IN INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI Before Shri N.V.Vasudevan, Judicial Member and Shri M.Balaganesh, Accountant Member IT(SS)A No.28-32/Ran/2015 Assessment Years :2004-05 to 2008-09 Dy/Asstt.Commissioner V/s. M/s Gaurang Allowys & of Income Tax, Central Iron Ltd., Room No. 143, circle-2, Ranchi-834 001 Marshal House, 33/1 N.S.Road, Kolkata [PAN No. AACCG 1485 A] Appellant .. Respondent By Appellant Shri Deepak Raushan, Sr. Standing Counsel By Respondent Shri S. Jhajharia, CA Date of Hearing 14-09-016 Date of Pronouncement 16-09-2016 ORDER PER BENCH:- These are appeals by Revenue against common order dated 25.05.2015 of Commissioner of Income Tax (Appeals)-I, Patna, hereinafter referred to as CIT(A) , relating to Assessment Years (AY) 2004-05 to 2008-09. 2. Assessee is Company. During previous years relevant to AY 2002-03 to 2008-09, Assessee was engaged in manufacture and trading in alloy Steels/ferro alloys and pig iron. IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 2 3. There was search and seizure operation carried out on 11.4.2007 and subsequent dates by Revenue u/s.132 of Income Tax Act, 1961 (Act) in business and residential premises of one Sri Gajanand Agrawalla group of Chirkunda, Dhanbad. Sri Gajanand Agrawalla, who was key person amongst Assessees belong to group. 4. AO issued notice on 22.7.2009 to Assessee u/s.153C of Act, calling upon Assessee to file return of income for AY 02-03 to 2008- 09. 5. provisions of section 153A to Sec.153C of Act were introduced by Finance Act, 2003 with effect from 1-6-2003. In respect of searches carried out under section 132 of Act or requisition of books and other documents made under section 132A of Act after 31-5-2003 Assessing Officer shall issue notice calling upon assessee to furnish return of income in respect of six assessment years immediately preceding assessment year relevant to assessment year in which search is conducted or requisition is made. Assessing Officer is empowered to re-assess total income in respect of each assessment year falling with such six assessment years under second proviso to section 153A of Act. If in respect of any assessment year falling within six assessment years referred to earlier, any assessment or re-assessment is pending on date of initiation of search under section 132 of Act or making of requisition under section 132A, same shall abate. In terms of Sec.153-C of Act, if in course of search of person u/s.132 of Act, any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to person other than person who is searched u/s.132 of Act, then AO of person in whose case search u/s.132 of Act has been carried out has to arrive at satisfaction that money, bullion, jewellery or other valuable article or thing or books of account or documents seized belong to some other person. On arriving at such satisfaction, he has IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 3 to hand over documents or assets seized or requisitioned to 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 provisions of Section 153A Act. 6. AO proceeded to frame assessment for AY 2004-05 to 2008-09. It is not in dispute before us that assessments so framed and additions made for each of AYs were not based on any incriminating material found in course of search but on basis of some documents on basis of which AO drew adverse inference. 7. In appeal filed against order of assessment, Assessee amongst other grounds challenged validity of assumption of jurisdiction u/s.153C of Act without there being any incriminating material belonging to Assessee found in course of search of some other person. Assessee relied on decision of Special Bench of ITAT in case of All Cargo Global Logistics Ltd. 137 ITD 287 (Mum)(SB) wherein Special Bench had to deal with following question: 1. Whether, on facts and in law, scope of assessment u/s 153A encompasses additions, not based on any incriminating material found, during course of search"? Special Bench held as follows: 53. question now is - what is scope of assessment or reassessment of total income u/s 153A(1)(b) and first proviso? We are of view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to assessment had not been produced in course of original assessment and found in course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under aforesaid provision. Similar position will obtain in case where undisclosed income or undisclosed property has been found as consequence of search. In other words, harmonious interpretation will produce following results :- IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 4 a) In so far as pending assessments are concerned, jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on basis of findings of search and any other material existing or brought on record of AO, (b) In respect of non-abated assessments, assessment will be made on basis of books of account or other documents not produced in course of original assessment but found in course of search, and undisclosed income or undisclosed property discovered in course of search Assessee also placed reliance on decision of ITAT Kolkata in case of LMJ International Ltd. (2008) 22 SOT 315 (Kol) wherein it was held that where nothing incriminating is found in course of search relating to any assessment years, assessment for such years cannot be disturbed. 8. CIT(A) in impugned common order upheld that stand taken by Assessee and he held as follows:- After going through submission of appellate and satisfaction recorded by AO, I find that AO has mechanically initiated proceedings u/s. 153C in case of appellate without mentioning any reasons or satisfaction for doing so. provision of section 153C is reproduced hereunder:- S.153C: Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where AO is satisfied that any money, bullion, jewellery or other valuable article or ting or books of account or documents seized or requisitioned belongs or belong to person other than person referred to in section 153A, then books of account or documents or asset was sized or requisitioned shall be handed over to AO having jurisdiction over such other person [and that assessing officer shall proceed against each such other person and issue notice and assess or reassess income of other person in accordance with provisions of section 153A, if, that AO is satisfied that books of account or documents or assets seized or requisitioned have bearing on determination of total income of such other person for relevant assessment year or years referred to in sub-section (1) of section 153A]. provision of Act clearly requires that AO has to mention reason for initiation of proceeding u/s. 153C based on certain seized IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 5 documents or incriminating materials which were found and seized during search and seizure in other case. AO has not specified any reason for documents or incriminating materials which were found and seized during search and seizure in other case. AO has not specified any reason for initiation of proceedings u/s. 153C which is based on any seized documents or incriminating material belonging to assessee found and seized in search action of some other groups. Even in assessment year finalized u/s.153C, there is no reference to any seize documents or incriminating materials. Hence, I am inclined to accept appellant s contentions that AO failed to record satisfaction for initiation of proceedings u/s 153C and accordingly, assessments passed u/s. 153C are hereby cancelled being viod anb-initio. As assessments have been cancelled void ab-initio for lack of satisfaction recorded by AO prior to initiation of proceeding u/s.153C of Act, other grounds of appeal on merits are not adjudicated. 9. Aggrieved by order of CIT(A), revenue has preferred present appeals before Tribunal. 10. We have heard submissions of learned DR who relied on order of AO. learned counsel for Assessee relied on order of CIT(A) and further referred to CBDT Circular No.24/2015 dated 31.12.2015 wherein CBDT has laid down that recording of satisfaction for proceeding u/s.153C of Act on basis of incriminating material found in course of search is condition precedent for initiating proceedings u/s.153C of Act and wherever such satisfaction is not so recorded, proceedings u/s.153C of Act are nullity and in such situation revenue should concede that assessments are nullity. 11. We have given very careful consideration to rival submissions and carefully perused order of AO and CIT(A). provisions of Sec.153C(1) after its amendment by Finance Act, 2014, reads thus: Section 153C Assessment of income of any other person. IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 6 (1)Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where Assessing Officer is satisfied that any money, bullion, jewellery or valuable article or thing or books of account or documents seized or requisitioned belongs or belong to person other than person referred to in section 153A, then books of account or documents or assets seized or requisitioned shall be handed over to 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 income of other person in accordance with provisions of section 153A, if, that Assessing Officer is satisfied that books of account or documents or assets seized or requisitioned have bearing on determination of total income of such other person for relevant assessment year or years referred to in sub-section (1) of section 153A : 12. It can be seen from amended provisions which are underlined that law has been amended by laying down condition that Assessing Officer can proceed against other person and issue notice and assess or reassess income of other person in according with provisions of Sec.153A of Act only if, that Assessing Officer is satisfied that books of account or documents or assets seized or requisitioned has bearing on determination of total income of such other person for relevant assessment year or years referred to in Sub-Section (1) of Sec.153A of Act . 13. With aforesaid amendment, Assessing Officer of other person on receipt of seized document from Assessing Officer of person who was subjected to search u/s.132 of Act cannot blindly proceed to issue notice to other person for period referred to Sec.153A(1) of Act, but has to apply his mind and reach satisfaction that seized document received by him and belonging to other person, has bearing IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 7 on determination of total income of such other person for relevant assessment year or assessment years referred to Sec.153A(1) of Act. 14. foresaid amendment has been held to be clarificatory in nature and therefore has to be held as applicable retrospectively from inception of Sec.153C of Act in statue, by ITAT Kolkata Bench in case of Trishul Hi-Tech Industries Vs. DCIT IT(SS)A.Nos.84-86/Kol/2011 (AY 04-05, 05-06 & 06-07) order dated 24.9.2014. In aforesaid decision Hon ble Kolkata Bench of ITAT, after considering amended provisions of Sec.153C of Act by Finance Act, 2014, held that provisions of Sec.153C of Act as amended by Finance (No.2) Act, 2014 though is made applicable on and from 1.10.2014, is also relevant for earlier assessment years as it cures infirmities of previous legislation and also makes provisions workable by avoiding absurd consequences. Accordingly, such provision is to be given retrospective operation and is also applicable to pending proceedings. Bench finally concluded that in absence of incriminating material found in course of search belong to other person which is handed over to Assessing officer of person who is searched, assessing officer of other person cannot assume jurisdiction u/s.153C of Act. Such assumption of jurisdiction was quashed as being ab initio void, ultra vires and ex facie null in law. 15. Admittedly, Assessee was not subjected to search u/s.132 of Act and therefore proceedings u/s.153A of Act could not be initiated against Assessee. On 11.4.2007, there was search and seizure operation u/s.132 of Act in residential and business premises Sri Gajanand Agrawalla group and not in case of Assessee. As to what were documents found in course of search and how they were incriminating in so far as Assessee is concerned has not been spelt out anywhere by AO. In fact no incriminating material whatsoever in so far as IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 8 Assessee is concerned was found. In terms of Sec.153-C of Act, if in course of search of person u/s.132 of Act, any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to person other than person who is searched u/s.132 of Act, then AO of person in whose case search u/s.132 of Act has been carried out, has to arrive at satisfaction that money, bullion, jewellery or other valuable article or thing or books of account or documents seized belong to some other person. On arriving at such satisfaction, he has to hand over documents or assets seized or requisitioned to 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 provisions of Section 153A Act. As observed by Hon ble AM, provisions of Sec.153C of Act, prior to its amendment by Finance Act, 2014 w.e.f. 1-10-2014, does not impose any condition on AO of other person to proceed to issue notice u/s.153C of Act for making assessment of income for periods referred to in Sec.153A of Act. This would cause undue hardship. Take for instance case of Assessee. What was found in course of search was purchase deed evidencing purchase of property by Assessee. There was no adverse inference drawn on this document. AO, however, has to make assessment in case of Assessee u/s.153C of Act for six assessment years referred to in Sec.153A of Act, even if no incriminating material was found in course of search. This created hardship and this was reason why provisions of Sec.153C of Act were amended by Finance Act, 2014. Kolkatta Bench of ITAT in case of Trishul Hi-Tech Industries (supra) dealt with purpose behind aforesaid amendment and as to why it should held to be retrospective. following were relevant observations:- provisions of s.153C of Act was amended to obviate practical difficulties which arose in its interpretation from time to time. amendment IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 9 made by Finance (No.2) Act, 2014 as Legislature found that different authorities were assigning different meanings to provisions. As such, state of affairs resulted in ambiguities which gave rise to conflicting decisions on subject, Legislature in its wisdom thought it prudent to change language thoroughly explicit. It so happened from time to time that during course of conducting search and seizure operation u/s 132 of Act, money, bullion, jewellery or other valuable article or thing or books of account or documents belonging to another person were seized. On one hand, seized materials were sent to Assessing Authority having jurisdiction over other person and on other hand, Assessing Authority receiving such seized material acts mechanically initiates proceedings u/s 153C of Act without any verification. Such interpretation is never intendment of Legislature. Legislature found that multiplicity of proceedings resulted and confusion reigned supreme. In order to eliminate such contradictory situations, it was made clear that Assessing Authority while receiving such seized material belonging to other person shall be satisfied that such material must be of incriminating nature . Thus, Amending Act, in fact, explained procedure to deal with situation where incriminating materials found in course of search belonged to third person. provision was amended to stop unintended consequences and to prevent undue hardship on third party who is not being searched. scheme that even partnership deed or disclosed bank statement or projected statement was enough to assume jurisdiction u/s 153C of Act was curtailed to extent of incriminating materials found. In fact logical conclusion was drawn to that effect. In fact, interpretation of existing provisions was defeating object and purpose of enactment and was leading to infructuous litigation without any rhyme or reason. By such interpretation, there were two assessment orders standing on same issues raising identical tax demands for same assessment years which is absurd proposition. This based on maxim Ut Res Magis Valeat Quam Pareat. construction which would reduce legislation to futility should be avoided; alternative that will introduce uncertainty, friction or confusion into working of system should be rejected. interpretation which leads to unworkable results and brings about absurdity cannot be accepted. In any case, such situation was never intention of Legislatures. To do away with this judicial error, Act was amended to cure obvious omission and to clarify intention behind enactment. There is no doubt or dispute to fact that provision of s.153C of Act is procedural provision. Law of procedure are meant to regulate effectively, assist and aid of substantial and real justice and not to foreclose even adjudication on substantial rights of citizens of property, personal and other laws. In case of STATE OF UTTAR PRADESH VS SINGHARA SINGH (AIR 1964 SC 358),the Apex Court quoted with approval decision in case of TAYLOR VS TAYLOR (1875) 1 CH D 426, for proposition that where power is given to do certain thing in IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 10 certain way, thing must be done in that way or not at all and that other methods of dealing with matter are necessarily forbidden. Further, in contrast to statutes dealing with substantive rights, statutes dealing with merely matters of procedure are presumed to be retrospective unless such construction is textually inadmissible [DELHI CLOTH & GENERAL MILLS CO.LTD. VS CIT (AIR 1927 PC 242)]. Further, as stated by Lord Denning that rule that act of Parliament is not to be given retrospective effects applies only to statues which affect vested rights. It doesn t apply to statues which only alter form of procedure or admissibility of evidence, or effect which IT(SS).A.82,84-86/Kol/2011 Trishul Hi-Tech Industries A.Yrs.2004-05 to 2006-07 8 courts give to evidence [BLYTH VS BLYTH (1966) 1 ALL ER 524 (HL)]. If new act affects matters of procedure only, then, prima facie, it applies to all action pending as well as future [K.EAPIN CHACKO VS PROVIDENT FUND INVESTMENT COMPANY(P) :TD (AIR 1976 SC 2610)]. In stating principle that change in law of procedure operates retrospectively, it was settled that with approval reason of rule as expressed by Maxwell that no person has vested right in any course of procedure. He has only right of prosecution or defence in manner prescribed for time being by or for Court in which case is pending, and if, by act of Parliament mode of procedure is altered, he has no other right than to proceed to altered mode [TIKARAM & SONS VS CST (AIR 1968 SC 1286)]. factum of satisfaction of Assessing Officer that documents seized are incriminating in nature so as to castigate other person is matter of procedure. No substantive or vested right of party is affected thereby. Thus, provision is remedial of erstwhile legislation, designed to eliminate unintended consequences which was causing undue hardship on subjects and is also clarificatory in nature. It is settled that rule 1BB is essentially rule of evidence as to choice of one of well-accepted methods of valuation in respect of certain kinds of properties with view to achieving uniformity in valuation and avoiding disparate valuations resulting from application of different methods of valuation respecting properties of similar nature and character and accordingly is procedural law which is applicable to pending cases [CWT VS SHARVAN KUMAR SWAMP & SONS (1992) 210 ITR 886 (SC)]. In facts of instant case, due to unintended interpretation of scope of provisions of s.153C of Act, law was amended to ensure reasonable approach or as otherwise, due to conflicting decisions on subject, construction of such provisions was leading to absurdity. Without taking aid of amended provision, scope and ambit of such provision was leading to ambiguous proposition which is not intendment of Legislature. It, IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 11 therefore, follows that amended provision of s.153C of Act is also declaratory. It seeks to clarify law so as to remove doubts leading to Courts giving conflicting decisions. Being clarificatory in nature, it must be held to be retrospective in facts and in circumstances of case. Legislature may pass declaratory Act to set aside what Legislature deems to have been judicial error in interpretation of statute. It only seeks to clear meaning of provision of principal Act and make explicit that which was already implicit. It is settled that section 154 is procedural provision. It is settled law that amendment of procedural law is normally regarded as retrospective in operation because no one has any vested right in procedural law and Tribunal was therefore, justified in holding that section 154(1)(bb) which was inserted during financial year 1964-1965, could be applied for assessment year 1963-1964, and IAC had jurisdiction under section 154(1)(bb) to rectify mistake in penalty order dated 4-3-1970 for assessment year 1963-64 [NURUDDIN & BROS VS CIT (1979) 116 ITR 704 (CAL)]. Thus, provisions of s.153C of Act as amended by Finance (No.2) Act, 2014 was made applicable on and from 01-10-2014 and is relevant for assessment year under dispute as it cures infirmities of previous legislation and also makes provisions workable by avoiding absurd consequences. Accordingly, such provision is to be given retrospective operation and is also applicable to pending proceedings. That being so, action of Ld.Assessing Officer is fraught with illegality as he proceeded de hors any incriminating materials to assume jurisdiction u/s 153C of Act in instant case and accordingly, his action is liable to be quashed being ab initio void, ultra vires and ex-facie null in law. 16. We are in respectful agreement with view expressed as above. In view of statutory amendment to law, we are of view that conclusion of CIT(A) that initiation of assessment proceedings against Assessee u/s.153C of Act are invalid for absence of proper satisfaction for proceeding against Assessee u/s.153C of Act are just and proper and calls for no interference. We may also add that it is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily Courts are required to gather intention of legislature from overt language of provision as to whether it has been made IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 12 prospective or retrospective, and if retrospective, then from which date. What happens sometimes is that substantive provision, as originally enacted or later amended, fails to clarify intention of legislature. In such situation, if subsequently some amendment is carried out to clarify real intent, such amendment happens to be retrospective from date earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As later amendment clarifies real intent and declares position as was originally intended, it takes retroactive effect from date original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from earlier date. It may so happen that sometimes clarificatory or explanatory provision introduced later to depict real intention of legislature is not specifically made retrospective by statute. Notwithstanding fact that such amendment to substantive provision has been given prospective effect, nonetheless judicial or quasi- judicial authorities, on challenge made to it, can justifiably hold such amendment to be retrospective. justification behind giving retrospective effect to such amendment is to apply real intention of legislature from date such provision was initially introduced. intention of legislature while introducing provision is gathered, inter alia, from Finance Bill, Memorandum Explaining Provision of Finance Bill. Any amendment to substantive provision which is aimed at clarifying existing position or removing unintended consequences to make provision workable has to be treated as retrospective notwithstanding fact that amendment has been given effect prospectively. above principles, if applied to amendment to provisions of Sec.153C of Act by Finance Act, 2014, can lead to only one conclusion that said amendment is clarificatory and therefore should be held to be retrospective in operation. 17. It is clear from order of CIT(A) that AO before proceeding u/s.153C of Act has not recorded any satisfaction as is necessary for initiating proceedings u/s.153C of Act. This has been duly taken note of IT(SS)A No.28-32/Ran/2015 A.Ys.04-05 to 08-09 Dy/ACIT, Cir-2, RNC vs. M/s Gauarang Allowys & Iron Ltd. Page 13 by CIT(A) and CIT(A) has rightly come to conclusion that assessments framed u/s.153C of Act are nullity and therefore has rightly cancelled those assessments. 18. For reasons given above, we do not find any merit in these appeals by Revenue and they are therefore dismissed. 19. In result, Revenues appeals are dismissed. Order pronounced in open court 16/09/2016 Sd/- Sd/- (M.Balaganesh) (N.V.Vasudevan) (Accountant Member) (Judicial Member) Ranchi, Dkp 16/09/2016 Ranchi Copy of Order Forwarded to:- 1. Appellant-Dy/ACIT, Central Circle-2, Ranchi, 834 001 2. Respondent-M/s Gaurang Allowys & Iron Ltd., Room No. 143, Marshall House 33/1 N.S. Road, Kolkata- 3. 2 Concerned CIT Patna 4. 2 - CIT (A) Patna 5. 5 DR, ITAT, Ranchi 6. ;Guard file. By order True Copy SR.PS, ITAT, RANCHI Dy/Asstt.Commissioner of Income-tax, Central circle-2, Ranchi v. M/s Gaurang Allowys & Iron Ltd