Income Tax Appellate Tribunal - Mumbai
Asst.Ci.T.-17(3), Mumbai vs M/S. Premier Iron & Metal Industries, ... on 21 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL " C" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM
IT(SS)A No. 107/Mum/2008
(Block period from 01 -0-96 to 21 -01-2003)
The Asst. Commissioner of Premier Iron & Metal
Income Tax-17(3), Room No. Industries
614, 6th Floor, Piramal Vs. 16 Vaziri Manzil, Gate No.2,
chambers, Parel, Mumbai -12 Monchardas Rd., Fort,
Mumbai-400 001
Appellant .. Respondent
PAN No. AAEFP1693C
CO No. 176/Mum/2011
(Arising in IT(SS)A No. 107/Mum/2008 for Block period from 01-0-
96 to 21-01-2003)
Premier Iron & Metal The Asst. Commissioner of
Industries Income Tax-17(3), Room
16 Vaziri Manzil, Gate No.2, Vs. No. 614, 6 t h Floor, Piramal
Monchardas Rd., Fort, chambers, Parel,
Mumbai-400 001 Mumbai-12
Appellant .. Respondent
PAN No. AAEFP1693C
Revenue by : H.N. Singh, DR
Assessee by : Deepak Tralshawala, AR
Date of hearing: 13-03-2018 Date of pronouncement : 16-03-2018
ORDER
PER MAHAVIR SINGH, JM:
These cross appeals by the assessee and by Revenue are arising out of the order of Commissioner of Income Tax (Appeals)-XXVII, Mumbai [in short CIT(A)], in appeal No. CIT(A)-XXVII/ACIT-17(3)/IT-33/07-08 2 dated 31.07.08. The Block Assessment was framed by the Asst. Commissioner of Income Tax, Circle-17(3), Mumbai (in short 'ACIT') for the Block period from 01 -04-1996 to 21-01-2003 vide order dated 31- 08-07 under section 143(3) read with section 158BD of the Income Tax Act, 1961(hereinafter 'the Act').
2. At the outset, the learned Counsel for the assessee stated that the assessee has raised issue in its CO as regards to the assumption of jurisdiction for issuing notice and consequently framing block assessment under section 158BD read with section 143(3) of the Act. For this assessee has raised the following ground in its CO: -.
"On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) XXVII, Mumbai erred in not holding that the assessment order was illegal, bad in law and void ab initio is as much as conditions to invoke section 158BD did not exist."
3. Brief facts are that a search and seizure operation was carried out under section 132 of the act on the residential and business premises of Keystone Realtors Pvt. Ltd and its group of companies. Credence Properties Developers Pvt. ('CPDPL') Ltd is one of the group companies of Key Stone Group engaged in the business of real estate. Block assessment was framed in the case of CPDPL under section 143(3) read with section 158BD by DCIT, Central Circle-10, Mumbai on 31-03-2005. During the course of search, according to AO, evidence were found and seized as annexure A-3 page No. 1 to 5 from the office of Keystone Realtors Pvt. Ltd, Rustomjee Acres, Dahisar (W), Mumbai. The AO further noted that in the block assessment order of CPDPL, the AO vide order dated 31-03-2005 held that a sum of ₹ 1,25,98,175/- had been received as own money at the time of allotments of the flat being the difference between the actual sale consideration vis a vis agreement value. The AO held that as per joint venture agreement between land 3 owners of CPDPL, assessee had a share of 48%, which comes to ₹ 60,47,124/-. Hence, this amount was treated as undisclosed income of the CPDPL for the block period. Consequently, the AO received information from DCIT Central Circle-10, Mumbai that the assessee has 26% stock in the above development project, as 50% of the amount have been received by the land owners as per development agreement and as per the evidence found during the course of search from the premises of CPDPL indicates own money to the tune of ₹ 1,25,98,175/-. Hence, the assessee share of ₹ 26% comes to ₹ 32,75,525/- in the own money received as per seized document. Accordingly, this was assessed by the AO as undisclosed income consequent upon the receipt of information from DCIT Circle-10 vide is letter No. DC,CC-10/Informatin/2004-05 dated 17.08.2005 for initiating the proceedings under section 158BC read with section 158BD of the Act. The AO i.e. Asst. Commissioner of Income Tax, Circle-17(3), Mumbai framed the block assessment in assessee's case treating the undisclosed income at ₹ 32,75,525/-. Aggrieved, against the assessment, the assessee preferred the appeal before CIT(A).
4. The CIT(A) deleted the addition on merits by observing as under: -.
"I have gone through the facts of the case, submission made and also the assessment order. I have noted that the assessing officer has relied on the paper found during the course of search proceedings in the case of M/s Credence Property Developers. These papers indicated alleged on money sharing between M/s CPDPL and land co- owners including the appellant. The Writing also indicated that the alleged distribution of share of on money is to be paid against appellant's name.
The assessing officer in the assessment order has stated that :"in the statement of Shri Boman Irani, recorded on Oath Under section 131 4 on 03.04.2007, who is the director of m/s Credence Property Developers, that his firm had entered into development agreement with the landowners agreeing that 48% of the sale proceed would go to the firm M/s Credence Property developers and the rest to the landowners." The assessing officer has not stated anywhere that Mr. Boman Irani was confronted with the question whether any payment in respect of on money has been made to the appellant in cash but has merely stated the above facts with regard to the development agreement. It is fact that the on money transactions is out of books of accounts. No question was asked to Shri Boman Irani in respect of payment of on money to the appellant at the same percentage as in the Development agreement as the development agreement will never include a clause to refer any transaction like on money sharing which is outside the books of accounts. Further, based on the facts of the above statements as mentioned in the assessment order no addition can be made as there is no confirmation as to the payment of alleged on money and simultaneously there is no evidence that cash was received by the appellant, straight from the statements of Shri Boman Irani or from the papers found from the premises of Credence Property Developers.
Hence, there is no evidence to prove and lead that the appellant had received a sum of rs. 32,75,525/- in as much as the document, which is relied upon by the Assessing officer, also does not state the fact of receipt of the sum of ₹ 32,75,525/- anywhere.5
In the statement recorded of Mr. Boman Irani the managing director of M/s Credence Property Developers Pvt. Ltd., he has not been asked the basic question regarding payment of the alleged on money to the appellant. However, in the assessment order the AO has stated that Mr. Boman Irani has mentioned that M/s Credence Property Developers had entered into a development agreement with the appellant and other land co-owners. Hence, during the course of assessment proceedings the AO has not even question Mr. Boman Irani regarding payment of on money which should have been one of the primary questions and hence the AO has failed in the basic act of recording the statement.
I have also gone through the case records and noted that in the entire assessment the AO has not mentioned about page 5 wherein the name of the appellant appears and on the basis of which the above proceedings commenced. In the page No. 5 the percentage of the appellant is mentioned through there is no mention of payment or receipt by the appellant. Further the page No. 5 has mentioned of payment of ₹ 44 lacs to one Rafique Choudhary who is mentioned to be entitled for ₹ 2,66,538/-
(though his share being only 4.4% as per agreement) out of the on money chart of distribution. Hence, in light of the above also the authenticity of this page No. 5 cannot be relied on. In addition it may be mentioned that the confirmation and copy of account dtd. 15.05.2007 is furnished by M/s Credence Property Developers to the appellant there is no mention of payment of on money, further substantiating the fact that the appellant has not received any on money as alleged by the AO.6
The above finding subsistence the fact that the appellant has not received the alleged on money of ₹ 3275525/- and hence, I direct the assessing officer to delete the addition of Rs. 3275525/-.
Aggrieved, Revenue came in appeal before Tribunal. Assessee also moved cross objection raising the jurisdictional issue that the block assessment completed by the AO without any satisfaction recorded by the AO of the search person and hence, block assessment will be invalidated.
5. During the course of hearing the learned Counsel for the assessee Shri Deepak Tralshawala narrated that the Tribunal vide order sheet entry dated 09.03.2017 directed the Revenue to produce the seized material and the satisfaction note recorded in the case of search person. The Tribunal recorded the order as under: -.
"09/03/2O17 Present for the Department: Ms. Sunita Bilia, Learned CIT(DR) Present for the Assessee: Shri Deepak Tralashawale We note that this appeal was filed by the department on 17/10/2008, as is evident form order sheet entry dated 29/01/2009. On 28/08/2009, the learned DR was directed to ascertain as to what happened in the cases of other connected parties and thus, the appeal was adjourned to 13/10/2009. On 17/12/2009, again the appeal was adjourned at the request of the teamed DR. Again 'on 01/06/2010, the appeal was adjourned at the request of the learned DR. On 29/09/2010, the learned DR sought time and the appeal was 7 adjourned to 25/11/2010. Again the appeal is adjourned to 25/01/2011 and the learned DR was directed to produce the record. Again on 12/04/2011, the appeal was adjourned to 23/05/2011 and the learned DR was directed to find out the status of the case of CPDPL. as well as other co-owners. On 21/07/2011, the appeal was adjourned. On 04/10/2011, the hearing was adjourned to 29/11/2011 and the learned DR was directed to produce the seized material. Again on 29/11/2011, the learned DR was directed to produce the seized material. On 22/03/2012, last opportunity was provided to the department and the appeal was adjourned to 15/05/2012. On some of the dates the Bench either did not function or the appeal was adjourned at the request of the assessee. On 30/12/2015, the learned DR was directed to tell the status of the connected parties and also to produce the record. Again on 08/02/2016, at the request of the learned DR the appeal was adjourned. Again on 11/02/2016, at the request of the DR the appeal was adjourned. On 30/03/2016 the learned DR was again directed to produce the details regarding final outcome relating to additions in respect of other three co-owners and also to produce the record. On 28/06/2016, last opportunity was provided to the department with a direction if the necessary information / record is not produced, then the appeal will be adjudicated n the basis of material available on record. On 21/09/2016 again last opportunity was provided to the department. On 03/11/2016, again at the request of the learned DR the appeal was adjourned and the last opportunity was provided to the department. Today, i.e., 09/03/2017 the learned CIT(DR) sought adjournment on the ground that one 8 more opportunity must be provided as the learned DR is unable to get the record from the department.
Considering the aforementioned factual matrix, it is strange that inspite of provide so many opportunity to the department, neither the case record was produced nor necessary informations were furnished, therefore, we are constrained to observe that in of so many opportunities, the department has not provided the necessary details/ document. However, by taking a lenient view, last and final opportunity is provided to the department to furnish the necessary details/ case record and to comply with the earlier direction otherwise, adverse view will be taken and the case will decided on the basis of ..... available on record.
The learned CIT(DR) is directed to convey this order sheet to the concern most officer of the department in Mumbai. Adjourned to 04/05/2017."
6. Subsequently, the learned Counsel drew our attention to the letter dated 04.10.2017 No. CIT(DR)/ITAT/C.Bench/2017-18 of CIT DR to the Principal CIT-17, calling for the seized material and the relevant letter reads as under: -
"2. The above appeal came up for hearing on 03.10.2017. During the course of hearing the Hon'ble Bench noted that on earlier hearing on 30.03.2016, the Hon'ble Bench directed the department to inform the status of the additions in case of co-owners and also to produce the records and seized materials. Again / oil the Bench has categorically recorded about the several opportunities given to the department to comply with the earlier directions of the Bench and failure of the 9 department to do so. Therefore, a final opportunity was given to the department to make necessary compliance. However, subsequently oil occasions the department has failed to comply with the directions of the Bench. The Hon'ble bench has directed to the CIT in charge to file a comprehensive affidavit about the status the additions at the hands of co-owners and also regarding the production of seized materials.
3. A copy of the above order sheet from the file of the Hon'ble Members ITAT C Bench in the case of the assessee is enclosed for perusal and necessary action.
4. The next date of hearing in this case is fixed on 01.11.2017. In view of the above, it is requested that the AO/AOs concerned may he directed to be present in the court oil date of hearing i.e. 01.11.2017 at 10 A.M. with original seized documents and Assessment records along with an affidavit of the CIT regarding the status of additions in the hands of co-owners."
7. Further, the learned Counsel drew our attention to the letter of ITO (HQ)(Judl.) to PCIT-17 addressed to CIT DR, ITAT Ç Bench dated 04.12.17 No. PCIT-17/Judl./2017-18, which clearly states that this office has not received any seized documents, materials etc. The relevant text of this letter reads as under:-
"Sub: Department's Appeal before ITAT, Mumbai in the case of MIs. Premier Iron & Metal Industries for the Block Period 01.04.1996 to 21.03.2003 in ITA No. IT/SS/107/M/08-- reg.10
Ref: 1.CIT(DR)ITAT/C-Bench/2017-18 dtd. 04. 10.2017 2. This office letter No. PCIT- I7/Judl./2017- 18 dtd.31.10.201 7 (copy enclosed)."
Kindly refer to the above.
In connection to the aforesaid letter. I am directed to inform that the appeal in the case of M/s. Premier iron & Metal industries for the Block Period 01.04.1996 to 21.03.2003 in ITA No. IT/SS/107/M/O8 was filed by the erstwhile ACIT-
17(3), Piramal Chambers, Mumbai (copy of Form No.36 enclosed for your ready reference), which is currently under the charge of PCIT-20. Mumbai.
Post restructuring of the department, charge of City- 17 has become City-20 as per the new jurisdiction. The erstwhile charge of Ciiy-12 & 13 merged and became the present City-17 w.e.f. 15.11.2014. Even though the PAN of the said case is lying with the current ITO 17(2)(5), Mumbai. this office has not received any case records or, seized documents/materials. This is also verified from the records of retention of books maintained in this office."
8. In view of the above, the learned Counsel for the assessee stated that the AO of the search person Keystone Realtors Pvt. Ltd. was DCIT, CC-10, Mumbai and the AO of the assessee is ACIT-17(3), Mumbai and the AO of assessee has confirmed that they have not received any case records or seized documents / materials from the AO of the search person. When this opportunity was provided to the learned CIT DR, today during the course of hearing, he fairly conceded that the department has no seized records as is evident from the correspondence reproduced above. Accordingly, we presume that there is no satisfaction note recorded by the AO of the search person. This fact is further strengthen 11 by the letter dated 06.09.2016 no. ITO -17(2)(5)/Judicial/2016-17 addressed to CIT DR . It means that no satisfaction was recorded in the case of searched person such as Keystone Realtors Pvt. Ltd.
9. We find that Hon'ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 362 ITR 673 (SC) has held that it is clear from the provisions of section 153C of the Act that where the AO of the person searched is satisfied that any money, bullion, jewellery, books of account or other documents etc., belong to a person other than the person searched, then, such documents or assets, etc., shall be handed over to the AO of the 'other person' and the later AO shall proceed against such 'other person' to assess or reassess his income. A bare perusal of the provision indicates that before handing over such documents etc. to the AO of the 'other person', a 'satisfaction' has to be recorded by the AO of the person searched that money, bullion or jewellery, etc., found from the person searched belong to the 'other person'. Only when such 'satisfaction' is recorded by the AO of the person searched and such documents or assets seized, etc., are handed over to the AO of the 'other person', that the later AO acquires jurisdiction to make assessment or reassessment of the 'other person.' It is, therefore, amply vivid that the AO of the 'other person' can acquire jurisdiction to assess or reassess income of the 'other person' only when the AO of the person searched records satisfaction in his case before handing over money, bullion, jewellery, etc. to him. What emerges is that the recording of satisfaction by the AO of the person searched is a condition precedent for the AO of the 'other person' to acquire jurisdiction. Unless such jurisdictional condition is satisfied, there can be no question of making assessment or reassessment of the 'other person.' Subsequently, the Central Board of Direct Taxes (in short CBDT) vide Circular No. 24/2015 F. No. 273/Misc./140/2015/TTJ dated 31-12-2015 for implementation of the judgment in the case of Calcutta Knitwears (Supra), has explained the procedure in case the AO of the search person and the "the other person"
12is one at the same then also he is required to record his satisfaction as has been held by the Courts.
10. The relevant circular issued by CBDT reads as under:-
Subject: Recording of satisfaction note under section 158BD/153C of the Act - reg.-
The issue of recording of satisfaction for the purposes of section 158BD/ 153C has been subject matter of litigation.
2. The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.20 14(available in MRS at 2014-LL-0312-5 1) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AU who has jurisdiction over such other person u/s 15813D. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages:
(a) at the time of or along with the initiation of proceedings against the searched person under Sec/ion 158BC of/he Act; or
(b) in the course of the assessment proceedings under section 158BC of the Act; or
(c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."
3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 13 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.
4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts.
5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also he decided in the light of the above judgment.
Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD / 153C should be withdrawn / not pressed if it does not meet the guidelines laid down by the Apex Court."
11. The argument of the learned CIT Departmental Representative (in short DR) that the searched person and the assessee are being assessed by the same AO, the learned Counsel for the assessee contended that even in cases where the AO of the person searched and the assessee who is sought to be assessed u/s 153C of the Act is the same, the AO is required to record his satisfaction that the assets / documents seized belonged to a person i.e. the assessee, other than the searched person. This view is finally settled by Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Mechmen (2016) 380 ITR 591 (MP) wherein the view is expressed in the following manner :-
14"18. The concomitant of this conclusion, is that, the legal position as applicable to Section 158BD regarding satisfaction in the first instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending noticee to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A). The question as to whether that may influence the opinion of the Assessing Officer having jurisdiction over such other person, also cannot be the basis to take any other view. As a matter of fact, the other Assessing Officer to whom the items are handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For 15 the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. Similarly, as there is no provision either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the argument of the Department must be negatived.
19. After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him."
12. In the given facts and circumstances of the case and the legal position clarified by CBDT and the case laws cited supra, we are of the view that the satisfaction in the case is not recorded by the AO of the searched party, which is a pre-condition for invoking jurisdiction u/s 153C of the Act and hence, the assessment framed u/s 153C read with Section u/s 143(3) of the Act is bad in law and hence, quashed. The jurisdictional issue of the assessee's cross objection is allowed.
1613. Since, we have already adjudicated the jurisdictional issue of assessee's CO by quashing the Block Assessment; we need not to go into the merits of the case raised in Revenue's appeal. Hence, the same has become academic and needs no adjudication.
14. In the Result, the CO's of assessee's appeal is allowed and appeal of Revenue is dismissed.
Order pronounced in the open court on 16-03-2018.
Sd/- Sd/-
(G. MANJUNATHA) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 16-03-2018
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI