Deputy Commissioner of Income Tax, Circle-4, Guwahati V. M/s. Surendra Kumar Agarwal(HUF), Guwahati

ITA 204/GTY/2019

AI Insights

The case involves appeals by the revenue against the orders of the CIT(A) which quashed the assessment orders for the assessment years 2007-08 and 2010-11. The assessments were initially made under sections 153C read with section 143(3) following a search operation under section 132 of the Act. The primary legal issue was the absence of a 'satisfaction note' by the AO, which is mandatory for invoking jurisdiction under section 153C. The CIT(A) found that this procedural requirement was not met, leading to the quashing of the assessment orders. The revenue challenged this decision, but the Tribunal upheld the CIT(A)'s order, referencing the CBDT Circular No. 24 of 2015 and the Supreme Court's judgment in the case of M/s Calcutta Knitwears.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 127225 (ITAT-GUWAHATI)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-10-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 09-05-2019
• Other Referred Cases: Peerless General Finance & Investment Co. Ltd vs. CIT, Inventors Industrial Corporation Ltd Vs. CIT, P.V.Doshi Vs. CIT, Lairy Distributors P.Ltd Vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS; Set aside
• Section: 263; 132; 143(3); 201(1); 250; 201; 158BC; 113; 43; 158BD; 22; 153C

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ - ‘GAUHATI’ IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCH-GAUHATI आभासी मा यम से Through Virtual Medium सम : ी मनीष बोरड , लेखा सद य एवं ी संजय शमा या यक सद य Before: DR. MANISH BORAD, ACCOUNTANT MEMBER & SHRI SONJOY SARMA, JUDICIAL MEMBER आयकर अपील सं.य / ITA No.201/GAU/2019 नधा रण वष ः Assessment Year:2007-08 The DCIT, Circle-4, Aaykar Bhawan, 5 th Fl., Guwahati-781005. बनाम / V/s . M/s. Surendra Kumar Agarwal(HUF) LG Path, Shantipur Hill Side Guwahati-781009. & आयकर अपील सं.य / ITA No.204/GAU/2019 नधा रण वष ः Assessment Year:2010-11 The DCIT, Circle-4, Aaykar Bhawan, 5 th Fl., Guwahati-781005. बनाम / V/s . M/s. Surendra Kumar Agarwal(HUF) LG Path, Shantipur Hill Side Guwahati-781009. PAN: AABHA 3595F अपीलाथ /Appellant .. यथ /Respondent अपीलाथ क ओर से/ By Appellant/Assessee Shri Akkal Dudhewala, Advocate, Ld.AR यथ क ओर से/By Respondent Shri N.T Sherpa, JCIT, Ld.DR स ु नवाई क तार ख/Date of Hearing 20-10-2022 घोषणा क तार ख/ Date of Pronouncement 22-11-2022 ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 2 आदेश /O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER: Both the appeals of the revenue are directed against the separate orders both dated 18/02/2019 passed u/s. 250 of the Income-tax Act, 1961 ( in short, referred to as the ‘Act’) by the Ld. Commissioner of Income-tax, Appeals [hereinafter referred to as ‘CIT(A)’], Guwahati-2, Guwahati for the AYs 2007-08 and 2010-11 respectively. 2. Since the issues raised by the revenue in both the instant appeals are common, therefore, the same are adjudicated together and a common order is being passed for the sake of convenience and brevity to which both the parties have agreed. 3. Brief facts of the case are that a search u/s. 132 of the Act was conducted on the business and residential premises of Shri Vishal Agarwal on 24-09-2010. Certain documents belonging to the assessee, M/s. Surendra Kumar Agarwal-HUF were found, which was followed by issuing of notice u/s. 153C of the Act and the assessment order being framed u/s. 153C r.w.s 143(3) of the Act on 21-03-2013. But this assessment order was set aside by the ld. PCIT exercising the jurisdiction u/s. 263 of the Act and vide order dt. 18-03-2015 the assessment order dt. 21-03-2015 was set aside. 4. Thereafter, the assessee challenged 263 order before this Tribunal, but failed to succeed. Thereafter, fresh assessment ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 3 proceedings were carried out u/s. 143(3) r.w.s 147 of the Act, which was completed on 15-12-2015, wherein certain additions were made. 5. In the second round the assessee during the course of appellate proceedings before the ld. CIT(A) raised the additional ground challenging the exercising of the jurisdiction by the ld. AO u/s. 153C of the Act for initiating the proceedings without prior recording a ‘satisfaction note’, which was a pre-condition to invoke the jurisdiction u/s. 153C of the Act. This additional ground was admitted by the ld. CIT(A) and after examining the facts of the case, it was found that the ld.AO has not recorded his satisfaction prior to initiation of proceedings u/s.153C of the Act. Therefore, the ld. CIT(A) following the CBDT Circular No. 24 of 2015 dt. 31-12-2015 held the assessment order dt. 15- 12-2015 framed u/s. 153C/263/143(3) of the Act as invalid and bad in law and quashed the same. 6. Being aggrieved, the revenue is now in appeal before this Tribunal raising various grounds of appeal as follow:- AY 2007-08 & 2010-11: [ "(i) On the facts and circumstances of the case, the Ld. CIT(A) is not justified in facts as well as in law in quashing the original assessment order dated 21.03.2013 passed by the AO under section 143(3) of the Income Tax Act, 1961. (ii) On the facts and circumstances of the case, the Ld. CIT(A) is not justified in facts as well as in law in quashing the assessment order dated 15.12.2015 passed by the AO under section "263/143(3) of the Income Tax Act, 1961. (iii) On the facts and circumstances of the case as well as on the points of law, the CIT(A) is not justified in law in setting aside the Jurisdictional decisions rendered in ITA Nos.35 to 40 & ITA Nos. 41 to 45 against issues involved in the case of assessee by the ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 4 Hon'ble ITAT and thereby admitting assessee's additional grounds of appeal. (iv) On the facts and circumstances of the case as well as on the points of law, the CIT(A) is not justified in law in setting aside the Jurisdictional decisions rendered in Appeal Nos. Guwa 44- 49/2013-14 against issues involved in the case of assessee by the same jurisdiction authority and thereby admitting appellant's grounds of appeal. (v) On the facts and circumstances of the case the Ld. CIT (A) is not justified in deleting all the additions made by the AO vide original assessment order dated 21.03.2013 passed by the AO under section 143(3) and impugned assessment order dated 15.12.2015 passed by the AO under section 263/143(3) of the Income Tax Act, 1961. (vi) On the facts and circumstances of the case the Ld. CIT (A) is not justified in admitting additional ground of appeal challenging the original u/ s 153C/143(3) dated 21.03.2013 at this stage on the ground that satisfaction had not been recorded by the assessing officer; even when no such ground was raised in appeals against that assessment order before the CIT(A) and ITAT by the assessee, and that order had become final and merged with order with CIT(A) and ITAT and CIT(A) had no jurisdiction to go into or adjudicate that order. (vii) That the CIT(A) is not justified in law in failing to call a remand report on the points & facts raised in the additional grounds submitted by assessee during the appellate proceedings. The arbitrary intentions of the CIT(A), that the AO was asked to furnish the assessment folders in spite of calling for remand report, then, asking AO to furnish "recording of satisfaction note" when all the assessment folders called for have already been in his possession is unjustifiable in the eyes of law. (viii) The appellant craves leave to add, alter or amend any or all of the grounds of appeal before or during the course of appeal. " 7. The Ld. Departmental Representative vehemently argued supporting the order of the AO and also stated before us that the Ld. CIT(A) erred in admitting the additional ground in the second round. He also submitted that the assessee has not challenged the validity of ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 5 assessment proceeding u/s. 153A/143(3) of the Act in the first round and therefore, cannot raise any such legal issue in the second round of assessment proceedings. 8. Per contra, the Ld. Counsel for the assessee referring to the written submissions submitted that the Hon’ble Courts have held on various occasions that such legal issue can be raised at any stage and even in the second round of proceedings also. Further, he submitted that the revenue has failed to furnish any proof that the ld. AO that satisfaction note was prepared by the ld. AO before initiation of proceedings u/s. 153C of the Act. Therefore, the ld. CIT(A) has rightly quashed the assessment proceeding u/s. 153C of the Act. 9. We have heard the rival contentions and perused the material placed on record before us. 10. As regards the first issue raised by the revenue that if the assessee has not raised the issue of validity of jurisdiction exercised u/s. 153C of the Act in the first round of assessment proceeding u/s. 153C/143(3) of the Act then whether the assessee can raise such issue in the second round of proceeding before the ld. CIT(A). We find that in the case of Peerless General Finance & Investment Co. Ltd ( 21SOT 440) this Tribunal has held that jurisdictional issue, which is relating to validity of assessment order can be raised in the second round of litigation even if the same was not raised in the first round of proceeding. Relevant findings of this Tribunal are reproduced herein below:- "We have carefully considered the arguments of the parties and perused the material placed before us. In the first round of appeal the assessee did not raise the issue of validity of direction to pay the ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 6 TDS under section 201(l) and interest thereon under section 201(1A). As stated above, the original order was set aside by the Tribunal for the limited purpose of allowing opportunity to the assessee on the issue of payment of TDS under section 201(1) along with interest thereon under section 201(1A). It is in the second round of appeal that the assessee has raised the ground by arguing that the financial year under consideration is prior to 1-6-2002 and hence even if the assessee is in default in deducting the tax, the assessee cannot be directed to pay the same under section 201 (l) along with interest under section 201 (1A). Therefore, now the question is whether this new ground can be taken up for the first time in set aside proceeding before the Tribunal. We find that the issue regarding the right of the assessee to challenge the legal validity of the order in the second round of litigation was considered by the Hon'ble Gujarat High Court in the case of P. V. Doshi v. CIT [1978J 113 ITR 22 ..... In view of the ratio of the above decision .o] Hon'ble Gujarat High Court, it is evident that jurisdictional provision, which is mandatory, can be taken up in the second round of litigation. We, therefore, respectfully following the above decision of Hon’ble Gujarat High Court permit the assessee to raise the issue relating to validity of the order in second round of litigation. Accordingly, we proceed to examine the assessee’s contention on merits.” 11. We further find support from the similar ratio laid down in the case of Inventors Industrial Corporation Ltd Vs. CIT (194 ITR 548). Hon’ble Gujarat High Court in the case of P.V.Doshi Vs. CIT (113 ITR 22), Delhi Tribunal in the case of Lairy Distributors P.Ltd Vs. DCIT (74 taxman.com 122). 12. In view of the above cited judgments, we find force in the submissions of the ld. Counsel for the assessee and fail to find any merit in the grounds raised by the revenue that the ld. CIT(A) erred in admitting and adjudicating the legal ground challenging the validity of proceeding carried out u/s. 153C of the Act. ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 7 13. As regards remaining grounds of the case are concerned, we find that the ld. CIT(A) has quashed the assessment order u/s. 153C of the Act on the ground that the ld. AO failed to record the satisfaction note. We find that before us the revenue has also failed to rebut this fact that satisfaction note was not prepared by the ld. AO regarding the incriminating material found in the course of search at the business/residential premises of Mr. Vishal Agarwal, which belonged to the assessee (M/s. Surendra Kumar Agarwal-HUF). The pre-condition for carrying out proceedings u/s. 153C is that if the ld. AO of the ‘searched person’ and the ld.AO of the ‘other person’ in whose name incriminating material is found are different, then firstly ‘satisfaction note’ is prepared by the ld. AO of the ‘searched person’ mentioning the details of search material not belonging to the ‘searched person’ but belonging to the ‘other person’. Such satisfaction note along with seized material is passed over to the ld. AO of ‘other person’. Thereafter, the ld.AO of the ‘other person’ is again required to prepare the ‘satisfaction note’ stating that such seized material belongs to ‘other person’, who is under his jurisdiction. In the instant case before initiation of proceeding u/s. 153C of the Act the ld. AO has not prepared the satisfaction note. This fact has been admitted by the revenue authorities before us also. Therefore, the Circular No. 24/2015 dt. 31-12-2015 issued by the Central Board of Direct Taxes (CBDT) is squarely applicable, which reads as follow:- “The issue of recording of satisfaction for the purpose of section 158BD/153C has been subject matter of litigation. 2. The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No. 3958 of 2014 dated 12-3- 2014 [2014J 43 taxmann.com 446 (SC) (available in NJRS at 2014- ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 8 LL-0312-51) 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 over such other person u/ s 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or (b) in the course of the assessment proceedings under section 158BC of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person. " 3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT. 4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts. 5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/ not pressed if it does not meet the guidelines laid down by the Apex Court. " 14. On perusal of the above referred CBDT Circular, which has been issued after following the judgment of the Hon’ble Supreme Court in the case of M/s. Calcutta Knitwears (supra) in Civil Appeal No. 3958 of 2014 dated 12-3-2014 [ 2014] 43 taxmann.com 446(SC) and also considering the consistent view taken by various Hon’ble Courts, we find that the ld. CIT(A) has rightly applied the ratio laid down by the Hon’ble ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 9 Apex Court as well as CBDT Circular No. 24 of 2015 dated 31-12-2015 to hold that proceeding u/s. 153C r.w.s 143(3) are void and ab initio. Since the same was carried out without recording satisfaction by the ld. AO, no interference is called for in the findings of the ld. CIT(A). Thus, all the grounds raised by the revenue in both the appeals are dismissed. प रणामत: नधा रती क अपील (ITA Nos. 201 & 204/Gau/2019 for the AY 2007-08 & 2010-1)1 खा रज क जाती है। 15. In the result, both the revenue’s appeals are dismissed. आदेश ख ु ले यायपीठ म दनांक 22 -11-2022 को उ घो षत। Order pronounced in open court on 22-11-2022 Sd/- Sd/- (SONJOY SARMA) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata/ कोलकाता **PP/Sr.PS दनांकः- 22 /11 /2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. अपीलाथ /Appellant/Department- The DCIT, Circle-4, Aaykar Bhawan, 5 th Fl., Guwahati-781005. 2. यथ /Respondent/Assessee-M/s. Surendra Kumar Agarwal(HUF) LG Path, Shantipur Hill Side, Guwahati-781009. 3.. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त- अपील / CIT (A) 5. वभागीय त न ध, आयकर अपील य अ धकरण कोलकाता / DR, ITAT,Guwahati. 6. गाड फाइल / Guard file. /True Copy/ By order/आदेश से, सहायक पंजीकार आयकर अपील य अ धकरण,कोलकाता । ITA No.201.Gau/2019 AY 2007-08 & ITA No. 204/Gau/2019 AY 2010-11 M/s. Srendra Kr. Agarwal-HUF Page 10 1. Date of Dictation..............................7.11.2022 Cause Title & D.D11.11.2022 2. Date on which the typed order is placed before the dictating Member and other Member...............14.11.2022/14.11.2022/16.11 correction. 3. Date of which the order came back to Sr. PS...22.11.2022/Dt.of Pronouncment 4. Date of which the file goes to Bench Clerk......22.11.2022................... . 5. Date of which the file goes to the O.S....................................................... . 6. Date of dispatch of the order.................................................................. .