admin November 15, 2019

Recording of satisfaction is sine qua non for initiating proceedings u/s. 153C .

In absence of any material to show receipt of consideration by assessee, no addition to income of assessee.

In absence of any material to show that any expenditure was actually incurred by assessee, addition made by invoking provisions of Section 69C is unsustainable.

U/s. 234C, interest is chargeable on basis of tax on returned income and where tax on returned income is Nil, no interest u/s.234C could be levied on assessee.

 

JOYRAM ENTERPRISE vs. ASSISTANT COMMISSIONER OF INCOME TAX

GAUHATI TRIBUNAL

N.S. SAINI, AM & PAVAN KUMAR GADALE, JM.

ITA No. 260 to 266/GAU/2017

Feb 22, 2018

(2018) 52 CCH 0225 GauTrib

Legislation Referred to

Section 153C, 132, 158BD, 143(3), 69C, 234C

Case pertains to

Asst. Year 2009-2010 to 2015-2016

Supreme Court in the case of CIT Vs. Calcutta Knitwears, [2014] 362 ITR 673 (SC), wherein it was held that recording of a satisfaction is sine qua non for taking an action against a person u/s.158BD of the Act i.e. a person in whose case search was not conducted and also accepted that this decision is squarely applicable in case covered by Section 153C of the Act and also further directed that in pending litigation with regard to recording of satisfaction note u/s.158BD/153C should be withdrawn/not pressed, if it does not meet the guidelines laid down by the Hon’ble Apex Court. In the circumstances, in the instant case, we find that both the two satisfactions which were required to be recorded by the Assessing Officer as per provisions of Section 153C, one in capacity as the Assessing Officer of the searched person and the other in the capacity of the AO of the assessee (other person), both are missing. Hence, we have no hesitation in holding that the initiation of proceedings u/s.153C of the Act, in the instant case, is bad in law and without jurisdiction and consequently, the orders passed by the AO u/s.153C r.w.s. 143(3) for all the six assessment years under consideration are liable to be cancelled. CIT Vs. Calcutta Knitwears, [2014] 362 ITR 673 (SC)(Followed) (Para 12)

 

Entire deposit therein has been considered by the AO as business receipt of the assessee separately and no part of the receipt was found to be the amount received from M/s Max New York Life Insurance Company Ltd.

(Para 23)

 

Thus, we find force in the argument of the assessee that the said agreement was terminated on 19.04.2011. No material has been brought on record by the Revenue to show that any maintenance work of M/s Max New York Life Insurance Company Ltd was actually carried out by the assessee during the year or any expenditure incurred by the assessee for carrying out maintenance work awarded by the said party any consideration was actually received from the said party during the year under consideration. In the circumstances, in absence of any material to show that any maintenance work of M/s Max New York Life Insurance Company Ltd was done by the assessee during the year under consideration or any consideration was received by the assessee, we hereby delete the addition of Rs.87,102/-. Thus, this ground of appeal of the assessee is allowed (Para 24)

 

We find that the Revenue has brought no material on record to show that any payment in respect of the aforesaid two bills was actually made by the assessee during the year under consideration. A perusal of Section 69C of the Act shows that the said section provides that where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure and he offers no explanation offered about the source of such expenditure or the explanation about the source of expenditure is found to be not satisfactory, then the Assessing Officer is empowered to deem such expenditure to be the income of the assessee. Thus, the condition precedent for invoking Section 69C of the Act is that a finding must be recorded to show that any actual expenditure was incurred by the assessee during the relevant financial year. In the instant case, we find that no material has been brought on record by the Revenue after making due enquiries to show that any expenditure was actually incurred by the assessee in respect of aforesaid two bills during the year under consideration. Hence, in our considered view, the above addition of Rs.2,45,495/- made by invoking provisions of Section 69C of the Act is unsustainable. We, therefore, delete the said addition of Rs.2,45,495/- made by u/s.69C of the Act and allow this ground of appeal of the assessee. (Para 34)

 

We have heard rival submissions and perused the orders of lower authorities and materials available on record. We find that the returned income in the instant case was Nil. A perusal of the provisions of Section 234C shows that interest is chargeable under this section on the basis of tax on returned income. Thus, in the instant case tax on returned income being Nil, no interst u/s.234C of the Act could have been legally levied. We, therefore, delete the charge of interest levied u/s.234C of the Act of Rs.4524/- and allow this ground of appeal of the assessee.  (Para 36)

 

Cases Referred to

CIT Vs. Calcutta Knitwears, [2014] 362 ITR 673 (SC)
National Thermal Power Co. Ltd. Vs. CIT [1998] 229 ITR 383 (SC)

Counsel appeared:

Sanjay Mody, FCA for the Assessee.: NG.J. Gangte for the Revenue

1. S. SAINI, AM.
2. These are the appeals filed by the assessee against the separate orders of CIT(A), Shillong, all dated 22.09.2017 for assessment years 2009-2010 to 2015-2016.
3. As the facts and issue involved in these appeals are identical, they are being disposed off together by this consolidated order.
4. The grounds raised in the appeal of the assessee for assessment year 2009-2010 are as under
5. For that the impugned order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad in law, facts and procedure.
6. For that the ld. CIT(A) erred in not quashing the order of assessment passed by the ld. AO which is barred by limitation.
7. For that the ld. CIT(A) was not justified in upholding the order passed by the ld. AO as the initiation of proceedings u/s 153C of the Act in the instant case is without satisfaction of pre-requisite conditions and consequently, without jurisdiction and bad in law.
8. For that in absence of any valid notice u/s 153C being served upon the appellant also, the impugned order is without jurisdiction and bad in law.
9. For that the impugned order was passed by the learned CIT(A) in gross violation of the principles of natural justice and without allowing reasonable opportunity of being heard and hence, the same is bad in law and is liable to be quashed.
10. For that the ld. CIT(A) was not justified in confirming the arbitrary addition of Rs. 33,873/-.
11. For that the ld. CIT(A) was not justified in confirming the arbitrary addition of Rs. 4,86,411/-.
12. For that the ld. CIT(A) ought to have held that the charge of interest u/s 234C at Rs. 5,948/- is bad in law and untenable.
13. For that your appellant craves leave of your honours to take additional ground or grounds and/or to modify any ground(s) of appeal at or before the time of hearing.
14. The AR of the assessee, at the outset, submitted that he will be arguing ground No.3 of the appeal, which is directed against the Assessing Officer initiating proceedings u/s.153C of the Act where the proceedings were initiated by him without recording satisfaction which is a pre-requisite conditions for initiating proceedings u/s.153C of the Act and without which the AO does not derive jurisdiction to make assessment and, therefore, the order passed by him u/s. 1530 of the Act is without jurisdiction and bad in law.
15. He submitted that a search and seizure operation u/s. 132 of the Act was conducted in the case of Shri Sushanta Saha on 25.03.2015. Shri Sushanta Saha is a partner in the assessee firm, from where certain documents were found and seized in the search operation, therefore, proceedings u/s. 153C of the Act was initiated against the assessee for the six years under consideration and consequently an order came to be passed u/s.153C r.w.s. 143(3) of the Act on 26.12.2016. The proceeding was started u/s.153C of the Act without recording satisfaction of the nature specified in Section 153C of the Act and, therefore, is invalid and bad in law. For this, he placed reliance on the decision of Hon’ble Andhra Pradesh High Court in the case of CIT Vs. M/s. Shettys Pharmaceuticals & Biologicals Ltd. In ITTA No. 662 of 2014 dated 26-11-2014 as well as decision of Hyderabad Bench of the Tribunal in the case of Shri Satyanarayan Agarwal Vs. Asst. CIT, ITA No.1764/Hyd/2013, dated 08.01.2016, where it was held that initiation of proceedings u/s.153C of the Act without recording satisfaction by the Assessing Officer of the searched person and by the Assessing Officer of the other person against whom proceedings u/s.153C of the Act are taken up, the proceeding is invalid and bad in law.
16. The Departmental Representative, on the other hand, referred to the section 124(3)(c) of the Income-tax Act and contended that no person shall be entitled to call in question the jurisdiction of an Assessing Officer in a case where an action has been taken u/s. 132 or u/s.132A of the Act after the expiry of one month from the date on which he was served with a notice issued under sub-section (1) of section 153A of the Income-tax Act or sub-section (2) of section 153C of the Income-tax Act or after the completion of the assessment, whichever is earlier. He submitted that the objection which is now being raised by the assessee that the initiation of proceeding u/s.153C of the Act is bad in law, should have been raised by the assessee before the Assessing Officer within one month of the initiation of proceedings by him and as this was not done, in view of the provisions of Section 124(3)(c) of the Act, the same cannot be raised now before the Tribunal.
17. In the rejoinder, the counsel for the assessee submitted that the provisions of Section 124(3)(c) of the Act which provides that no person shall be entitled to call in question the jurisdiction of an Assessing Officer after the expiry of one month from the date of service of notice issued under sub-section (1) of section 153A or sub-section (2) of section 153C of the Income-tax Act or after the completion of the assessment, whichever is earlier, was inserted w.e.f. 01.06.2016, whereas the proceeding in the case of assessee u/s.153C of the Act was initiated on 02.11.2015 and, hence, the provisions are not applicable to the assessee. He further contended that in present appeal before the Tribunal, the jurisdiction of the AO is not challenged per sebut the validity of the action of AO to initiate proceedings u/s.153C of the Act without recording satisfaction which is a sine qua nonis challenged and, therefore, the said provisions are not applicable in the case of the assessee.
18. We have heard rival submissions and perused the materials available on record. Briefly the facts related to all the six years under appeal i.e. Assessment Years 2009-2010 to 2014-2015 are that a search and seizure operation u/s. 132 of the Act was conducted in the case of Shri Sushanta Saha on 25.03.2015. The said Shri Sushanta Saha is a partner in the assessee firm and documents related to the assessee firm were also found and seized in the course of search operation. Consequently, the assessment proceedings u/s.153C of the Act was initiated against the assessee for all the six years under consideration and assessment u/s.153C r.w.s. 143(3) of the Act was completed on 26.12.2016. The assessee contended before us that the initiation of proceedings u/s.153C of the Act in the instant case in absence of recording of satisfaction of the nature specified in Section 153C of the Act, is invalid and bad in law. The assessee has filed paper book before us wherein copy of order sheet entries for all the six years under consideration are filed at page Nos. 1 to 14 of the paper book. The first recording in the order sheet of the assessee is made by the AO on 02.11.2015 i.e. the very same date on which notice u/s.153C of the Act was issued. The recording made on 02.11.2015 in the assessment year 2009-2010 reads as under .-

ORDER SHEET

NAME OF THE ASSESSEE: Joy Ram Enterprise

PAN: AAGFJ6548N

ASSESSMENT YEAR: 2009-10

DATE: 02.11.2015

A search and seizure was conducted in the premises of Joy Ram Enterprise on 25-03-2015. Appraisal of the case has already been received from the DDIT, Guwahati. It is a consequential case of Sushanta Saha. Accordingly a notice u/s. 153A read with Section 153C is issued to the assessee calling return for the Asst. Year 2009-10) being one of the six assessment years preceding to the assessment year relevant to the previous year in which the search was conducted) in the prescribed format and be duly verified in prescribed manner and to be submitted to the office of the under signed by 03-12-2015.

Sd/

DCIT

9. The recordings made for all other years under consideration are also exactly the same, except change of assessment years. Thus, it is observed that nowhere it states recording of any satisfaction in the case of searched person which have been placed in this file of the assessee nor any record of satisfaction to the effect that books of account or documents or assets seized have a bearing on the total income of the assessee for the relevant assessment years.
10. Section 153C of the Act as was in force at the material time, reads as under:-

“153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,-

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A”

11. We find that the Hon’ble Andhra Pradesh High Court in the case of Shettys Pharmaceuticals & Biological Ltd. in ITTA No.662 of 2014 dated 26.11.2014, has considered similar facts and analysed the above provisions of Section 153C of the Act and upheld the decision of the Tribunal that initiation of proceedings u/s.153C of the Act was invalid and consequently, the order passed u/s.153C was bad in law. The Hon’ble Andhra Pradesh High Court on a reading of Section 153C of the Act, has held as under

“It is therefore clear that firstly satisfaction has to be recorded by the Assessing Officer who conducted search, that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in Section 153A of the Act. Thereafter, the Assessing Officer having jurisdiction over third party on receipt of the seized material or books of accounts or document being handed over to him shall record his own satisfaction after examining the same independently without being influenced by the satisfaction of the Seizing Officer. In other words it is not an automatic action, l/l/e find satisfaction of two officers is missing. In this connection we set out the text of the order of the Assessing Officer which is as follows A search and seizure operation u/s. 132 was carried out in the group case of Dr. T. Yadhaiah Goud and others on 25-3-2010.

During the course of search operation documents belonging to SHETTY PHARMACEUTICALS & BIOLOGICAL LTD., has been ITANos.260to266/Gau/2017 seized. Hence it is considered to initiate proceeding u/s. 153C of the I.T.Act.’

The aforesaid Section mandates recording of satisfaction of the Assessing Officer(s) is a pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other way (See Nazir Ahmed v. King Emperor), l/l/e think the learned Tribunal has correctly followed the principle, l/l/e do not find any element of law to be decided”.

12. The above decision of Hon’ble Andhra Pradesh High Court was followed by the Hyderabad Tribunal in the case of Sri Satyanarayan Agarwal Vs. Asst. CIT, ITA No.1764/Hyd/2013, dated 08.01.2016. To the same effect is also the decision of Delhi Bench of the Tribunal in the case of Tanvir Collections Pvt. Ltd. Vs. ACIT in ITA No.2421/Del/2014, order dated 16.01.2015. The CBDT also vide its Circular No.24/2015, dated 31.12.2015 has accepted the decision of Hon’ble Supreme Court in the case of CIT Vs. Calcutta Knitwears, [2014] 362 ITR 673 (SC), wherein it was held that recording of a satisfaction is sine qua non for taking an action against a person u/s.158BD of the Act i.e. a person in whose case search was not conducted and also accepted that this decision is squarely applicable in case covered by Section 153C of the Act and also further directed that in pending litigation with regard to recording of satisfaction note u/s.158BD/153C should be withdrawn/not pressed, if it does not meet the guidelines laid down by the Hon’ble Apex Court. In the circumstances, in the instant case, we find that both the two satisfactions which were required to be recorded by the Assessing Officer as per provisions of Section 153C, one in capacity as the Assessing Officer of the searched person and the other in the capacity of the AO of the assessee (other person), both are missing. Hence, we have no hesitation in holding that the initiation of proceedings u/s.153C of the Act, in the instant case, is bad in law and without jurisdiction and consequently, the orders passed by the AO u/s.153C r.w.s. 143(3) for all the six assessment years under consideration are liable to be cancelled.
13. The Ld. Departmental Representative has referred to the provisions of Section 124(3)(c) of the Income-tax Act, which provides that no person shall be entitled to call in question the jurisdiction of an Assessing Officer after expiry of one month from the date of service of notice under section 153C of the Income-tax Act or after the completion of assessment, whichever is earlier, to contend that the challenge to the initiation of proceedings u/s.153C of the Act, now at this stage, is not valid. We do not find any merit in this contention of the ld. DR. Firstly, this section 124(3)(c) of the Income-tax Act, was inserted in the statue w.e.f. 01.06.2016, whereas in the instant case, the proceedings u/s.153C was initiated on 02.11.2015. Moreover, in the instant appeals, the jurisdiction of the AO is not challenged per sebut the validity of the action of AO to initiate proceedings u/s.153C of the Act without recording satisfaction which is a sine qua non,is challenged. It is not the case of the assessee that the ACIT, Circle-Agartala had no jurisdiction to make assessment in the case of the assessee. Further, the issue involved being a legal issue, the same can be raised for the first time before the Tribunal is a settled position of law in view of the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT [1998] 229 ITR 383 (SC), wherein it has been held that nothing prevented the Tribunal to consider the questions of law arising in assessment proceedings, although not raised earlier. We, therefore, hereby cancel the orders of lower authorities for all the six assessment years under consideration and allow this ground of appeal of the assessee.
14. In view of our above decision, the issue raised in other grounds of appeal have become infructuous and therefore, the same are not adjudicated.
15. Thus, appeals of the assessee for assessment years 2009-2010 to 2014-20015 are allowed.

ITA No.266/GAU/2016(AY : 2015-2016)

16. Grounds No.1 & 2 in this appeal reads as under :-
17. For that the impugned order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad in law, facts and procedure.
18. For that in absence of any valid notice u/s 143(2) being served upon the appellant, the impugned order is without jurisdiction and bad in law.
19. At the time of hearing the AR of the assessee submitted that he is not pressing the above grounds of appeal and also made an endorsement to this effect on the grounds of appeal appended to the memorandum of appeal filed in Form No.36. Hence, the above grounds of appeal of the assessee are dismissed for want of prosecution.
20. Ground No.3 of the appeal reads as under
21. For that the ld. CIT(A) was not justified in confirming the arbitrary addition of Rs. 87,102/-.
22. We have heard rival submissions and perused the materials available on record. In the instant case the AO observed that at Page nos. 142 to 149 of seized document marked HSR- 4 is an agreement dated 20.1.2009 entered into by the assessee with M/s Max New York Life Insurance Company Ltd for maintenance work. As per this agreement the assessee undertook maintenance work for a monthly consideration of Rs.14517/- and the agreement was for a period of 9 years i.e. upto 31.01.2018. Therefore, the AO took the receipt of the assessee from the above work at Rs.1,74,204/- (14517/- x 12) and estimated income therefrom @50% which worked out to Rs.87,102/- and added the same to the total income of the assessee.
23. This addition was also confirmed by the CIT(A) on appeal.
24. Before us, the AR of the assessee submitted that the said agreement was terminated by the said M/s Max New York Life Insurance Company Ltd on 19.4.2011 and during the year under consideration neither any work done by the assessee nor any payment was received by the assessee from M/s Max New York Life Insurance Company Ltd.
25. We find from the copy of 26AS placed page No.2 to 4 of the paper book that though M/s Max New York Life Insurance Company Ltd deducted ITDS of Rs.3480/- u/s.194C of the Act on Rs.1,74,204/- during the previous year relevant to the assessment year 2011-12, it deducted ITDS of Rs.184/- only u/s.194C of the Act on Rs.9,194/- during the previous year relevant to the assessment year 2012-2013 and no ITDS was deducted by them in the previous year relevant to the assessment year 2015-2016.
26. Further, from the copy of bank statement placed at page 5 of the paper book it is observed that the entire deposit therein has been considered by the AO as business receipt of the assessee separately and no part of the receipt was found to be the amount received from M/s Max New York Life Insurance Company Ltd.
27. Thus, we find force in the argument of the assessee that the said agreement was terminated on 19.04.2011. No material has been brought on record by the Revenue to show that any maintenance work of M/s Max New York Life Insurance Company Ltd was actually carried out by the assessee during the year or any expenditure incurred by the assessee for carrying out maintenance work awarded by the said party any consideration was actually received from the said party during the year under consideration. In the circumstances, in absence of any material to show that any maintenance work of M/s Max New York Life Insurance Company Ltd was done by the assessee during the year under consideration or any consideration was received by the assessee, we hereby delete the addition of Rs.87,102/-. Thus, this ground of appeal of the assessee is allowed.
28. Ground Nos. 4 & 5 read as under
29. For that the ld. CIT(A) was not justified in confirming the arbitrary addition of Rs. 39,678/-.
30. For that the ld. CIT(A) was not justified in confirming the arbitrary addition of Rs. 23,498/-.
31. We have heard rival submissions and perused orders of lower authorities and the materials available on record. As the issues involved in both the grounds of appeal of the assessee are same, both are disposed of together.
32. We find that the AO observed that the assessee has received maintenance charges of Rs.79,356/- and other business receipt of Rs.46,995/- during the year under consideration. He estimated the income from these business receipts at 50% of the receipt i.e. Rs.39,678/- and Rs.23,498/- respectively, which was confirmed by the CIT(A).
33. The contention of the assessee is that estimation on income at 50% of the business receipt is arbitrary and excessive.
34. We find that no basis could be stated by the AO for his estimating income at the rate of 50% of the receipt. Keeping in view the provisions of Section 44AD in mind, we hereby set aside the orders of lower authorities in respect of the above grounds and direct the AO to estimate the income from the above business receipt at 8%. Thus, both the above grounds of appeal of the assessee are partly allowed.
35. Ground Nos.6 & 7 of the appeal of the assessee read as under :-
36. For that the ld. CIT(A) was not justified in confirming the arbitrary addition of Rs. 2,45,495/-
37. For that the impugned order was passed by the learned CIT(A) in gross violation of the principles of natural justice and without allowing reasonable opportunity of being heard and hence, the same is bad in law and is liable to be quashed.
38. After hearing the rival submissions and perusing the materials available on record, we find that the addition of Rs.2,45,495/- was made by the AO by invoking provisions of Section 69C of the Act on the ground that two invoices of purchase of goods were found during the course of search, which was not recorded in the accounts. The said invoices were of two parties, both from Kolkata and were dated 13.03.2015 and 10.03.2015.
39. On appeal, the CIT (A) confirmed the action of the AO.
40. Before us, the AR of the assessee submitted that the goods in respect of said two invoices were received in the next year i.e. after 31.03.2015 and no payments was made by the assessee during the year under consideration.
41. We find that the Revenue has brought no material on record to show that any payment in respect of the aforesaid two bills was actually made by the assessee during the year under consideration. A perusal of Section 69C of the Act shows that the said section provides that where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure and he offers no explanation offered about the source of such expenditure or the explanation about the source of expenditure is found to be not satisfactory, then the Assessing Officer is empowered to deem such expenditure to be the income of the assessee. Thus, the condition precedent for invoking Section 69C of the Act is that a finding must be recorded to show that any actual expenditure was incurred by the assessee during the relevant financial year. In the instant case, we find that no material has been brought on record by the Revenue after making due enquiries to show that any expenditure was actually incurred by the assessee in respect of aforesaid two bills during the year under consideration. Hence, in our considered view, the above addition of Rs.2,45,495/- made by invoking provisions of Section 69C of the Act is unsustainable. We, therefore, delete the said addition of Rs.2,45,495/- made by u/s.69C of the Act and allow this ground of appeal of the assessee.
42. Ground No.8 reads as under :-
43. For that the ld. CIT(A) ought to have held that the charge of interest u/s 234C at Rs.4.524/- is bad in law and untenable.
44. We have heard rival submissions and perused the orders of lower authorities and materials available on record. We find that the returned income in the instant case was Nil. A perusal of the provisions of Section 234C shows that interest is chargeable under this section on the basis of tax on returned income. Thus, in the instant case tax on returned income being Nil, no interst u/s.234C of the Act could have been legally levied. We, therefore, delete the charge of interest levied u/s.234C of the Act of Rs.4524/- and allow this ground of appeal of the assessee.
45. In the result, appeals of the assessee for the assessment years 2009-2010 to 2014-2015 (i.e. ITA Nos.260/Gau/2017 to 265/Gau/2017) are allowed and appeal for the assessment year 2015-2016 (in ITA No.266/Gau/2017) is partly allowed.

Order pronounced in the Court on Thursday the 22^nd Day of February, 2018 at Guwahati.