Validity of Initiation of proceedings u/s 153C in respect of assessment years not covered within period of six years from the DATE of recording of SATISFACTION NOTE by AO

Income Tax Act, 1961, Section 153C

Search and seizure—Assessment under section 153C—Validity—Initiation of proceedings in respect of assessment years not covered within period of six years from the date of recording of satisfaction note by AO

Short overview : First proviso to section 153C provides that six assessment years in which assessment or reassessments could be made under section 153C would have to be considered with reference to date of handing over of assets or documents to AO of other person, i.e., assessee. In the instant case, impounded documents had been received by AO on 29-1-2014 when satisfaction under section 153C had been recorded. Therefore, six assessment years under section 153C in case of assessee would be assessment years 2008-09 to 2013-14, whereas AO in satisfaction note initiated proceedings under section 153C for assessment years 2006-07 to 2011-12, which was illegal and not sustainable.

AO initiated proceedings under section 153C in respect of assessment years 2006-07 to 2011-12. Assessee challenged this on the ground of AO having recorded this on the ground of AO having recorded satisfaction under section 153C on 29-1-2014.

it is hald that : First proviso to section 153C provides that six assessment years in which assessment or reassessments could be made under section 153C would have to be considered with reference to date of handing over of assets or documents to AO of other person, i.e., assessee. In the instant case, impounded documents had been received by AO on 29-1-2014 when satisfaction under section 153C had been recorded. Therefore, six assessment years under section 153C in case of assessee would be assessment years 2008-09 to 2013-14, whereas AO in satisfaction note initiated proceedings under section 153C for assessment years 2006-07 to 2011-12, which was illegal and not sustainable.

Decision: In assessee’s favour.

Followed: Bnb Investment & Properties & Anr. v. Dy. CIT (2018) 68 ITR 567 (Del-Trib) : 2018 TaxPub(DT) 5195 (Del-Trib).

IN THE ITAT, DELHI BENCH

BHAVNESH SAINI, J.M. & O.P. KANT, A.M.

Bina Fashions N Foods (P) Ltd. v. Dy. CIT

ITA. No. 610/Del./2016

17 January, 2020

Assessee by: Sweety Kothari, C.A.

Revenue by: Rakhi Vimal, Sr. D.R.

Bhavnesh Saini, J.M.

This appeal by assessee has been directed against the Order of the learned Commissioner (Appeals)-29, New Delhi, dated 31-12-2015, for the assessment year 2012-2013 on the following grounds :

1. The learned Commissioner (Appeals) erred in law and on facts in holding the assessment framed under section 143(3) of the Act as valid even when the same should have been framed under section 153A read with section 153C since the satisfaction note was prepared by the Assessing officer on 29-1-2014, which became the “substituted” date of search under section 153C and the assessment year 2012-13 fell within the six preceding assessment years, i.e., from assesment year 2008-09 to 2013-2014 for the purpose of assessment under section 153A. Thus, the assessment framed under section 143(3) is not valid and should be annulled.

2. The learned Commissioner (Appeals) erred in law and on facts in confirming disallowance of Rs. 6,23,370, i.e., 10% of director’s foreign travelling expenses merely on estimate and asserting that personal element cannot be ruled out, while ignoring that no such disallowance can be made in the case of a company. Thus, the disallowance so made must be deleted.

2. Briefly the facts of the case are that a search and seizure operation was carried out in the case of Modi Family Group on 9-11-2011. During the search at the residential premises of Shri Krishan Kumar Modi at A-1, Maharani Bagh, New Delhi, a copy of the sale deed executed on 18-12-2007 by Shri Sanjeev Lal in favour of the assessee company through its Director Ms. Bina Modi was seized.

Subsequently, the case was centralized with Central Circle- 2, New Delhi. The assessing officer after examining the seized records was satisfied that the documents seized during the course of search belonged to the assessee-company. Thereafter, he has recorded his satisfaction vide Order Sheet entry dated 29-1-2014 and issued notice under section 153C of the Income Tax Act, 1961 to the assessee company for the assessment years 2006-2007 to 2011-2012 on 5-2-2014.

2.1. The assessing officer considered the issue of foreign travel expenses and disallowed Rs. 62,33,699 and completed the assessment under section 143(3) on 30-3-2014.

3. The assessee contended before the learned Commissioner (Appeals) that instead of passing the Order under section 143(3), the assessing officer should have passed the Order under section 153C of the Income Tax Act. However, such contention of assessee was rejected. The assessee also challenged the addition on merit. The learned Commissioner (Appeals) restricted the disallowance out of foreign travel expenses to 10% and sustained the addition of Rs. 6,23,370.

4. We have heard the learned Representatives of both the parties. Learned Counsel for the assessee submitted that assessing officer should have passed the assessment order under section 153C since satisfaction note was prepared by the assessing officer on 29-1-2014 which became the substitute date of search under section 153C and assessment year 2012-2013 under appeal fell within six preceding assessment years i.e., from assessment year 2008-2009 to 2013-2014 for the purpose of assessment under section 153A of the Income Tax Act, 1961. Thus, the assessment framed under section 143(3) is not valid and should be annulled. He has submitted that copy of the satisfaction note dated 29.-1-2014 is filed at page-29 of the PB and that in assessment year 2007-2008 appeal of assessee has been decided by ITAT, Delhi A-Bench in ITA.No. 5921/Del./2014, dt. 17-5-2016, copy of which is filed at page-1 of the PB, in which the assessee on the basis of the above contention submitted that assessment framed under section 153A/143(3) for assessment year 2007-2008 is void abinitio as barred by limitation. The contention of assessee was accepted by the Tribunal and appeal of assessee has been allowed. Learned Counsel for the assessee also relied upon Order of ITAT, Delhi A-Bench in the case of BNB Investment & Properties Ltd. v. DCIT (2018) 68 ITR 567 (Del-Trib) : 2018 TaxPub(DT) 5195 (Del-Trib).

5. On the other hand, learned D.R. relied upon the Orders of the authorities below and submitted that assessing officer has correctly passed the order under section 143(3) of the Income Tax Act, 1961.

6. We have considered the rival submissions. In assessment year 2007-2008 assessee contended before the Tribunal that assessment is barred by limitation since the satisfaction contemplated under section 153C of the Income Tax Act was recorded by assessing officer on 29-1-2014. Accordingly, the date of search i.e., 9-11-2011 gets substituted by the date of recording of the satisfaction i.e., 29-1-2014 and the six preceding assessment years in the case of the assessee become assessment years 2008-2009 to 2013-2014. Accordingly, assessment year 2007-2008 gets excluded. The contention of assessee has been accepted by the Tribunal and appeal of assessee has been allowed. The ITAT, Delhi A-Bench in the case of BNB Investments & Properties Ltd., (supra) in paras 7 to 10 considered the identical issue in the light of Judgment of Hon’ble Delhi High Court and accepted similar contention of assessee. The Order of the Tribunal is reproduced as under:

“7. We have considered the rival submissions. Section 153C of the Income Tax Act, 1961, as is applicable to assessment year under appeal reads as under :

“153C. Assessment of income of any other person:–(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 any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the assessing officer having jurisdiction over such other person and that assessing officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the assessing officer having jurisdiction over such other person.

(Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the assessing officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated.)

((2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the assessing officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year–

(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or

(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or

(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the assessing officer having jurisdiction over such other person, such assessing officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.

7.1. The Hon’ble Delhi High Court in the case of Pr. CIT v. Sarwar Agency P. Ltd. (2017) 397 ITR 400 (Del.) :  2017 TaxPub(DT) 4222 (Del-HC) (supra), considering the identical issue held as under :

“Sub-section (1) of section 153C of the Income-tax Act, 1961 provides that the assessment or reassessment of the income of the “other person” would be in accordance with the provisions of section 153A. The first proviso to subsection (1) of section 153C further states that, in case of such other person, the reference to the date of initiation of search in the second proviso to section 153A(l) “shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the assessing officer having jurisdiction over such other person”.

In terms of section 153A(1)(b) of the Act. the assessing officer shall assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted.

The second proviso to sub-section (1) of section 153A of the Act states that assessment or reassessment relating to any assessment year falling within the period of six assessment years referred to in the said sub-section pending on the date of initiation of the search under section 132, would abate. In CIT v. RRJ Securities Ltd. (2016) 380 ITR 612 (Del) : 2015 TaxPub(DT) 4278 (Del-HC), the court held that in the context of proceedings under section 153C of the Act, the reference to the date of initiation of the search in the second proviso to section 153A has to be construed as the date on which the assessing officer receives the documents or assets from the assessing officer of the searched person, that further proceedings, by virtue of section 153(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 or 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 or documents to the assessing officer of the assessee.

The amendment in section 153C of the Act by the Finance Act, 2017 with effect from 1-4-2017 to the effect that the Block Period for the person in respect of whom the search was conducted as well as the “other person” would be the same six assessment years immediately preceding the year of search is prospective.

A search under section 132 of the Income-tax Act, 1961 took place on 11-11-2010 in the T group of cases. The documents pertaining to the assessee were forwarded along with a satisfaction note by the assessing officer of the party in respect of which the search was conducted to the assessing officer of the assessee on 3-1- 2013. The assessing officer of the assessee issued notice to the assessee under section 153C of the Act on 4-1-2013 for the assessment year 2006-07. The Tribunal held that the notice issued to the assessee under section 153C of the Act for the assessment year 2006-07, was without jurisdiction since the assessment year was beyond the purview of issuance of notice in terms of the provision under section 153C of the Act. On appeal:

Held accordingly, dismissing the appeal, that the Tribunal was justified in holding that the notice issued to the assessee under section 153C of the Act for the assessment year 2006-07 was without jurisdiction since the assessment year was beyond the purview of issuance of notice in terms of the provision.”

7.2. The ITAT, Delhi, B-Bench in the case of ACIT v. Empire Casting Pvt. Ltd. (supra), held in paras 5 and 5.1 as under :

“5. We have heard the rival submission on this issue and also perused the judgment dated 30-10-2015 of the Hon’ble jurisdictional High Court in the case of CIT v. RRJ Securities [in ITA No. 164/2015 and ITA No. 175 to 177/2015] : 2015 TaxPub(DT) 4278 (Del-HC). For ready reference, the relevant Para of the judgment is reproduced as under:

“24. 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 assessing officer 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 assessing officer of the assessee. In this case, it would be the date of the recording of satisfaction under section 153C of the Act, i.e., 8-9-2010. 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 assessing officer of the searched person. It is contended by the revenue that the relevant six assessment years would be the assessment years prior to the assessment year relevant to the previous year in which the search was conducted. If this interpretation as canvassed by the revenue is accepted, it would mean that whereas in case of a person searched, assessments in relation to six previous years preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the assessing officer would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of section 153C(1) of the Act, which construes the date of receipt of assets and documents by the assessing officer of the assessee (other than one searched) as the date of the search on the assessee. The rationale appears to be that whereas in the case of a searched person the assessing officer of the searched person assumes possession of seized assets/documents on search of the assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the assessing officer of that person only after the assessing officer of the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the assessing officer of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for assesment year 2003-04 and assesment year 2004-05 were outside the scope of section 153C of the Act and the assessing officer had no jurisdiction to make an assessment of the assessee’s income for that year.”

5.1. The fact that satisfaction under section 153C of the Act in the case was recorded on 2-11-2009, is not disputed by both the parties. In the judgment cited above, the Hon’ble High Court has held that when the assessing officer of searched person and such other person in whose case proceedings undersection 153C are initiated, is the same officer, then the date of recording of satisfaction would be construed as the date of handing over of the seized records by the assessing officer of searched person to the assessing officer of such other person in whose case proceedings under section 153C are initiated. Since the Hon’ble High Court has already construed the relevant provisions, we do not concur with the arguments advanced by the learned Commissioner- DR on this count. Respectfully following the above judgment of the Hon’ble High Court in RRJ Securities (supra) the date of handing over of seized material/ record by the assessing officer of searched party to the assessing officer of the assessee would be 2-11-2009. Further, following the judgment, the six assessment years for which assessment/re-assessment could be made under section 153C of the Act would also have to be construed as from the reference date of handing over of assets/documents to the assessing officer of the assessee. In the case in hand, it would be the date of recording satisfaction under section 153 of the Act i.e. 2-11-2009, and therefore, six assessment years which would eligible for assessment/re-assessment would commence from assessment year 2004-05 to assessment year 2009-10. The assessment/re-assessment in respect of assessment year 2003-04 would, thus, be beyond the period of six assessment year as reckoned with reference to the date of satisfaction recorded by the assessing officer of the searched person. We, therefore, hold that the learned Commissioner (Appeals) was quite justified in considering the assessment for assessment year 2003-04 as outside the scope of section 153C of the Act, being barred by limitation and without jurisdiction. Accordingly, the impugned assessment order is liable to be quashed. We decide accordingly.”

7.3. The ITAT, Delhi, C-Bench, in the case of Pavitra Realcon Pvt. Ltd. v. ACIT (supra) under the same circumstances held that “assessment completed under section 143(3) is invalid”. The relevant para- 16 of the order is reproduced as under :

16. “We find the year for which the impugned assessment order has been passed under section 143(3) is for assessment year 2011-12. This year falls within the period of six years when counted from the date of recording of satisfaction note under section 153/153C of the Income Tax Act which is deemed date of search. The Act has been amended recently by the Finance Act, 2017 with prospective effect i.e., from assessment year 2018-19. Thus, the period is same now only for the searched parties as well as the other person as per the amended provisions of the said section. In view of the above, we hold that the assessment completed under section 143(3) is invalid.”

8. It is not in dispute that search was conducted on Krrish Group of cases on 9-11-2011.

The impounded documents have been received by the assessing officer on 29-8-2013. The satisfaction under section 153C have been recorded on 3-10-2013.

The assessing officer passed the assessment order under section 153B(1)(b) of the Income Tax Act, considering the assessment year under appeal i.e., assessment year 2012-2013 to be the year of search. However, the First Proviso to section 153C of the Income Tax Act provides that the 06 assessment years for which assessments or re-assessments could be made under section 153C of the Income Tax Act, would also have to be construed with reference to the date of handing-over of the assets or documents to the assessing officer of the assessee.

Therefore, the 06 assessment years under section 153C of Income Tax Act in the case of assessee would be assessment year 2008-2009 to 2013-2014. The assessing officer, therefore, shall have to pass the assessment order under section 153C of the Income Tax Act. However, assessing officer has not issued any notice under section 153C of the Income Tax Act before initiating the proceedings against the assessee which is also admitted by the assessing officer in reply to the assessee under RTI Act. The Amendment in section 153C of the Income Tax Act by the Finance Act, 2017, with effect from 1-4-2017 to the effect that block period for the person in respect of whom the search was conducted as well as the “other person” would be the same six assessment year immediately preceding the year of search is prospective in nature. The issue have been dealt in detail by the Hon’ble jurisdictional Delhi High Court in the case of Pr. CIT v. Sarwar Agency P. Ltd. (supra) and by ITAT, Delhi, B-Bench, in the case of Empire Casting Pvt. Ltd. v. ACIT and Pavitra Realcon Pvt. Ltd. v. ACIT (supra). The assessing officer, therefore, should have framed the assessment under section 153C of the Income Tax Act in the case of the assessee and at the time of initiating the proceeding against the assessee, should have issued notice under section 153C of the Income Tax Act which have not been done in this case. The issue of notice under section 153C is mandatory and a condition precedent for taking action against the assessee under section 153C of the Income Tax Act. The assessment order, therefore, vitiate, void, illegal and bad in law and cannot be sustained. The contention of the learned D.R. have already taken care in the above judgments.

9. Considering the totality of the facts and circumstances of the case, we set aside the orders of the authorities below and quash the same and allow the additional grounds of appeals.

Resultantly, all additions stands deleted. Since the assessment order is set aside on legal grounds, therefore, there is no need to decide the addition on merit which has been left with academic discussion only.

10. In the result, ITA.No.504/Del./2013 of the assessee is allowed”.

6.1. Considering the facts of the case in the light of above decisions, it is clear that the impounded documents have been received by assessing officer on 29-1-2014 when satisfaction under section 153C have been recorded. The First Proviso to section 153C of the Income Tax Act provides that six assessment years in which assessment or re-assessments could be made under section 153C of the Income Tax Act would also have to be considered with reference to the date of handing over of the assets or documents to the assessing officer of the assessee.

Therefore, the six assessment years under section 153C of the Income Tax Act in the case of assessee would be assessment years 2008- 2009 to 2013-2014. The assessing officer, therefore, shall have to pass the assessment order under section 153C of the Income Tax Act.

Further, the assessing officer has not issued any notice under section 153C of the Income Tax Act, therefore, the issue is covered by the above decision in favour of the assessee. The assessing officer in the satisfaction note initiated the proceedings under section 153C only for assessment years 2006-2007 to 2011-2012 instead of assessment years 2008-2009 to 2013-2014. In view of the above, we are of the view that assessment order is illegal and bad in law and cannot be sustained in Law. We, accordingly, set aside the Orders of the authorities below and quash the assessment order passed under section 143(3) of the Income Tax Act. Resultantly, the additions stand deleted.

7. In the result, appeal of the assessee allowed.