Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs Sh. Anupam Naglia, Gurgaon on 19 June, 2018
//FIT FOR PUBLICATION//
Sd/- Sd/-
A.M. J.M.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "A" : DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
I.T(S.S)A.No.36/Del./2010
Block Period 01.04.1997 to 08.05.2003
The DCIT,
Shri Anupam Nagalia,
Circle-20, Room No.333,
E-2, ARA Centre,
vs EG-3/18, Garden Estate,
Gurgaon.
Jhandewalan Extn.,
PAN AAFPN8953Q
New Delhi.
(Appellant) (Respondent)
For Revenue : Smt. Aparna Karan, CIT-D.R.
Shri C.S. Aggarwal, Sr.
For Assessee : Advocate and
Shri D.B. Jain, C.A.
Date of Hearing : 21.05.2018
Date of Pronouncement : 19.06.2018
ORDER
PER BHAVNESH SAINI, J.M.
This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-1, New Delhi, Dated 14.06.2010 for the above block period on the following grounds :
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1. "The Order of the Ld. CIT(Appeals) is not correct in law and facts.
2. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in quashing the block assessment completed under section 158BC read with section 158BD of Income Tax Act, 1961 whereas neither objection was raised against legal validity of proceedings before the A.O. nor any remedy was sought at any other level."
2. Briefly, the facts of the case are that search and seizure operations were conducted at the residence of the assessee on 08.05.2003 in connection with the search in Vatika Group of Companies. A satisfaction note was recorded by the Assessing Officer having jurisdiction over the Vatika Group of Cases. Accordingly a notice under section 158BD was issued on 31.05.2005 and the assessee filed its return of income declaring NIL undisclosed income. The A.O, however, computed the 3 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
undisclosed income of the assessee at Rs.1,89,53,900/- in the Order passed under section 158BD dated 21.05.2007. 2.1. The assessee challenged the order of the A.O. before Ld. CIT(A) on several grounds in which the assessee, inter alia, challenged the validity of the proceedings initiated under section 158BD of the I.T. Act as well as additions on merit. The assessee in the written submissions contended that, satisfaction note was recorded in the case of assessee and, no satisfaction note was recorded by the Assessing Officer in the case of Vatika group of companies. Therefore, according to the assessee, no note of satisfaction was recorded by the Assessing officer having jurisdiction over the assessee who has been searched although in the assessment order it is stated that, a satisfaction note was recorded by the Assessing officer having jurisdiction over the Vatika group of companies. The assessee stated that, the Assessing Officer in the first para of the assessment order noted that, "a satisfaction note was recorded by the Assessing Officer having jurisdiction over the Vatika Group 4 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
of Cases". However, in second para of the order, it is stated that a copy of satisfaction note was duly provided to the assessee and the assessee filed its letter dated 10.05.2006. The assessee disputed the observation of the A.O. that the satisfaction note was recorded in the case of Vatika Group of cases. The A.O. did not deal the aforesaid objections of the assessee so raised before completion of the assessment proceedings. It was submitted that copy of the said satisfaction note had been served upon the assessee on 27.01.2006 whereas the satisfaction note was recorded on 31.05.2005 and no reason have been explained for the delay of over 7 months for providing such satisfaction note to the assessee. The satisfaction note served upon the assessee clearly shows that it was recorded in the case of Shri. Anupam Nagalia (assessee). It was, therefore, submitted that no satisfaction note was recorded in the case of the person searched i.e., M/s. Vatika Group of Companies. The assessee relied upon the decisions of Hon'ble Supreme Court in the case of Manish Maheshwari vs. ACIT 289 ITR 341 and others. On the basis of these decisions, the assessee has objected to the 5 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
initiation of the proceedings under section 158BD, since no satisfaction note whatsoever was recorded by the A.O. having jurisdiction over the person searched.
2.2. It was further contended that, the additions have been made in the hands of the assessee on the basis of the documents seized from assessee's premises allegedly pertaining to the assessee and not on the basis of even a single paper seized from the premises of Vatika group of companies. Even in the note of satisfaction there is no mention of any incriminating document seized from the residential premises of the assessee. The assessee, therefore, objected to the observations of the Assessing officer that a note of satisfaction was recorded in the case of Vatika group of companies. In fact, there cannot be any occasion to record any note of satisfaction for the papers seized during search on the assessee not pertaining to Vatika group of companies. A.O. has wrongly assumed jurisdiction under section 158BD of the I.T. Act. It was submitted that since assessee was subjected to search, therefore, assessment should 6 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
have been framed in the case of assessee under section 158BC of the I.T. Act. Therefore, assessment so framed is time barred. The assumption of jurisdiction by invoking the provisions of section 158 BD of the Act, is without jurisdiction, as no valid notice could have been issued beyond a period of two years from the end of the month in which search took place at assessee's premises.
2.3. The Ld. CIT(A) called for the remand report from the A.O. in which the A.O. reported that it is an undisputed fact that search was conducted under section 132 of the I.T. Act in the case of assessee and on the Company M/s. Vatika Landbase Private Limited in which he was Director on 08.05.2003. Notice under section 158BD of Income tax Act, 1961 was issued on 31.05.2005 after recording satisfaction note which is within time. The A.O. thereafter, framed the block assessment under section 158BD on 21.05.2001. During the course of block assessment proceedings, the assessee did not raise the issue of block assessment under section I58BC but objected to the 7 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
initiation of proceedings under section 158BD on merits of satisfaction note. The comments of the assessee on remand report were also called for and comments of the assessee are reproduced in the appellate order.
2.4. The Ld. CIT(A) considering the submissions of both the parties and material on record held that proceedings initiated under section 158BD of the Act are not legal, valid and accordingly, quashed. The findings of the Ld. CIT(A) in paras 4 to 4.9 of the order are reproduced as under :
"4. I have gone through the facts of the circumstances of the issue as well as judicial pronouncements relied upon by the appellant. Section 158BD of the Act provides as under:
"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 requisitioned under section 132 A. 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 against such other person and the provisions of this Chapter shall apply accordingly."
4.1. On plain reading of the aforesaid statutory provisions contained in section 158BD of the Act, it will be seen that, it has been provided 8 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
that, where the Assessing Officer of the searched person is satisfied that, any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 of the Act, 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, thereafter the Assessing Officer of such other person shall proceed against such other person. The, Apex Court in the case of Manish Maheshwari 289 ITR 341 has held that, unless there is a valid satisfaction note recorded by the Assessing Officer of the searched person, after going through the seized documents to the effect that initiation of proceedings u/s 158BD is called for, there is no justification, to initiate proceedings u/s 158BD of the I.T. Act. It concluded therein as under:
"The condition precedent for invoking a block assessment 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 carried out under section 132A or documents or assets have been 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 precedent whereof are: (i) satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect of whom search was made under section 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 under section 158BC against such other person.9
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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 under section 132A of the Act.
The only question which arises for our consideration is as to whether the notice dated February 6, 1996, satisfies the requirements of section 158BD of the Act. The said notice does not record any satisfaction on the part of the Assessing Office, Documents and other assets recovered during search had not been handed over to the Assessing Officer having jurisdiction in the matter.
A large number of decisions of various High Courts have been cited at the Bar. We would, at the outset, refer to a decision of the Gujarat High Court in Khandubhai Vasantji Desai v. Deputy CIT [1999] 236 ITR 73. Therein, it was clearly held (page 85) "This provision indicates that where the Assessing Officer who is seized of the matter and has jurisdiction over the 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 requisitioned under section 132A, he shall proceed against such other person as per the provisions of Chapter XIV-B which would mean that on such satisfaction being reached that any undisclosed income belongs to such other person, he must proceed to serve a notice to such other person as per the provisions of section 158BC of the Act. If the Assessing Officer who is seized of the matter against the raided person reaches such satisfaction that any undisclosed income belongs to such other person over whom he 10 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
has not jurisdiction, then, in that event, he has to transmit the material to the Assessing Officer having jurisdiction over such other person and in such cases the Assessing Officer who has jurisdiction will proceed against such other person by issuing the requisite notice contemplated by section 158BC of the Act."
4.2. Also, Hon'ble Delhi High Court in the case of Janki Exports International v UOI reported in 278 ITR 296 has further held as under :
"We find that section 158BD is somewhat analogous to section 147 in so far as the procedure that is required to be followed. Section 147 contemplates that if the Assessing Officer has reasons to believe that there is escapement of income, then notice can be issued under section 148 of the Act. So far as section 158BD of the Act is concerned, the Assessing Officer has to be satisfied that there is undisclosed income. Upon such satisfaction, the Assessing Officer is required to forward the relevant documents, papers, etc.. to the Assessing Officer who is required to assess the person in respect of whom the undisclosed income has been discovered. Once this is done, we feel that the person who is to be proceeded against under section 158BD and then section 158BC, must be informed about the satisfaction of the Assessing Officer which has been recorded and he must be given a reasonable opportunity to object to the same. Satisfaction can be arrived on some material. That material would provide the reasonable satisfaction.
4.3. The Hon'ble Tribunal in the ease of Manoj Aggarwal vs. DCIT reported in 113 ITD DCIT (SB) Del.) in para 123 to 124 has held as under :11
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
"123. Haring held that recording of satisfaction is imperative before assumption of jurisdiction u/s 158BD. We may now turn to examine the meaning of the expression ''where the Assessing Officer is satisfied" appearing at the beginning of section 158BD for the meaning so ascertained gives us a clue as to the nature of the note of satisfaction that is envisaged in the said, section 1 24 ............ Onthe other hand, the term 'satisfaction' in section 158BD connotes that there exists undisclosed income and that such undisclosed income is that of the person not searched. The use of the expression 'satisfied' in section 158BD cannot be read in isolation and it has to be understood in the context in which the said term appears in the said section. It will be seen that section 158BD starts with the expression "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...." It is significant that the term 'satisfied* is not used in a vacuum but along with the w o r d s 'that any undisclosed income belongs to other than the person with respect to whom search was made....", and the words in the context are 'undisclosed income' and 'belongs to' which clearly indicate that at that point of time when satisfaction i s recorded by the Assessing Officer the undisclosed income is to be identified. Further, the said expression does not stop there. It further 12 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
uses the expression "belongs to any person, other than the person with respect to whom search was made" which indicates that the undisclosed income identified by the Assessing Officer is found to be belonging to the other person. It would thus mean that at the stage of recording, the Assessing Officer has reached a finding that undisclosed income has been detected as a result of search and also further that such income belongs to the person not searched. All these constitute findings and not a more belief held by the Assessing Officer on the examination of the seized material and hence the satisfaction contemplated in section 158BD is totally different than contemplated in section 147. It is fundamental that the Assessing Officer finds out whether there is undisclosed income. If he finds that there exists undisclosed income, then he has to give a finding as to whom the said income belongs. In the absence of such a finding, it is not possible to conclude a block assessment under section 158BC. Only thereupon, the section 158BD proceedings in respect of the other person for making a similar block assessment of such undisclosed income would commence. Hence, in our considered view7, the note of satisfaction must contain a positive finding by the Assessing Officer making the assessment under section 158BD indicating therein the undisclosed income found as a result of his examination of the seized material, the person to whom such income belongs and proceed accordingly as provided for in the said section. The circumstances envisaged and the context in sections 147 and 13 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
15SBD arc entirely different decision in the case cited (supra) into the section 158BD proceeding for the reasons detailed herein." 4.4. In other words, the basic statutory pre-condition for invoking section 158BD of the Act is the satisfaction of the AO of the searched person and, such satisfaction is to be recorded in writing on the basis of material found as a result of search on the searched person. 4.5. Applying the foregoing principles to the facts of the instant case, it will be seen that in the instant case, the basis adopted for initiation of proceedings under section 158BD of the Act in the case of the appellant is that, there has been a search conducted at the premises of Vatika Group of Companies (herein after alternatively referred to as "searched person") and as a result of search, satisfaction note was recorded by the learned Officer having jurisdiction over Vatika Group of Cases. The satisfaction note, as recorded by the Assessing Officer having jurisdiction over Vatika Group of Cases reads as under :
"Reasons u/s 158BC read with 158BD in the case of Shri Anupam Nagalia Warrant was issued in the name of Vatika Group of Companies to search residence of Sh. Anupam Nagalia on 8.5.2003, who was Director of some of the companies of Vatika Group and also a Chartered Accountant. Scrutiny of seized documents reveals that assessee had unaccounted income under the following heads :-14
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
I Remuneration- Annexure A-11. pages 33, 34, 37 and 38 reveals receipt of unaccounted remuneration by Sh. Anupam Nagalia. II Profit in Danisco Deal - Annexure A-l reveals receipt of unaccounted profit from business deal with M/s Danisco Ingredients (India) Pvt. Ltd.
III Investment in assets- Annexure A-l. page 65 reveals unaccounted investment in land at Rajpur Road. Dehradun amounting to Rs. 55 lacs, at Village Bhondsi (Manana) amounting to Rs.18 lacs and immovable properties comprising loans and advances, investment in shares and deposits, jewellery etc. amounting to Rs. 48 lacs.
IV Unaccounted loan - Annexure A-2, page 1,2,3,5,6,8,10,13,15 and 21 reveals transactions on account of loans not disclosed for the purpose of income tax.
In view of the facts stated above and material available in the form of seized documents, I am satisfied that Sh. Anupam Nagalia had undisclosed income for the block period 01.04.1997 to 08.05.2003 which was not disclosed in the regular return of income. Therefore, notice u/s 158BC read with Section 158BD is issued.
Sd/-
(P.K.Singh) Asstt. Commissioner of Income Tax, Central Circle-20, New Delhi.
15I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
4.6. The aforesaid satisfaction note would show that the learned Assistant Commissioner of Income Tax, Central Circle 20, New Delhi has referred to the following material for concluding that there is undisclosed income of the appellant:
(a) Pages 33. 34. 37 and38 of Annexure A-11
(b) Annexure A-11
(c) Page 65 of Annexure A-l
(d) Pages 1, 2, 3, 5, 6, 8, 10, 13. 15 and 21 of Annexure A-2.
4.7. It is admitted position that, each of the aforesaid papers have been found as a result of search on the appellant and, not from the premises of M/s. Vatika Group of Companies, i.e., searched person considered by the Assessing officer for assuming jurisdiction u/s 158BD of the Act. Thus, since satisfaction note is not based on any seized material found from the searched person i.e. Vatika Group of Cases, the basic statutory precondition for invoking provisions contained in section 158BD of the Act is lacking in the instant case. The burden was on the Assessing Officer to establish that, a valid satisfaction note had been recorded on the basis of material found as a result of the searched persona In the instant case, the perusal of satisfaction note would clearly show that, since there is no material found as a result of the search on the searched person, no satisfaction could have been recorded under section 15SBD of tine Act in the case of the searched person. On the contrary, it is a case where proceedings have been initiated on the basis of material found as a result of search conducted on the appellant and. not on the searched person i.e. Vatika Group of cases. In these circumstances, it is evident that, statutory precondition for invoking provisions contained in section 158BD of the Act is not satisfied and therefore, notice under section 158BD of the Act is without jurisdiction. I am also supported here by the 16 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
order of the Hon'ble Tribunal in the case of ACIT vs. M/s. Cozy Enterprises Ltd. in IT(SS)A.No. 249/Del/2005 wherein it has been held as under :
"6.2. Coming to the facts of this case, a diary was seized from Shri S.K. Jain, which contained the transactions of the assessee. No asset or material was seized from Shri Praveen Mittal. In terms of the decision in the case of Manish Maheshwari (supra), the A.O. of Shri S.K. Jain had to record his satisfaction that undisclosed income in respect of transactions with the assessee was that of the assessee and handover the relevant part of the seized material to the A.O. having jurisdiction over the matter, namely, the second mentioned A.O. It appears to us that such note and material were transmitted to the first mentioned A.O. who issued a notice under section 158BC read with 158BD to the assessee. However, nothing was found in the case of Shri Praveen Mittal whose A.O. recorded the satisfaction note on the basis of submissions made in his case before him. As nothing was seized from him. nothing was transmitted by the A.O. of Shri Praveen Mittal to the second mentioned A.O., who happens to be the same officer. Thus, in view of the decision in the case of Manish Maheshwar (supra), it is held that pre-conditions required to be satisfied before assuming jurisdiction under section 158BD in the case of the assessee were not satisfied. Learned DR has not been able to show or refer to any material which was seized in the case of Shri Praveen Mittal so as to authorize his A.O. to record satisfaction in the case of the assessee. Thus, we are in the agreement with the learned counsel, albeit for somewhat different reasons, on the issue that the second mentioned A.O. did not have the jurisdiction to issue notice under section 158BC read with section 158 BD on 15.07.2002. Therefore, the order passed on the basis of this notice is invalid in the eye of law ."17
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4.8. The Assessing Officer in the remand report, has contended that since this objection was not raised in the course of assessment proceedings, therefore, this objection may not be entertained in view of section 292BB of the Act. Firstly, the contention is factually incorrect as the contention regarding Validity of proceedings was raised by the appellant in the course of assessment proceedings vide his reply dated 14.5.2007and moreover. section 292BB of the Act has no application to the facts of the case. Section 292BB of the Act provides that where an assessee has appeared in any proceedings or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceedings or inquiry under this Act that the notice was not served upon him or notice was not served upon him in time or served upon him in an improper manner. It will be seen that the contention of the appellant is neither that notice was served- or notice was not served upon him in time or served upon him in an improper manner. On the contrary, objection of the appellant is that statutory pre-condition for invoking provisions contained in section 158BD of the Act had not been satisfied in as much as satisfaction note so recorded is not recorded on the basis of seized material found from the searched person i.e., Vatika Group of Cases and therefore, there could not have been valid assumption of jurisdiction. In light of the above, it is held that section 292BB of the Act has no application to the facts. 4.9. I seek to add here that undisputedly a search had been conducted on the premises on 8.5.2003. However, it is apparent that no action was taken on the basis of the said search as no notice under section 158BC of the Act was ever issued to the appellant. In fact, even the instant proceedings cannot be taken as proceedings under section 158BC of the Act since firstly 18 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
initiation of proceedings was undisputedly under section 158BD of the Act and moreover, limitation for framing assessment under section 158BC of the Act expired on 31.5 2005 which is the date on which, notice under section 158BD of the Act was issued to the appellant. The order of assessment in dated 21.05.2007, which is then clearly barred by limitation. In light of the above. I hold that, the proceedings initiated under section 158BD of the Act were not legal, valid and are therefore quashed." 2.5. It may be noted that the impugned order of the Ld. CIT(A) was challenged by the Department before ITAT, A-Bench in IT(SS)A.No.36/Del./2010 along with C.O.No.380/Del./2010 of the assessee. The Tribunal vide Order dated 11.07.2014 dismissed the Departmental Appeal as well as Cross Objection filed by the assessee. The Revenue preferred appeal before the Hon'ble Punjab & Haryana High Court against the order of the Tribunal in Income Tax Appeal No.55 of 2015 which is decided vide Judgment dated 06.01.2016 and the matter is remanded to the Tribunal to examine it afresh and record reason based findings. The directions of the Hon'ble High Court in para- 8 are reproduced as under :
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"8. In the present case, the Tribunal being a final fact finding authority had not recorded any finding with regard to the recording of satisfaction note on 31.5.2005. Further, nothing was observed whether the satisfaction note dated 31.5.2005, if any, produced by the revenue was ante-dated or not. In such circumstances, the matter requires to be remanded to the Tribunal to examine it afresh and record a reason- based finding. It shall be open to the parties to raise all the points before the Tribunal who shall adjudicate the matter expeditiously. The substantial questions of law are answered accordingly. The appeal stands disposed of."
2.6. In pursuance to the directions of the Hon'ble Punjab & Haryana High Court the matter was again refixed for hearing on merit.
3. We have heard the learned Representatives of both the parties and perused the material on record. 20
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4. The Ld. D.R. referred to PB-38 which is satisfaction note dated 31.05.2005 recorded in the case of the assessee, copy of which is already reproduced in the findings of the Ld. CIT(A) above. The Ld. D.R. submitted that search was conducted in the Vatika Group of cases on 08.05.2003. The A.O. is same in the case of Vatika Group of cases i.e., the person searched and the present assessee. PB-1 is Panchanama to show that warrant of search was issued in the name of M/s. Vatika Landbased Private Limited, Shri Anil Bhalla, Shri Gaurav Bhalla and Shri Gautam Bhalla. No warrant of search was issued in the name of assessee. However, the warrant was issued to search the residence of Shri Anupam Nagalia (assessee). In the case of the assessee, there has been a search conducted on the premises of VatiKa group of companies and as a result of material found during the course of search, satisfaction was recorded by the A.O. having jurisdiction over the Vatika group of companies. The Ld. CIT(A) quashed the order on the ground that papers on the basis of which 21 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
satisfaction was recorded, found as a result of search on the assessee and not from Vatika group of companies. Since, no search was conducted on the assessee, seized paper relied upon by the A.O. were found from the premises of Vatika group of companies, the A.O. was satisfied from the documents seized from the premises covered in search of M/s Vatika Landbased Private Limited belongs to assessee, therefore, satisfaction note was recorded as per law. There is no mention in Section 158BD to record satisfaction in writing. The A.O. can record satisfaction for issuing notice under section 158BD in the case of person searched even after completion of block assessment in the case of the searched person. The Ld. D.R, therefore, submitted that order of the Ld. CIT(A) may be reversed. The Ld. D.R. further submitted that assessment record of the assessee and person searched cannot be produced for inspection of the Court because same are not available. 22
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5. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the Ld. CIT(A). Learned Counsel for the Assessee referred to PB-14 which is notice under section 158BD dated 31.05.2005 issued by Shri P.K. Singh, ACIT, Circle-20, New Delhi who is the same Officer recorded satisfaction on 31.05.2005. The said notice was issued without satisfaction note supplied to the assessee. PB-15 is letter of the assessee dated 11.06.2005 in which the assessee requested the A.O. to furnish note of satisfaction which is required to be recorded in writing as has been held by the Hon'ble Delhi High Court in the case of Amity Hotels reported in 272 ITR
75. The assessee apart from asking copy of the satisfaction note also requested for supply of the documents on the basis of which A.O. was satisfied that there was an undisclosed income belongs to the assessee. PB-16 is another letter of the assessee dated 29.06.2005 in which the assessee similarly asked for copy of the satisfaction note and the documents from the A.O. for compliance. 23
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
PB-31 is notice issued by A.O. under section 142(1) dated 18.01.2006. PB-32 is reply of the assessee dated 27.01.2006 in which the assessee again asked for copy of the satisfaction note and documents, on which, A.O. proposed to rely upon. It was reiterated that assessee has been asking for these documents since long. Learned Counsel for the Assessee submitted that in the instant case the submissions of the assessee had been that no valid proceedings had been initiated against the assessee before culmination of proceedings under section 158BC of the I.T. Act in the case of Vatika Landbase Private Limited and that no satisfaction note have been recorded by the A.O. in the case of Vatika group of companies i.e., person searched. The satisfaction note was supplied to the assessee only on 27.01.2006 was anti dated. Further, such satisfaction note was not recorded in the case of person searched. He has relied upon the decision of Hon'ble Madhya Pradesh High Court in the case of CIT vs. Tarachand Khushiram (2008) 303 ITR 298 (MP) in which it was held as under :
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"In the absence of any explanation whatsoever by the Department for the inordinate delay in service of the order of assessment on the assessee, the court must presume that the order was not made on the date it purported to have been made and must have been made after the expiry of the period of four years prescribed for passing, such an order in revision."
5.1. The Learned Counsel for the Assessee also relied upon decision of Hon'ble Delhi High Court in the case of CIT vs. Intercontinental Trading & Investment Co. Ltd., (2013) 350 ITR 316 (Del.) in which it was held as under :
"Where no satisfaction was recorded by Assessing Officer of searched person that any undisclosed income belonged to assessee, condition precedent for assuming jurisdiction under section 158BD was not satisfied."
5.2. There were no positive material found to arrive at satisfaction that undisclosed income has been earned by 25 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
assessee. In the absence of any material, no satisfaction as is required under section 158BD could have been recorded. The A.O. has failed to initiate valid proceedings against the assessee. The satisfaction note is an afterthought and ante- dated and prepared after submissions made by the assessee. No explanation have been given in this regard by the department. No satisfaction have been recorded by the A.O. in the case of the person searched. Therefore, no interference is called for in the matter. PB-365 is submission of the assessee in detail which have not been rebutted by the department in which the assessee has similarly explained that there were no incriminating material found during the course of search against the assessee in the case of Vatika Group of Companies and satisfaction note is anti dated. He has relied upon decision of Hon'ble Supreme Court in the case of Tapan Kumar Dutta vs. CIT, West Bengal (2018) 92 taxmann.com 367 (SC) in which, in para-11, it was held as under :
26
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
11. "A perusal of Section 158BD of the IT Act makes it clear that the Assessing Officer needs to satisfy himself that the undisclosed income belongs to any person other than the person with respect to whom the search was made under Section 132 or whose books of accounts or other documents or assets were requisitioned under Section 132A. The very object of the Section 158BD is to give jurisdiction to the Assessing Officer to proceed against any person other than the person against whom a search warrant is issued.
Although Section 158BD does not speak of 'recording of reasons' as postulated in Section 148, but since proceedings under Section 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the Assessing Officer in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings under Section 158BD."
27
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
5.3. PB-IV contain of the record of person searched but no undisclosed income relating to assessee have been found. No satisfaction note have been recorded till these were asked by the assessee. No material referred in the reasons of satisfaction note to indicate if assessee earned any undisclosed income. There is no material to justify the initiation of proceedings under section 158BD against the assessee. Apart from the above, the tenor of the satisfaction note clearly shows that note of satisfaction was recorded by A.O. having jurisdiction over the case of the assessee and not by the A.O. having jurisdiction over the person searched i.e., M/s. Vatika Landbased Private Limited. It is, therefore, clear that note of satisfaction have not been recorded by the A.O. of the person searched. He has relied upon decision of Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 43 taxmann.com 446 (SC) in which in para-44 it was held as under :
28
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
"44. In the result, we hold that for the purpose of section 158BD 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 under section 158BC; (b) along with the assessment proceedings under section 158BC; and (c) immediately after the assessment proceedings are completed under Section 158BC of the searched person."
5.4. The Learned Counsel for the Assessee, therefore, submitted that satisfaction note is not valid and is anti- dated, therefore, assumption of jurisdiction by A.O. under section 158BD is illegal and invalid.
6. We have considered the rival submissions and perused the material on record. Before proceeding further, we 29 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
may note that when the matter was re-fixed for hearing on merits before the Tribunal, the Tribunal vide order dated 13.12.2017 in view of background of the case as noted above and in order to ascertain the correct position of facts as to whether the satisfaction has been recorded in the case of the person searched i.e., M/s. Vatika Landbased Private Limited who was the person searched in terms of Section 132(1) Or it has been recorded in the case of assessee, directed the Ld. D.R. to produce the original record of the said Company in whose case order under section 158BC has been passed and also produce records of the assessee. It was also directed that on the date of hearing, A.O. would present himself with the records so that proper facts can be ascertained and parties are heard at length. The adjournment was given to the department to comply with the order and appeal was adjourned to 19.02.2018 as the date convenient to the department. Again on 28.02.2018, the Ld. D.R. requested for adjournment for production of the records as was directed earlier by the Tribunal. The appeal was adjourned to 07.03.2018 with the observation that "case cannot 30 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
be kept pending just at the mercy of the department to produce the record." The Ld. D.R. has ensured that the records shall be produced in the Court on the next date of hearing, failing which, she will address the arguments without record. The appeal was taken-up for hearing finally on 21.05.2018 and on the date of hearing, Ld. D.R. did not produce the original assessment records in the case of both the parties i.e., M/s. Vatika group of companies, the person searched and the assessee. The Ld. D.R. submitted that both the records are not available with the department.
7. The assessee in the paper book filed copy of the satisfaction note dated 31.05.2005 at page-38 which is reproduced in para 4.5 of the findings of the Ld. CIT(A) above. This satisfaction is recorded by Shri P.K. Singh, ACIT, Central Circle-20, New Delhi. PB-14 is notice under section 158BD dated 31.05.2005 which is issued by Shri P.K. Singh, ACIT, Central Circle-20, New Delhi. It is not accompanied by satisfaction note if recorded by the A.O. The assessment in the 31 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
case of assessee has been completed by DCIT, Central Circle- 20, New Delhi. The language used in the satisfaction note clearly show that satisfaction note was recorded by A.O. in the case of assessee viz., Shri Anupam Nagalia, who was having jurisdiction over the assessee and not the A.O. having jurisdiction over M/s.Vatika Landbased Private Limited i.e., the person searched. Learned Counsel for the Assessee referred to various letters filed before A.O. after service of the notice under section 158BD in which assessee asked for the copy of the satisfaction note and the documents on which A.O. wanted to rely upon to establish that assessee earned undisclosed income. However, the satisfaction note and the documents have not been supplied to assessee for a considerable period and it was only on 27.01.2006 the satisfaction note was supplied to the assessee. There is no explanation whatsoever by the department for inordinate delay in supplying the copy of the satisfaction note and the documents to the assessee. Therefore, we presume that the satisfaction note was not prepared on the date i.e., 31.05.2005 i.e., date on which it purported to have 32 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
been made and must have been made after the request made by assessee for supply of the copy of the satisfaction note. The decision of the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Tarachand Khushiram (supra) clearly apply to the facts and circumstances of the case. In the said satisfaction note also, the A.O. of the assessee has not recorded any satisfaction that any undisclosed income belong to the assessee. The Ld. D.R. was given ample opportunities to produce the block assessment records in the case of the person searched and the assessee to clarify the position as to in which case satisfaction note have been recorded on 31.05.2005 or on a later date. However, the Revenue Department has failed to produce the assessment records in both the cases. Therefore, an adverse inference shall have to be drawn against the Revenue Department in this regard. These facts clearly show that no satisfaction under section 158BD have been recorded in the case of the person searched i.e., Vatika Group of Companies, which is mandatory for initiating proceedings under section 158BD of the I.T. Act. We also hold that recording 33 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
of such satisfaction note is also anti-dated and was recorded later on when assessee made a request in writing for supply of copy of the satisfaction note along with seized documents for making proper compliance before the A.O. The Judgments of Hon'ble Supreme Court in the cases of Manish Maheshwari and CIT vs. Calcutta Knitwears (supra), are squarely applicable to the facts of the case in favour of the assessee. It is an admitted position that the papers referred to in the satisfaction note above have been found as a result of search on the assessee and not from the premises of M/s. Vatika group of companies i.e., the person searched considered by the A.O. for assuming jurisdiction under section 158BD of the I.T. Act. Thus, since satisfaction note is not based on any seized material found from the person searched, the basic statutory pre-condition for invoking the provisions contained under section 158BD is not satisfied in the instant case. The assessee filed Paper Book-IV which contain all the records of the person searched to explain that none of those documents belong to the assessee. This submission of the Learned Counsel for the Assessee have not 34 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
been rebutted by the Revenue Department through any evidence or material on record. No material is referred to in the reasons to indicate if assessee earned any undisclosed income. The burden is upon A.O. to prove that a valid satisfaction note had been recorded on the basis of the material found as a result of search of the person searched. In the instant case, the perusal of the satisfaction note would clearly show that there is no material found as a result of the search on the person searched, therefore, no satisfaction could have been recorded under section 158BD of the Act in the case of the person searched. Therefore, no documents or other records could have been handed-over to the A.O. of the such other person.
8. On the other hand, the proceedings under section 158BD have been initiated on the basis of the material found as a result of search conducted on the assessee and not on the person searched i.e., Vatika Group of companies. The CBDT vide Circular No.24 of 2015 dated 31.12.2015 explained the recording of satisfaction note under section 158BD/153C of the 35 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
I.T. Act. The Board examined the issue in the light of Judgment of the Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 43 taxmann.com 446 (SC) and it was directed that several High Courts have held that provision of Section 153C of the I.T. Act are substantially similar/pari materia to the provisions of Section 158BD of the I.T. Act and, therefore, the above guidelines of the Hon'ble Supreme Court applied to the proceedings under section 153C of the I.T. Act for the purpose of assessment of income of other person than the searched person. This view has been accepted by the CBDT. It was further clarified that even if the A.O. 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.
9. Considering the material on record, it is clear that no satisfaction note has been recorded on the date of issue of notice under section 158BD of the Act dated 31.05.2005. The satisfaction note supplied to the assessee on 27.01.2006 is 36 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
thus, anti-dated and had not been recorded on the date purported i.e., 31.05.2005. Our findings are based mainly on reasons that in the case of person searched, no incriminating material was found against the assessee, therefore, there were no reason to record satisfaction under section 158BD of the Act in the case of the person searched. Further, whatever material was found and referred to in the satisfaction note was found during the course of search on the person of the assessee. The assessee made a request for supply of the copy of the satisfaction note immediately, but it was not supplied to the assessee, therefore, it was recorded subsequently in the case of assessee, which fact is strengthened by observation in the impugned assessment order by mentioning that copy of the satisfaction note was provided to the assessee, the A.O. of the assessee only could have provided such satisfaction note to the assessee after seven months. Therefore, no satisfaction note had been recorded by the A.O. having jurisdiction over M/s. Vatika Landbased Private Limited which were required to be recorded in their case being a person searched and not in the 37 I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
case of the assessee. In the absence of any material produced by the Revenue Department and further the original records have not been produced before us clearly support the explanation of assessee that no valid satisfaction have been recorded in the case of the person searched. Whatever satisfaction have been recorded, was recorded later on, (was anti-dated), in the case of the assessee only. Since, no material relating to the assessee was found or recovered in the case of the person searched i.e., M/s. Vatika Group of cases, therefore, there is no question of transmitting of the seized material by the A.O. of the person searched to the A.O. of the assessee. Therefore, the preconditions for invoking the jurisdiction under section 158BD are not satisfied in this case. The Ld. CIT(A), on proper appreciation of facts and material on record correctly held the proceedings under section 158BD to be invalid, accordingly, rightly quashed the same. No interference is called for in the matter. We do not find any merit in the Departmental Appeal and the same is accordingly dismissed. 38
I.T.(S.S).A.No.36/Del./2010 Shri Anupam Nagalia, Gurgaon.
10. In the result, appeal of the Department is dismissed.
Order pronounced in the open Court.
Sd/- Sd/-
(L.P. SAHU) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 19th June, 2018
VBP/-
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT "A" Bench
6. Guard File