THE issue before the Bench is - Whether power bestowed on AO having jurisdiction under Ss 153C or 158BD is identical and when no incriminating material is seized during search, AO's action is invalid. YES is the answer.
Facts of the case
Assessee is carrying on the business of Hi Tech Heavy Steel Fabricators and manufacturer. A search was conducted against the partners of the assessee firm u/s 132(1). A survey u/s 133A was conducted at the business premises of the firm and no papers were impounded during the course of that survey. AO issued notice u/s 153C, calling upon the assessee to file returns for the AYs 2000-01 to 2005-06 within 30 days. Assessee filed the returns. AO made assessment u/s 143(3) r.w.s. 153C and made additions towards disallowances of purchase amounts and fabrication charges. Before CIT (A), the principal grievance was about the inappropriate assumption of jurisdiction u/s 153C.
The CIT (A) found that no incriminating material attributable to the assessee was seized during the course of search at the premises of the searched person and there was no satisfaction or even the basis for satisfaction to issue a notice u/s 153C. No satisfaction has been recorded by AO even before issuance of notice u/s 153C. Thus the action of AO was illegal and invalid and quashed the orders.
In further appeal be revenue ITAT observed that even in the new scheme of framing of assessment in case of search cases, the legislature has clearly stipulated the requirement for recording of satisfaction while assuming jurisdiction to issue notice and frame assessment u/s 153C of the Act which requires that satisfaction to be recorded with reference to the documents and other materials found during the course of search belonging to a person other than the searched person. Prima facie, AO of searched person should form an opinion with regard to any document, valuable, etc. as found during the course of search that such document, which is declined by the searched person, actually belongs to some other person against whom proceedings u/s 153C are required to put into operation. After such recording, of satisfaction, the documents so seized should be handed over to the AO of such other person. The legal requirement of recording of such satisfaction cannot be substituted by appraisal note which is prepared by the search party after completion of search insofar as such appraisal note is a secret document prepared by the department for their internal use, contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. Thus, the order of CIT (A) was confirmed.
Revenue contended that manifest error has been committed by appellate authorities in assuming that the procedure specified in Section 153C is identical or pari materia with the procedure prescribed in Section 158BD. For, Section 153C has been placed in Chapter XIV which deals with the procedure for assessment, unlike Section 158BD is placed in Chapter XIV-B which deals with the special procedure for assessment of search cases for block period and undisclosed income. In the matter of search carried out with reference to the provisions under Chapter XIV the Assessing Officer is not required to record satisfaction that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned during search belongs or belong to a person other than the person referred to in Section 153A. Inasmuch as, the said AO cannot have access to the information which may be germane to proceed against the person other than the person referred to in Section 153A. Besides, explanation can be offered by the other person (other than the person referred to in Section 153A) on the basis of the returns already filed by him before AO having jurisdiction over that person. Further, if any tentative opinion is recorded by the AO forwarding the material to the AO having jurisdiction, that may result in preempting the discretion of the AO having jurisdiction to form his own view on the subject matter. On a bare reading of Section 153C it is clear that it involves two stages. First stage is referable to the seizure made by the AO engaged in search of the assessee within his jurisdiction and finds that the material (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 under search. At this stage, the AO carrying on the search of a person within his jurisdiction cannot assume that the said material has not been disclosed by the other person to be treated as undisclosed or escaped income of that person (other than the person referred to in Section 153A). That being a stage of investigation and enquiry, no opinion much less even tentative opinion need to be or can be expressed by the officer carrying on the search against the person referred to in Section 153A. The obligation of AO, at this stage, is merely to forward the material not belonging to the person u/s referred to in Section 153A to the AO having jurisdiction over the other person for further action. Other person would be served with notice by AO having jurisdiction and proceeded in accordance with the provision of Section 153A where he would get opportunity to explain his position. Even notice to be sent by the AO having jurisdiction need not record any reason or satisfaction for resorting to procedure u/s 153A.
Assessee contended that the principle underlying the mandate of Section 158BD would apply on all fours to the procedure specified in Section 153C of the I.T. Act. Because, the purpose of both the provisions is the same and the person against whom such notice is issued suffers the same consequence. No addition or even observation has been made by AO having jurisdiction in any of the orders for the concerned assessment years on the basis of the material found during the course of search. Even for that reason, no action u/s 153C could have been initiated against the assessee.
After hearing both the parties, the High Court held that,
++ as envisaged by Section 158BD, “satisfaction” of AO before he transmits the material/records to other AO having jurisdiction over such other person is sine qua non. Sans such satisfaction, the Assessing Officer cannot validly take recourse to the machinery provision. No doubt, the form of Section 153C is dissimilar to that of Section 158BD. It is also true that the two provisions are embedded under different chapters. For, Section 153C is in Chapter XIV providing for procedure for assessment, whereas Section 158BD is found in Chapter XIV-B providing for special procedure for assessment of search cases. Further, Section 153C opens with non-obstante clause. However, the non-obstante clause in Section 153C is necessitated to give power to AO having jurisdiction to proceed against the person other than the person referred to in Section 153A, inspite of the action u/s 139, 147, 148, 149, 151 and 153 of the I.T. Act. However, on closer scrutiny of the two provisions, it is indisputable that, these provisions are machinery provisions and have been provided for in the statute book for the purpose of carrying out assessment of a person other than the searched person u/s 132 or 132A in relation to Section 158BD; and Section 153A in relation to Section 153C. Notably, the purpose underlying both these provisions is similar, even though Section 153C does not specifically refer to the expression “undisclosed” income. However, in both the situations, AO engaged in carrying on search of the assessee within his jurisdiction, if seizes or requisitions the items (books of account or other documents or any assets for Section 158BD; and money, bullion, jewellery or other valuable article or thing or books of account or documents for Section 153C), is expected to handover those items to the AO having jurisdiction over such other person and thereafter the AO having jurisdiction has to proceed against such other person within his jurisdiction. Even for the purpose of Section 153C, the AO before handing over the items to the AO having jurisdiction must be “satisfied” that the items belongs or belong to the person other than the person referred to in Section 153A. That satisfaction of the concerned AO is a sine qua non. The consequences flowing from the action to be taken on the basis of such information handed over to the AO having jurisdiction, for the assesse, who is a person other than the person referred to in Section 153A, is drastic – of assessment or reassessment of his income falling within six assessment years. The power bestowed on the Assessing Officer having jurisdiction – be it under Section 153C or Section 158BD – is identical;
++ the subject matter of the action would differ in the context of the machinery provision invoked, in the given case. That, however, cannot be the basis to extricate AO, who resorts to power u/s 153C of handing over the items referred to in Section 153C to the AO having jurisdiction, of his duty to be satisfied about the jurisdictional fact that the items belongs or belong to a person other than the person referred to in Section 153A. The concomitant of this conclusion, is that, the legal position as applicable to Section 158BD regarding satisfaction in the first instance of the first AO forwarding the items to the AO having jurisdiction; and in the second instance of the AO having jurisdiction whilst sending notice to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the AO is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the AO 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 other AO 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. Thus, the ground taken by revenue is dismissed;
++ after receipt of the materials, AO having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. AO 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. The view formed by the AO after his own enquiry does not entail in seating in appeal over the satisfaction of the first AO, who had handed over the items to him. Thus, there is no infirmity in the view taken by the Tribunal on the questions under consideration;
++ the concurrent finding of fact recorded by the Appellate Forums is that, no satisfaction has been recorded by the Assessing Officer before issuing of notice u/s 153C. Further, none of the papers seized belongs or belong to the assessee (noticee). The Appellate Forums have further found that no addition or even observations have been made by the AO in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified. These findings of fact need no interference.
Assessee is carrying on the business of Hi Tech Heavy Steel Fabricators and manufacturer. A search was conducted against the partners of the assessee firm u/s 132(1). A survey u/s 133A was conducted at the business premises of the firm and no papers were impounded during the course of that survey. AO issued notice u/s 153C, calling upon the assessee to file returns for the AYs 2000-01 to 2005-06 within 30 days. Assessee filed the returns. AO made assessment u/s 143(3) r.w.s. 153C and made additions towards disallowances of purchase amounts and fabrication charges. Before CIT (A), the principal grievance was about the inappropriate assumption of jurisdiction u/s 153C.
The CIT (A) found that no incriminating material attributable to the assessee was seized during the course of search at the premises of the searched person and there was no satisfaction or even the basis for satisfaction to issue a notice u/s 153C. No satisfaction has been recorded by AO even before issuance of notice u/s 153C. Thus the action of AO was illegal and invalid and quashed the orders.
In further appeal be revenue ITAT observed that even in the new scheme of framing of assessment in case of search cases, the legislature has clearly stipulated the requirement for recording of satisfaction while assuming jurisdiction to issue notice and frame assessment u/s 153C of the Act which requires that satisfaction to be recorded with reference to the documents and other materials found during the course of search belonging to a person other than the searched person. Prima facie, AO of searched person should form an opinion with regard to any document, valuable, etc. as found during the course of search that such document, which is declined by the searched person, actually belongs to some other person against whom proceedings u/s 153C are required to put into operation. After such recording, of satisfaction, the documents so seized should be handed over to the AO of such other person. The legal requirement of recording of such satisfaction cannot be substituted by appraisal note which is prepared by the search party after completion of search insofar as such appraisal note is a secret document prepared by the department for their internal use, contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. Thus, the order of CIT (A) was confirmed.
Revenue contended that manifest error has been committed by appellate authorities in assuming that the procedure specified in Section 153C is identical or pari materia with the procedure prescribed in Section 158BD. For, Section 153C has been placed in Chapter XIV which deals with the procedure for assessment, unlike Section 158BD is placed in Chapter XIV-B which deals with the special procedure for assessment of search cases for block period and undisclosed income. In the matter of search carried out with reference to the provisions under Chapter XIV the Assessing Officer is not required to record satisfaction that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned during search belongs or belong to a person other than the person referred to in Section 153A. Inasmuch as, the said AO cannot have access to the information which may be germane to proceed against the person other than the person referred to in Section 153A. Besides, explanation can be offered by the other person (other than the person referred to in Section 153A) on the basis of the returns already filed by him before AO having jurisdiction over that person. Further, if any tentative opinion is recorded by the AO forwarding the material to the AO having jurisdiction, that may result in preempting the discretion of the AO having jurisdiction to form his own view on the subject matter. On a bare reading of Section 153C it is clear that it involves two stages. First stage is referable to the seizure made by the AO engaged in search of the assessee within his jurisdiction and finds that the material (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 under search. At this stage, the AO carrying on the search of a person within his jurisdiction cannot assume that the said material has not been disclosed by the other person to be treated as undisclosed or escaped income of that person (other than the person referred to in Section 153A). That being a stage of investigation and enquiry, no opinion much less even tentative opinion need to be or can be expressed by the officer carrying on the search against the person referred to in Section 153A. The obligation of AO, at this stage, is merely to forward the material not belonging to the person u/s referred to in Section 153A to the AO having jurisdiction over the other person for further action. Other person would be served with notice by AO having jurisdiction and proceeded in accordance with the provision of Section 153A where he would get opportunity to explain his position. Even notice to be sent by the AO having jurisdiction need not record any reason or satisfaction for resorting to procedure u/s 153A.
Assessee contended that the principle underlying the mandate of Section 158BD would apply on all fours to the procedure specified in Section 153C of the I.T. Act. Because, the purpose of both the provisions is the same and the person against whom such notice is issued suffers the same consequence. No addition or even observation has been made by AO having jurisdiction in any of the orders for the concerned assessment years on the basis of the material found during the course of search. Even for that reason, no action u/s 153C could have been initiated against the assessee.
After hearing both the parties, the High Court held that,
++ as envisaged by Section 158BD, “satisfaction” of AO before he transmits the material/records to other AO having jurisdiction over such other person is sine qua non. Sans such satisfaction, the Assessing Officer cannot validly take recourse to the machinery provision. No doubt, the form of Section 153C is dissimilar to that of Section 158BD. It is also true that the two provisions are embedded under different chapters. For, Section 153C is in Chapter XIV providing for procedure for assessment, whereas Section 158BD is found in Chapter XIV-B providing for special procedure for assessment of search cases. Further, Section 153C opens with non-obstante clause. However, the non-obstante clause in Section 153C is necessitated to give power to AO having jurisdiction to proceed against the person other than the person referred to in Section 153A, inspite of the action u/s 139, 147, 148, 149, 151 and 153 of the I.T. Act. However, on closer scrutiny of the two provisions, it is indisputable that, these provisions are machinery provisions and have been provided for in the statute book for the purpose of carrying out assessment of a person other than the searched person u/s 132 or 132A in relation to Section 158BD; and Section 153A in relation to Section 153C. Notably, the purpose underlying both these provisions is similar, even though Section 153C does not specifically refer to the expression “undisclosed” income. However, in both the situations, AO engaged in carrying on search of the assessee within his jurisdiction, if seizes or requisitions the items (books of account or other documents or any assets for Section 158BD; and money, bullion, jewellery or other valuable article or thing or books of account or documents for Section 153C), is expected to handover those items to the AO having jurisdiction over such other person and thereafter the AO having jurisdiction has to proceed against such other person within his jurisdiction. Even for the purpose of Section 153C, the AO before handing over the items to the AO having jurisdiction must be “satisfied” that the items belongs or belong to the person other than the person referred to in Section 153A. That satisfaction of the concerned AO is a sine qua non. The consequences flowing from the action to be taken on the basis of such information handed over to the AO having jurisdiction, for the assesse, who is a person other than the person referred to in Section 153A, is drastic – of assessment or reassessment of his income falling within six assessment years. The power bestowed on the Assessing Officer having jurisdiction – be it under Section 153C or Section 158BD – is identical;
++ the subject matter of the action would differ in the context of the machinery provision invoked, in the given case. That, however, cannot be the basis to extricate AO, who resorts to power u/s 153C of handing over the items referred to in Section 153C to the AO having jurisdiction, of his duty to be satisfied about the jurisdictional fact that the items belongs or belong to a person other than the person referred to in Section 153A. The concomitant of this conclusion, is that, the legal position as applicable to Section 158BD regarding satisfaction in the first instance of the first AO forwarding the items to the AO having jurisdiction; and in the second instance of the AO having jurisdiction whilst sending notice to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the AO is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the AO 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 other AO 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. Thus, the ground taken by revenue is dismissed;
++ after receipt of the materials, AO having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. AO 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. The view formed by the AO after his own enquiry does not entail in seating in appeal over the satisfaction of the first AO, who had handed over the items to him. Thus, there is no infirmity in the view taken by the Tribunal on the questions under consideration;
++ the concurrent finding of fact recorded by the Appellate Forums is that, no satisfaction has been recorded by the Assessing Officer before issuing of notice u/s 153C. Further, none of the papers seized belongs or belong to the assessee (noticee). The Appellate Forums have further found that no addition or even observations have been made by the AO in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified. These findings of fact need no interference.
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