Income Tax Appellate Tribunal - Hyderabad
Smt. Sarnala Jayalaxmi,, Hyderabad vs Assessee on 10 August, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 1329/HYD/2014
Assessment Year: 2004-05
Smt. Sarnala Jayalaxmi, Asst. Commissioner
HYDERABAD Vs of Income Tax,
[PAN: AGQPS4023B] Central Circle-6,
HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri P. Murali Mohan Rao, AR
For Revenue : Shri A. Seetharama Rao, DR
Date of Hearing : 13-07-2016
Date of Pronouncement : 10-08-2016
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-III, Hyderabad dated 17-04-2014. Assessee has preferred the following grounds in her appeal:
"1. The Ld. CIT(A) - III, Hyderabad erred both in law and on facts in dismissing the appeal.
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2. The Ld. CIT(A) - III, Hyderabad ought to have annulled the Order of the Assessing Officer properly appreciating that the action taken by AO in initiating proceedings U/s. 153C is bad in law.
3. The Ld. CIT(A)-III, Hyderabad ought to have appreciated the fact that at the time of search, no incriminating materials has been found justifying the additions so made.
4. The Ld. CIT(A)-III, Hyderabad ought to have appreciated the decision of the ITAT, Mumbai Special Bench in the case of M/s. All Cargo Global Logistics Ltd., vs. DCIT, Central Circle 44, Mumbai and allowed the appeal of the assessee.
5. The Ld. CIT (A)-III, Hyderabad erred in sustaining the addition towards undisclosed profit for Rs. 5,27,500/- ignoring the expenditure incurred by the Appellant towards development of land.
6. The Ld. CIT (A)-III, Hyderabad ought to have deleted the addition of Rs. 5,27,500/- properly appreciating the evidence furnished by the Appellant in the paper book in the form of confirmation letters from various parties and the copy of the bank statement through which the payment is made.
7. The Ld. CIT (A)-III, Hyderabad ought to have directed the AO to drop penalty proceedings u/s. 271(1)( c) of the Act appreciating the fact that the appellant company has neither concealed any income nor furnished any inaccurate particulars of income.
8. The appellant herein may add, alter or modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal".
2. In addition to questioning the proceedings u/s. 153C of the Income Tax Act [Act], assessee has raised additional grounds as under:
ADDITIONAL GROUNDS OF APPEAL "9. The Ld. CIT(A) erred in upholding the Order of the Assessing officer by invoking the provisions of section 153C of the Act for the assessment year 2004.05, there being no satisfaction recorded by him as well as by the Assessing Officer having jurisdiction over the company searched.
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10. The Ld. C1T(A) ought to have annulled the Order of the Assessing officer appreciating that invoking of the provisions u/s 153C without recording satisfaction by him as well as by the Assessing Officer having jurisdiction over the searched party becomes invalid as held by the Hon'ble A.P High Court in the case of CIT Vs. M/s Shettys Pharmaceuticals & Biologicals Ltd in ITTA Nos.662 of 2014 dated.26-1l-2014.
11. The Ld. C1T(A) ought to have appreciated that the material found in premises of M/s. Madhucon Projects Ltd. does not belong to appellant for the year under consideration and that the proceeding u/s 153C cannot be initiated.
Case law: Dr. N.Pawan Kumar Vs. DCIT [ITA Nos.1568 & 1569/Hyd/2013].
12. The Ld. CIT(A) ought to have appreciated the fact that no addition can be made to the income of the assessee without there being any incriminating material found during the course of search while framing assessment u/s 143(3) rws 153C of the Act".
3. In support of the additional grounds, Ld. Counsel placed on record the order sheet, wherein the satisfaction was recorded as under:
Order sheet SMT. SARNALA JAYALAKSHMI PAN NO: AGQPS4023B Search & Seizure operations u/s. 132 of IT Act was conducted in the case of M/s. Sarnala Sridhir group of cases. As per the appraisal report, the assessee is covered u/s. 153C of the IT Act. Hence notice u/s. 153C is putup.
Sd/-
10/8/06
4. It was submitted that the order sheet as recorded above is similar to the order sheet recorded in the case of M/s. Shettys Pharmaceuticals and Biologicals Ltd., which was decided by the I.T.A. No. 1329/Hyd/2014 :- 4 -: Smt. Sarnala Jayalaxmi Hon'ble ITAT and was upheld by the Hon'ble High Court of AP in ITTA No. 662/2014 dt. 26-11-2014 [57 Taxmann.com 282].
5. Ld. DR submitted that the order sheet placed on record is as per the assessment record obtained by him.
6. On considering the rival submissions and perusing the documents placed on record, we are of the opinion that the proceedings initiated against assessee u/s. 153C are not as per the provisions of the Act.
6.1. Section 153A is procedural section which deals with the mode of assessment. A notice u/s. 153A can only be issued to such person where a search is initiated u/s.132 or books of account or other documents or any assets are requisitioned u/s. 132A after 31st day of May, 2003, requiring him to furnish within such period as may be specified in the notice, return of income in respect of each assessment year following within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisitioned is made. Thereafter assessment would be framed as per the provisions of section 143. Section 153C deals with the situation where the AO is satisfied that any money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitions 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 AO having jurisdiction over such other person and that the AO shall proceed against each of such other person and issue such I.T.A. No. 1329/Hyd/2014 :- 5 -: Smt. Sarnala Jayalaxmi other person notice and assess or re-assess income of such other person in accordance with the provisions of section 153A; meaning thereby that action under section 153C always depends upon the action u/s.153A upon some other person. The AO of such person in whose case search was conducted is satisfied that the money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitioned belong to some other person, he after forming the belief to that extent regarding the same shall hand over the relevant material to the concerned AO having jurisdiction over such other person.
6.2. Before initiating proceedings u/s.153C, the AO, who has initiated proceedings for completion of assessment u/s.153A should be satisfied that there is incriminating material belonging to assessee. Thus, in contrast to the provisions of section 148 where recording a reason in writing are sine qua non, u/s.153C the existence of cogent and demonstrative material is germane to the AO's satisfaction in concluding that the seized documents belong to a person other than the searched person for initiation of action u/s.153C. The bare reading of the provision of section 153C indicates that the satisfaction note could be prepared by the AO either at the time of initiating proceedings for completion of assessment of a searched person u/s.153A or during the stage of the assessment proceedings. The satisfaction note could be prepared at either of the following stages:
(a) At the time of or along with initiation of proceedings against the searched person u/s.153A;
(b) Along with the assessment proceedings u/s.153A;
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(c) Immediately after the assessment proceedings are completed u/s. 153A of the searched person;
6.3. Thus, the condition precedent for issuing notice under section 153C and assessing or re-assessing income of such other person is that, the money, bullion, jewellery or other valuable articles or thins or books of account or documents seized or requisitioned should belong to such other person. If the said requirement is not satisfied recourse cannot be made to the provisions of section 153C. Thus, the provisions contained u/s. 153C can only be invoked where there was satisfaction by the AO having jurisdiction over the person searched or requisitioned u/s.132A during the course of assessment proceedings. Therefore, the proceedings u/s.153A always precede the proceedings u/s.153C and without recording satisfaction note by the AO initiating proceedings for completion of assessment u/s. 153A cannot be proceeded u/s.153C in the case of such other person not searched.
6.4. The main difference in the language is that in section 158BD the scope of jurisdiction of AO is only with respect to the undisclosed income found during the course of search, whereas in section 153C the scope of jurisdiction of the AO is with respect to any money, bullion, jewellery, other valuable articles or things or books of account or documents with respect to which the AO is satisfied that it belongs to such other person. But so far as the reference to word 'satisfaction' is made, it is same as available in section 158BD. Therefore, the ratio laid down in various cases in respect to the point of satisfaction will apply for initiation of action I.T.A. No. 1329/Hyd/2014 :- 7 -: Smt. Sarnala Jayalaxmi u/s.153C. In view of this, initiation of proceedings u/s.153C is not proper as there is no satisfaction recorded by the AO having jurisdiction over the person searched or requisitioned u/s.132A during the course of assessment proceedings of searched party or later before issue of notice u/s.153C. Accordingly, the assessment framed u/s.153C in the assessment year has to be quashed.
7. Similar facts exist in the case of M/s. Shettys Pharmaceuticals and Biologicals Ltd., (supra), wherein Co-ordinate Bench of ITAT has considered that, where there is no satisfaction recorded by assessee on searched person, initiation of proceedings against the other person u/s. 153 would be bad. Revenue has carried the matter to the Hon'ble High Court of AP in ITTA No. 662/14. On which Hon'ble High Court has analysed the provisions and considered as under:
"The argument apparently is very attractive, but the law is otherwise and the learned Tribunal has correctly applied. We therefore appropriately set out Section 153C of the Act.
Assessment of income of any other person 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 1.')3, 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 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 Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of sect ion 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub- section (1) of section 153A.
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(emphasis supplied) It is therefore clear that firstly satisfaction has to be recorded by the Assessing Officer who conducted search, 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 of the Act. Thereafter, the Assessing Officer having jurisdiction over third party on receipt of the seized material or books of accounts or document being handed over to him shall record his own satisfaction after examining the same independently without being influenced by the satisfaction of the Seizing Officer. In other words it is not an automatic action. We find satisfaction of two officers is missing. In this connection we set out the text of the order of the Assessing Officer which is as follows.
A search and seizure operation u/s. 132 was carried out in the group case of Dr. T. Yadhaiah Goud and others on 25.3.2010. During the course of search operation documents belonging to SHETTY PHARMACEUTICALS & BIOLOGICAL LTD., has been seized. Hence it is considered to initiate proceeding u/s. 153C of the I.T.Act.
The aforesaid Section mandates recording of satisfaction of the Assessing Officer(s) is a pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other way (see Nazir Ahmed V. Kind Emperor). We think the learned Tribunal has correctly followed the principle. We do not find any element of law to be decided".
8. Similar view is also taken by the Hon'ble Delhi High Court in the case of Pepsico India Holdings (P.) Ltd., [50 Taxmann.com 299] (Delhi) wherein on the following facts, it was held as under:
A search and seizure operation under section 132(1) was conducted on the Jaipuria Group during which certain documens 'belonging' to the petitioner were found.
Consequently, the Assessing Officer of the Jaipuria Group prepared a satisfaction note to the effect that the documents mentioned I.T.A. No. 1329/Hyd/2014 :- 9 -: Smt. Sarnala Jayalaxmi therein belonged to the petitioner. Three kinds of documents were mentioned in satisfaction note. First were the photocopies of Cumulative Redeemable Preference Shares purchased by the petitioner from TDL and SMV. The second set of documents were unsigned cheques found in the cheque books of the Jaipuria Group companies, which had been written in favour of the petitioner. The third document was a photocopy of a supply and loan agreement made between PDL and petitioner.
Thereafter, the Assessing Officer issued notices to the petitioner under section 153C seeking to reopen the assessments of the petitioner for the assessment years 2006-07 to 2011-12 and to follow the procedure prescribed under section 153A.
In response to the said notices, the petitioner submitted its objections which were rejected by the Assessing Officer and the petitioner was directed to comply with the assessment proceedings under section 153C.
On writ:
HELD In order that the Assessing Officer of the searched person comes to the satisfaction that documents or materials found during the search belong to a person other than the searched person, it is necessary that he arrives at the satisfaction that the said documents or materials do not belong to the searched person.
In the instant case, it is nobody's case that the Jaipuria Group had disclaimed those documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of section 153C do not get attracted because the very expression used in section 153C is that '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 belongs or belong to a person other than the person referred to in section 153A .... ' In view of this phrase, it is necessary that before the provisions of section 153C can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in section 153A, i.e., the searched person. In the satisfaction note, which is the subject- matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This I.T.A. No. 1329/Hyd/2014 :- 10 -: Smt. Sarnala Jayalaxmi is even apart from the fact that there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned.
Secondly, the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they 'belong' to the person who holds the originals. Possession of documents, and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents, it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking section 153C does not arise.
Thirdly, the Assessing Officers should not confuse the expression 'belongs to' with the expressions 'relates to' or 'refers to'. A registered sale deed, for example, 'belongs to' the purchaser of the property although it obviously 'relates to' or 'refers to' the vendor. In this example if the purchaser's, premises are searched and the registered sale deed is seized, it cannot be said that it 'belongs to' the vendor just because his name is mentioned in the document. In the converse case if the vendor's premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy 'belongs to' the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to 'belong to' the petitioner.
In view of the foregoing discussion, the ingredients of section 153C have not been satisfied in this case. Consequently, the notices issued under section 153C are quashed. Accordingly, all proceedings pursuant thereto stand quashed".
9. As can be seen from the satisfaction recorded by the AO while initiating proceedings u/s. 153C, there is neither any linking up of the documents nor any finding that certain seized documents pertain to assessee. Moreover, AO also has not recorded any satisfaction while initiating proceedings u/s. 153C. In view of this, we are of the opinion that there is no satisfaction recorded by the AO, as required under the provisions.
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9.1. Consequently, the proceedings u/s. 153C are not as per the provisions of the law. Following the principles laid down on this issue and on the facts of the case, we uphold the additional grounds raised. We, accordingly hold that the proceedings initiated u/s. 153C are bad in law. Since the very proceedings are held to be bad in law, there is no need to adjudicate all other grounds raised on merits. However, they are also considered allowed for statistical purposes.
10. In the result, appeal of assessee is allowed.
Order pronounced in the court on 10th August, 2016 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 10th August, 2016 TNMM Copy to :
1. Smt. Sarnala Jayalaxmi, Hyderabad. C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
2. Asst. Commissioner of Income Tax, Central Circle-6, Hyderabad.
3. CIT (Appeals)-III, Hyderabad.
4. CIT-II, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.