Commissioner of Income Tax vs Gopi Apartment

Rajan Roy, J.—This is an appeal of the Revenue u/s 260A of income tax Act 1961 (hereinafter referred to as "the IT Act, 1961"). The fads of the case giving rise to the instant appeal are as under:

A search and seizure operation u/s 132(1) of the income tax Act, 1961, was conducted on October 17, 2006, in "Banarasi group of cases" encompassing residential and business premises of the said group. It is alleged that during the search and also during the assessment proceedings in respect of the "searched person", certain incriminating material was recovered, which has been mentioned in the panchnama drawn at the residence of Jeevan Kumar Agrawal, which belonged to the respondent-assessee herein. Accordingly, a notice u/s 153C dated September 27, 2008, was issued, after recording of the requisite satisfaction calling upon the respondent to file its return. The respondent, vide its reply dated December 24, 2003, submitted that the return of income, filed earlier, may be treated as filed in response to the notice u/s 153C of the income tax Act.

The assessment in respect of the respondent-M/s. Gopi Apartments was completed on December 31, 2008. The total income was assessed at Rs. 1,05,93,010 for the assessment year 2005-06.

The respondent-assessee preferred an appeal before the Commissioner of income tax (Appeals) I, Kanpur, against the assessment order dated December 31, 2008. The Commissioner of income tax (Appeals) I, Kanpur, vide order dated February 26, 2010, deleted the entire addition by the Assessing Officer. The Revenue filed an appeal before the income tax Appellate Tribunal, Lucknow Bench, Lucknow (hereinafter referred to as "the ITAT") against the appellate order dated February 26, 2010. The income tax Appellate Tribunal, vide order dated October 5, 2010, deleted the additions. The Revenue again filed an appeal before the income tax Appellate Tribunal against the said order, which was set aside on April 26, 2011 and the matter was remanded back to the Commissioner of income tax (Appeals) I, Kanpur.

The Commissioner of income tax (Appeals) I, Kanpur, vide its order dated June 4, 2012, again allowed the appeal in favour of the respondent-assessee. While deciding the appeal, the Commissioner of income tax (Appeals) took note of the report of the Assessing Officer on the cross-objection filed by the assessee before the income tax Appellate Tribunal The relevant extract of the report of the Assessing Officer, which was considered by the learned Commissioner of income tax (Appeals), is quoted hereinbelow:

"As may be seen from the assessment order itself that the proceedings u/s 153C were initiated on the basis of the seized material documents belonging to the assessee found at the premises of Shri Jeewan Kumar Agarwal during the course of search proceedings. The Assessing Officer in the assessment order has specifically stated that the satisfaction for issuing notice u/s 153C was recorded. However, on examination of record, such satisfaction recorded by the Assessing Officer is not available"

Based on the discussion made by him, the Commissioner of income tax (Appeals) held as under:

"5.4 In the absence of the ''satisfaction note'' prepared by the Assessing Officer of the searched person, it has to be held that the Assessing Officer of the instant assessee could not have assumed jurisdiction u/s 153C of the Act. Thus, all the proceedings undertaken u/s 153C are to be declared as invalid, being annulled for want of jurisdiction. Since the assessment framed u/s 153C has been annulled, no useful purpose shall be served by adjudicating on the merits of the case and/or other arguments of the appellant."

The Commissioner of income tax (Appeals) I, Kanpur, relied upon the law declared by the Supreme Court in the case of Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, and by the Delhi High Court in the case of New Delhi Auto Finance (P) Ltd. Vs. Jt. Commissioner of Income Tax, Special Range-15, which were based on the provisions contained in section 158BD, which are in pari materia with the provisions of section 153C of the income tax Act, 1961.

Being aggrieved by the aforesaid order dated June 4, 2012, the Revenue preferred an appeal before the income tax Appellate Tribunal, Lucknow Bench, Lucknow, which was decided on October 25, 2013, the order of the Commissioner of income tax (Appeals) was affirmed and the appeal of the Revenue was dismissed. The relevant extract of the judgment of the learned income tax Appellate Tribunal is hereinbelow:

"5. We have considered the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that on page 4 at paragraph 5, the learned Commissioner of income tax (Appeals) has reproduced the comments given by the Assessing Officer in the course of remand proceedings and as per the same, it was reported by the Assessing Officer that although the Assessing Officer in his assessment order has specifically stated that the satisfaction for issuing notice u/s 153C was recorded, however, on examination of records, such satisfaction recorded by the Assessing Officer is not available. This goes to show that it was not brought on record by the Assessing Officer before the learned Commissioner of income tax (Appeals) that any satisfaction was recorded by the Assessing Officer before issuing notice u/s 153C of the Act by producing a copy of such satisfaction. Instead of this, it is specially reported by the Assessing Officer to the Commissioner of income tax (Appeals) that on examination of records, any satisfaction recorded by the Assessing Officer is not available. Before us also, the learned Departmental representative of the Revenue has not brought on record the copy of any satisfaction recorded by the Assessing Officer of the searched person, which is necessary for issuing notice to the present assessee u/s 153C of the Act. In the absence of such satisfaction having been recorded by the Assessing Officer of the searched person, the present proceedings initiated by the present Assessing Officer against the present assessee u/s 153C is without jurisdiction and, in our considered opinion, the same has been rightly quashed by the learned Commissioner of income tax (Appeals) by following the judgment of the Hon''ble apex court rendered in the case of Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, . We, therefore, do not find any reason to interfere in the order of learned Commissioner of income tax (Appeals).

In the result, the appeal of the Revenue is dismissed."

It is in this factual background drat the instant appeal has been preferred before this court u/s 260A of the income tax Act, 1961 challenging the order dated October 25, 2013, passed by the income tax Appellate Tribunal, Lucknow Bench, Lucknow.

We have heard Sri Bharat Ji Agrawal, learned senior counsel assisted by Sri Ashok Kumar, learned counsel for the appellant and Sri Ashish Bansal, learned counsel for respondent assessee, and have perused the records.

The contention of Sri Agrawal is two-fold. Firstly, he contends that, in the instant case, the Assessing Officer of the "searched person" and the "other person" being the same, there was no requirement of handing over of the books of account or documents or assets seized or requisitioned, as is mentioned in section 153C nor was there any necessity of recording a prior satisfaction before proceeding to assess the "other person". The satisfaction subsequently recorded in the assessment order in respect of the "other person" was sufficient compliance with the provisions of section 153C which, in any case, was procedural in nature. The Assessing Officer of both the proceedings, being the same, he was neither required to handover the documents to another Assessing Officer nor he had to record any satisfaction for the purpose of any other Assessing Officer since the same Assessing Officer of the same designation is having jurisdiction over both the persons. i.e. "searched person" and the "other person" (not searched). Sri Agrawal relied upon a Division Bench judgment of this court rendered in the case of Commissioner of Income Tax Vs. Classic Enterprises and F.I. Hospital,

It was contended that the Tribunal was not justified in quashing the notice u/s 153C, instead of deciding the question on the merits as to whether additions are to be made and/or to what extent the income is to be assessed in the hands of Gopi Apartments.

Sri Agrawal also contended that by the Finance Act, 2003, the amendment in section 153A with effect from June 1, 2003, was made and sections 153A and 153C were added in place of sections 153BC and 153BD. Section 158BC is equivalent to section 153A and section 158BD is equivalent to section 153C.

He also contended that the reliance placed by the income tax Appellate Tribunal upon the judgment of the Supreme Court in Manish Maheshwari (supra) was misplaced and the case, at hand, was squarely covered by the Division Bench of this court in the case of Classic Enterprises (supra). In this regard, Sri Agrawal referred to the observation in Manish Maheshwari''s case to the effect that "No proceeding u/s 158BC had been initiated. There is, thus, a patent non-application of mind".

Sri Ashish Bansal, learned counsel for the respondent assessee, on the other hand, contended that the initiation of the proceedings u/s 153C against the respondent-assessee itself was illegal, as no satisfaction was recorded by the Assessing Officer of the "searched person" prior to the initiation of such proceedings against the respondent-assessee as was mandatory. He invited the attention of the court to the specific finding recorded by the learned Commissioner of income tax (Appeals), as upheld by the income tax Appellate Tribunal, based on the admission by the Assessing Officer before it, which has already been taken note of by us in the earlier part of the judgment. Sri Bansal relied upon a recent judgment of the apex court in the case of CIT v. Calcutta Knitwears passed in Civil Appeal No. 3958 of 2014 decided on March 12, 2014--since reported in Commissioner of Income Tax-III Vs. Calcutta Knitwears, Ludhiana, in support of his contention.

Apart from the arguments, as noted above, no other argument was raised by the learned counsel for either of the parties nor any other judgment was cited before us in support of their respective contentions.

The relevant provision, in the instant case, i.e., section 153C, is as under:

"153C. Assessment of income of any other person.--(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A."

The aforesaid provision is contained in Chapter XIV of the income tax Act, which contains the procedure for assessment.

A somewhat similar provision exists in section 158BD under Chapter XIV-B, which contains the procedure for assessment of searched cases, which reads as under:

"158BD. 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 u/s 132 or whose books of account or other documents or any assets were requisitioned u/s 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed u/s 158BC against such other person and the provisions of this Chapter shall apply accordingly."

The meaning and scope of the aforesaid provision contained in section 158BD came up for consideration before the Supreme Court in the case of CIT v. Calcutta Knitwears (supra).

The issue that fell for consideration before the Supreme Court as mentioned in paragraph 3 of the judgment is being quoted hereinbelow (page 679 of 362 TIE):

"The issue that falls for our consideration and decision in all these appeals is at what stage of the proceedings under Chapter XIV-B does the assessing authority require to record his satisfaction for issuing a notice u/s 158BD of the income tax Act, 1961 (''the Act'' for short)."

After considering the rival contentions, relevant provisions of the income tax Act and the authorities on the subject, their Lordships held as under (page 690):

"We would certainly say that before initiating proceedings u/s 158BD of the Act, the Assessing Officer who has initiated proceedings for completion of the assessments u/s 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched u/s 132 or the books of account were requisitioned u/s 132A of the Act. This is in contrast to the provisions of section 148 of the Act where recording of reasons in writing are a sine qua non. u/s 158BD the existence of cogent and demonstrative material is germane to the Assessing Officers'' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action u/s 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the Assessing Officer either at the time of initiating proceedings for completion of assessment of a searched person u/s 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the Assessing Officer cannot prepare the satisfaction note to the effort that there exists income tax belonging to any person other than the searched person in respect of whom a search was made u/s 132 or requisition of books of account were made u/s 132A of the Act. The language of the provision is clear and unambiguous. The Legislature has not imposed any embargo on the Assessing Officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person...

In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person u/s 158BC of the Act; (b) along with the assessment proceedings u/s 158BC of the Act; and (c) immediately after the assessment proceedings are completed u/s 158BC of the Art of the searched person.

We are informed by Shri Santosh Krishan, who is appearing in seven of the appeals that the Assessing Officer had not recorded the satisfaction note as required u/s 158BD of the Act, therefore, the Tribunal and the High Court were justified in setting aside the orders of assessment and the orders passed by the first appellate authority. We do not intend to examine the aforesaid contention canvassed by the learned counsel since we are remanding the matters to the High Court for consideration of the individual cases herein in light of the observations made by us on the scope and possible interpretation of section 158BD of the Act.

With these observations, the appeals are disposed of."

The provisions of section 158BD being in pari materia with the provisions of section 153C, the ratio of the aforesaid judgment dearly applies to the present case also.

The reference to the assessment proceedings u/s 158BC by the Supreme Court in the extracts quoted above is with regard to the "assessment proceedings" in relation to the "searched person" and not the "other person" as referred to in section 158BD.

A bare perusal of the provision contained in section 153C of the income tax Act leaves no doubt that as is provided u/s 158BD, where the Assessing Officer, while proceeding u/s 153A against a person who has been subjected to search and seizure u/s 132(1) or has been proceeded u/s 132A, is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.

Thus, there are two stages:

(1) The first stage comprises a search and seizure operation u/s 132 or proceeding u/s 132A against a person, who may be referred as "the searched person". Based on such search and seizure, assessment proceedings are initiated against the "searched person" u/s 153A. At the time of initiation of such proceedings against the "searched person" or during the assessment proceedings against him or even after the completion of the assessment proceedings against him, the Assessing Officer of such a "searched person", may, if he is satisfied, that any money, document, etc., belongs to a person other than the searched person, then such money, documents, etc., are to be handed over to the Assessing Officer having jurisdiction over "such other person".

(2) The second stage commences from the recording of such satisfaction by the Assessing Officer of the "searched person" followed by handing over of all the requisite documents, etc., to the Assessing Officer of such ''other person'', thereafter followed by issuance of the notice of the proceedings u/s 153C read with section 153A against such "other person".

The initiation of proceedings against "such other person" are dependant upon a satisfaction being recorded. Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the "searched person", or even during the assessment proceedings against him or even after completion of the same but before issuance of notice to the "such other person" u/s 153C.

Even in a case. Where the Assessing Officer of both the persons is the same and assuming that no handing over of documents is required, the recording of "satisfaction" is a must, as, that is the foundation, upon which the subsequent proceedings against the "other person'' are initiated. The handing over of documents, etc., in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory.

In this regard, the ratio of the judgment of the Supreme Court in the case of CIT v. Calcutta Knitwears (supra), as noted above, clearly applies to the proceedings u/s 153C also.

The "satisfaction" has to be in writing and can be gathered from the assessment order passed in respect of the "searched person", if it is so mentioned/recorded or from any other order, note or record maintained by the Assessing Officer of the "searched person". The word "satisfaction" refers to the state of mind of the Assessing Officer of the person searched, which gets reflected in a tangible shape/form, when it is reduced into writing. It is the conclusion drawn or the finding recorded on the foundation of the material available. In this regard, reference may be made to the pronouncements in the case of The Commissioner of Income Tax XIII Vs. Radhey Shyam Bansal, and the Division Bench judgment of this court in the case of Commissioner of Income Tax Vs. Classic Enterprises and F.I. Hospital,

In the case of Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, their Lordships had the occasion to consider the provisions of sections 158BC and 158BD and held that the conditions precedent for taking recourse to a block assessment in terms of section 158BC and section 158BD were as under (page 348):

"(i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made u/s 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded u/s 158BC against such other person.

The conditions precedent for invoking the provisions of section 158BD, thus, are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned u/s 132A of the Act."

The ratio of the judgment in Manish Maheshwari''s case also applies to the provisions of section 153C and to the facts of this case.

In the instant case, a categorical finding has been recorded by the Commissioner of income tax (Appeals) and the income tax Appellate Tribunal that there is no material showing the recording of satisfaction by the Assessing Officer of the "searched person" prior to issuance of notice u/s 153C to the respondent-assesses, i.e. "the other person". It was the admitted case of the Revenue before the Commissioner of income tax (Appeals) and the income tax Appellate Tribunal that though the Assessing Officer (of the other person) in the assessment order had stated that the satisfaction for issuing notice u/s 153C was recorded, however, on examination, recording of such satisfaction alleged to be recorded by the Assessing Officer was not available.

In view of the legal position, as already discussed above and the admitted factual position as aforesaid we are unable to accept the contentions of Sri Agrawal.

We are also of the view that the plea, which is being raised in this appeal, was not raised in the grounds of appeal before the income tax Appellate Tribunal, however, even otherwise such plea does not have any merit.

The contention of Sri Agrawal that section 153C is only procedural in nature, therefore, the non-recording of prior satisfaction does not vitiate the assessment order, as, such satisfaction, has been recorded in the assessment order passed subsequently with regard to the other person, is also not acceptable for the reason that the Supreme Court in the case of Calcutta Knitwears (supra) has already considered this aspect of the matter in the context of section 158BD, and after taking note of the fact that the said provision is a machinery provision has interpreted the same. In the light of the interpretation given by it and in view of the ratio laid down therein, the contention of Sri Agrawal does not hold ground, A clear and plain reading of section 153C leaves no doubt that recording of satisfaction by the Assessing Officer of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched).

A specific query was put to Sri Agrawal as to whether, on the basis of the material collected during the search and seizure operation or during the assessment, proceedings against the "searched person" or thereafter, any proceeding could be initiated against the "other person" under any other provision of the income tax Act, he categorically replied that except section 153C, there was no other provision under which action could be initiated against him.

The reliance placed by Sri Agrawal upon the Division Bench judgment of this court in the case of CIT v. Classic Enterprises (supra) far from helping his cause goes against him. We have already relied upon the said judgment to explain the concept of "satisfaction" u/s 153C, which is required to be recorded in writing. However, on the other issues, the said judgment is distinguishable for the reason that in the said case, the Assessing Officer had recorded his "satisfaction" and after recording the satisfaction on the subject matter on August 2, 2006, handed over the books of account and seized material thus, the issue, which falls for consideration in this appeal, in fact, did not arise for consideration in the said appeal. In any case, the case at hand being squarely covered by the pronouncements of the Supreme Court, as already referred, the reliance placed by Sri Agrawal on the aforesaid judgment does not cut much ice. In view of the above discussion, we find that no substantial question of law arises in the instant appeal warranting interference with the impugned judgment u/s 260A of the income tax Act, 1961. It is accordingly dismissed.