Income Tax Appellate Tribunal - Delhi
J.R. Modi Finance (P) Ltd., New Delhi vs Assessee on 6 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'D', NEW DELHI
BEFORE
SHRI C. M. GARG, JUDICIAL MEMBER
AND
SHRI L. P. SAHU, ACCOUNTANT MEMBER
I.T.A. No.5116/Del/2013
(Assessment Year 2004-05)
J R Modi Finance (P) Ltd., Vs. ACIT, CC-21,
C/o Sekhri & Associates, CA New Delhi
Flat No.104-105, 28. Feroz
Gandhi Road, Lajpat Nagar III,
New Delhi
GIR / PAN :AAACK2950M
(Appellant) (Respondent)
Appellant by :Shri R. S. Singhvi, Ca
Respondent by :Smt. Sulekha Verma, CIT DR
Date of hearing: 17/03/2016
Date of Pronouncement: 06/06/2016
ORDER
PER L. P. SAHU, AM:
This appeal is filed by the assessee against the order of Ld. CIT(A) II, New Delhi dated 17.07.2013 for the Assessment Year 2004-05. The case is related with section 153C/143(3) of the I.T. Act, 1961. The assessee has raised following grounds of appeal:
"1. (i) That under the facts and circumstances of the case, the lower authorities were not justified to reject the claim of the appellant that the assessment framed u/s 153C of the Income Tax Act in this case was beyond jurisdiction and barred by limitation of time.2 I.T.A.No.5116./Del/2013
(ii) That the authorities below were not justified to reject the claim ignoring the judgement of ITAT, New Delhi as well as the judgement of Hon'ble Delhi High Court on the same issue.
2. (i) That under the facts and circumstances of the case, the authorities below were not justified to make lump sum disallowance of Rs.5,00,000/- out of business expenses incurred by the appellant which were duly supported with Audited Accounts.
(ii) That even otherwise such disallowance is not called for under section 153A of the Income Tax Act in the absence of any incriminating material.
That the assessee craves the right to add, amend, delete or substitute any ground of appeal
4. That the order framed is against the facts of the case and bad in law."
1.1 The 1st ground of appeal is purely legal ground and the assessee challenged the action of Assessing Officer who passed order u/s 153C/143(3) of the I.T. Act, 1961. The 2nd ground of appeal is also on legal issue as well as on merits also.
2. The brief facts of the case are that the assessee filed its return of income on 10.08.2004 u/s 139(1) declaring an income of Rs.3,51,430/-. A search and seizure operation was carried out u/s 132 of the Act on 19.06.2009 at Lalit Modi group. During the course of search at the residence cum business premises at D-20, NDSE-II, New Delhi, certain documents belonging to the assessee were seized. On the basis of seized documents, 3 I.T.A.No.5116./Del/2013 proceedings were initiated in the case of assessee u/s 153C read with Sectin153A of the Act. The c se was centralized by CIT-II, New Delhi vide order dated 11.07.2011 and statutory notices were issued on 18.07.2011. In response to the notices, the appellant filed written submissions / objections on 06.09.2011, placed at pages 10-14 of the Paper Book before ACIT, CC21, New Delhi. In response to the written submissions / objections of the assessee, Assessing Officer disposed of it on 23.09.2011, the contents of which are reproduced below:
" OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-21, NEW DELHI ROOM NO.344, 3RD FLOOR, E-2, ARA CENTRE, JHANDEWALAN EXTENTION, NEW DELHI F.No. ACIT/CC-21/2011-121 Dated:23.09.2011 To The Principal Officer, M/s J.R. Modi Finance Pvt. Ltd., 22-Siri Fort Road, New Delhi.
Sir, Subject:- Proceedings u/s 153C of the IT Act, 1961 for assessment year 2004-05 to 2009-10 in your case - Regarding -
******** Kindly refer to your letter dated 06.9.2011 on the above subject. Vide this letter, you have raised the following objections in regard to initiation of 4 I.T.A.No.5116./Del/2013 assessment proceedings u/s 153C of the IT Act, 1961:-
i) That the assessment proceedings u/s 153C is beyond time limit laid down in section 153A of the IT Act. That the search operation in the case of Shri Lalit Modi was carried on 19.06.2009 during which certain documents of the assessee company were seized on the basis on which proceedings u/s 153C have been initiated. That on the basis of Satisfaction Note recorded on 18.07.2011, the assessment u/s 153C could be undertaken up to 6 financial years prior to such date and these six years become FY 2005-06 to FY 2010-11 i.e. AY 2006-07 to 2011-12. In view of above position, assessment under reference i.e. AY 2004-05 and 2005-06 is outside the scope of provisions of Sec. 153C. The legal position to this effect is self evident from provisions of section 153C and also supported by legal decided cases. Since proceedings u/s 153C of IT Act in this case are beyond the statutory time limit of their initiation the same may kindly be dropped.
ii) That the assessment proceedings u/s 153C are search related proceedings and shall be restricted to cover the concealed or undisclosed income based on the basis of incriminating seized documents found as result of search. It is not a case of regular assessment or reassessment and as such the provisions of section 153A of the IT Act which are parallel to provision u/s 153C of IT Act are to be considered in the context of purpose, object and scheme of IT Act. This legal proposition is also held in various decided cases on the subject. The assessment in this case may kindly be made keeping in view these provisions.
iii) That as per provisions of section 153A of the IT Act which are parallel to provisions of section 153C, only pending assessment at the time of search shall abate. This legal proposition has been upheld in numerous decided cases. Since the assessment year 5 I.T.A.No.5116./Del/2013 under question was not pending on the date of recording of satisfaction on 1807.2011, the assessment proceedings in this case shall not abate in proceedings u/s 153A read with section 153C of the IT Act. The assessment In this case may kindly be made keeping In view these provisions.
Your above objections have been considered but have not been found to be satisfactory and acceptable for the reasons given hereunder:-
From the objections raised above at 1 (i), 1 (ii) and 1 (iii) by the assessee company, it is noted that in these objections the assessee company has raised issue that proceedings u/s 153C initiated in its case are not based on seized material belonging to the assessee company that satisfaction not based on any incriminating material is bad in law as also the fact that initiation of proceedings u/s 153C should be in respect of such years in which there is some material.
It is seen from the plain and literal interpretation of the provision of section 153C that once a document is found to belonging to a person other than the person referred to in section 153A the provisions of section 153C are ipso facto attracted and it is automatic that the assessments covered under all the years falling within the mandate of proviso of section 153C(1) and read with section 153A(1) get attracted Moreover there is no legal requirement that initiation of proceedings should only be with respect to such years in respect of which there is some material. The requirement of the section 153C with reference to satisfaction seems to be only the prima facie satisfaction and not a conclusive satisfaction. Thus the AO must be prima facie satisfied that the documents etc. belong to the other persons than the person searched.
Now coming to the issue of limitation raised by the assessee company, arguing that on the basis of satisfaction note recorded on 23.08.2011 the 6 I.T.A.No.5116./Del/2013 assessment u/s 153C could be undertaken upto six financial years prior to such date and these six years become FY 2005-06 to FY 2010-11 i.e. AY 2006-07 to 2011-12. This plea however is fundamentally flawed in view of the basic fact that the AO who was to hand over the seized material is also the AO of this case who was to take over the seized material. Therefore, the issue of handing over and taking over of seized material is obviated. The plea taken regarding the date of search and subsequent date of handing over of seized material is also obviated as both the sides are manned by the same AO. The number of assessment years covered u/s 153C are the same as per the provisions of section 153A only.
In view of the above stated facts it is clear that the notices u/s 153C read with section 153A of the IT Act have rightly been issued after receipt of seized material of other person i.e. assessee company It may be mentioned here again that the undersigned is the AO in both the cases ie the other person i.e. the assessee as well as the person searched i.e. Shri Lalit Modi and Shri Surender Modi. 53A(1) get attracted. Moreover there is no legal requirement that initiation of proceedings should only be with respect to such years in respect of which there is some material. The requirement of the section 153C with reference to satisfaction seems to be only the prima facie satisfaction and not a conclusive satisfaction. Thus the AO must be prima facie satisfied that the documents etc. belong to the other persons than the person searched.
Further as regard to your contention that assessment under section 153C cannot be equated to regular and normal assessments and need to be based on incriminating and seized documents, your attention is invited to the decision of ITAT in the case of Shyam Lata Kaushik Vs ACIT(2008) 4 DTR(Del:G) ITAT G Bench & Shivnath Rai Harnarain India (P) Ltd, Vs DCIT(2009) 117 ITD 74 whereas it has been held that 7 I.T.A.No.5116./Del/2013 there is no requirement for an assessment made u/s 153A to be based on any material seized in the course of search. There is nothing contained in section 153A which depicts that addition u/s 153A can be made only on the basis of documents/material found or seized during the course of search.
Hence, in view of the facts stated above, your above said objection is hereby rejected."
3. Ld. A.R. also raised the question that no satisfaction has been recorded by the Assessing Officer of the searched person, only one satisfaction note has been recorded for the other than searched person which has been placed at pages 8-9 of the Paper Book. The Assessing Officer was not satisfied with the submissions / objections submitted by the assessee. During the course of search, no any incriminating material was found in case of other than searched person i.e. the assessee.
During the assessment proceedings, necessary details were called from the assessee. On the basis of submissions made by the assessee, Assessing Officer made addition of Rs.5,00,000/- disallowing some expenses. Aggrieved by the order of the Assessing Officer, assessee filed appeal before the 1st appellate authority who upheld the order of the Assessing Officer. Further aggrieved by the order of Ld. CIT(A), he filed appeal before the Tribunal.
3.1 Ld. A.R. filed written submissions before us which was earlier filed before Ld. CIT(A) on 05.07.2013 and 8 I.T.A.No.5116./Del/2013 06.09.2011 before Ld. CIT(A) and A.O. respectively. Ld. A.R. vehemently contended that assessment proceedings done by the A.O. is beyond the period of 6 years prior to the date of recording satisfaction u/s 153C of the I. T. Act, 1961. On 23.08.2011. He referred section 153C of the I.T. Act which is as under:
"153C. [(1)J 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 belongs or belong 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.]. .."
3.2 He further submitted that the satisfaction u/s153C is to be recorded by the A.O. of the searched person and then he along with satisfaction note, should forward the copy of seized documents to the A.O. of the person to whom such documents belong. As per the provisions of Section 153C, the date of search is to be substituted by the date of receiving the books of accounts and documents and assets seized by the A.O. having jurisdiction over such other person. He relied upon the following judgements:
9 I.T.A.No.5116./Del/2013i) CIT Vs Aakash Arogya Mandir Pvt. Ltd. ITA 509/2015,(H.C.), wherein Hon'ble Jurisdictional High Court held that "even if the A.O. were the same, satisfaction would have to be recorded separately qua the searched person and the assessee."
ii) R. L. Allied Industries Vs ITO ITA 567/Del/2011 dated 18.11.2014, wherein ITAT held as under:
"8. Thus, as per Section 153A(l)(b)' the Assessing Officer is empowered to assess or reassess the total income of the six assessment years immediately preceding the assessment year relevant to the assessment year in which search is conducted. Thus, in other words, he has to assess the search year and six preceding years. As per proviso to Section 153C, for the purpose of Section 153C, the date of receiving the books of account or documents shall be considered the date of search. Therefore, with the combined reading of proviso to Section 153C and Section 153A(I)(b), it is clear that in the case of the person in whose case action is required under Section 153C, the Assessing Officer is empowered to take action under Section 153C for the year in which the seized document is received by him and the preceding six years. In the case under appeal before us, as mentioned by the Assessing Officer in paragraph 2 of his order, the seized material was received on 12th March, 2009 from ACIT, Central Circle-17. Thus, the year in which seized material was seized is previous year 2008-09 relevant to AY 2009-10. The preceding six years would be AY 2008-09, 2007-08, 2006-07, 200S-06, 2004-05 and 2003-04. Therefore, after considering the facts of the assessee's case and combined reading of Section 153C as well as Section 153A, in our opinion, the issue of notice under Section 153C for AY 2001-02 & 2002- 03 is barred by limitation. Accordingly, we quash the same and consequentially, the assessment order passed in 10 I.T.A.No.5116./Del/2013 pursuance to the notice issued under Section 153C is also quashed."
ii) CITVs RRJ Securities Ltd. in I.T.A. 164/2015 (H.C.-
del.) relevant portion of the decision of Hon'ble Jurisdictional High Court is given as under:
"First of all, the A.O. of the searched person would have to arrive at a satisfaction that document or asset seized does not belong to the person searched buts to some other person and secondly, the seized documents/assets are handed over to the A.O. having jurisdiction over that a person, that is, the person other than the one searched and to whom the seized documents/assets are said to belongs."
"It, plainly, follows that the recording of a satisfaction that the assets/documents seized belong to a person other than a person searched is necessarily the first step towards initiation of proceedings u/s 153C of the Act. In the case where the A.O. of the searched person as well as the other person is one and the same, the date on which such satisfaction is recorded would be the date on which the A.O. assumes possession of the seized assets/documents in his capacity as an A.O. of the person other than the one searched."
"The second stage commences from the recording of such satisfaction by the Assessing Officer of the, searched per. on' 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 under Section 153 read with section 153A against such 'other person'. The initiation or proceedings against 'such other person' are dependent 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 11 I.T.A.No.5116./Del/2013 the same, but before issuance of notice to the 'such other person' under Section 153.
26. 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."
As discussed hereinbefore, in terms of proviso to Section 153C of the Act, a reference to the date of the search under the second proviso to Section 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said Assessee.
Further proceedings, by virtue of Section 153C( 1) of the Act, would have to be in accordance with Section 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. In this case, it would be the date of the recording of satisfaction under Section 153C of the Act, i.e., s"
September, 2010. In this view, the assessments made in respect of assessment year 2003-04 and 2004-05 would be beyond the period of six assessment years as reckoned with reference to the date of recording of satisfaction by the A.O., of the searched person."
Thus, the date on which the AO of the per on other than the one searched assumes the possession of the seized assets would be the relevant date for applying 12 I.T.A.No.5116./Del/2013 the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for A Y 2003-04 and A Y 2004-05 were outside the scope of Section ] 53C of the Act and the AO had no jurisdiction to make an assessment of the Assessee's income for that year.
25. The next aspect to be considered is whether the concluded assessments could be reassessed on the basis of the seized assets/documents."
"However, the question then arises is whether the AO of the Assessee was justified in taking further steps for reassessing the income of the Assessee in respect of the assessment years for which the assessments were concluded and in respect of which the seized document had no bearing. In our view, the same would be clearly impermissible as the seized material now available with the AO, admittedly, had no nexus with those assessments and was wholly irrelevant for the purpose of assessing the income or the Assessee for the years in question. Merely because a valuable article or document belonging to an Assessee is seized from the possession of a person searched under Section l32 of the Act, does not mean that the concluded assessments of the Assessee are necessarily to be re-opened under Section 153C of the Act. In our view, the concluded assessments cannot be interfered with mechanically and solely for the reason that a document belonging to the Assessee, which has no bearing on the assessments of the Assessee for the years preceding the search, was seized from the possession of the searched persons."
If' the seized money, bullion, jewellery or other valuable article or thing seized as handed over to the AO of the Assessee, are duly disclosed and reflected in the returns filed by the Assessee, no further interference would be called for. Similarly, if the books of accounts/documents seized do not reflect any undisclosed income, the assessments already made cannot be interfered with. Merely because valuable 13 I.T.A.No.5116./Del/2013 articles and/or documents belonging to the Assessee have been seized and handed over to the AO of the Assessee would not necessarily require the AO to reopen the concluded assessments and reassess the income of the Assessee.
36. The decision in SSP Aviation (supra) cannot be understood to mean that the AO has the jurisdiction to make a reassement in every case, where seized assets or documents are handed over to the AO. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the AO after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the Assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the AO to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an Assessee before commencing an enquiry under Section 153C of the Act, it would be impermissible for him to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the Assessee for the relevant assessment years.
37. As expressly indicated u/s 153C of the Act, the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A of the Act. The concluded assessments cannot be interfered with u/s 153A of the Act unless the incriminating material belonging to the assessee has been seized."
3.3 Ld. A.R. also contended that no any incriminating material was found during the course of search against the assessee, therefore, as per the provisions of I.T. Act, 14 I.T.A.No.5116./Del/2013 no addition can be made on the other than searched person. He relied upon the decision of Hon'ble Delhi High Court in case of CIT Vs Kabul Chawla in ITA 707/2014 decided on 28th August 2015.
4. Ld. D.R. relied upon the orders of authorities below. He submitted detailed written submissions citing various case laws, which are distinguishable on the facts of the present case.
5. After hearing both the parties, perusing material on record and case law cited by both the parties, we observe that a search was conducted on 19.06.2009 on the residential/business premises at D-20, NDSE-II, New Delhi and satisfaction notes were recorded on 18.07.2011. The case was centralized on 1.07.2011. After careful reading of the provisions of Income tax Act and decision of Hon'ble Jurisdictional High Court in the case of RRJ Securities (supra), it is observed that's the Hon'ble Court recorded its findings as under:
"15. The controversy in this regard is no longer res integra. A Coordinate Bench of this Court in SSP Aviation Ltd. v. Deputy Commissioner of Income Tax:(2012) 346 ITR 177 has held that:
"in case of the searched person, the date with reference to which proceedings for assessment or reassessment of any assessment year within a period of six assessment years shall abate, is the date of initiation of search under Section l32 or requisition under Section 132A. However, in case of other person .. such date will be the date of receiving the books of 15 I.T.A.No.5116./Del/2013 account or documents or assets seized or requisition by the Assessing Officer having jurisdiction over such other person. In the case of other person, 0-e question of pendency and abatement of proceedings of assessment or reassessment to the six assessment years would have to be examined with reference to such date."
5.1 The case is barred by limitation as six year period is calculated as under:
Period of assessment Assessment year 1.4.2010 to 31.3.2011 2011-12 1.4.2009 to 31.3.2010 2010-11 1.4.2008 to 31.3.2009 2009-10 1.4.2007 to 31.3.2008 2008-09 1.4.2006 to 31.3.2007 2006-07 1.4.2005 to 31.3.2006 2005-06 5.2 It is observed that the A.O. has issued notices on 18.07.2011 i.e. after expiry of six years and hence the case is time barred.
6. Respectfully following the judgement of Hon'ble Jurisdictional High Court in the case of RRJ Securities (supra), and the facts of the case and provisions of Section 153C of the Act discussed above and the undisputed fact that no incriminating material was found in respect of other than searched person i.e. the appellant and following the principles laid down in the case of Kabul Chawla (supra), to meet the ends of justice, we allow both the grounds of appeal.
16 I.T.A.No.5116./Del/20137. In the result, appeal filed by the assessee stands allowed.
Order pronounced in the open court on 06th June, 2016.
Sd./- Sd./-
(C. M. GARG) (L. P. SAHU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date:06.06.2016
Sp.
Copy forwarded to:-
1.
The appellant
The respondent
2.
3.
The CIT
4.
The CIT (A)-, New Delhi.
5.
The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order (ITAT, New Delhi) S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 2 Draft placed before author Sr. PS/PS Draft proposed & placed before 3 JM/AM the Second Member Draft discussed/approved by 4 AM/AM Second Member Approved Draft comes to the 6/6/2016 5 Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement 6/6/ Sr. PS/PS 7 File sent to Bench Clerk 6/6 Sr. PS/PS Date on which the file goes to 8 Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order