IN INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B , BANGALORE BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER ITA No.1451 to 1457(Bang) 2014 (Assessment years : 2005 06 to 2011 12) Smt. G. Lakshmi Aruna, No.8, Havambavi, Siruguppa Road, Ashok Nagar, Bellary 583103 PAN: AFJPA5974P Appellant Vs Deputy Commissioner of Income Tax, Central Circle - 1(3), Bangalore Respondent Assessee by : Shri Mayank Jain & Shri Madhur Jain Advocates Revenue by : Ms. Neera Malhotra, CIT & Shri Praveen S., DCIT Central Circle 1 (3) Date of hearing : 26-08-2016 Date of pronouncement : 18-10-2016 ORDER PER BENCH: All these seven appeals are filed by assessee directed against combined order of learned CIT (A) VI, Bangalore dated 25.08.2014 for A. Ys. 2005 06 to 2011 12. 2. All these appeals were heard together and are being disposed of by this common order for sake of convenience. ITA No.1451 to 1457(Bang)/2014 Page 2 of 26 3. In all these appeals, assessee has objected to validity of assessment order passed u/s 153C read with section 144 of I. T. Act. In course of hearing of these appeals, on 27.06.2016, it is noted by bench as noted in order sheet of that day that learned counsel for assessee has raised serious objection with respect to initiation of proceedings u/s 153C of I. T. Act by contending that no satisfaction was recorded by A.O. in case of searched person that incriminating material found during course of search belongs to assessee and therefore, assessment completed u/s 153C of Act is illegal. bench directed learned DR of revenue to place copy of satisfaction recorded in case of searched person that incriminating material seized during course of search pertains to assessee and hearing was adjourned to 03.08.2016. hearing was again adjourned ton 10.08.2016 and then to 23.08.2016 and again to 26.08.2016 to enable DR to file required satisfaction. On 26.08.2016, hearing was concluded with liberty to DR to file written submissions on or before 02.09.2016. On 07.09.2016, learned DR of revenue filed written submissions and submitted that in view of All India Bandh on 02.09.2016, said written submissions be accepted on 07.09.2016. We accept same and consider it for deciding this ITA No.1451 to 1457(Bang)/2014 Page 3 of 26 technical aspect first i.e. validity of assessments u/s 153C read with section 144. 4. In course of hearing on 26.08.2016, both sides agreed that facts on this technical aspect in present case and in case of husband of present assessee Shri Gali Janardan Reddy in ITA No. 1444 to 1450/Bang/2014 also heard on 26.08.2016 are same and arguments are also same and these appeals can be decided on similar line. In written submissions filed by learned DR of Revenue also, similar submissions are reiterated. These written submissions of learned DR of revenue submitted on 07.09.2016 are reproduced as under:- During course of hearing held on 26/08/2016 request was made to allow department to file written submissions on certain points raised during course of hearing. Hon'ble Bench acceded to request and granted time up to 02/09/2016 to file reply. As 02/09/2016 was "All India Bandh", A.O could not prepare report. Accordingly, reply is being submitted today. delay caused may kindly be condoned due to unforeseen circumstances arising due to bandh. II. REPORT OF D.C.I. T CENTRAL CIRCLE (1)(3) Written submissions in form of report of Deputy Commissioner of Income Tax , Central Circle (1) (3), Bangalore along with Paper Book containing copies of seized material and statements of transporters to whom payments made were reflected in books of accounts, which were denied by these transporters in statements recorded. A.O in his report has dealt with following points discussed during course of hearing on 26/08/2016 : ITA No.1451 to 1457(Bang)/2014 Page 4 of 26 a) Note on 1st Proviso to Section 153C (Refer pg. 2 & 3 of report of DCIT) In Section 153A reference to date/year of search occurs "3" times viz. 153A(l)(b) which mandates 6 years which have to be compulsorily assessed. 2nd proviso to Section 153A(l), which governs abatement of pending proceedings. 3rd proviso to Section 153A(1), which provides exemption for compulsory assessment in certain notified class of cases. 1st proviso to Section 153C makes direct reference ONLY to 2nd proviso to Section 153A. 2nd proviso to Section 153A deals only with issue of abatement of pending assessment proceedings. As has been rightly pointed out by DCIT in his report interpretation resorted to by assessee will lead to absurd situations. For example, if the transfer of records occurs in Financial Year 2 years after search date, A.O of 153C cases losses jurisdiction over earliest 2 A.Y s. on which he may possess seized records. On other hand, he assumes jurisdiction over 2 new A.Ys. on which there are no seized records. There can be no assessments for latest 2 years based on seized documents transferred. Therefore, argument of assessee that 1st 2 years assessments are void are not logical vis-a-vis provisions of Act. b) Note on opportunity of being heard (Refer pg. 4 of report of DCIT) report of DCIT elaborates that assessee had not filed return of in response to notice u/s 153C even under protest and that all orders for batch of 6 Assessment Years were best judgement assessments u/s 144 r.w.s. 153C based on material available on record due to total non-cooperation of assessee during assessment proceedings. ITA No.1451 to 1457(Bang)/2014 Page 5 of 26 c) Note on Transportation Expenses ( Refer pg. 4 to 6 of report of DCIT) report of DCIT elaborates that AO had sent two show- cause notices dated 01/03/2013. assessee replied on same issue vide letter dated 16/03/2013 received on 21st March, 2013 (Page 32 to 34 of Paper Book) and raised question of cross examination on 21st March, 2013 when proceedings were getting barred by limitation on 31st March, 2013. cross examination sought by assessee is on statement of supposed transportation contractor engaged by assessee herself. It is not statement of totally unrelated party. non- compliant approach of assessee is also recorded by Assessing Officer after last question of his Show cause letter dated 0l.03.2013. Ill. WRITTEN SUBMISSION ON "RECORDING OF SATISFACTION"- [ SIMILAR SUBMISSION WAS ALREADY FILED IN CASE OF SHRI G. JANARDHAN REDDY (ITA Nos. 1444 to 1450/B/2014)DURING COURSE OF HEARING ON.26/08/2016.1 During course of hearing held on 23.08.2016 Hon'ble Bench had directed for production of seized material and statements of Shri Raghavacharyalu and Smt. G.Renuka, whose premises were searched u/s 132 of I.T Act, and documents pertaining to Smt.G.Laxmi Aruna, which were seized from these premises, which formed basis of recording of satisfaction by A.O for issuing notice u/s 153C in case of appellant. In this regard following 2 facts are of great significance which establishes close association of these 2 individuals with appellant and close connection was admitted by these 2 individuals and , therefore, important documents pertaining to appellant were found from premises of these 2 individuals: 1. Smt. G. Renuka is Chartered Accountant by profession. Her 4irm/s G.Renuka& Co. is Chartered Accountant for entire Janardhan Reddy Group. 2. Shri K.Raghavacharyulu is Advocate by profession and he is handling all legal matters for appellant. ITA No.1451 to 1457(Bang)/2014 Page 6 of 26 This is evident from Power of Attorney filed by assessee in favour of Smt G Renuka & Co for representing her during earlier assessment proceedings (Page 12 of Paper Book). agreement dated 26.12.2005 between Aruna and Pawan cannot be said to be not belonging to assessee, being party to transaction. Therefore, agreement dated 26.12.2005 alone is sufficient satisfaction for initiation for 153C proceedings. IV. CASE LAWS (A) For assessments completed u/s 153C there is no requirement u/s 153 C(1) that assessing officer should also be satisfied that incriminating documents should conclusively establish that documents seized should conclusively reflect or disclose any undisclosed income. In this regard following case laws are relied upon: 1. SSP Aviation Ltd. Vs DCIT [2012] 20 taxmann.com 214 (Delhi) (HC) 2. All Cargo Global Logistics Ltd. [20 12] 23 taxmann.com 103 (Mum) (SB) 3. CIT Vs Chetan Das Lachman Das [2012] 25 taxmann.com 227 (Delhi) (HC) (B) In following case laws courts have held that that satisfaction is to be made with respect to ownership of documents and not regarding undisclosed income: 1. ACIT Vs Panchuram Deshmukh & Ors (ITAT Bilaspur) 33 TTD 53 V. NON - COMPLIANCE BY ASSESSEE TO NOTICE ISSUED u/s 153C FOR FILING RETURN OF INCOME AND TO NOTICES ISSUED DURING SCRUTINY PROCEEDINGS u/s 153 C very crucial aspect in this case is complete non- cooperation and non-compliance by assesse to statutory notices issued. ITA No.1451 to 1457(Bang)/2014 Page 7 of 26 (1) assessee did not file any Return of Income in response to notices issued u/s 153C. (2) assessee did not file any submissions during course of proceedings u/s 153C before A.O. (3) assessee did not file any evidence before CIT(A) in support of contentions raised. VI. DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT Vs CALCUTTA KNITWEARS 43 taxmann.com 446 (SC) & CIRCULAR OF C.B.D.T [SIMILAR SUBMISSION WAS ALREADY FILED IN CASE OF SHRI G.JANARDHAN REDDY (ITA Nos. 1444 to 14501B12014) DURING COURSE OF HEARING ON 10/08/2016] 1. Firstly, decision of Hon'ble Supreme Court in case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) , which is rendered in connection with search assessments under Chapter XIV-B (sections 158B to 158BI), which are different provisions compared to assessments of assessee which relate to new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. 2. Secondly, facts in case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) are different from that of assessee as officer of person covered under provisions of Section 158BC was different from officer of person covered under provisions of Section 158BD and therefore issue of "transmission of records" (refer Para 39) came up before Hon'ble Court and consequently issue of "who should recording of satisfaction" and "at what point of time satisfaction should be recorded was also considered". In this context Hon'ble court stated that satisfaction can be recorded at any of 3 stages - (1) At time of initiation of proceedings u/s 158BC, (2) along with proceedings u/s 158BC and (3) immediately after concluding proceedings u/s 158BC. ITA No.1451 to 1457(Bang)/2014 Page 8 of 26 3. aforesaid decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) is NOT applicable to case of assesse for following reasons: (i) as assessments of asssessee are completed under different provisions of statute as they relate to new search assessment procedure as contained under sections 153A to 153C which are brought into statute w.e.f 1-6-2003. (ii) assessing officer of person covered under provisions of Section 153 is same as officer of person covered under provisions of Section 153C and, therefore, there is NO issue of "transmission of records". Copies of assessment orders in cases of Shri K. Raghavacharyalu and Smt. G.Renuka are enclosed to establish that assessments are completed by same assessing officer i.e Shri Shivanand H. Kalakeri, who had done assessments in case of assessee. (iii) assessing officer has recorded satisfaction In case of assessee. (iv) eventuality of assessing officer of person covered under provisions of Section 153BC being same as officer of person covered under provisions of Section 153 BD is not examined by Hon'ble Supreme Court in case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). (v) It is humbly submitted that judgments must be read as whole and observations in judgments should be considered in context in which they are made and in light of questions that were before court. In CIT v. Sun Engineering Works Pvt. Ltd.(198 ITR 297) Supreme Court observed: It is neither desirable nor permissible to pick out word or sentence from judgment of Supreme Court divorced from context of question under consideration and treat it to be complete law declared by court. judgment must be read as whole and observations from judgment have to be considered in light of questions which were before court. decision of Supreme Court takes its colour from questions involved in case in which it is ITA No.1451 to 1457(Bang)/2014 Page 9 of 26 rendered and, while applying decision to later case, courts must carefully try to ascertain true principle laid down by decision. This has been reiterated by Hon'ble Supreme Court in its decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). 4. Therefore, in view of fact that assessing officer of person covered under provisions of Section 153A being same as officer of person covered under provisions of Section 153C and assessing officer having recorded satisfaction before issuing notice u/s 153C, sufficient compliance has been made by A.O as required under provisions of statute. Submitted for kind consideration. 5. In case of husband of present assessee Shri Gali Janardan Reddy in ITA No. 1444 to 1450/Bang/2014 also heard on 26.08.2016 and order passed on 17.10.2016, similar issue was raised by way of additional ground and same was decided in favour of assessee. relevant portion of this tribunal order is reproduced as under:- We have considered rival submissions. First of all, we reproduce written submissions of ld. DR of revenue dated 10.08.2016. same is as under:- During course of hearing held on 03.08.2016 Hon'ble Bench had directed for production of search records of assesses in whose case search u/s 132 was conducted and seized material pertaining to Shri Gali Janardhan Reddy was found on basis of which satisfaction was recorded for initiating proceedings U/S 153C in case of assessee. On perusal of order sheet recording satisfaction note before issuance of notice u/s 153C of I.T Act for A.Ys 205-06 to 2011-12, it is noted that following premises were covered u/s 132 of LT Act: ITA No.1451 to 1457(Bang)/2014 Page 10 of 26 (a) Shri K. Raghavacharyalu, at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. (b) Smt. G.Renuka, at "Rishikes", No.36, Goldsmith Street, Bellary. DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT Vs CALCUTTA KNITWEARS 43 taxmann.com 446 (SC) 1. Firstly, decision of Hon'ble Supreme Court in case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) , which is rendered in connection with search assessments under Chapter XIV-B (sections 158B to 158BI), which are different provisions compared to assessments of assessee which relate to new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. 2. Secondly, facts in case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) are different from that of assessee as officer of person covered under provisions of Section 158BC was different from officer of person covered under provisions of Section 158BD and therefore issue of "transmission of records" (refer Para 39) came up before Hon'ble Court and consequently issue of "who should recording of satisfaction" and "at what point of time satisfaction should be recorded was also considered". In this context Hon'ble court stated that satisfaction can be recorded at any of 3 stages - (1) At time of initiation of proceedings u/s 158BC, (2) along with proceedings U/S 158BC and (3) immediately after concluding proceedings U/S 158BC. 3. aforesaid decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC) is NOT applicable to case of assesse for following reasons: (i) as assessments of assessee are completed under different provisions of statute as they ITA No.1451 to 1457(Bang)/2014 Page 11 of 26 which relate to new search assessment procedure as contained under sections 153A to 153A which are brought into statute w.e.f 1-6-2003. (ii) assessing officer of person covered under provisions of Section 153 is same as officer of person covered under provisions of Section 153C and ,therefore, there is NO issue of "transmission of records". Copies of assessment orders in cases of Shri K. Raghavacharyalu and Smt. G.Renuka are enclosed to establish that assessments are completed by same assessing officer i.e Shri, Shivanand H. Kalakeri, DCIT Central Circle 1(3) who had done assessments in case of assessee. (iii) assessing officer has recorded satisfaction in case of assessee. (iv) eventuality of assessing officer of person covered under provisions of Section 153BC being same as officer of person covered under provisions of Section 153 BD is not examined by Hon'ble Supreme Court in case of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). (v) It is humbly submitted that judgments must be read as whole and observations in judgments should be considered in context in which they are made and in light of questions that were before court. In CIT v. Sun Engineering Works Pvt. Ltd.(198 ITR 297) Supreme Court observed: It is neither desirable nor permissible to pick out word or sentence from judgment of Supreme Court divorced from context of question under consideration and treat it to be complete law declared by court. judgment must be read as whole and observations from judgment have to be considered in light of questions which were before court. decision of Supreme Court takes its colour from questions involved in case in which it is rendered and, while applying decision to later case, courts must carefully try ITA No.1451 to 1457(Bang)/2014 Page 12 of 26 to ascertain true principle laid down by decision. This has been reiterated by Hon'ble Supreme Court in its decision of CIT Vs Calcutta Knitwears 43 taxmann.com 446 (SC). 4. Therefore, in view of fact that assessing officer of person covered under provisions of Section 153 being same as officer of person covered under provisions of Section 153 C and assessing officer having recorded satisfaction before issuing notice u/s 153C, sufficient compliance has been made by A.O as required under provisions of statute. Submitted for kind consideration. 2. We also reproduce satisfaction note dated 14.12.2012 which has been submitted by ld. DR of revenue along with her written submissions. same is as under:- Recording of satisfaction note before issuance of notice under section 153C: Name of assessee: Sri Gali Janardhana Reddy (Ay: 2005-06 to 2010-11) search u/s. 132 was conducted on 25/10/2010 in case of Mr K. Raghvacharyulu at flat No.402, Kakateeya Residency, Kappagal Road, Bellary. During course of search, following documents/books of account belonging to Sri Gali Janardhana Reddy were seized and contents are explained in brief as below- RB/1 Page No.2 This page contains application filed by Mr G Janardhana Reddy before Returning Officer while contesting for election to Member of Legislative Council in State of Karnataka. ITA No.1451 to 1457(Bang)/2014 Page 13 of 26 RB/1 Pages 27-32 These pages contain details of Assets (movable, immovable, assets etc) belonging to Mr Janardhana Reddy, his spouse and dependents. RB/1Pages 116-121 This contain instruments of Partnership deed entered on 8.1.2006 between Sri B Srininivas Reddy, Sri Parameshwara Reddy, Sri B Sreeramulu, Sri G Karunakar Reddy, Sri Somashekhar Reddy, Smt G Lakshmi Aruna in name and style of Hotel Nagarjun. search u/s. 132 was also conducted on 25/10/2010 in case of Smt G Renuka at 'Rishikesh' #36, Goldsmith Street, Bellary on 25-10-2010. During course of search, following documents/books of account belonging to Sri Gali Janardhana Reddy were seized and contents are explained in brief as below- RN/1 Pages 179-181. These pages contain trial balance of Gali Janardhana Reddy for F.Y.2009-10. RN/1 Pages 184-185. These pages contain trial balance of Gali Janardhana Reddy for F.Y.2009-10 RN/1 Pages 129 to 139. These pages contain sale deed dated 22-10-2005 between Sri Sunil Kumar Gupta (seller) and Sri G Janardhana Reddy (purchaser) in respect of property at Plot no.1121 at Jubilee Hills, Hyderabad. In view of above, I am satisfied that documents and books of account belonging to Sri Gali Janardhana Reddy have been found and seized from searched premises of Sri Raghavacharyulu and Smt G Renuka. Issue notice u/s. 153C of Income tax Act, 1961. ITA No.1451 to 1457(Bang)/2014 Page 14 of 26 Sd/- (SHIVANAND H KALAKERI) Deputy Commissioner of Income- tax, Date: 14.12.2012 Central Circle 1(3), Bangalore." 3. We find that as per satisfaction note dated 14.12.2012, satisfaction note has been recorded by Shri Shivanand H. Kalakeri, DCIT, Central Circle 1(3), Bangalore and as per copy of two assessment orders for AY 2005-06 u/s. 153A dated 27.3.2013 and 30.3.2013 in case of Shri K. Raghavacharyalu and Smt. G. Renuka respectively, AO is same person with same designation and hence, this is admitted position that AO of assessee and of searched persons is one and same person and satisfaction note has been recorded by him on 14.12.2012 before issue of notice u/s. 153C of I.T. Act. In same satisfaction note, he has noted in last that Issue notice u/s. 153C of Income Tax Act, 1961. This last line of satisfaction note proves beyond doubt that such satisfaction note has been recorded by same Officer who is AO of assessee as well as of searched persons in his capacity as AO of assessee and not in his capacity as AO of searched persons, because if satisfaction note is recorded by AO of searched person, it cannot be said in said satisfaction note that Issue notice u/s. 153C of Income-tax Act , because such notice u/s. 153C of Act is not required to be issued in case of searched ITA No.1451 to 1457(Bang)/2014 Page 15 of 26 person, but in case of other person i.e., present assessee. In our considered opinion, even if AO of assessee and searched person is one and same, then also, satisfaction note has to be recorded by AO in his capacity as AO of searched person and not in his capacity as AO of other person in whose case notice u/s. 153C is required to be issued. 4. In light of above facts, now we examine applicability of Tribunal s order cited by ld. AR of assessee having been rendered in case of Shri Vinod Kumar Chaurasia v. ACIT (supra). In that case, judgment of Hon ble Allahabad High Court has been cited before Tribunal rendered in case of CIT v. M/s. Gopi Apartment in ITA No.60 of 2014. relevant portion of judgment of Hon ble Allahabad High Court rendered in case of CIT v. M/s. Gopi Apartment has been reproduced by Tribunal in that case on pages 5 & 6 of that order and same is reproduced hereinbelow for sake of ready reference:- 5. Having given thoughtful consideration to rival submissions and from careful perusal of orders of authorities below, we find that ld. CIT(A) has not given any specific finding with regard to recording of satisfaction by Assessing Officer of searched person before initiating proceedings under section 153C of Act. ld. CIT(A) has rather rejected contentions of assessee in this regard by holding that Assessing Officer of searched person was not required to record satisfaction as required under section 158BD of Act before initiating proceedings under section 153C of Act. During course of hearing, various opportunities were afforded to Revenue to place some evidence in order to demonstrate that ITA No.1451 to 1457(Bang)/2014 Page 16 of 26 before initiating proceedings under section 153C of Act against assessee, satisfaction was recorded by Assessing Officer of searched person that incriminating material found during course of search in fact relate to assessee. But nothing has been placed on record by Revenue. Moreover, from orders of lower authorities, it is apparent that satisfaction was not recorded by Assessing Officer of searched person before initiating proceedings under section 153C of Act. Now question arises whether in absence of satisfaction recorded by Assessing Officer of searched person, assessment framed under section 153C of Act, is sustainable in eyes of law? This question was answered by Hon'ble jurisdictional High Court in case of CIT (Central) vs. M/s Gopi Apartment (supra) by holding that clear and plain reading of section 153C leaves no doubt that recording of satisfaction by Assessing Officer of person searched is mandatory and it has to precede initiation of proceedings against other person (not searched). relevant observations of jurisdictional High Court are extracted hereunder:- "We have heard Sri Bharat Ji Agrawal, learned senior counsel assisted by Sri Ashok Kumar, learned counsel for appellant and Sri Ashish Bansal, learned counsel for respondent assessee and have perused records. contention of Sri Agrawal is two fold. Firstly, he contends that in instant case, Assessing Officer of 'searched person' and 'other person' being same, there was no requirement of handing over of books of account or documents or assets seized or requisitioned, as is mentioned in Section 153C nor there was any necessity of recording prior satisfaction before proceeding to assess 'other person'. satisfaction subsequently recorded in assessment order in respect of 'other person' was sufficient compliance of provisions of Section 153C, which, in any case, was procedural in nature. A.O. of both proceedings, being same, he was neither required to handover documents to another Assessing Officer nor he had to record any satisfaction for purpose of any other Assessing Officer since same Assessing Officer of same designation is having jurisdiction over both persons, i.e. 'searched person' and 'other person' (not searched). Sri Agrawal relied upon Division Bench judgment ITA No.1451 to 1457(Bang)/2014 Page 17 of 26 of this Court rendered in case of Commissioner of Income Tax Vs. Classic Enterprises, (2013) 358 ITR 465. It was contended that Tribunal was not justified in quashing notice under Section 153C, instead of deciding question on merits as to whether additions are to be made and/ or to what extent income is to be assessed in hands of Gopi Apartments. Sri Agrawal also contended that by Finance Act, 2003, Amendment in Section 153A w.e.f. 01.06.2003 was made and Sections 153A and 153C were added in place of Sections 153BC and 153BD. Section 158BC is equivalent to Section 153A and Section 158BD is equivalent to Section 153C. He also contended that reliance placed by I.T.A.T. upon judgment of Supreme Court in Manish Maheshwari (supra) was misplaced and case, at hand, was squarely covered by Division Bench of this Court in case of Classic Enterprises (supra). In this regard, Sri Agrawal referred to observation in Manish Maheshwari's case to effect that "No proceeding under Section 158BC had been initiated. There is, thus, patent non- application of mind . Sri Ashish Bansal, learned counsel for respondent assessee, on other hand, contended that initiation of proceedings under Section 153C against respondent assessee itself was illegal, as no satisfaction was recorded by Assessing Officer of 'searched person' prior to initiation of such proceedings against respondent assessee as was mandatory. He invited attention of court to specific finding recorded by learned C.I.T. (Appeals), as upheld by I.T.A.T., based on admission by A.O. before it, which has already been taken note of by us in earlier part of judgment. Sri Bansal relied upon recent judgment of Apex Court in case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana passed in Civil Appeal No.3958 of 2014 decided on 12.03.2014 in support of his contention. Apart from arguments, as noted above, no other argument was raised by learned counsel for either of parties nor any other judgment was cited before us in support of their respective contentions. relevant provision in instant case, i.e. Section 153C is as under: ITA No.1451 to 1457(Bang)/2014 Page 18 of 26 "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 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 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 such other person notice and assess or reassess income of such other person in accordance with provisions of section 153A." aforesaid provision is contained in Chapter- XIV of Income Tax Act, which contains procedure for assessment. somewhat similar provision exists in Section 158BD under Chapter XIV-B, which contains procedure for assessment of searched cases, which reads as under: "158BD. Where Assessing Officer is satisfied that any undisclosed income belongs to any person, other than person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, books of account, other 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 [under section 158BC] against such other person and provisions of this Chapter shall apply accordingly." meaning and scope of aforesaid provision contained in Section 158BD came up for consideration before Supreme Court in case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana (supra). issue that fell for consideration before Supreme Court, as mentioned in paragraph-3 of judgment is being quoted hereinbelow: "3. issue that falls for our consideration and decision in all these appeals is: at what stage of proceedings under ITA No.1451 to 1457(Bang)/2014 Page 19 of 26 Chapter XIV-B does assessing authority require to record his satisfaction for issuing notice under Section 158BD of Income Tax Act, 1961 ('the Act' for short)." After considering rival contentions, relevant provisions of Income Tax Act and authorities on subject, their Lordships held as under: "41. We would certainly say that before initiating proceedings under Section 158BD of Act, assessing officer who has initiated proceedings for completion of assessments under Section 158BC of Act should be satisfied that there is undisclosed income which has been traced out when person was searched under Section 132 or books of accounts were requisitioned under Section 132A of Act. This is in contrast to provisions of Section 148 of Act where recording of reasons in writing are sine qua non. Under Section 158BD existence of cogent and demonstrative material is germane to assessing officers' satisfaction in concluding that seized documents belong to person other than searched person is necessary for initiation of action under Section 158BD. bare reading of provision indicates that satisfaction note could be prepared by assessing officer either at time of initiating proceedings for completion of assessment of searched person under Section 158BC of Act or during stage of assessment proceedings. It does not mean that after completion of assessment, assessing officer cannot prepare satisfaction note to effect that there exists income tax belonging to any person other than searched person in respect of whom search was made under Section 132 or requisition of books of accounts were made under Section 132A of Act. language of provision is clear and unambiguous. legislature has not imposed any embargo on assessing officer in respect of stage of proceedings during which satisfaction is to be reached and recorded in respect of person other than searched person. 44. In result, we hold that for purpose of Section 158BD of Act satisfaction note is sine qua non and must be prepared by assessing officer before he transmits records to other assessing officer who has jurisdiction over such other person. satisfaction note could be prepared at ITA No.1451 to 1457(Bang)/2014 Page 20 of 26 either of following stages: (a) at time of or along with initiation of proceedings against searched person under Section 158BC of Act; (b) along with assessment proceedings under Section 158BC of Act; and (c) immediately after assessment proceedings are completed under Section 158BC of Act of searched person. 45. We are informed by Shri Santosh Krishan, who is appearing in seven of appeals that assessing officer had not recorded satisfaction note as required under Section 158BD of Act, therefore, Tribunal and High Court were justified in setting aside orders of assessment and orders passed by first appellate authority. We do not intend to examine aforesaid contention canvassed by learned counsel since we are remanding matters to High Court for consideration of individual cases herein in light of observations made by us on scope and possible interpretation of Section 158BD of Act. 46. With these observations, appeals are disposed of." provisions of Section 158BD being pari materia with provisions of Section 153C, ratio of aforesaid judgment clearly applies to present case also. reference to assessment proceedings under Section 158BC by Supreme Court in extracts quoted above is with regard to 'assessment proceedings' in relation to 'searched person' and not 'other person' as referred to in Section 158BD. bare perusal of provision contained in Section 153C of I.T. Act leaves no doubt that, as is provided under Section 158BD, where Assessing Officer, while proceeding under Section 153A against person who has been subjected to search and seizure under Section 132(1) or has been proceeded under Section 132A, 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 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 such other person notice and assess or reassess income of such other person in accordance with provisions of section 153A. ITA No.1451 to 1457(Bang)/2014 Page 21 of 26 Thus, there are two stages: (1) first stage comprises of search and seizure operation under Section 132 or proceeding under Section 132A against person, who may be referred as 'the searched person'. Based on such search and seizure, assessment proceedings are initiated against 'searched person' under Section 153A. At time of initiation of such proceedings against 'searched person' or during assessment proceedings against him or even after completion of assessment proceedings against him, Assessing Officer of such 'searched person', may, if he is satisfied, that any money, document etc. belongs to person other than searched person, then such money, documents etc. are to be handed over to Assessing Officer having jurisdiction over 'such other person'. (2) second stage commences from recording of such satisfaction by Assessing Officer of 'searched person' followed by handing over of all requisite documents etc. to Assessing Officer of such 'other person', thereafter followed by issuance of notice of proceedings under Section 153C read with section 153A against such 'other person'. initiation of proceedings against 'such other person' are dependant upon satisfaction being recorded. Such satisfaction may be during search or at time of initiation of assessment proceedings against 'searched person', or even during assessment proceedings against him or even after completion of same, but before issuance of notice to 'such other person' under Section 153C. Even in case, where Assessing Officer of both persons is same and assuming that no handing over of documents is required, recording of 'satisfaction' is must, as, that is foundation, upon which subsequent proceedings against 'other person' are initiated. handing over of documents etc. in such case may or may not be of much relevance but recording of satisfaction is still required and in fact it is mandatory. In this regard, ratio of judgment of Supreme Court in case of Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana (supra), as noted above, clearly applies to proceedings under Section 153C also. ITA No.1451 to 1457(Bang)/2014 Page 22 of 26 'satisfaction' has to be in writing and can be gathered from assessment order passed in respect of 'searched person', if it is so mentioned/ recorded or from any other order, note or record maintained by Assessing Officer of 'searched person'. word 'satisfaction' refers to state of mind of Assessing Officer of person searched, which gets reflected in tangible shape/ form, when it is reduced into writing. It is conclusion drawn or finding recorded on foundation of material available. In this regard, reference may be made to pronouncements in case of C.I.T. Vs. Radhey Shyam Bansal, (2011) 337 ITR 217 (Delhi) and Division Bench judgment of this Court in case of C.I.T. Vs. Classic Enterprises reported in (2013) 358 ITR 465 (Allahabad). In case of Manish Maheshwari Vs. Assistant Commissioner of Income Tax and another, (2007) 289 ITR 341 (SC) , their Lordships had occasion to consider provisions of Sections 158BC and 158BD and held that conditions precedent for taking recourse to block assessment in terms of Section 158BC and 158BD (i) were as under: "(i) Satisfaction must be recorded by Assessing Officer that any undisclosed income belongs to any person, other than person with respect to whom search was made under Section 132 of Act; (ii) books of account or other documents or assets seized or requisitioned had been handed over to Assessing Officer having jurisdiction over such other person; and (iii) Assessing Officer has proceeded under Section 158BC against such other person. 11. conditions precedent for invoking provisions of Section 158BD, thus, are required to be satisfied before provisions of said chapter are applied in relation to any person other than person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of Act." ratio of judgment in Manish Maheshwari's case also applies to provisions of Section 153C and to facts of this case. ITA No.1451 to 1457(Bang)/2014 Page 23 of 26 In instant case, categorical finding has been recorded by C.I.T. (Appeals) and I.T.A.T. that there is no material showing recording of satisfaction by Assessing Officer of 'searched person' prior to issuance of notice under Section 153C to respondent assessee, i.e. 'the other person'. It was admitted case of Revenue before C.I.T. (Appeals) and I.T.A.T. that though Assessing Officer (of other person) in assessment order had stated that satisfaction for issuing notice under Section 153C was recorded, however, on examination, recording of such satisfaction alleged to be recorded by Assessing Officer was not available. In view of legal position, as already discussed above and admitted factual position as aforesaid, we are unable to accept contentions of Sri Agrawal. We are also of view that plea, which is being raised in this appeal, was not raised in grounds of appeal before I.T.A.T., however, even otherwise such plea does not have any merit. contention of Sri Agrawal that Section 153C is only procedural in nature, therefore, non-recording of prior satisfaction does not vitiate assessment order, as, such satisfaction, has been recorded in assessment order passed subsequently with regard to other person, is also not acceptable for reason that Supreme Court in case of M/s Calcutta Knitwears (supra) has already considered this aspect of matter in context of Section 158BD, and after taking note of fact that said provision is machinery provision has interpreted same. In light of interpretation given by it and in view of ratio laid down therein, contention of Sri Agrawal does not hold ground. clear and plain reading of Section 153C leaves no doubt that recording of satisfaction by Assessing Officer of person searched is mandatory and it has to precede initiation of proceedings against other person (not searched). specific query was put to Sri Agrawal as to whether, on basis of material collected during search and seizure operation or during assessment, proceedings against 'searched person' or thereafter, any proceeding could be initiated against 'other person' under any other provision of Income Tax Act, he categorically replied that except Section 153C, there was no other provision under which action could be initiated against him. ITA No.1451 to 1457(Bang)/2014 Page 24 of 26 reliance placed by Sri Agrawal upon Division Bench judgment of this Court in case of C.I.T. Vs. Classic Enterprises (supra) far from helping his cause goes against him. We have already relied upon said judgment to explain concept of 'satisfaction' under Section 153C, which is required to be recorded in writing. However, on other issues, said judgment is distinguishable for reason that in said case, Assessing Officer had recorded his 'satisfaction' and after recording satisfaction on subject matter on 02.08.2006 handed over books of account and seized material, thus, issue, which falls for consideration in this appeal, in fact, did not arise for consideration in said appeal. In any case, case at hand being squarely covered by pronouncements of Supreme Court, as already referred, reliance placed by Sri Agrawal on aforesaid judgment does not cut much ice." 6. Now it is clear from record that satisfaction by Assessing Officer of searched person was not recorded before initiating proceedings under section 153C of Act against assessee and impugned issue is squarely covered by aforesaid judgment of jurisdictional High Court. We, therefore, have no hesitation in holding that since assessment was framed consequent to proceedings initiated under section 153C of Act, without recording satisfaction by Assessing Officer of searched person, assessment is bad in law and deserves to be quashed. We accordingly set aside order of ld. CIT(A) and quash assessment framed under section 153C read with 143(3) of Act. 5. From above Tribunal s order, it is seen that Tribunal has not only followed judgment of Hon ble Allahabad High Court rendered in case of M/s. Gopi Apartment (supra), but Tribunal has also considered and followed judgment of Hon ble Apex Court reported in case of Calcutta Knitwears (supra) and judgment of Hon ble Apex Court in case of Manish Maheshwari as reported in 289 ITR 341. facts of present case as discussed ITA No.1451 to 1457(Bang)/2014 Page 25 of 26 above shows that in present case also, no satisfaction was recorded by AO in his capacity as AO of searched person because it is seen that so-called satisfaction note prepared by AO is in his capacity as AO of assessee, although he happens to be AO of searched persons also, it could not be shown by revenue that any satisfaction note was prepared by him as AO of searched persons and therefore, under these facts, this is to be accepted that no satisfaction was recorded by AO of searched person and therefore, this Tribunal order and those judgments of Hon ble Allahabad High Court rendered in case of M/s. Gopi Apartment (supra) and of Hon ble Apex Court rendered in case of Calcutta Knitwears (supra) and Manish Maheshwari (supra) are applicable and therefore, respectfully following these judgments, we hold that in present case, notice issued by AO u/s. 153C of I.T. Act deserves to be quashed and accordingly, we quash these assessment orders framed by AO u/s. 153C r.w.s. 143(3) of I.T. Act. Accordingly, additional ground is allowed in all seven years. 6. In line of said tribunal order rendered in case of husband of present assessee Shri Gali Janardan Reddy in ITA No. 1444 to 1450/Bang/2014(Supra), this issue is decided in favour of assessee and it is held that all these seven assessment orders passed by A.O. u/s 153C read with section 144 are quashed. ITA No.1451 to 1457(Bang)/2014 Page 26 of 26 7. In view of our above decision, other grounds raised by assessee do not require any adjudication. 8. In result, all these seven appeals of assessee are allowed. Order pronounced in open court on date mentioned on caption page. (SUNIL KUMAR YADAV) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER Place: Bangalore: D t e d : 18.10.2016 am Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order, AR, ITAT, Bangalore G. Lakshmi Aruna v. Deputy Commissioner of Income Tax, Central Circle - 1(3), Bangalore