Can Survey Proceeding Culminate Into Assessment Under Section 153C ?

 INTRODUCTION

 Tax Is Levied By The Government In Order To Get Money In The Exchequer, Which Can Be Used In Furtherance Of The Social Benefit Provided By The Government. An Elected Government Has The Responsibility And Duty To Serve The Public At Large. In Furtherance Of Serving The Public, The Government Undertakes Many Projects Which Range From Infrastructural Development To Building Of Public Toilets, To Make Roads, To Border Security, To Buying Arms To Tackle Terrorism Or Naxalism, To Making Rockets Etc. These Heavy Investments And Expenditures Are Made From The Exchequer And Any Money On Which Tax Is Not Paid Remains Unavailable In The Exchequer And Therefore, Becomes Black Money And This Black Money Is A Leakage Which Needs To Be Fixed.

 Search And Seizure Plays An Important Role In The Hands Of The Government To Tackle The Menace Of Black Money. The Proliferation Of Black Money Has Always Been A Grave Issue Which Needed To Be Addressed On An Immediate Basis. Now, The Question Arises Is, What Is Black Money? Black Money Is All Those Unaccounted Money On Which The Assessee Has Not Paid Income Tax. Black Money Is An Inclusive Term And Does Not Restrict Itself To Receiving Illegal Commissions, Money From Human Trafficking, Ransom, Bribe, And Any Other Monies Occupied By Indulging In A Felony.

 The Income Tax Department Is Restricted By The Provisions Of The Income Tax Act. Further, With Such Restrictions, It Was Very Difficult To Curb The Menace And Proliferation Of Black Money. So, In This Respect, The Income Tax Act, 1961, Provides For The Action Of Search And Seizure Under Sec. 132.

 Search And Seizure Provisions Under The Income Tax Act Are One Of The Biggest Weapons In The Arsenal Of The Revenue Department. But, This Is Not The Only Tool. The Government Very Tactfully Devised Another Tool Which Is Known As  Survey. Survey Is Defined Under Sec. 133A Of The Income Tax Act.

 

Let Us Analyse The Scheme Of Search And Seizure And The Proceeding There Onto. The Author Here Will Be Discussing The Relationship Between Section 132 With Section 153A And 153C Of The Act.

SEARCH AND SEIZURE AS STIPULATED UNDER SEC 132.

 The Income Tax Act Provides For Search And Seizure Under Sec. 132 Of The Act. It Provides That The Revenue Authority Must In Consequence Of Information In Possession Shall Have “Reason To Believe” That Any Person Will Willfully Omit Or Fail To Produce The Books Or Other Documents Which Were Required By Summons Or Notice, Or Person Is In Possession Of Assets Which He Has Or Would Not Disclose Under The Act.

 The Powers Of Search And Seizure Under Sec. 132 Of The Income-Tax Act, 1961 Are Very Wide In Scope. However, Several Safeguards Have Been Imposed Under The Law To Avoid Any Abuse Of Power. Reason To Believe Consequent Upon The Receipt Of Information In His Possession Is A Sine Qua Non For The Director-General Or The Director Or The Chief Commissioner Or The Commissioner, As The Case May Be, To Authorise Any Joint Director, Joint Commissioner, Assistant Director Or Deputy Director, Assistant Commissioner Or Deputy Commissioner Or Assessing Officer, As The Case May Be, To Do The Acts Specified In Clauses (I) To (V) Of Section 132(1)(B).

 A Conjoint Reading Of Sec 132 And Sec 153A Makes It Abundantly Clear That A Search Action Under Sec. 132 Is A Precondition For Sec. 153A To Come Into Play. If There Is No Search Action Taken Place Then The Invocation Of Sec. 153A Is Ruled Out As Sec. 153A Clearly States That “In The Case Of A Person Where A Search Is Initiated Under Section 132 Or Books Of Account, Other Documents Or Any Assets Are Requisitioned Under Section 132A”. From This, It Follows That If Documents Are Impounded U/S. 133A Then Provisions Of Section 153A Or 153C Cannot Be Invoked.

 It Is Germane Here To Mention That Survey Under Section 133A Of The Income Tax Act, Made By The Department Is Different From The Search And Seizure Operation. Often, The Jurisdictional Assessing Officer Makes The Survey, Or It Is Made By The Investigation Wing. In My Considered Opinion, The Action Under Section 133A Cannot Give Any Rise To Proceeding Under Sec. 153A Or 153C. Meaning Thereby, A Proceeding That Can Be Initiated After Completion Of A Survey Is A Proceeding As Defined Under Sec. 147/148 Of The Income Tax Act. So, In A Strict Sense, A Proceeding Under Sec. 133A Cannot Culminate Into A Proceeding Under Section 153A Or 153C. Therefore, Any Proceedings Initiated Under 153C Or 153A Originating From Sec.133A Is Void And Is Liable To Be Quashed.

Having Said This, Another Question Which Arises Relating To Sec 133A Is Whether A Statement Recorded U/S 133A Can Be Taken As A Base For Recording The Satisfaction For Proceedings U/S 153C.

 

In My Humble Opinion, A Disclosure Made By An Assessee During A Survey Proceeding U/S 133A Cannot Be Construed As Incriminating Material. It Is Indispensable To State That Sec 132(4) States That The Authorized Officer May, During The Course Of Search And Seizure, “Examine On Oath Any Person Who Is Found To Be In Possession Or Control Of Any Books Of Account, Documents, Monies, Bullion, Jewellery…” And That Any Statement Made During Such Examination May Be Used Thereafter In Evidence In Any Proceeding Under The Act. Sec 132(4) Provides For Copious Power To Be Used As Evidence. Whereas, Sec. 133A Does Not Talk Of The Recording Of Any Statement On Oath. Therefore, There Is A Stark Difference In The Nature Of The Statement Recorded Under Section 132(4) And That Recorded Under Section 133A. In My Opinion, A Mere Statement Which Is Not Even Under Oath Cannot Be Used To Initiate A Proceeding Under Sec. 153C Of The Act.

 

PROCEEDING AFTER SEARCH AND SEIZURE TOOK PLACE.

 Once Search And Seizure I.E. Raid Is Conducted On An Assessee Then There Arises Two Conditions:-

 

1. Incriminating materials may be found at the place of the assessee on whom the raid action took place or;
2. Incriminating material so seized pertains to or belongs to the assessee other than one on whom the search proceedings took place.

 Now, In Condition Where Incriminating Evidences Are Found At The Place Of The Assessee On Whom The Search Proceedings Took Place, The Procedure Laid Down Under Sec. 153A Will Be Applicable. On The Other Hand, The Other Assessee On Whom The Search Action Did Not Take Place But Some Incriminating Material Were Found Which Belongs To Or Pertains To Him, On Him Section 153C Will Be Applicable.

The Scheme Of Sec. 153A And Sec. 153C Is Such That Under Sec. 153A Assessment Of 6 (Six) Preceding Years Of The Assessee On Whom Search And Seizure Is Conducted Is Carried On. Whereas, Under Sec. 153C During Search Any Incriminating Material Found Which Belonged To Or Pertains To Some Other Person Then Proceeding Which Is Similar To Sec. 153A Is Initiated On That Other Person Under Sec. 153C.

 

Income Tax Act Provides For A Very Clear Difference And Implication Of Both The Sections. Sec. 153C Is Very Peculiar In A Sense That There Is A Transfer Of Incriminating Material From One Assessing Officer To Another Assessing Officer (Jurisdictional). This Transfer Of Incriminating Material And Assessment And Re-Assessment Thereafter Is Done With Prior Satisfaction Of Both The Assessing Officers In Their Personal Capacity. Sec. 153C Is A Weapon Which Gives Immense Power To The Department To Bring Within Their Ambit Even Those Individuals On Whom Search Has Not Been Conducted. The Only Rider Is That The Evidence (Document/Assets) Found Shall Belong/Pertain To Them.

 Sec. 153C Of The Act Provides For Two Different Assessing Officers. First Assessing Officer Is The One Who Is Assessing Officer In Respect Of The Person Who Is Being Searched And The Second Assessing Officer (Jurisdictional Assessing Officer) Is In Respect Of That Other Person Against Whom Incriminating Evidences Were Found But On Him No Search Action Took Place.

 There Is No Separate Requirement Of Recording Of Satisfaction For Initiating Proceedings U/S 153A. The Reason Behind It Is That The Satisfaction Is Already Recorded At The Time Of Search U/S 132.  However, Under Sec. 153C Satisfaction Is Must. One Satisfaction Is To Be Recorded By The Assessing Officer Of The “Searched Person” That The Books Of Accounts/Documents Belongs To/Relates To “Another Person” And The Second Satisfaction Is To Be Recorded By The Assessing Officer Of “Other Person” That The Books Of Accounts/Assets Have Bearing On The Total Income Of Other Person.

 So It Is Apparent From The Above That Two Separate Satisfaction Ought To Be Recorded Which Is:-

 

·         Firstly By The Assessing Officer Of The Person On Whom Search Was Conducted I.E “Searched Person” For Any “Documents/Assets” Found Pertaining To Or Belonging To The “Such Other Person”

 

·         Secondly By The Assessing Officer Of Other Person, Regarding “Assets/Documents” Seized Or Requisitioned Have A Bearing On The Determination Of The Total Income Of Such Other Person.

 Ostensibly Speaking, Sec 153C Of The Income Tax Act, 1961 Provides For The Transfer Of Incriminating Material From An Assessing Officer, Under Whose Jurisdiction Search Took Place, To Assessing Officer Having Jurisdiction Over Such Other Person Against Whom The Books Of Accounts Or Documents Or Assets, Seized Or Requisitioned.

WHETHER A DUAL SATISFACTION NOTE IS SINE QUA NON FOR THE INITIATING PROCEEDING UNDER SECTION 153C.

 In My Opinion, In Case Where There Are Two Different Individuals Acting As Assessing Officers, In That Case Two Different Satisfaction Note Is Compulsory And Must. The Satisfaction Has To Be Recorded In Writing Before Issuance Of Notice U/S 153C To Such Other Person. Failing To Record Two Different Satisfaction Note Can Lead To Nullity Of Proceeding. However, A Single Satisfaction Note Will Serve The Purpose Where The Assessing Officer Of The Searched Person And The Assessing Officer Of Other Person Happens To Be One And The Same.

 The Hon’ble Supreme Court In Amity Hotels (P) Ltd. 272 ITR 75, Held That The Reasons Must Be Recorded By The Assessing Officer Having Jurisdiction Over The Assessee Who Had Been Searched Before Issuing The Notice U/S 158 BD Of The Act. The Aforesaid View Has Been Reiterated By This Court In The Case Of CIT Vs. Karan Engg. P. Ltd. And Janki Exports International Vs. UOI, 193 CTR 730.

 It Is To Be Noted That The Hon’ble Apex Court In The Case Of CIT Vs M/S. Calcutta Knitwears Observed That For The Purpose Of Section 158BD, Before Transmission Of The Records To The Other AO, Who Has Jurisdiction Over Such Other Person, A Satisfaction Note Is Sine Qua Non To Be Prepared By The A.O.. The Hon’ble Court Quelled The Stinging Question That At Which Stage A  Satisfaction Note Could Be Recorded And Answered That:

 

1. at the time of or along with the initiation of proceedings against the searched person u/s 158BC;
2. along with the assessment proceedings u/s 158BC; and
3. immediately after the assessment proceedings are completed u/s 158BC of the searched person.[Refer para-44 of the Order]

 

Further, CBDT Vide Circular No. 24/2015 Dated 31-12-2015 Has Clarified That The Provisions Of Section 153C Are Substantially Parimateria To The Provisions Of Sec 158BD. Therefore, The Guidelines Laid Down By The Apex Court Shall Also Be Applicable In Respect Of Other Person Assessed U/S 153C. This Circular Further States That Even If The Assessing Officer Of The Searched Person And The Other Person Is One And The Same, Then Also He Is Required To Record His Satisfaction.

 The Apex Court In The Case Of M/S SUPER MALLS PRIVATE LIMITED V. PCIT, Decided On 05 March 2020, Categorically Held That “However, In The Case Where The Assessing Officer Of The Searched Person And The Other Person Is The Same, It Is Sufficient By The Assessing Officer To Note In The Satisfaction Note That The Documents Seized From The Searched Person Belonged To The Other Person. Once The Note Says So, Then The Requirement Of Section 153C Of The Act Is Fulfilled.”

 THERE MUST BE SOME VALUABLE MATERIAL UNEARTHED OR DOCUMENTS SEIZED OR REQUISITIONED BELONG TO OR PERTAINS TO OTHER PERSON.

 It Is Of Paramount Importance That There Must Be Some Valuable Material Unearthed Or Documents Seized Or Requisitioned Belong To Or Pertains To A Person Other Than The Person In Whose Case Warrant Of Authorizations Is Issued U/S 132(1). In My Opinion, It Is A Prerequisite That Need To Be Emphasised On.

 In The Case Of Meghmani Organics Ltd. Vs DCIT 129 TTJ 255 The Court Held That The Prerequisite For Initiating Proceedings U/S. 153C Of The Act Is That Any Money, Bullion, Jewellery Or Other Valuable Articles Or Things Or Documents Seized Or Requisitioned Belong To A Person Other Than Person In Whose Case Warrant Of Authorizations Is Issued U/S. 132(1) Of The Act. Since None Of The Documents Belongs To The Assessee, Though They May Be Referable To The Work Of The Assessee The Same Cannot Be Considered As “Belonging To The Assessee. Similar Decisions In: LMJ International Ltd. Vs DCIT 119 TTJ 214

This Discussion Cannot Be Completed Without Referring To The Amendment Brought By Section 62 Of The Finance Act 2015, With Respect To Section 153C. The Position Before The Above Said Amendment Was That The Term Used Under Section 153C Was “Belong “ But, Post-Amendment As Far As Money, Bullion, Jewellery Or Other Valuable Article Or Thing, Seized Or Requisition The Term Used Is “Belong” And In Respect Of Books Of Accounts Or Document The Term Used Is “Pertains Or Pertain To” Or Any Information Contained Therein “Relates To”.

 In My Opinion This Amendment Has Changed The Ethos Of The Section 153C. Now, Even If The Documents Does Not Belong To The “Other Assessee” But Even Remotely Pertains To Or Even If Any Information Thereon Relates To The “Other Assessee”, Then Also It Becomes A Fit Case To Be Proceeded Under Sec. 153C. The Dreadful Weapon In The Hands Of The Department Got A New Teeth On It.

 

WHETHER PROCEEDING UNDER SECTION 153C BE INITIATED IF THERE IS NO MATERIAL FOUND OTHER THAN THE STATEMENT RECORDED.

 The Answer To Apropos Question Is An Obvious “NO”. The Hon’ble Delhi High Court In The Matter Of CIT VS. Late Sh. Raj Pal Bhatia, ITA 276 OF 2009, Held That The Prerequisite For Initiation Of Proceedings Under The Then Section 158BD Is That Some Document Was Found During Search. The Honourable Court Held That The Statement Of A Person Is Not A Document Which Was Found During Search. Therefore, It Cannot Be Said That The Statement Was, Seized “During The Search And Thus, Would Not Qualify The Expression “Document” Having Been Seized During The Search. Further, The Court Iterated That The Proper Course Of Action Was Reassessment U/S 147 Read With Section 148 Of The Act.  A Similar View Was Taken By The Hon’ble Jodhpur Bench Of ITAT, In The Case Of Smt. Chitra Devi Vs. CIT 77 TTJ 430.

 

Therefore, It Is Very Important To Bear In Mind That In Case Of Invocation Of Sec 153C By The Department Then There Shall Be Some Incriminating Material Apparent On Which Department Can Rely. If Such Incriminating Evidences Are Missing And Department Was Only

Able To Get A Hold Of A Statement Then Such Impugned Statement Cannot Be A Sole Basis For Initiating A Proceeding Under Sec. 153C.

 

WHETHER NOTICE U/S 153C IS VALID IF LOOSE PAPERS FOUND DURING THE SEARCH PROCEEDINGS ONLY GAVE A REFERENCE ABOUT THE OTHER PERSON.

 Vijaybhai N. Chandrani V. ACIT [2010] 231 CTR 474(GUJ.) Condition Precedent For Issuing Notice U/S 153C And Assessing Or Reassessing Income Of ‘Such Other Person’ Is That Money, Bullion, Jewellery Or Other Valuable Article Or Thing Or Books Of Account Or Documents Seized Or Requisitioned Should “Belong To Such Person”; Where Admittedly Documents In Question, Namely, Three Loose Papers Recovered During Search Proceedings Did Not Belong To Petitioner, Though There Was A Reference To Petitioner Therein, Issue Of Notice To Petitioner U/S 153C Was Not Valid

 As Discussed Above, The Finance Act 2015 Brought A Watershed Change In The Position With Respect To The Section 153C. The Term Which Was Couched In The Sec 153C Prior To The Amendment Was “Belong To”, But Subsequently With Finance Act, 2105, Another Phrase Has Been Added I.E. Books Of Accounts Or Document The Term Used Is “Pertains Or Pertain To” Or Any Information Contained Therein “Relates To”.

 In My Opinion, This Amendment Has Restricted And Limited The Functioning Of The Judgement Of Vijaybhai (Supra). This Judgment And Other Akin Judgments Do Not Hold Good, Post Amendment.

 Whilst Discussing About The Finance Act 2015, And Changes Made Thereon To The Sec 153C, It Is Important To Discuss Whether The Applicability Of The Finance Act, 2015 Is Retrospective Of Prospective With Respect To Sec 153C. It Is Pertinent To Mention Here That The Said Amendment Is Prospective And Is Applicable For The Searches Conducted After 01/06/2015 And As Such The Old Provisions Of “Belongs To Or Belong To A Person” Shall Prevail In Case Of Search Made Before 01/06/2015.

 

FROM WHICH YEAR THE CRITERIA OF SIX YEARS TO BE COUNTED.

 

It Again Becomes Absolutely Necessary To Go Back To The Basic To Understand The Scheme Of Sec. 153A, 153B And 153C, In Order To Answer The Question That From Which Year The Criteria Of Six Years To Be Counted. The Notice U/S 153C Is Served Such “Other Person” And A Proceeding As Enunciated U/S 153A Is Initiated. It Is To Bear In Mind That A Notice U/S 153C Can Only Be Issued After Recording Satisfaction.

 Now, There Came A Change In The Position Of Sec 153C With Respect To Amendment Made By The Finance Act, 2017. Let Us Understand The Position Prior To And Post Amendment.

 

POSITION PRIOR TO AMENDMENT MADE BY FINANCE ACT, 2017 IN SEC 153C:

 

The Search And Seizure Which Were Conducted And Took Place Prior To Cut Off Date Of 01/04/2017 Will Be Governed By The Earlier Provisions Of Section 153C. Therefore, The Period Of Six Years Shall Be Counted From The Previous Year Preceding The Year In Which Satisfaction Was Recorded.

 

For Example: An Action Of Search And Seizure Took Place On 5th Of November, 2012. Few Incriminating Materials Were Found Which Belonged To Some Other Person Then The Person On Whom Such Search And Seizure Took Place.  The Jurisdictional Assessing Officer Of Other Person Recorded A Satisfaction On 11^th Of August 2014. In This Case, Notice Under Section 153C Can Be Issued For Assessment Year 2009-10 To A.Y. 2014-15. However, The AO Has Issued The Notice U/S 153C For AY 2007-08 And 2012-13, By Considering The Relevant Six Assessment Years Prior To The Assessment Year Relevant To The Previous Year In Which Search Is Conducted (I.E. 04/09/2012). In My Humble Opinion, These Two Years Are Beyond The Period Of Six Years Preceding The Financial Year In Which Satisfaction Under Section 153C Of The Act Was Recorded. Therefore, The Assessment Order Passed In These Two Years Are Not Valid In The Eyes Of Law And Shall Be Excluded And Quashed.

 There Is Quite A Good Possibility That A Search Might Be Conducted Or Carried On Before 1 April 2017 And The Satisfaction Under Section 153C Was Recorded After The 1st Of April 2017. Under Such Condition The Period Of Six Years Will Be Taken From The Date Of Recording Of Satisfaction. The Underlying Judgements Support This View.

 

1. PCIT v. Raj Buildworth (P.) Ltd [2020] 113 taxmann.com 601 (SC)
2. CIT v. RRJ Securities Ltd. [2017] 79 taxmann.com 115 (SC)

 

POSITION POST THE AMENDMENT BROUGHT BY THE FINANCE ACT 2017:

 

The Finance Act, 2017 Made It Clear That Post 01/04/2017, The Period Of Six  As Referred In Section 153C Shall Be Reckoned From The Date Of Search And Not From The Date Of Recording Of Satisfaction. This Amendment In Effect States That The Block Period For The “Searched Person” As Well As The “Other Person” Would Be The Same Six AYs Immediately Preceding The Year Of Search.

 The Finance Act 2017 Has Inserted The Limb That “Six Assessment Years Immediately Proceeding The Assessment Year Relevant To The Previous Year In Which The Search Is Conducted Or Requisitions Is Made” And As Such The Period For ‘Searched Person’ And ‘Other Person’ Will Be Same. This Amendment Is Prospective In Nature And Cannot Be Applied To Searches Made Before 01/04/2017.

 In Simpliciter, The Amendment Made It Clear That The Proceeding U/S 153A And 153C Will Be For Same Time Frame But For Different Assessee.

 

WAY FORWARD

 

The Powers In The Hands Of Department May Apparently Seem Excessive But Such Canine Powers Are Needed To Curb And Check The Menace And Proliferation Of Black Money And Hoarding Of Money. The Purpose Of Law Is Clear To Tackle Tax Evasion. But, It Is To Be Seen That Such Action Does Not Grossly Stampede On The Rights Of The Assessee. The Parameters Of The Proceedings Are Defined Under Law And Such Parameters Need To Followed Invariably.

 The British Statesman, Lord Brougham, In His Peroration Of The Speech On Law Reform Said: “It Was The Boast Of Augustus That He Found Rome Of Brick And Left It Of Marble. But How Much Nobler Will Be The Sovereign’s Boast When He Shall Have It To Say That He Found Law Dear And Left It Cheap; Found It A Sealed Book, Left It A Living Letter; Found It The Two-Edged Sword Of Craft And Oppression, Left It The Staff Of Honesty And The Shield Of Innocence.”

 In Semblance It Is Stated That It Is Department Which Gives Blood And Soul To Mere Words In The Statute. One Can Justly Boast That The Department Does A Service To The Nation And This Cannot Be More Nobler. But, At The Same Time, An Act Which Is Not In The Precincts Of The Law Makes The Whole Practice Futile. Therefore, Laws Need To Exercised Keeping In Mind The Fabrics Of Law. Sec 153C Shall Be Evoked Keeping In Mind Incriminating Evidences, Issuing Of Notice U,S 153C In Case Of Search, Recording Of Reasons To Believe, The Time Frame From Where 6 Years Will Be Calculated And Many More Minute Elements. If Such Elements Are Not Present Then Such Robust And Canine Provisions In The Hands Of Department Becomes Toothless.

 

Disclaimer: The Contents Of This Document Are Solely For Informational Purpose. It Does Not Constitute Professional Advice Or A Formal Recommendation. While Due Care Has Been Taken In Preparing This Document, The Existence Of Mistakes And Omissions Herein Is Not Ruled Out. Neither The Author Nor SNGC And Its Affiliates Accepts Any Liabilities For Any Loss Or Damage Of Any Kind Arising Out Of Any Inaccurate Or Incomplete Information In This Document Nor For Any Actions Taken In Reliance Thereon. No Part Of This Document Should Be Distributed Or Copied (Except For Personal, Non-Commercial Use) Without Express Written Permission Of The Author And SNGC.

 

Co_authors

Veena Agrawal (CA)

Abhishek Kumar (Adv)