE RECEIPT & TAKE AS SHARE APPLICATION MONEY IMMEDIATELY INCREASE SHARE CAPITAL' THE CO. SHOULD GIVE ADVANCE TO FIRM & FIRM SHOULD GIVE TO PARTNER FIRM SHOULD GIVE A LETTER TO CO. STATING THAT THEY ARE IN THE PROCESS OF ACQUIRING THE LAND INTER IT CAN BE ADJUSTED VALUATI ON REPORT FOR REVALUATION OF PARTNERSHIP FIRM AROUND MARCH,2008. SHARES TRANSFER FORM, FORM NO .7 B, TAKEOVER ALL REGISTER ENTER ALL DETAILS & GET ALL APPLICATION BOARD MEETING FOR 3MONTHS. REGISTER LAND IN COMPANY NAME, (39 CENTS LAND YET TO BE TRANSFERRED FROM INDIVIDUALS FIRM'S NAME) LAND BROU GHT TO COMMON STOCK SECTION 14 OF PARTNERSHIP ACT (86CENTS) ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 6 OF 35 JULY 2007 DEED NOT FILED WITH ANYONE ENOUGH IT FROM 1 IS FILED FOR FIRM. (AII & YUSUF) BROTHER GAVE THE LAND AS GIFT T O THEM AS IT IS AGRICULTURE LAND RS.8 -10 LAKHS PER CENT QUOTES. PROPERTY VALUE HAS GONE UP IN MANGALORE. LAST 24 CENTS OF LAND YET TO COME COI 22-08-2006 WHATEVER LAND IS TO BE BROUGHT WHY NOT BUY IN THE NAME OF THE FIRM. BUY AS PARTNER ON BEHALF OF THE FIRM (WHETHER THEY CAN GO BY PART IX RISKY CLARITY CASE HELD UP) LAND DR PARTNER CR, SUC CESSION OF FIRM BY COMPANY AGREEMENT BETWEEN FIRM & COMPANY AVOIDIN G CAPITAL GAINS TAX 4 TO 5 CONDITION MUST. -ALL ASSETS & LIABILITIES TO BE TRANSFERRED -ALL PARTNERS OF FIRM TO BE SHAREHOLDERS OF THE COMPANY. -PARTNERS SHOULD HOLD 51% OF SHARES CAPITAL FOR AT LEAST 5 YEARS (ONLY 2 ARE THESE ARE OTHER TO BE ADDED) WHETHER OT HER DOCTORS CAN BE BROUGHT IN AS PARTNERS OF THE FIRM YES ALLOWED BUT BEFORE THE AGREEMENT WITH THE COMPANY. 'SUCCESSION OF FIRM BY COMPANY IN THE SAME BUSINESS AS THE FIRM' AGREEMENT WITH A VIEW TO HAVE A SUCCESSION. IN THE PROCESS OF SUCCESSION OF FIRM BY THE COMPANY IMMEDIATELY BEFORE THE SUCCESSION -PARTNER BUSINESS ASSETS & LIABILITIES IN THE COMPANY SAME PROPORTIONATE IN WHICH THEY HAVE CAPITAL ACCOUNT BA LANCE IN THE COMPANY PARTNER OF THE FIRM A/C NOT RECEIVE ANY CONSIDERS OTHERS THAN SHARES IN THE COMPANY. ONLY SHARES CAN BE ALLO TTED TO THE EXTENT OF THEIR CAPITAL CONTRIBUTES. THE AGGREGATE OF THE SHAREHOLDING OF THE PARTNER IN THE COMPANY IS NOT LESS THAN 50% OF THE TOTAL VOTING POWER OUTSIDER ALLOWED UPTO 50%, HELD FOR A PERIOD OF 5 YEARS THAN DATE OF INCORPORATION RS.10 CRORE TO BE PUT IS AT THE OF TRANSFER IT SHOU LD BE IN SAME PROPERTIES 24 CENT TO COME ON JANUARY 15, 2008 (COU RT ORDER AS JAN 7/2008) 31-05-2008 - WHATEVER YOU WANT TO BE WI TH FIRM (VENUGOPAL). REVALUE ASSETS ENHANCE PARTNER CAPITAL 31-03-2008 F INAL BALANCE SHEET TRANSFER ON 01-04-2008. LICENSE FROM MANGALOR E CORPORATION - BUILDING LICENSE - WHETHER IT CAN BE MADE IN NAME ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 7 OF 35 OF THE FIRM AND THEN TRANSFERRED. FIRM SHOULD CARRY ON SAME BUSINESS BEFORE & UPTO 31-03-2008. EXPANSION PROJEC T CAN BE DONE IN NAME OF THE COMPANY, DEED OF AMENDMENT NOT TRANSFER FOR SETTING UP A HOSPITAL WITHIN 2 MONTHS BUSINESS CAN BE CARRIED ON RESOLUTION OF PARTNER CAN PASS A RESOLUTION OF PART NERS IS ENOUGH JAN, FEB, MARCH PARTNER CAN PASS A RESOLUTION THAT FURTHER BUSINESS CAN BE CARRIED OUT IN THE NAME OF COMPANY. BANK ACCOUNT IS ALREADY THERE IN THE FIRM'S NAME, C OMPANY DOES NOT HAVE LAND UPTO MARCH 31, 2008.' 9.4 THE ABOVE EXTRACT FROM THE PROCEEDINGS SHOWS T HE METICULOUS PLANNING OF THE ASSESSEE TO AVOID CAPITA L GAIN BY FORMING A FIRM AND ACQUIRE THE LAND IN ITS NAME AND REVALUE THE LAND IN STEPS AND FINALLY TRANSFER IT TO THE COMPAN Y. 9.5 FURTHER, THE EXTRACTS FROM THE MINUTES OF BOAR D MEETING HELD ON 08.02.2008 IS AS FOLLOWS:- 'DR. YUSUF KUMBLE TOOK THE CHAIR AND CALLED THE MEE TING TO ORDER. THE FOLLOWING POINTS WERE DISCUSSED IN THE MEETING. 1. M/S MEDICITY HOSPITAL AND RESEARCH CENTRE - PARTNERSHIP FIRM HOLDING LAND. IT WILL BE SHORTLY TAKEN OVER BY THE COMPANY. ITS BOOKS ARE TO CLOSE BY END OF FEB 2008 OR MID MARCH 2008. TILL NOW THERE ARE VERY FEW TRANSACTION S IN IT. PURCHASE/SALE OF MEDICINES AND A FEW OTHER TRANSACTIONS SHOULD BE SHOWN FROM 23/03/2007 (DATE OF FORMATION OF PARTNERSHIP) TO 28/02/2008 FOR CLOSING ITS BOOKS. F OR THIS PURPOSE, THE DIRECTORS SHOULD GIVE US A PHOTOCOPY OF THE PARTNERSHIP FIRM'S PASS BOOK TO DATE AND ALSO GIVE A PHOTOCOPY TO VINOD RAO. DR. YUSUF HAS GIVEN NECESSA RY INSTRUCTIONS TO NOUSHAD IN THIS REGARD. 2. THE COMPANY WAS INCORPORATED ON 07/08/2006. IT WILL HAVE TO CLOSE ITS BOOKS ON 31/03/2007 AND PREPARE ITS BA LANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THAT DATE AND HOLD FIRST ANNUAL GENERAL MEETING ON 31/12/2007 AND DO A NNUAL FILING AS EARLY AS POSSIBLE. FOR PREPARING THE ACCO UNTS, THEY NEED TO GIVE A PHOTOCOPY OF THE BANK PASS BOOK OF THE COMPANY TO US AND VINOD RAO (THEIR AUDITOR), VINOD RAO WILL ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 8 OF 35 THEN PREPARE FINAL ACCOUNTS AND DEAL WITH THEIR INC OME TAX RETURN FOR AY 2007-08, WHILE WE WILL USE THE SAME INFORMATION FOR DOING ANNUAL FILING OF THE COMPANY FOR 2006- 07. NECESSARY INSTRUCTIONS WERE GIVEN BY DR. YUSUF TO NOUSHAD IN THIS REGARD. 11 9.6. FROM THE ABOVE, IT IS VERY MUCH EVIDENT THAT THE ASSESSEE AND OTHERS HAVE PRECIOUSLY MADE THE PLANNING THREAD BY THREAD TO AVOID PAYING CAPITAL GAIN TAX TO THE COUNTRY BY FOR MING A PAPER FIRM AND ACQUIRE THE LAND IN ITS NAME AND REVALUED IT TO THE MARKET VALUE STEP BY STEP. 9.7. PARA 3 & 5 FROM THE MINUTES OF BOARD MEETING HELD ON 15.03.2008 IS AS FOLLOWS:- '3. SRI VINOD RAO HAS PREPARED THE DEPOSIT AGREEM ENT FOR EVERY SHAREHOLDER GIVING DEPOSIT TO THE COMPANY . THE DIRECTORS RAISED A POINT THAT ONLY 86 CENTS LAND WAS WITH THE PARTNERSHIP FIRM WHICH WAS INTENDED TO BE TAKEN OVER BY SUCCESSION BY THE COMPANY. THE SUCCESSION AGREEM ENT WOULD BE PREPARED BY SRI. VINOD RAO. ANOTHER 39 CEN TS WERE WITH DR. YUSUF AND DR. AII THOUGH NOR BROUGHT INTO THE FIRM AS YET. FURTHER ABOUT 25 CENTS WAS WITH DR. YUSUF AND HANEEF, BEING JOINTLY HELD BY THEM. ON DR . YUSUF'S QUERY ON HOW TO BRING THIS LAND INTO THE CO MPANY, VINOD RAO SAID THAT AS DISCUSSED WITH SRI. VENUGOPA L, IT WOULD BE ADVISABLE IF ALL THIS LAND IS BROUGHT INTO THE BOOKS OF THE FIRM AND ALL OTHER ADJUSTMENTS SUCH AS BRINGING IN OF HANNEF INTO THE PARTNERSHIP BE MADE BY MARCH 31, 2008, SO AS TO ENABLE SUCCESSION OF THE FIRM BY THE COMPANY AND COMPLIANCE WITH PROVISIONS OF SECTION 47 (XIII) OF THE INCOME TAX ACT, 1961, FOR SAVING CAPITAL GAIN TAX ........... 5. A FEW TRANSACTIONS HAVE TO BE SHOWN BETWEEN M/S MEDICITY HOSPITAL AND DIOGANISTLCS CENTRE & M/S MEDICITY AS ADVISED BY SRI. VENUGOPAL, CONSULTA NT FOR THE COMPANY. THE DIRECTORS HAVE CONFIRMED THAT A FEW TRANSACTIONS OF BUYING AND SELLING OF ABOUT RS.200001- HAVE BEEN MADE BETWEEN THE TWO FIRMS TO THE DATE FOR THI S PURPOSE. SRI. VINOD RAO WAS BRIEFED ON THE MATTER B Y DR. YUSUF .... ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 9 OF 35 9.8. THE ABOVE EXTRACT CLEARLY SHOWS THE INTENTION OF THE ASSESSEE IN FORMING A FIRM WITHOUT ANY ACTIVITY FOR THE ENTI RE PERIOD OF ITS EXISTENCE, IS ONLY TO AVOID CAPITAL GAIN TAX FOR TH E LAND INTRODUCED IN THE INDIANA HOSPITAL & HEART INSTITUTE LTD. FROM THE PARA 5 OF THE ABOVE MINUTES, IT IS AMPLE CLEAR THAT HOW THE A SSESSEE HAS PLANNED AND EXECUTED THE FRAUDULENT ENTRY IN THE BO OKS OF ACCOUNTS OF THE FIRM TO SHOW SOME ACTIVITY IN THE F IRM. 9.9. FURTHER, THE EXTRACTS FROM THE MINUTES OF BOAR D MEETING HELD ON 21.03.2008 IS AS FOLLOWS:- '1. DR. YUSUF INFORMED THE MEETING THAT AT PRESENT THE FIRM M/S MEDICITY HOSPITAL AND RESEARCH CENTRE (DEED OF PARTNERSHIP DT.2310312007) HAD 86 CENTS LAND IN THE NAME OF THE PARTNERS REPRESENTED BY DR. YUSUF AND DR. AII. FURTHER 39 CENTS WERE IN THE NAME OF THE TWO PARTNERS AND WOULD BE BROUGHT IN SHORTLY. AND THE REMAINING 25 CENTS WERE WITH DR. YUSUF AND MR. HANEEF (BROTHER OF DR. YUSUF) WHO WOULD BE ADMITTED INTO PARTNERSHIP. THUS THE PARTNERSHIP WOULD HAVE 1.5 ACRE LAND. THIS LAND WILL BE REQUIRED BY THE COMPANY FOR ITS TNDIANA HOSPITAL PROJECT FOR WHICH ALIF INSTITUTE OF MEDICAL SCIENCES PRIVATE LIMITED WAS INCORPORATED. THE PROJECT IS OF RS. 50 CRARE APPROXIMATELY OF WHICH THE LAND VALUE ITSELF IS ABOUT RS.12 CRORE . FOR THE PURPOSE OF BRINGING IN THIS LAND, THE PARTNERSHIP FIRM WILL BE SUCCEEDED BY THE COMPANY BY WAY OF SUCCESSION AGREEMENT (WHICH WILL BE DRAFTED BY VINOD RAO. THE LAND FOR THE PROJECT WILL BE ACQUIRED IN THIS MANNER FRO M THE FIRM. THE PAYMENT FOR THE LAND WILL BE MADE TO THE PARTNE RS IN THE FORM OF EQUITY SHARES IN THE COMPANY. TO ENSURE COMPLIANCE WITH PROVISIONS OF SECTION 47 (XIII) OF THE INCOME- TAX ACT,1961, THE PROPORTION OF THE EXISTING PARTNERS WILL NEED TO BE MAINTAINED IN THE COMPANY FOR A MINIMUM PERIOD OF 5 YEARS .......' 10. ANALYSIS OF THE MINUTES OF THE MEETING: DATE OF THE MEETING DISCUSSION IN THE MEETING ANALYSIS & REMARKS 19.12.2007 ..... THE PARTNERSHIP FIRM TRANSFER TO PRIVATE LIMITED CO. (FOLLOWING IT AND FOR AVOIDING CAPITAL GAIN WITH ONE YEAR TO PRIVATE TO PUBLIC 86 CENTS LAND THESE WORKS CLEARLY REFLECT THAT THE PARTNERSHIP FIRM IS FORMED NLY TO AVOID ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 10 OF 35 PURCHASE IS ALREADY FIRMS PROPERTY AS PER DEED OF PARTNERSHIP. OTHER PROPERTIES TO BE TRANSFERRED TO FIRM CHANGE IN CONSULTATION AS MARCH 1 ST 2008 & BRING IT INTO COMMON STOCK. FINALLY FROM FIRM TO COMPANY FINAL PARTNERSHIP DEED CONSTANT AMENDMENT FRESH DEED BUSINESS FROM JANUARY TO MARCH 31-03-2008 REVALUE THE PARTNER ACCOUNT TO BE CREATED 01-04-2008 TRANSFER TO PRIVATE LTD. CAPITAL GAINS AND THE ENTIRE ARRANGEMENT IS PRE-PLANNED NOT FOR TAX AVOIDANCE BUT FOR TAX EVASION. TO AVOID CAPITAL GAINS 4 TO 5 CONDITIONS ARE MUST. THERE WORDS REITERATE THAT FIRM IS MERELY A DEVICE. 08.02.2008 - PARTNERSHIP FIRM HOLDING LAND. IT WILL BE SHORTLY TAKEN OVER BY THE COMPANY. ITS BOOKS ARE TO CLOSE BY END OF FEB 2008 OR MID MARCH 2008. TILL NOW THERE ARE VERY FEW TRANSACTIONS IN IT. PURCHASE/SALE OF MEDICINES AND A FEW OTHER TRANSACTIONS SHOULD BE SHOWN FROM 23/03/2007 (DATE OF FORMATION OF PARTNERSHYIP) TO 28/02/2008 FOR CLOSING ITS BOOKS. THE WORD ITS BOOKS OR TO CLOSE BY FEB-2008 OR MID MARCH 2008 INDICATE THE PRE-PLANNED NATURE OF THE DEVICE AND METICULOUS PLANNING TO AVOID CAPITAL GAINS TAX. THE WORDS TRANSACTIONS SHOULD BE SHOWN FROM 23.03.2007 TO 28.02.2008 ARE DECIDED ON 18.02.2008. THESE WORDS INDICATE THAT THE ENTRIES MADE IN TEH FIRM ARE PRE-PLANNED AND METICULOUS TO AVOID THE CAPITAL GAINS. 15.03.2008 IT WOULD BE ADVISABLE IF ALL THIS LAND IS BROUGHT INTO THE BOOKS OF THE FIRM AND ALL OTHER ADJUSTMENTS SUCH AS BRINGING IN OF HANNEF INTO THE PARTNERSHIP BE MADE BY MARCH 31, 2008, SO AS TO ENABLE SUCCESSION OF THE FIRM BY THE COMAPNY AND COMPLIANCE WITH PROVISIONS OF SECTION 47(XII) OF THE INCOME TAX ACT, 1961, FOR SAVING CAPITAL GAIN TAX ....... THE PRE-PLANNED DISCUSSION REGARDING THE TRANSACTIONS TO BE SHOWN REFLECT THE BOOKS OF ACCOUNTS OF THE FIRM OR PREDETERMINED IN THE PAPER TO SHOW SOME ACTIVITY WHEREAS NO REAL BUSINESS ACTIVITY OCCUR IN THE FIRM. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 11 OF 35 A FEW TRANSACTIONS HAVE TO BE SHOWN BETWEEN M/S. MEDICITY HOSPITAL AND DIOGANISTICS CENTRE & M/S MEDCITY. 21.03.2008 THE PROJECT IS OF RS.50 CRORE APPROXIMATELY OF WHICH THE LAND VALUE ITSELF IS ABOUT RS.12 CRORE. THE PAYMENT FOR THE LAND WILL BE MADE TO THE PARTNERS IN TEH FORM OF EQUITY SHARES IN THE COMPANY. TO ENSURE COMPLIANCE WITH THE PROVISIONS OF SECTION 47(XIII) OF THE INCOME-TAX ACT, 1961. THE SALE CONSIDERATION VALUE OF THE LAND IS RS.12 CRORES AND A DEVICE IS FORMED TO TRANSFER THE LAND. 10 . 1 . FROM THE ABOVE TABULAR COLUMN IT I S AMPLY EVIDENT THAT MONTHS OF PLANN I NG WERE UNDERGONE FOR THE TRANSFER OF THE L AND FROM I ND I V I DUAL TO COMPANY THROUGH THE F I RM AS A DEVICE TO EVADE THE CAPITAL GA I NS TAX WITH PRO Y IS I ONS U/S 47(XI I I). 10.2. THE REASON FOR ENACTING SECTION 47(XIII) BY T HE FINANCE ACT OF 1998 AS SEEN FROM THE NOTES ON CLAUSE ARE: 'UNDER THE EXISTING PROVISION OF THE I.T.ACT, BUSIN ESS ORGANISATIONS HAVE DEFINITE TAX IMPLICATIONS. TRANS FER OF ASSETS ATTRACTS LEVY OF CAPITAL GAINS TAX. 'SIMILARLY, CAR RY FORWARD OF LOSSES AND THAT OF UNABSORBED DEPRECIATION ARE NOT AVAILABLE TO SUCCESSOR BUSINESS ENTITIES. HOWEVER, IN CASES OF A MALGAMATION, CAPITAL GAINS TAX, IS NOT LEVIED AND LOSSES AND ABS ORBED DEPRECIATION ARE ALLOWED TO BE CARRIED FORWARD UNDE R CERTAIN CONDITIONS. THE EXPERT GROUP, IN THE DRAFT INCOME-O TAX BILL, HAS RECOGNIZED THE NEED TO ENCOURAGE BUSINESS REORGANIZ ATIONS WHEN THEY ARE IN CONSONANCE WITH THE OBJECTIVE OF ECONOM IC DEVELOPMENT AND ARE NOT MERELY DEVICE TO SECURE TAX ADVANTAGE.' 10.3. THUS THE BILL PROPOSES TO ALLOW TAX BENEFITS IN CASE OF BUSINESS REORGANISATION WITH THE OBJECTIVE OF ECONO MIC DEVELOPMENT AND DOES NOT ALLOW TO BE USED MERELY AS A DEVICE TO SECURE TAX ADVANTAGE. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 12 OF 35 IN THE GIVEN CASE, THE FIRM IS MERELY USED ONLY AS A DEVICE TO SECURE TAX ADVANTAGE AND HENCE, THE CAPITAL GAINS N EEDS TO BE TAXED IN THE HANDS OF THE INDIVIDUAL. 11. RELEVANT CASE LAWS AND APPLICABILITY: 11.1. AS DISCUSSED IN PARA 4.9 THE FACTS OF THE CAS E ARE CLEARLY AGAINST THE PRINCIPLES LAID DOWN BY THE HON'BLE SUP REME COURT IN THE LAND MARK CASE OF MCDOWELL AND CO. LTD. VS CTO(1985) 3 SCC 320. 11.2. IN THE CASE OF SUNIL SIDHARTH BHAI VS CIT, IT IS REITERATED THAT WHEN THE PARTNERSHIP FIRM HAS NO REAL BUSINESS OR THERE IS NO REAL NEED FOR PARTNERSHIP FIRM, THEN PERTINENT CONS IDERATIONS TO BE TAKEN INTO REGARD WHEN THE ITO ENTERS UPON A SCRUTI NY OF TRANSACTION FOR IN THE TASK OF DETERMINING WHETHER A TRANSACTION SHAM OR A DEVICE, HE IS ENTITLED TO PENETRATE THE V EIL COVERING IT AND ASCERTAIN THE TRUTH. 11.3. THUS AS PER THE DISCUSSION THE FIRM IS, BY BO OK THE DEFINITION OF THE DEVICE AS DISCUSSED IN THE PARA 6 .2. HENCE, THE FIRM IS NOTHING BUT AN ARRANGEMENT OR A SCHEME OR O FTEN AN UNDERHAND CONTRIVANCE TO EVADE THE CAPITAL GAINS. 11.4. BASED ON THE ABOVE DISCUSSION, IT IS VERY CLE AR THAT THE ACTUAL COST OF THE LAND IS RS. 12 CRORES AND THE AS SESSEE HAS MADE A COLOURABLE DEVICE OF FORMING A PAPER FIRM AND TRA NSFERRED THE LAND TO THE COMPANY WITHOUT PAYING THE CAPITAL GAIN TAX. 11.5. THE ABOVE DISCUSSION CLEARLY DEMONSTRATES T HE INTENTION OF THE ASSESSEE TO AVOID CAPITAL GAINS USING FIRM AS A DEVICE. THE CIRCUMSTANTIAL EVIDENCES ARE ANALYZED BASED ON 'THE PRINCIPLES AS DISCUSSED PARA 7 AND THESE EVIDENCES ALSO REITERATE THAT FIRM MERELY A DEVICE. 11.6. THUS, THE 'MENS REA' OF THE ASSESSEE TO EVA DE CAPITAL GAINS IS CLEARLY DEMONSTRATED WITH CIRCUMSTANTIAL EVIDENC ES AS WELL AS WITH SEIZED MATERIALS. THE LAND IS TRANSFERRED FROM INDIVIDUAL TO THE COMPANY AND THE VALUE ENTERED IN THE BOOKS OF T HE COMPANY IS REGARDED AS THE SALE CONSIDERATION I.E., RS. 12 CRORES AND THE CAPITAL GAINS IS COMPUTED ACCORDINGLY. 12. SUMMARIZING THE FINDINGS : ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 13 OF 35 12.1. THE ASSESSEES MR. YUSUF KUMBLE AND ALI KUMBLE USED THE COLORABLE DEVISE OF FORMING A NON GENUINE FIRM AND ADOPTING REVALUATION AND CONVERSION AS ACCOUNTING TECHNIQUES FOR TRANSFERRING PROPERTY. THE TRANSFER OF LAND FROM TH E INDIVIDUALS TO THE FIRM AND FROM THERE ON TO THE COMPANY AND REVAL UING THE SAME FROM THE PURCHASE COST OF 1.275 CRORE TO THE V ALUE OF CONSIDERATION RECEIVED IN KIND IN THE FORM OF SHARE S IN THE COMPANY MLS INDIANA HOSPITAL & HEART INSTITUTE LTD AT RS 13 CRORE IS NOTHING BUT AGAIN ACCRUING TO THE ASSESSEE S U/S 45(3) OF THE I.T. ACT. 12.2. THE OVERWHELMING EVIDENCE IN THE FORM OF MINU TES OF BOARD MEETING, NON GENUINE ACTIVITIES OF THE FIRM A ND OTHER DOCUMENTS LIKE SUBSTANTIAL GAP IN THE REGISTRATION OF THE SO CALLED FIRM HAVE ALL BEEN PARTS OF A SCHEME WHICH HAS THE SOLE OBJECTIVE OF EVADING CAPITAL GAINS TAX AND HENCE, THE DEFINIT ION OF COLORABLE DEVICE HAS PROPOUNDED BY THE SUPREME COURT IS SQUAR ELY APPLICABLE TO THESE SCHEME. THEREFORE THE NAIL NEED S TO BE PIERCED AND THE GAIN THAT IS ACCRUING TO THE ASSESSEES AS T HE DIFFERENCE IN THE VALUE OF ASSETS THAT THE ASSESSEES HAVE GOT IN THE COMPANY FOR THE LAND THAT HAS BEEN SURRENDERED AND THE PURCHASE COST OF THIS LAND HAS TO BE BROUGHT TO THE TAX OF SEC 45(3) OF T HE ACT. 12.3. THE ATTEMPT BY THE ASSESSEE TO SEEK SHELTER U NDER 47(XIII) OF THE ACT TO SHOW THAT THE ENTIRE SCHEME AMOUNTS T O A PART IX TRANSFER AS DESCRIBED UNDER THE COMPANIES ACT ALSO FAILS MISERABLY AS THE BASIC CONDITIONS COULD NOT BE FULFILLED AS R S. 1 CRORE IS REFLECTED AS ADVANCE RECEIVED FROM INDIANA HOSPITAL AND HEART INSTITUTE LTD WHICH IN TURN HAS BEEN TRANSFERRED TO THE ACCOUNTS OF OR ALI KUMBLE AND OR YUSUF KUMBLE. THIS IS EVIDENT FROM THE FACT THAT THE ASSESSEES HAVE RECEIVED BENEFIT IN TH E FORM A LOAN ASSET IN THE BOOKS OF THE COMPANY IN LEIU OF THE LA ND SURRENDERED OVER AND ABOVE THE EQUITY SHARES ALLOTTED TO THEM I N PROPORTION TO THEIR CAPITAL IN THE SO CALLED FIRM. 12.4. THUS, AS EXPLAINED THE CAPITAL GAINS IS COMPU TED BY TAKING VALUE OF THE LAND ENTERED IN THE BOOKS OF THE COMPA NY AS SALE CONSIDERATION AND THE PURCHASE COST OF THE LAND IN THE INDIVIDUAL HANDS AS COST OF ACQUISITION. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 14 OF 35 4. AFTER SEARCH AND SEIZURE OPERATIONS, NOTICE U/S. 153A WAS ISSUED TO RESPONDENT-ASSESSEE CALLING UPON THEM TO FILE RETUR N OF INCOME. THE RESPONDENT-ASSESSEE FILED RETURN OF INCOME IN RESPO NSE TO NOTICE U/S. 153A SAME AS THE RETURN OF INCOME ORIGINALLY FILED UNDER THE PROVISIONS OF SECTION 139 OF THE ACT. AGAINST THE SAID RETURN OF INCOME, THE AO COMPUTED THE LONG TERM CAPITAL GAIN IN RESPECT OF LAND PROPERTY CONTRIBUTED AS CAPITAL CONTRIBUTION IN THE PARTNERSHIP FIRM KNOWN AS M / S MEDICITY HOSPITAL AND RESEARCH CENTRE, WHICH WAS SUBSEQUENTLY CONVERTED I NTO A GOING CONCERN TO A COMPANY BY NAME, M / S MANGALORE INDIANA HOSPITAL PVT. LTD. UNDER PROVISIONS OF SCHEDULE IX OF THE COMPANI ES ACT, 1956. THE CONSIDERATION FOR TAKE OVER OF THE COMPANY WAS PAID IN THE FORM OF ALLOTMENT OF SHARES IN THE NAME OF PARTNERS OF T HE FIRM. THIS CONSIDERATION WAS CLAIMED TO BE EXEMPT BY THE RESPO NDENT- ASSESSEE, AS THERE WAS NO EVENT OF TAX LIABILITY ON ACCOUNT OF CONVERSION OF FIRM INTO A COMPANY. 5. SUBSEQUENTLY BASED ON THAT EVIDENCE FOUND AS A RESU LT OF 132 ACTION, THE AO WAS OF THE OPINION THAT RESPONDENT-A SSESSEE HAD ADOPTED A TAX PLANNING FOR THE PURPOSE OF TAX AVOID ANCE AND THEREFORE BROUGHT TO TAX UNDER THE HEAD CAPITAL GAI NS BY SETTING OUT THE FACTS AS EXTRACTED ABOVE. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 15 OF 35 6. ON APPEAL BEFORE THE CIT(APPEALS), THE CIT(APPEALS) HAS ALLOWED THE APPEAL BY THE ASSESSEE BY OBSERVING AS UNDER:- THE ONLY ISSUE IN APPEAL IS WHETHER PROVISIONS OF CAPITAL GAINS ARE ATTRACTED IN MERE REVALUATION OF THE LAND AND I F YES, IN WHOSE HANDS IT NEEDS TO BE TAXED, INDIVIDUALS OR THE FIRM . IN HIS DETAILED SUBMISSION, THE APPELLANT HAS GIVEN COUNTER ARGUMENT ON EVERY ARGUMENT OF THE A.O. ON THE ISSUE OF TAXABILITY AS CAPITAL GAINS, THE LEARNED COUNSEL FOR THE APPEL LANT SATED THAT REVALUATION DOES NOT AMOUNT TO SALE AND THEREFORE T HE VALUE ADOPTED ON REVALUATION CANNOT BE EQUATED WITH SALE CONSIDERATION. REVALUATION OF ASSETS CAN NOT CONSTITUTE INCOME. I N OPINION ALSO, THE INCIDENCE OF INCOME ARISES ON SALE AND NOT ON R EVALUATION. AN ASSESSEE MAY REVALUE HIS ASSETS ANY NUMBER OF TIMES , BUT WHEN THAT ASSETS IS SOLD. IN COST PRICE SHALL BE THE OR IGINAL PRICE OF THAT ASSET AS RECORDED ORIGINALLY IN THE BOOKS OF ACCOUN TS. THERE IS NO DOUBT ABOUT THE FACT THAT THE LAND WAS PURCHASED WI TH AN INTENTION OF STARTING A HOSPITAL, A HOSPITAL HAS BEEN ERECTED ON THE PIECE OF LAND AND THE LAND HAS NOT BEEN SOLD. THE DOCTOR BR OTHERS HAVE NOT RECEIVED ANY SALE CONSIDERATION. THE FIRM WAS CREA TED AND THEN CONVERTED INTO A COMPANY WAS A LEGAL REQUIREMENT AN D I DO NOT FIND ANY LEGAL INFIRMITY IN THE SAME. AS PER THE PR OVISIONS OF THE ACT, IT THE PROPERTY INTRODUCED IN THE FIRM IS SOLD , THE COST OF ACQUISITION SHALL BE THE COST RECORDED IN THE BOOKS BEFORE REVALUATION. THEREFORE, IN MY OPINION, SINCE THE LA ND HAS NOT BEEN SOLD ONLY ON REVALUATION AND IN ABSENCE OF ANY CONS IDERATION COMING TO THE DOCTOR BROTHERS, NO CAPITAL GAIN ARIS E. THE A.O. IS DIRECTED TO DELETE THE ADDITIONS MADE ON THIS ACCOU NT. THESE GROUNDS OF APPEAL OF THE APPELLANT IS ALLOWED ACCOR DINGLY. 7. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEALS. 8. THE LD. DR VEHEMENTLY CONTENDED BEFORE US THAT T HE RESPONDENT- ASSESSEE TRANSFERRED THE LAND AT COST TO THE FIRM W HICH WAS SUBSEQUENTLY ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 16 OF 35 REVALUED AT A MUCH HIGHER VALUE AND THE FIRM WAS TA KEN OVER BY COMPANY, M / S MANGALORE INDIANA HOSPITAL PVT. LTD. THUS, THE RES PONDENT- ASSESSEE BY ADOPTING TAX PLANNING HAS AVOIDED PAYME NT OF CAPITAL GAINS TAX. HE FURTHER CONTENDED THAT THE VERY FACT THAT THE PARTNERSHIP DEED OF M / S MEDICITY HOSPITAL AND RESEARCH CENTRE WAS AMENDED SEVERAL TIMES GOES TO PROVE THAT ASSESSEE HAS BEEN AVOIDING THE PAYMENT OF CAPITAL GAINS TAX BY RESORTING TO TAX PL ANNING DEVICE. THEREFORE, HE SUPPORTED THE ORDER OF THE LD. ASSESS ING OFFICER. 9. ON THE OTHER HAND, THE LD. AR FOR THE ASSESSEE SUBM ITTED THAT WHEN A FIRM WAS CONVERTED INTO A LIMITED COMPANY UN DER PROVISIONS OF SCHEDULE IX OF THE COMPANIES ACT, 1956, THERE WAS N O TAXFUL EVENT AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT V. TEXSPIN ENGINEERING & MANUFACTURING WORKS, 344 ITR 544 (BOM) . 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. 11. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THE PRESENT APPEALS IS WHETHER THE AO WAS JUSTIFIED IN MAKING ASSESSMENT O F CAPITAL GAINS IN RESPECT OF THE LAND SHOWN AS CAPITAL CONTRIBUTION I N THE HANDS OF THE FIRM AND THE SAME WAS REVALUED SUBSEQUENTLY IN THE HANDS OF THE FIRM AND CONVERTED INTO A COMPANY UNDER THE PROVISIONS OF SC HEDULE IX OF THE COMPANIES ACT, 1956 IN THE PROCEEDINGS U/S. 153A OF THE ACT? ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 17 OF 35 12. IN THE PRESENT APPEALS AS THE FACTS EMANATE FRO M THE ORDER OF ASSESSMENT, IT IS CLEAR THAT THE AO BASED ON PARTNE RSHIP DEED AND MINUTES OF THE BOARD MEETING OF M / S MEDICITY HOSPITAL AND RESEARCH CENTRE, HAD INFERRED THAT RESPONDENT-ASSESSEE BY RESORTING TO TAX PLANNING AVOIDED THE TAX LIABILITY ARISING ON ACCOUNT OF CON TRIBUTION OF CAPITAL TO THE FIRM AND ON ITS SUBSEQUENT SALE TO A LIMITED CO MPANY. 13. THIS ISSUE CAN BE DECIDED WITHOUT DWELLING INTO THE CHARGEABILITY OF CAPITAL GAINS ON ACCOUNT OF CONVER SION OF A FIRM INTO A COMPANY UNDER THE PROVISIONS OF SCHEDULE IX OF THE COMPANIES ACT, 1956. NOW THE LAW IS QUITE SETTLED THAT AN ASSESSME NT U/S. 153A CAN BE MADE ONLY BASED ON THE INCRIMINATING MATERIAL FO UND AS A RESULT OF ACTION U/S. 132 OF THE ACT. IN THE PRESENT CASES, THE ALLEGED INCRIMINATING MATERIAL WAS IN THE FORM OF PARTNERSH IP DEED AND MINUTES OF THE BOARD MEETING. IN OUR CONSIDERED OP INION, THIS MATERIAL DOES NOT INDICATE ANY UNDISCLOSED INCOME I N THE FORM OF MONEY, BULLION OR OTHER VALUABLE ASSETS. IT ONLY IN DICATES THAT THE ASSESSEE ADOPTED A TAX PLANNING DEVICE IN ORDER TO ESCAPE THE CLUTCHES OF THE PROVISIONS OF SECTION 45 OF THE I.T . ACT. THE LEGALITY OR OTHERWISE OF THESE TRANSACTIONS CAN ONLY BE EXAMINE D IN THE REGULAR ASSESSMENT PROCEEDINGS. THE MINUTES OF THE BOARD M EETING OF THE SAID COMPANY OR THE PARTNERSHIP DEEP DOES NOT REVEA L THAT THE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 18 OF 35 TRANSACTIONS PER SE IS ILLEGAL OR THE TRANSACTION OF CONVERSION OF FIR M INTO A COMPANY IS PER SE ILLEGAL NOR INDICATES ANY UNDISCLOSED INCOME. 14. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. IBC KNOWLEDGE PARK (P) LTD., 385 ITR 346 (KAR) HELD THAT WHEN NO MATERIAL WAS FOUND DURING THE COURSE OF SEARCH INDI CATING UNDISCLOSED INCOME, NO ADDITION CAN BE MADE BASED O N THE INFERENCE OF UNDISCLOSED INCOME UNDER THE PROVISIONS OF SECTI ON 153A AND 153C OF THE ACT. THE RELEVANT PORTION OF THE JUDGME NT IS EXTRACTED BELOW :- 44. BEFORE CONSIDERING THE RIVAL CONTENTIONS, IT IS NE CESSARY TO ADVERT TO THE SCHEME OF THE ACT REGARDING SPECIAL P ROCEDURE FOR ASSESSMENT IN CASES OF SEARCH. SUB-SECTION (1) OF S ECTION 132 OF THE ACT STATES THAT WHERE THE CHIEF COMMISSIONER OR ANY OTHER OFFICER MENTIONED THEREIN HAVING INFORMATION IN HIS POSSESSION, HAS REASON TO BELIEVE THAT INTER ALIA, ANY PERSON I S IN POSSESSION OF ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ART ICLE OR THING (HEREINAFTER REFERRED TO AS 'VALUABLE ASSETS' FOR T HE SAKE OF CONVENIENCE) AND SUCH VALUABLE ASSETS REPRESENTS EI THER WHOLLY OR PARTLY INCOME OR PROPERTY, WHICH HAS NOT BEEN, OR W OULD NOT BE, DISCLOSED FOR THE PURPOSES OF THE ACT, THEN, THE AU THORIZED OFFICER CAN ENTER AND SEARCH ANY BUILDING, PLACE, VESSEL, V EHICLE OR AIRCRAFT, WHERE HE HAS REASON TO SUSPECT THAT SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, OR VALUABLE ASSETS ARE KE PT OR SEARCH ANY PERSON, BREAK OPEN THE LOCK OF ANY DOOR ETC., S EIZE ANY BOOKS OF ACCOUNT, OTHER DOCUMENTS, OR OTHER VALUABLE ASSE TS FOUND AS A RESULT OF SUCH SEARCH AND DO ALL OTHER THINGS NECES SARY AS PRESCRIBED UNDER SECTION 132 OF THE ACT. 45. SECTIONS 153A, 153B AND 153C WERE INSERTED BY THE FINANCE ACT, 2003, WITH EFFECT FROM 1/6/2003. THEY HAVE REP LACED THE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 19 OF 35 POST-SEARCH BLOCK ASSESSMENT SCHEME IN RESPECT OF A NY SEARCH OR REQUISITION MADE AFTER 31/5/2003. SUB-SECTION (1) O F SECTION 153A INTER ALIA DEALS WITH ASSESSMENT IN CASE OF SE ARCH OR REQUISITION. IT BEGINS WITH A NON-OBSTANTE CLAUSE A ND STATES THAT NOTWITHSTANDING ANYTHING CONTAINED IN SECTIONS 139, 147, 148, 149, 151 AND 153, IN THE CASE OF A PERSON WHERE A S EARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OT HER DOCUMENTS OR ANY VALUABLE ASSETS ARE REQUISITIONED UNDER SECT ION 132A, THE ASSESSING OFFICER SHALL ISSUE NOTICE TO SUCH PERSON REQUIRING HIM TO FURNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, RETURN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YEARS REFERRED TO IN CLAUSE (B) OF S ECTION 153(1) IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRES CRIBED AND THE PROVISIONS OF THE ACT SHALL, SO FAR AS MAY BE, APPL Y ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISH ED UNDER SECTION 139. THE ASSESSING OFFICER CAN ASSESS OR RE ASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PR ECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH SUCH SEARCH IS CONDUCTED OR REQUISITION IS MADE. HOWEVER , ASSESSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS SUB- SECTION PENDING ON THE DATE OF INITIATION OF THE SE ARCH UNDER SECTION 132 OR MAKING OF REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE. THE EXPLANATION STATES, S AVE AS OTHERWISE PROVIDED IN SECTIONS 153A, 153B AND 153C, ALL OTHER PROVISIONS OF THE ACT SHALL APPLY TO THE ASSESSMENT MADE UNDER SECTION 153A. SECTION 153B SPEAKS ABOUT TIME-LIMIT FOR COMPLETION OF ASSESSMENT UNDER SECTION 153A. 46. 153C IS RELEVANT FOR THE PURPOSES OF THIS CASE. SU B-SECTION (1) OF SECTION 153C BEGINS WITH A NON-OBSTANTE CLAUSE A ND IT STATES THAT NOTWITHSTANDING ANYTHING CONTAINED IN SECTIONS 139, 147, 148, 149, 151 AND 153, WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY VALUABLE ASSETS, SEIZED OR REQUISITIONED, BELONGS TO, OR ANY BOOKS OF ACCOUNT OR DOCUMENTS, SEIZED OR REQUIS ITIONED, PERTAINS OR PERTAIN TO, OR ANY INFORMATION CONTAINE D THEREIN, RELATES TO A PERSON OTHER THAN THE PERSON REFERRED TO IN SECTION 153A, THEN, THE BOOKS OF ACCOUNT OR DOCUMENTS OR VA LUABLE ASSETS, SEIZED OR REQUISITIONED SHALL BE HANDED OVE R TO THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTH ER PERSON AND THAT ASSESSING OFFICER SHALL PROCEED AGAINST EACH S UCH OTHER ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 20 OF 35 PERSON AND ISSUE NOTICE AND ASSESS OR REASSESS THE INCOME OF THE OTHER PERSON IN ACCORDANCE WITH THE PROVISIONS OF S ECTION 153A, IF THAT ASSESSING OFFICER IS SATISFIED THAT THE BOO KS OF ACCOUNT OR DOCUMENTS OR VALUABLE ASSETS SEIZED OR REQUISITIONE D HAVE A BEARING ON THE DETERMINATION OF THE TOTAL INCOME OF SUCH OTHER PERSON FOR THE RELEVANT ASSESSMENT YEAR OR YEARS RE FERRED TO IN SUB-SECTION (1) OF SECTION 153A. SUB-SECTION (2) OF SECTION 153C STATES THAT WHERE B OOKS OF ACCOUNT OR DOCUMENTS OR VALUABLE ASSETS SEIZED OR R EQUISITIONED AS REFERRED TO IN SUB-SECTION (1) HAS OR HAVE BEEN RECEIVED BY THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTH ER PERSON AFTER THE DUE DATE FOR FURNISHING THE RETURN OF INCOME FO R THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH SEARCH IS CONDUCTED UNDER SECTION 132 OR REQUISITION IS MADE UNDER SECTION 132A AND IN RESPECT OF SUCH ASSESSMENT YEAR - (A) N O RETURN OF INCOME HAS BEEN FURNISHED BY SUCH OTHER PERSON AND NO NOTICE UNDER SUB-SECTION (1) OF SECTION 142 HAS BEEN ISSUE D TO HIM, OR (B) A RETURN OF INCOME HAS BEEN FURNISHED BY SUCH O THER PERSON BUT NO NOTICE UNDER SUB-SECTION (2) OF SECTION 143 HAS BEEN SERVED AND LIMITATION OF SERVING THE NOTICE UNDER S UB-SECTION (2) OF SECTION 143 HAS EXPIRED, OR (C) ASSESSMENT OR RE ASSESSMENT, IF ANY, HAS BEEN MADE, BEFORE THE DATE OF RECEIVING TH E BOOKS OF ACCOUNT OR DOCUMENTS OR VALUABLE ASSETS SEIZED OR R EQUISITIONED BY THE ASSESSING OFFICER HAVING JURISDICTION OVER S UCH OTHER PERSON, SUCH ASSESSING OFFICER SHALL ISSUE NOTICE A ND ASSESS OR REASSESS TOTAL INCOME OF SUCH OTHER PERSON OF SUCH ASSESSMENT YEAR IN THE MANNER PROVIDED IN SECTION 153A. 47. CHAPTER XIV-B CONSISTS OF SECTION 158B TO 158BH, I NSERTED WITH EFFECT FROM 01/07/1995, DEALS WITH SPECIAL PRO CEDURE FOR ASSESSMENT IN SEARCH CASES. THE FINANCE ACT, 1995 I NSERTED CHAPTER XIV-B IN THE ACT, INCORPORATING A NEW SCHEM E OF BLOCK ASSESSMENT IN CASES RELATING TO SEARCH CONDUCTED UN DER SECTION 132 OF THE ACT OR REQUISITIONS MADE UNDER SECTION 1 32A AFTER 30/06/1995. SECTION 158B(B) DEFINES 'UNDISCLOSED IN COME' TO INCLUDE ANY MONEY, BULLION, JEWELLERY OR OTHER VALU ABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS, WHERE SUCH MONE Y, BULLION, JEWELLERY, VALUABLE ARTICLE, THING, ENTRY IN THE BO OKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY, WHICH HAS NOT BEEN OR WOULD NOT HAVE B EEN DISCLOSED ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 21 OF 35 FOR THE PURPOSES OF THIS ACT OR ANY EXPENSE, DEDUCT ION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. SECTION 158BA DEALS WITH ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEARCH, WHILE SECTION 158BB DEALS WITH CO MPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. BLOCK PERIO D IS DEFINED IN SECTION 158B(A) TO MEAN THE PERIOD COMPRISING PR EVIOUS YEARS RELEVANT TO SIX ASSESSMENT YEARS PRECEDING THE PREV IOUS YEAR IN WHICH THE SEARCH WAS CONDUCTED UNDER SECTION 132 OR ANY REQUISITION WAS MADE UNDER SECTION 132A AND ALSO IN CLUDES THE PERIOD UP TO THE DATE OF COMMENCEMENT OF SUCH SEARC H OR DATE OF SUCH REQUISITION IN THE PREVIOUS YEAR IN WHICH THE SAID SEARCH WAS CONDUCTED OR REQUISITION WAS MADE. THE PROVISO IS N OT RELEVANT FOR THE PURPOSE OF THIS CASE. 48. SECTION 158BD IS RELEVANT FOR THE PRESENT CASE AND IT STATES THAT WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY UNDISCLOSED INCOME BELONGS TO ANY PERSON, OTHER THAN THE PERSON WITH RESPECT TO WHOM SEARCH WAS MADE UNDER SECTION 132 OR WHOSE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR ANY ASSETS WERE REQUI SITIONED UNDER SECTION 132A, THEN THE BOOKS OF ACCOUNT, OTHE R DOCUMENTS OR VALUABLE ASSETS SEIZED OR REQUISITIONED SHALL BE HANDED OVER TO THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTHER PERSON AND THAT ASSESSING OFFICER SHALL PROCEED UNDER SECT ION 158BC AGAINST SUCH OTHER PERSON AND THE PROVISIONS OF CHA PTER XIV-B SHALL APPLY ACCORDINGLY. SECTION 158BE PRESCRIBES T IME-LIMIT FOR COMPLETION OF BLOCK ASSESSMENT. SECTION 158BH STATE S THAT EXCEPT AS OTHERWISE PROVIDED IN CHAPTER XIV-B ALL O THER PROVISIONS OF THE ACT SHALL APPLY TO THE ASSESSMENT MADE UNDER THE SAID CHAPTER. SECTION 153C PROVIDES FOR THE ROL E OF THE ASSESSING OFFICER HAVING JURISDICTION OVER THE PERS ON SEARCHED/REQUISITIONED AS REGARDS THIRD PARTY LIABI LITY. THE SAID SECTION COVERS ASSESSMENTS WHICH HAVE BECOME NECESS ARY, BECAUSE OF BOOKS OF ACCOUNT, DOCUMENTS OR VALUABLE ASSETS OF THIRD PARTIES INDICATING THEIR UNDISCLOSED INCOME F OUND DURING THE SEARCH OR REQUISITION UNDER SECTION 132/132A LEADIN G TO A PRIMA FACIE TAX LIABILITY. A SPECIAL PROCEDURE IS CONTEMP LATED IN SUCH CASES. SUCH BOOKS OF ACCOUNT, DOCUMENTS OR VALUABLE ASSETS ARE REQUIRED TO BE HANDED OVER BY THE ASSESSING OFFICER HAVING JURISDICTION OVER THE PERSONS SEARCHED REQUISITIONE D TO THE ASSESSING OFFICER OF A THIRD PARTY ON HIS SATISFACT ION THAT THEY BELONG TO A THIRD PARTY BEFORE HANDING OVER. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 22 OF 35 49. ON A CONJOINT READING OF THE AFORESAID PROVISIONS, IT BECOMES CLEAR THAT A SEARCH CAN TAKE PLACE ONLY WHEN A CONC ERNED OFFICER HAS INFORMATION AND REASON TO BELIEVE THAT ANY PERS ON IS IN POSSESSION OF ANY VALUABLE ASSETS, WHICH HAS NOT BE EN OR WOULD NOT BE DISCLOSED UNDER THE ACT. IN SUCH A CASE, A S EARCH CAN TAKE PLACE. FOLLOWING THE SEARCH, IF ANY BOOKS OF ACCOUN T, OTHER DOCUMENTS, ANY VALUABLE ASSETS IS OR ARE FOUND IN T HE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF A SEARCH, THEN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR VALUABLE ASSETS CO ULD BE SEIZED. UNDER SECTION 153A, THE SATISFACTION REGARDING AN I NFERENCE OF LIABILITY MUST BE RECORDED. THE ASSESSING OFFICER H AS TO ISSUE NOTICE TO THE ASSESSEE I.E., THE PERSON SEARCHED FO R THE PURPOSE OF ASSESSMENT OR REASSESSMENT OF THE TOTAL INCOME OF S IX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR REL EVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED. SE CTION 153C AS ALREADY NOTED, DEALS WITH ASSESSMENT OF INCOME OF A NY OTHER PERSON, WHEN THE ASSESSING OFFICER IS SATISFIED THA T THE BOOKS OF ACCOUNT OR DOCUMENTS OR VALUABLE ASSETS SEIZED OR R EQUISITIONED HAVE A BEARING ON THE DETERMINATION OF THE TOTAL IN COME OF SUCH OTHER PERSON FOR THE RELEVANT ASSESSMENT YEAR OR YE ARS REFERRED TO UNDER SUB-SECTION(1) OF SECTION 153A OF THE ACT. IN SUCH A CASE, THE ASSESSING OFFICER HAS TO ISSUE NOTICE TO ASSESS OR REASSESS INCOME OF OTHER PERSON UNDER SECTION 153A OF THE AC T. THUS, THE FACT THAT SEARCH HAS BEEN CONDUCTED WOULD NOT JUSTI FY ISSUANCE OF NOTICE UNDER SECTION 153A. IF IT IS ONLY DURING A V ALID SEARCH WHEN CERTAIN INCRIMINATING MATERIALS ARE DETECTED, NOTICE COULD BE ISSUED. 50. CHAPTER XIV-B WHICH DEALS WITH SPECIAL PROCEDURE F OR ASSESSMENT OF SEARCH CASES DEALS WITH UNDISCLOSED I NCOME AS A RESULT OF SEARCH, THE COMPUTATION THEREOF AND SUCH OTHER PROVISIONS. UNDISCLOSED INCOME IS DEFINED IN CLAUSE (B) OF SECTION 153B. UNDISCLOSED INCOME INCLUDES MONEY, BU LLION OR OTHER VALUABLE ASSETS. IT IS ONLY WHEN THE CONCERNE D OFFICER HAS INFORMATION ABOUT THE SAME AND HAS REASON TO BELIEV E THAT THE SAID VALUABLE ASSETS HAS NOT BEEN OR WOULD NOT BE DISCLO SED WOULD GIVE JURISDICTION TO THE OFFICER AUTHORIZED TO COND UCT A SEARCH OPERATION. THEREFORE, THE OBJECT AND PURPOSE OF A S EARCH IS TO DETECT UNDISCLOSED INCOME. AS DEFINED UNDER CLAUSE (B) OF SECTION 158B OF THE ACT, IT IS ONLY WHEN THE UNDISC LOSED INCOME IS DETECTED IN A SEARCH OPERATION THAT THERE WOULD BE ASSESSMENT OR REASSESSMENT, UNDER THE PROVISIONS OF CHAPTER XI V-B OF THE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 23 OF 35 ACT, OF THE PERSON WHO IS PRESUMED TO BE IN POSSESS ION OF THE UNDISCLOSED INCOME. IF DURING THE COURSE OF SEARCH, ANY VALUABLE ASSETS BELONGS TO OR ANY BOOKS OF ACCOUNT OR DOCUME NT SEIZED OR REQUISITIONED PERTAINS TO OR ANY INFORMATION CONTAI NED THEREIN RELATES TO A PERSON OTHER THAN THE PERSONS SEARCHED , THEN THE ASSESSING OFFICER, ON RECORDING SATISFACTION, CAN A LSO ASSESS AND REASSESS THE INCOME OF ANY OTHER PERSON. THUS, WHAT EMERGES IS THAT THE SINE QUA NON FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT PURSUANT TO A SEARCH OPERATION IS DETE CTION OF UNDISCLOSED INCOME. IN FACT, THE INITIATION OF SEAR CH PROCEEDING IS ALSO BASED ON POSSESSION OF INFORMATION AND REASON TO BELIEVE THAT A PERSON IS IN POSSESSION OF CERTAIN VALUABLE ASSETS, WHICH HAS NOT BEEN OR WOULD NOT BE DISCLOSED UNDER THE ACT. T HE SAME IS NOTHING BUT 'UNDISCLOSED INCOME' AS DEFINED IN CLAU SE (B) OF SECTION 158B(B) OF THE ACT. THIS BECOMES EVEN MORE CLEAR ON A COMPARISON OF SECTION 132(1)(C) WITH SECTION 158B(B ) OF THE ACT. IT IS FOR THE ABOVE REASON THAT SECTIONS 153A AND 1 53C BEGIN WITH A NON-OBSTANTE CLAUSE IN ORDER TO MAKE THESE PROVIS IONS EXCLUSIVE OF SECTIONS 139, 147, 148, 149, 151 AND 153 OF THE ACT. IF A SEARCH OPERATION DOES NOT LEAD TO DETECTION OF UNDI SCLOSED INCOME AS DEFINED IN CHAPTER XIV-B OF THE ACT, THEN NO PUR POSE WOULD BE SERVED IN REOPENING THE ASSESSMENT ALREADY COMPL ETED. ALSO, IF THERE IS NO DETECTION OF ANY UNDISCLOSED INCOME, TH EN THERE WOULD BE NO NEED FOR PENDING ASSESSMENT TO ABATE. THUS, W HEN PARTICULARS OF INCOME DECLARED IN THE RETURN IS ALR EADY AVAILABLE WITH THE ASSESSING OFFICER, SUCH INCOME CANNOT FORM PART OF UNDISCLOSED INCOME EVEN IF SUCH RETURN IS FILED BEY OND THE TIME- LIMIT, BUT BEFORE SEARCH, AS LONG AS THEY RELATE TO ANY YEAR COVERED IN THE BLOCK. THUS, A BLOCK ASSESSMENT IS JUSTIFIED ONLY ON THE BASIS OF EVIDENCE FOUND DURING SEARCH AND THE MATER IALS OR INFORMATION RELATABLE THERETO. SECTION 153C IS IN PARI MATERIA WITH SECTION 158BD CONFERRING JURISDICTION OVER THIRD PARTIES TO A SEARCH PROVIDI NG CERTAIN CONDITIONS BEFORE THE ASSESSING OFFICER HAVING JURI SDICTION OVER A THIRD PARTY CAN ASSUME JURISDICTION. 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 A SSESSING OFFICER HAVING JURISDICTION OVER SUCH THIRD PARTY A LONG WITH THE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 24 OF 35 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 REC EIPT OF THE AFORESAID MATERIAL, THE ASSESSING OFFICER HAVING JU RISDICTION OVER SUCH THIRD PARTY WOULD PROCEED AGAINST THE SAID THI RD PARTY. THUS, WHERE NO MATERIAL BELONGING TO A THIRD PARTY IS FOU ND DURING A SEARCH, BUT ONLY AN INFERENCE OF AN UNDISCLOSED INC OME IS DRAWN DURING THE COURSE OF ENQUIRY, DURING SEARCH OR DURI NG POST-SEARCH ENQUIRY, SECTION 153C WOULD HAVE NO APPLICATION. TH US, THE DETECTION OF INCRIMINATING MATERIAL LEADING TO AN I NFERENCE OF UNDISCLOSED INCOME IS A SINE QUA NON FOR INVOCATION OF SECTION 153C OF THE ACT. 51. BEFORE CONSIDERING THE DECISIONS CITED AT THE BAR, IT IS NECESSARY TO REFER TO A DECISION OF THE HON'BLE SUP REME COURT IN MANISH MAHESHWARI V. ASST. CIT [2007] 289 ITR 341/158 TAXMAN 258 . IN THAT CASE, SEARCH WAS CONDUCTED ON ONE OF THE DIRECTORS OF THE ASSESSEE-COMPANY M/S. INDORE CONST RUCTION (PVT.) LTD. WHEN THE SEARCH WAS CONDUCTED IN THE PR EMISES OF THE DIRECTOR SRI. MANISH MAHESHWARI AND HIS WIFE SEVERA L INCRIMINATING DOCUMENTS RELATING TO THE COMPANY WER E SEIZED. WHILE DEALING WITH SECTION 158BD OF THE ACT, THE HO N'BLE SUPREME COURT HAS OBSERVED AS UNDER: 'CONDITION PRECEDENT FOR INVOKING A BLOCK ASSESSMEN T IS THAT A SEARCH HAS BEEN CONDUCTED UNDER SECTION 132, OR DOCUMENTS OR ASSETS HAVE BEEN REQUISITIONED UNDER SECTION 132A. THE SAID PROVISION WOULD APPLY IN THE CASE OF ANY PERSON IN RESPECT OF WHOM SEARCH HAS BEEN CA RRIED OUT UNDER SECTION 132A OR DOCUMENTS OR ASSETS HAVE B EEN REQUISITIONED UNDER SECTION 132A. SECTION 158BD, HOWEVER, PROVIDES FOR TAKING RECOURSE TO A BLOCK ASSESSMENT IN TERMS OF SECTION 158BC IN RESPECT OF ANY OTHER PERSON, THE CONDITIONS PRECEDENTS WHEREFOR AR E : (I) SATISFACTION MUST BE RECORDED BY THE ASSESSING OFFIC ER THAT ANY UNDISCLOSED INCOME BELONGS TO ANY PERSON, OTHER THAN THE PERSON WITH RESPECT TO WHOM SEARCH WAS MAD E UNDER SECTION 132 OF THE ACT; (II) THE BOOKS OF ACCO UNT OR OTHER DOCUMENTS OR ASSETS SEIZED OR REQUISITIONED H AD BEEN HANDED OVER TO THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTHER PERSON; AND (III) THE ASSESSING OFFICER HAS PROCEEDED UNDER SECTION 158BC AGAINST SUCH OTHER PERSON. ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 25 OF 35 THE CONDITIONS PRECEDENT FOR INVOKING THE PROVISION S OF SECTION 158BD, THUS, ARE REQUIRED TO BE SATISFIED B EFORE THE PROVISIONS OF THE SAID CHAPTER ARE APPLIED IN R ELATION TO ANY PERSON OTHER THAN THE PERSON WHOSE PREMISES HAD BEEN SEARCHED OR WHOSE DOCUMENTS AND OTHER ASSETS H AD BEEN REQUISITIONED UNDER SECTION 132A OF THE ACT.' IN THAT CASE, IT WAS HELD THAT THE ASSESSING OFFICE R HAD NOT RECORDED HIS SATISFACTION, WHICH IS MANDATORY; NOR HAD HE TRANSFERRED THE CASE TO THE ASSESSING OFFICER HAVIN G JURISDICTION OVER THE MATTER. THEREFORE, THE JUDGMENT OF THE HIG H COURT WAS SET ASIDE AND THE APPEALS WERE ALLOWED. 52. THE DECISIONS RELIED UPON BY THE LEARNED SENIOR CO UNSEL APPEARING FOR THE ASSESSEE ARE AS UNDER: (A) IN CIT V. CALCUTTA KNITWEARS [2014] 362 ITR 673/223 TAXMAN 115 (MAG.)/43 TAXMANN.COM 446 (SC) , THE HON'BLE SUPREME COURT CONSIDERED THE QUESTION, AS T O AT WHAT STAGE OF THE PROCEEDINGS UNDER CHAPTER XIV-B, THE ASSESSING AUTHORITY WAS REQUIRED TO RECORD HIS SATI SFACTION FOR ISSUING NOTICE UNDER SECTION 158BD OF THE ACT. IN THAT CASE, THE FACTS WERE THAT A SEARCH OPERATION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT IN TWO PREMISES OF T HE BHATIA GROUP, NAMELY M/S. SWASTIK TRADING CO., AND M/S. KAVITA INTERNATIONAL CO., ON 5/2/2003 AND CERTAIN INCRIMINATING DOCUMENTS PERTAINING TO THE ASSESSEE- FIRM I.E., CALCUTTA KNITWEAR WERE TRACED IN THE SAID SEA RCH. AFTER COMPLETION OF THE INVESTIGATION BY THE INVESTIGATIN G AGENCY AND HANDING OVER OF THE DOCUMENTS TO THE ASSESSEE T O THE ASSESSING AUTHORITY, THE LATTER HAD COMPLETED THE B LOCK ASSESSMENTS IN THE CASE OF BHATIA GROUP. SINCE CERT AIN OTHER DOCUMENTS DID NOT PERTAIN TO THE PERSON SEARC HED UNDER SECTION 132 OF THE ACT, THE ASSESSING AUTHORI TY THEREIN THOUGHT IT FIT TO TRANSMIT THOSE DOCUMENTS, WHICH ACCORDING TO HIM PERTAINED TO UNDISCLOSED INCOME ON ACCOUNT OF INVESTMENT ELEMENT AND PROFIT ELEMENT OF THE ASSESSEE-FIRM AND REQUIRED TO BE ASSESSED UNDER SEC TION 158BC READ WITH SECTION 158BD OF THE ACT TO ANOTHER ASSESSING AUTHORITY IN WHOSE JURISDICTION THE ASSES SMENTS COULD BE COMPLETED. IN DOING SO, THE ASSESSING AUTH ORITY RECORDED HIS SATISFACTION NOTE DATED 15/7/2005. THE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 26 OF 35 JURISDICTIONAL ASSESSING AUTHORITY FOR THE ASSESSEE HAD ISSUED SHOW-CAUSE NOTICE UNDER SECTION 158BD FOR TH E BLOCK PERIOD OF SIX YEARS DATED 10/2/2006 TO THE AS SESSEE. THE ASSESSEE HAD REPLIED THAT NO ACTION COULD BE IN ITIATED AGAINST THE ASSESSEE AND REQUESTED THE ASSESSING AU THORITY TO DROP THE PROCEEDINGS. THE STAND OF THE ASSESSEE WAS REJECTED BY THE ASSESSING AUTHORITY, WHO CONCLUDED THE ASSESSMENT PROCEEDINGS UNDER SECTION 158BD OF THE A CT. IT WAS ALSO HELD THAT NOTICE COULD BE ISSUED EVEN A FTER COMPLETION OF THE PROCEEDINGS OF THE SEARCHED PERSO N UNDER SECTION 158BC OF THE ACT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE THEREIN HAD FILED AN APPEAL BEFORE THE APP ELLATE AUTHORITY, WHO HAD PARTLY ALLOWED THE APPEAL. THE REVENUE HAD CARRIED THE MATTER FURTHER BY FILING AN APPEAL BEFORE THE TRIBUNAL AND THE ASSESSEE THEREIN FILED CROSS- OBJECTION. THE TRIBUNAL REJECTED REVENUE'S APPEAL, WHICH FILED AN APPEAL BEFORE THE HIGH COURT, WHICH ALSO R EJECTED THE REVENUE'S APPEAL AND CONFIRMED THE ORDER OF THE TRIBUNAL. THE REVENUE, THEN APPROACHED THE HON'BLE SUPREME COURT. WHILE DEALING WITH VARIOUS PROVISION S OF CHAPTER XIV-B OF THE ACT PERTAINING TO ASSESSMENT I N THE CASE OF SEARCH OPERATION, THE HON'BLE SUPREME COURT HELD THAT SECTION 158BD OF THE ACT DEALS WITH UNDISCLOSE D INCOME OF ANY OTHER PERSON. ON THE QUESTION OF RECO RDING SATISFACTION THAT THERE IS AN UNDISCLOSED INCOME, W HICH HAD BEEN TRACED WHERE A PERSON WAS SEARCHED UNDER SECTI ON 132 OF THE ACT OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR VALUABLE ASSETS ARE REQUISITIONED UNDER SECTION 132 A OF THE ACT, THE HON'BLE SUPREME COURT OPINED AS UNDER: 'WE WOULD CERTAINLY SAY THAT BEFORE INITIATING PROC EEDINGS UNDER SECTION 158BD OF THE ACT , THE ASSESSING OFFI CER WHO HAS INITIATED PROCEEDINGS FOR COMPLETION OF THE ASSESSMENTS UNDER SECTION 158BC OF THE ACT SHOULD B E SATISFIED THAT THERE IS AN UNDISCLOSED INCOME WHICH HAS BEEN TRACED OUT WHEN A PERSON WAS SEARCHED UNDER SE CTION 132 OR THE BOOKS OF ACCOUNT WERE REQUISITIONED UNDE R SECTION 132A OF THE ACT. THIS IS IN CONTRAST TO THE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 27 OF 35 PROVISIONS OF SECTION 148 OF THE ACT WHERE RECORDIN G OF REASONS IN WRITING ARE A SINE QUA NON. UNDER SECTIO N 158BD, THE EXISTENCE OF COGENT AND DEMONSTRATIVE MA TERIAL IS GERMANE TO THE ASSESSING OFFICERS' SATISFACTION IN CONCLUDING THAT THE SEIZED DOCUMENTS BELONG TO A PE RSON OTHER THAN THE SEARCHED PERSON IS NECESSARY FOR INI TIATION OF ACTION UNDER SECTION 158BD. THE BARE READING OF THE PROVISION INDICATES THAT THE SATISFACTION NOTE COUL D BE PREPARED BY THE ASSESSING OFFICER EITHER AT THE TIM E OF INITIATING PROCEEDINGS FOR COMPLETION OF ASSESSMENT OF A SEARCHED PERSON UNDER SECTION 158BC OF THE ACT OR D URING THE STAGE OF THE ASSESSMENT PROCEEDINGS. IT DOES NO T MEAN THAT AFTER COMPLETION OF THE ASSESSMENT, THE ASSESS ING OFFICER CANNOT PREPARE THE SATISFACTION NOTE TO THE EFFECT THAT THERE EXISTS INCOME-TAX BELONGING TO ANY PERSO N OTHER THAN THE SEARCHED PERSON IN RESPECT OF WHOM A SEARC H WAS MADE UNDER SECTION 132 OR REQUISITION OF BOOKS OF A CCOUNT WERE MADE UNDER SECTION 132A OF THE ACT. THE LANGUA GE OF THE PROVISION IS CLEAR AND UNAMBIGUOUS. THE LEGI SLATION HAS NOT IMPOSED ANY EMBARGO ON THE ASSESSING OFFICE R IN RESPECT OF THE STAGE OF PROCEEDINGS DURING WHICH TH E SATISFACTION IS TO BE REACHED AND RECORDED IN RESPE CT OF THE PERSON OTHER THAN THE SEARCHED PERSON. FURTHER SECTION 158BE(2)(B) ONLY PROVIDES FOR THE P ERIOD OF LIMITATION FOR COMPLETION OF BLOCK ASSESSMENT UN DER SECTION 158BD IN CASE OF THE PERSON OTHER THAN THE SEARCHED PERSON AS TWO YEARS FROM THE END OF THE MO NTH IN WHICH THE NOTICE UNDER THIS CHAPTER WAS SERVED ON S UCH OTHER PERSON IN RESPECT OF SEARCH CARRIED ON AFTER JANUARY 1, 1997. THE SAID SECTION DOES NEITHER PROVIDE FOR NOR IMPOSE ANY RESTRICTIONS OR CONDITIONS ON THE PERIOD OF LIM ITATION FOR PREPARATION OF THE SATISFACTION NOTE UNDER SECT ION 158BD AND CONSEQUENT ISSUANCE OF NOTICE TO THE OTHE R PERSON. (C) IN JAI STEEL (INDIA) V. ASSTT. CIT [2013] 36 TAXMANN.COM 523/219 TAXMAN 223 (RAJ.) , IT WAS HELD THAT NO DOUBT THE ASSESSING OFFICER IS FREE TO DISTURB INCOME, EXPEND ITURE OR DEDUCTION DE HORS ANY INCRIMINATING MATERIAL, WHILE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 28 OF 35 MAKING AN ASSESSMENT UNDER SECTION 153A OF THE ACT. BUT IN THE CONTEXT OF A SEARCH, SECTION 153A TO 153C CA NNOT BE INTERPRETED TO BE A 'FURTHER INNINGS' FOR THE ASSES SING OFFICER AND/OR THE ASSESSEE BEYOND THE PROVISIONS O F SECTIONS 139 (RETURN OF INCOME); 139(5) (REVISED RE TURN OF INCOME); 147 (INCOME ESCAPING ASSESSMENT) AND 263 (REVISION OF ORDERS) OF THE ACT. IT WAS ALSO HELD THAT IT WAS NOT OPEN FOR THE ASSES SEE TO SEEK DEDUCTION OR CLAIM EXPENDITURE, WHICH HAD NOT BEEN CLAIMED IN THE ORIGINAL ASSESSMENT, WHICH ASSESSMEN T ALREADY STOOD COMPLETED, ONLY BECAUSE A ASSESSMENT UNDER SECTION 153A OF THE ACT IN PURSUANCE OF SEARCH OR REQUISITION WAS REQUIRED TO BE MADE. (D) IN CIT V. KABUL CHAWLA [2016] 380 ITR 573/[2015] 234 TAXMAN 300/61 TAXMANN.COM 412 (DELHI) , THE DELHI HIGH COURT HAS HELD THAT (I) ONCE A SEARCH TAKES PLACE U NDER SECTION 132 OF THE ACT, NOTICE UNDER SECTION 153A(1 ) WILL HAVE TO BE MANDATORILY ISSUED TO THE PERSON IN RESP ECT OF WHOM SEARCH WAS CONDUCTED REQUIRING HIM TO FILE RET URNS FOR SIX ASSESSMENT YEARS IMMEDIATELY PROCEEDING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN WH ICH THE SEARCH TAKES PLACE. (II) ASSESSMENT AND REASSESSMEN TS PENDING ON THE DATE OF THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH ASSESSMENT YEARS WILL HAVE TO BE COMPUTED BY THE ASSESSING OFFICERS AS A FRESH EXERC ISE. (III) THE ASSESSING OFFICER WILL EXERCISE NORMAL ASSESSMENT POWERS IN RESPECT OF THE SIX YEARS PREVI OUS TO THE RELEVANT ASSESSMENT YEAR IN WHICH THE SEARCH TA KES PLACE. THE ASSESSING OFFICER HAS THE POWER TO ASSES S AND REASSESS THE 'TOTAL INCOME' OF THE SIX YEARS IN SEP ARATE ASSESSMENT ORDERS FOR EACH OF THE SIX YEARS. IN OTH ER WORDS, THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX ASSESSMENT YEARS IN WHICH BOTH THE DISCL OSED AND THE UNDISCLOSED INCOME WOULD BE BROUGHT TO TAX. (IV ) ALTHOUGH SECTION 153A DOES NOT SAY THAT ADDITIONS S HOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST-SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE ASSESSING OFFICER WH ICH CAN BE RELATED TO THE EVIDENCE FOUND, IT DOES NOT M EAN THAT ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 29 OF 35 THE ASSESSMENT CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WITH THE SEIZED MATERIAL. OBVIOU SLY, AN ASSESSMENT HAS TO BE MADE UNDER THIS SECTION ONLY O N THE BASIS OF THE SEIZED MATERIAL. (V) IN THE ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPLETED ASSESSMENT CA N BE REITERATED AND THE ABATED ASSESSMENT OR REASSESSMEN T CAN BE MADE. THE WORD 'ASSESS' IN SECTION 153A IS RELAT ABLE TO ABATED PROCEEDINGS (I.E., THOSE PENDING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETED ASSESS MENT PROCEEDINGS. (VI) INSOFAR AS PENDING ASSESSMENTS AR E CONCERNED, THE JURISDICTION TO MAKE THE ORIGINAL AS SESSMENT AND THE ASSESSMENT UNDER SECTION 153A MERGES INTO O NE. ONLY ONE ASSESSMENT SHALL BE MADE SEPARATELY FOR EA CH ASSESSMENT YEAR ON THE BASIS OF THE FINDING OF THE SEARCH AND ANY OTHER MATERIAL EXISTING OR BROUGHT ON RECOR D OF THE ASSESSING OFFICER. (VII) COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE ASSESSING OFFICER WHILE MAKI NG THE ASSESSMENT UNDER SECTION 153A ONLY ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UNDISCLOSED I NCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEARCH WHIC H WERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. THE DELHI HIGH COURT FURTHER HELD THAT IN THE CASES BEFORE IT ON THE DATE OF THE SEARCH THE ASSESSMENT ALREADY STOOD CONCLUDED SINCE NO INCRIMINATING MATERIAL WAS UNEARTHED DURIN G THE SEARCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE INCOME ALR EADY ASSESSED. THE QUESTIONS WERE ACCORDINGLY ANSWERED I N FAVOUR OF THE ASSESSEE. 53. LEARNED COUNSEL FOR THE REVENUE HAS RELIED UPON TH E FOLLOWING CITATIONS IN SUPPORT OF HIS CONTENTIONS: (A) IN KAMLESHBHAI DHARAMSHIBHAI PATEL V. CIT [2013] 31 TAXMANN.COM 50/214 TAXMAN 558 (GUJ.) , ON CONSIDERING SECTION 153C OF THE ACT, IT WAS OBSERVED THAT THE S AID SECTION BEGINS WITH A NON-OBSTANTE CLAUSE. REQUIREM ENTS FOR ASSUMING JURISDICTION UNDER SECTION 153C (1) ARE, T HAT THE ASSESSING OFFICER IS SATISFIED THAT ANY VALUABLE AS SETS OR BOOKS OF ACCOUNT OR DOCUMENT SEIZED OR REQUISITIONE D BELONGS TO A PERSON OTHER THAN THE PERSON REFERRED IN SECTION ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 30 OF 35 153A OF THE ACT. IN SUCH A CASE, HE SHALL HANDOVER TO THE ASSESSING OFFICER HAVING JURISDICTION OF SUCH OTHER PERSON, THE BOOKS OF ACCOUNT OR DOCUMENT OR DOCUMENTS OR VA LUABLE ASSETS SEIZED OR REQUISITIONED. THAT THE VALUABLE A SSETS OR BOOKS OF ACCOUNT SEIZED OR DOCUMENTS SEIZED OR REQUISITIONED SHOULD BELONG TO A PERSON OTHER THAN A PERSON REFERRED IN SECTION 153A OF THE ACT. (B) IN FILATEX INDIA LTD. V. CIT [2015] 49 TAXMAN 465/[2014] 49 TAXMANN.COM 465 (DELHI) , THE COURT REJECTED THE ARGUMENT THAT DURING ASSESSMENT UNDER SECTION 153A ADDITIONS HAD TO BE RESTRICTED OR LIMITED TO INCRIM INATING MATERIAL ONLY, FOUND DURING COURSE OF SEARCH. (C) IN SAVESH KUMAR AGARWAL V. UNION OF INDIA [2013] 35 TAXMANN.COM 85/216 TAXMAN 109 (MAG.)/353 ITR 26 (ALL.) , THE QUESTION CONSIDERED WAS WHETHER ON RECEIPT OF SATISFACTION NOTE, THE ASSESSING OFFICER HAD NOT FO UND ANYTHING ADVERSE AGAINST THE ASSESSEE AND SEIZED GO ODS HAVING BEEN RELEASED IN FAVOUR OF THE ASSESSEE, NOT ICE COULD BE ISSUED UNDER SECTION 153C OF THE ACT TO FILE RET URNS FOR SIX YEARS. THE STAND OF THE REVENUE THEREIN WAS THA T THE ASSESSING OFFICER COULD STILL PROCEED UNDER SECTION 153A OF THE ACT IN ORDER TO FIND OUT THE SOURCE OF INCOME. IN THAT CASE THE WRIT PETITION FILED UNDER ARTICLE 226 OF T HE CONSTITUTION OF INDIA CHALLENGING THE NOTICE WAS DI SMISSED ON THE PREMISES THAT THE POWER UNDER SECTION 153C E XISTS IN THE ASSESSING OFFICER, IF HE IS SATISFIED WITH REGA RD TO THE NEED FOR EXAMINATION OF THE SOURCE OF INCOME. (D) IN DR. K.M. MEHABOOB V. DY. CIT [2012] 26 TAXMANN.COM 54 (KER.) , IT WAS HELD THAT UNLIKE UNDER SECTION 158BD, FOR TRANSFERRING A FILE UNDER SECTION 153C, THERE IS NO NEED TO EXAMINE WHETHER THE BOOKS OF ACCOUNT OR OTHER EVIDE NCE OR MATERIALS SEIZED IN THE COURSE OF SEARCH OF AN ASSE SSEE REPRESENTS OR PROVES UNDISCLOSED INCOME OF ANOTHER ASSESSEE. ON THE OTHER HAND, FOR TRANSFERRING THE F ILE TO THE ASSESSING OFFICER OF SUCH OTHER ASSESSEE, ALL THAT IS REQUIRED TO BE CONSIDERED IS WHETHER THE MATERIALS OR BOOKS OF ACCOUNT OR EVIDENCE RECOVERED RELATES TO ANOTHER AS SESSEE, WHICH MAY OR MAY NOT LEAD TO AN ASSESSMENT IN THE C ASE OF THE OTHER ASSESSEE AFTER TRANSFER OF THE FILE TO HI S ASSESSING ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 31 OF 35 OFFICER. THIS IS ONLY AN INTERNAL ARRANGEMENT TO BE MADE BETWEEN TWO DEPARTMENTAL OFFICERS AND IN THIS REGAR D THE ONLY FACT THAT NEEDS TO BE VERIFIED IS WHETHER THE ASSESSEE WHOSE BOOKS OF ACCOUNT OR MATERIALS ARE RECOVERED I N THE COURSE OF SEARCH OF ANY OTHER ASSESSEE, IS A REGULA R ASSESSEE BEFORE ANOTHER OFFICER, AND IF SO, TO TRANSFER THE FILE TO SUCH OTHER OFFICER FOR HIS CONSIDERATION AND FOR PASSING ORDERS, WHETHER ASSESSMENT OR PENALTY OR SUCH OTHER ORDER PERMISSIBLE UNDER THE ACT BY THAT OFFICER. (E) IN CANARA HOUSING DEVELOPNMENT CO. V. DY. CIT [2014] 49 TAXMANN.COM 98 (KAR.) , A DIVISION BENCH OF THIS COURT IN THE SAID CASE NOTED THAT IN THE COURSE OF SEARCH, INCRIMINATING MATERIAL LEADING TO UNDISCLOSED INCOM E BEING SEIZED, HELD THAT THE BLOCK ASSESSMENT ROPED IN ONL Y THE UNDISCLOSED INCOME AND THE REGULAR ASSESSMENT PROCE EDINGS WERE PRESERVED, RESULTING IN MULTIPLE ASSESSMENTS. UNDER SECTION 153A, HOWEVER, THE ASSESSING OFFICER HAS BE EN GIVEN THE POWER TO ASSESS OR REASSESS THE 'TOTAL IN COME' OF THE SIX ASSESSMENT YEARS IN QUESTION IN SEPARATE AS SESSMENT ORDERS. ONCE THE ASSESSMENT IS REOPENED, THE ASSESS ING AUTHORITY CAN TAKE NOTE OF THE INCOME DISCLOSED IN THE EARLIER RETURN, ANY UNDISCLOSED INCOME FOUND DURING SEARCH OR ANY OTHER INCOME WHICH IS NOT DISCLOSED IN THE E ARLIER RETURN OR WHICH IS NOT UNEARTHED DURING THE SEARCH, IN ORDER TO FIND OUT WHAT IS THE TOTAL INCOME OF EACH YEAR A ND THEN PASS ASSESSMENT ORDER. (F) SIMILARLY, IN GOPAL LAL BADRUKA V. DY. CIT [2012] 346 ITR 106/27 TAXMANN.COM 167 (AP) , THE SEARCH REVEALED INCRIMINATING MATERIAL AND UNDISCLOSED INCOME. (G) IN SSP AVIATION LTD. V. DY. CIT [2012] 20 TAXMANN.COM 214/207 TAXMAN 260 (DELHI) , THE OBSERVATIONS OF THE COURT WERE IN LIGHT OF THE FACT THAT INCRIMINATING MATERI AL HAD BEEN FOUND. (H) IN CIT V. ANIL KUMAR BHATIA [2012] 211 TAXMAN 453/24 TAXMANN.COM 98 (DELHI) , THE COURT DID NOT EXPRESS ANY OPINION AS TO WHETHER SECTION 153 A CAN BE INVOKED IN A CASE WHERE NO INCRIMINATING MATERIAL WAS FOUND DURI NG THE SEARCH AS IT WAS IN FACT DEALING WITH A CASE WHERE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 32 OF 35 INCRIMINATING MATERIAL HAD BEEN FOUND. 54. ON A CONSIDERATION OF THE RELEVANT SECTIONS AS WEL L AS JUDICIAL PRECEDENT REFERRED TO ABOVE, WHAT EMERGES IS THAT, SECTION 158BD OF THE ACT DEALS WITH UNDISCLOSED INCOME OF A THIRD PARTY. HOWEVER, INSOFAR AS THE INCRIMINATING MATERIAL OF T HE SEARCHED PERSON OR OTHER PERSON DETECTED DURING THE COURSE O F SEARCH IS CONCERNED, THE SAME CAN BE CONSIDERED DURING THE CO URSE OF ASSESSMENT. FURTHER, SUCH INCRIMINATING MATERIAL MU ST RELATE TO UNDISCLOSED INCOME WHICH WOULD EMPOWER THE ASSESSIN G OFFICER TO UPSET OR DISTURB A CONCLUDED ASSESSMENT OF THE O THER PERSON. OTHERWISE, A CONCLUDED ASSESSMENT WOULD BE DISTURBE D WITHOUT THERE BEING ANY BASIS FOR DOING SO WHICH IS IMPERMI SSIBLE IN LAW. EVEN IN CASE OF A SEARCHED PERSON, THE SAME REASON WOULD HOLD GOOD AS IN CASE OF ANY OTHER PERSON. AS OBSERVED BY US, DETECTION OR THE EXISTENCE OF INCRIMINATING MATERIAL IS A MUS T FOR DISTURBING THE ASSESSMENT ALREADY MADE AND CONCLUDED. BUT, AT THE SAME TIME, SUCH CAN BE AT THREE STAGES: ONE, AT THE STAG E WHEN THE REASSESSMENT IS INITIATED, THE SECOND, AT THE STAGE DURING THE COURSE OF REASSESSMENT AND THIRD, AT A STAGE WHERE THE REASSESSMENT IS ALTERED BY A DIFFERENT ASSESSMENT I N RESPECT OF SEARCHED PERSON OR IN RESPECT OF THIRD PARTY. IN TH IS REGARD, REFERENCE MAY BE MADE TO THE DECISION OF APEX COURT IN CASE OF M/S. CALCUTTA KNITWEAR ( SUPRA ) AND BASED ON THE SAID DECISION, THE CBDT HAS ALSO ISSUED CIRCULAR DATED 3 1.12.2015 VIDE NO.24/2015.THE RELEVANT EXTRACT OF THE CIRCULA R FOR READY REFERENCE CAN BE EXTRACTED AS UNDER: 'THE ISSUE OF RECORDING OF SATISFACTION FOR THE PUR POSES OF SECTION 158BD/153C HAS BEEN SUBJECT MATTER OF LITIG ATION. 2. THE HON'BLE SUPREME COURT IN THE CASE OF M/S CALCUTTA KNITWEARS IN ITS DETAILED JUDGMENT IN CIVIL APPEAL NO.3958 O F 2014 DATED 12.3.2014(AVAILABLE IN NJRS AT 2014-LL-0 312-51) HAS LAID DOWN THAT FOR THE PURPOSE OF SECTION 158BD OF THE ACT, RECORDING OF A SATISFACTION NOTE IS A PREREQUISITE AND THE SATISFACTION NOTE MUST BE PREPARED BY THE AO BEFORE HE TRANSMITS THE RECORD TO THE OTHER AO WHO HAS JURISDICTION OVE R SUCH OTHER PERSON U/S 158BD. THE HON'BLE COURT HELD THAT 'THE SATISFACTION NOTE COULD BE PREPARED AT ANY OF THE FOLLOWING STAG ES: ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 33 OF 35 ( A ) AT THE TIME OF OR ALONG WITH THE INITIATION OF PROC EEDINGS AGAINST THE SEARCHED PERSON UNDER SECTION 158BC OF THE ACT; OR (B) IN THE COURSE OF THE ASSESSMENT PROCEED INGS UNDER SECTION 158BC OF THE ACT; OR (C) IMMEDIATELY AFTER THE ASSESSMENT PROCEEDINGS ARE COMPLETED UNDER SECT ION 158BC OF THE ACT OF THE SEARCHED PERSON.' 2. SEVERAL HIGH COURTS HAVE HELD THAT THE PROVISION S OF SECTION 153C OF THE ACT ARE SUBSTANTIALLY SIMILAR/PARI-MATE RIA TO THE PROVISIONS OF SECTION 158BD OF THE ACT AND THEREFOR E, THE ABOVE GUIDELINES OF THE HON'BLE SC, APPLY TO PROCEEDINGS U/S 153C OF THE IT ACT, FOR THE PURPOSES OF ASSESSMENT OF INCOM E OF OTHER THAN THE SEARCHED PERSON. THIS VIEW HAS BEEN ACCEPT ED BY CBDT. 3. THE GUIDELINES OF THE HON'BLE SUPREME COURT AS R EFERRED TO IN PARA 2 ABOVE, WITH REGARD TO RECORDING OF SATISFACT ION NOTE, MAY BE BROUGHT TO THE NOTICE OF ALL FOR STRICT COMPLIAN CE. IT IS FURTHER CLARIFIED THAT EVEN IF THE AO OF THE SEARCHED PERSO N AND THE 'OTHER PERSON' IS ONE AND THE SAME, THEN ALSO HE IS REQUIRED TO RECORD HIS SATISFACTION AS HAS BEEN HELD BY THE COU RTS. 4. IN VIEW OF THE ABOVE, FILING OF APPEALS ON THE I SSUE OF RECORDING OF SATISFACTION NOTE SHOULD ALSO BE DECID ED IN THE LIGHT OF THE ABOVE JUDGMENT. ACCORDINGLY, THE BOARD HEREB Y DIRECTS THAT PENDING LITIGATION WITH REGARD TO RECORDING OF SATISFACTION NOTE UNDER SECTION 158BD/153C SHOULD BE WITHDRAWN/N OT PRESSED IF IT DOES NOT MEET THE GUIDELINES LAID DOW N BY THE APEX COURT.' AS PER THE AFORESAID CIRCULAR, AT THE TIME OF OR AL ONG WITH INITIATION OF THE PROCEEDINGS, AGAINST THE SEARCHED PERSON OR THIRD PARTY UNDER SECTION 153C OR IN THE COURSE OF ASSESS MENT PROCEEDINGS UNDER SECTION 153C OF THE ACT OR IMMEDI ATELY AFTER THE ASSESSMENT PROCEEDINGS ARE COMPLETED UNDER SECT ION 153C OF THE ACT, RECORDING OF SATISFACTION IS REQUIRED. 55. IF THE OBSERVATIONS MADE BY THE TRIBUNAL ARE CONSI DERED IN THIS REGARD, IT IS NOTED BY THE TRIBUNAL THAT IT IS NOT NECESSARY THAT SATISFACTION SHOULD BE RECORDED THAT DOCUMENTS OR V ALUABLE ASSETS FOUND IN THE COURSE OF SEARCH SHOWED UNDISCLOSED IN COME. IN VIEW OF THE AFORESAID DISCUSSION, WE DO NOT THINK T HAT SUCH CAN BE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 34 OF 35 THE CORRECT POSITION OF LAW. 56. FURTHER, IN THE JUDGMENTS REFERRED TO BY THE LEARN ED COUNSEL FOR THE REVENUE, WHERE INCRIMINATING MATERIAL LEADI NG TO UNDISCLOSED INCOME OF ANOTHER ASSESSEE WAS DETECTED IN A SEARCH OPERATION, IN THOSE CASES, REOPENING OF THE CONCLUD ED ASSESSMENT HAVE TAKEN PLACE. THERE HAS BEEN NO SINGLE DECISION CITED BY THE LEARNED COUNSEL FOR THE REVENUE WHERE THE ASSUMPTIO N OF JURISDICTION OF THE ASSESSING OFFICER IS IN THE ABS ENCE OF ANY INCRIMINATING MATERIAL OR UNDISCLOSED INCOME HAVING BEEN DETECTED DURING THE COURSE OF SEARCH LEADING TO REO PENING OF A CONCLUDED ASSESSMENT. IN THE INSTANT CASE, THOUGH D OCUMENTS BELONGING TO THE ASSESSEE WERE SEIZED AT THE TIME O F SEARCH OPERATION, THERE WAS NO INCRIMINATING MATERIAL FOUN D LEADING TO UNDISCLOSED INCOME. THEREFORE, ASSESSMENT OF INCOME OF THE ASSESSEE WAS UNWARRANTED. CONSEQUENTLY, NO SATISFAC TION WAS RECORDED IN THE CASE OF THE ASSESSEE. WE ANSWER SUBSTANTIAL QUESTION OF LAW NO.2 BY HOLDI NG THAT THE TRIBUNAL WAS NOT CORRECT IN HOLDING THAT THE ASSESS MENT UNDER SECTION 153C WAS VALID DESPITE THERE BEING NO SATIS FACTION RECORDED TO THE EFFECT THAT THE DOCUMENTS FOUND DUR ING THE SEARCH ON 17/06/2008 WERE INCRIMINATING IN NATURE AND PRIM A FACIE REPRESENTED UNDISCLOSED INCOME. 15. THE RATIO THAT CAN BE CULLED OUT FROM THE ABOVE DECISION IS THAT ASSESSMENT UNDER THE PROVISIONS OF SECTION 153A CAN BE MADE OR SHOULD BE CONFINED TO THE INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH AND SEIZURE ACTION. AS STATED BY US SUPRA , IN THE PRESENT CASES, THE AO HAD NOT REFERRED TO ANY INCRIMINATING MATERIAL WHICH INDICA TES THAT THE TAX PLANNING ADOPTED BY THE RESPONDENT-ASSESSEE IS NOT LEGALLY P ERMISSIBLE NOR INDICATING ANY UNDISCLOSED INCOME. THESE ARE ALL T HE PUBLIC DOCUMENTS WHICH ARE AVAILABLE FOR INSPECTION BY ANYBODY AND T HAT CANNOT BE CALLED INCRIMINATING MATERIAL. BY NO STRETCH OF IMAGINATIO N THESE MATERIAL CAN BE ITA NOS. 1376 & 1377 & 1378 & 1379/BANG/2015 PAGE 35 OF 35 CALLED INCRIMINATING MATERIAL. THE ASSESSING OFFIC ER HAD NOT RECORDED ANY SATISFACTION AS TO HOW THE MATERIAL FOUND IS INCRIM INATING IN NATURE. FURTHER NO ADDITION CAN BE MADE IN THE ASSESSMENT U/S. 153A BASED ON INFERENCES DRAWN FROM ALREADY DISCLOSED / PUBLIC DOCUMENTS FOU ND. THIS KIND OF ISSUES CAN BE EXAMINED ONLY IN THE REGULAR ASSESSME NT PROCEEDINGS. THEREFORE, THE ASSESSMENTS MADE CANNOT BE UPHELD IN LAW AS THE ADDITIONS HAVE NOT BEEN BASED ON ANY INCRIMINATING MATERIAL. 16. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 03 RD DAY OF MAY, 2017. SD/- SD/- (SUDANSHU SRIVASTAVA) ( INTURI RAMA R AO ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 03 RD MAY, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.