2016 (8) TMI 1329 - AT - Income Tax

Validity of assessment u/s 153C - non recording of the satisfaction - Held that - The first and foremost step for initiation of proceedings u/s 153C i.e., the recording of the satisfaction by the Assessing Officer of the person searched is missing, the proceedings. Thus the initiation of the proceedings u/s 153C in the assessee s case are held to be invalid and accordingly the assessment framed, thereafter u/s 153C of the Act is quashed. See Bhawna Bhalla case 2016 (6) TMI 30 - ITAT DELHI - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 153C of the Income Tax Act.
2. Requirement of recording satisfaction by the Assessing Officer (A.O.) of the searched person.
3. Legal objections raised at appellate stages.
4. Applicability of legal precedents and Circulars issued by the Central Board of Direct Taxes (CBDT).

Issue-wise Detailed Analysis:

1. Validity of initiation of proceedings under Section 153C of the Income Tax Act:
The core issue was whether the initiation of proceedings under Section 153C against the assessee was valid. The assessee contended that the assessment proceedings were not pending on the date of recording satisfaction under Section 153C, and no satisfaction was recorded by the A.O. of the searched persons. The Tribunal found that no satisfaction note was recorded in the case of the searched persons, making the initiation of proceedings under Section 153C void ab initio and bad in law.

2. Requirement of recording satisfaction by the A.O. of the searched person:
It was emphasized that the first and foremost step for initiation of proceedings under Section 153C is the recording of satisfaction by the A.O. of the searched person. The Tribunal referred to the ITAT Delhi Bench and the decision in the case of Bhawna Bhalla vs. ACIT, which held that without such satisfaction, the proceedings are invalid. The Tribunal also noted that even if the A.O. of the searched person and the other person are the same, the satisfaction must be recorded distinctly for the other person.

3. Legal objections raised at appellate stages:
The Revenue argued that the legal objection regarding the satisfaction note should have been raised during the assessment proceedings and not at a later stage. However, the Tribunal held that the assessee could validly raise the legal grounds at the appellate stage under Section 253(4) of the Act. The Tribunal dismissed the contention that the assessee was estopped from raising such objections.

4. Applicability of legal precedents and Circulars issued by the CBDT:
The Tribunal relied on several precedents, including the Hon'ble Jurisdictional High Court's decision in R.R.J. Securities and the CBDT Circular No. 24/2015, which mandates that satisfaction must be recorded by the A.O. of the searched person before initiating proceedings under Section 153C. The Tribunal concluded that the absence of such satisfaction rendered the proceedings invalid.

Conclusion:
The Tribunal allowed the cross-objections of the assessee and quashed the assessments framed under Section 153C for all six assessment years, holding them void ab initio and invalid. Consequently, the appeals of the Revenue were dismissed as infructuous. The judgment highlighted the necessity of strict compliance with procedural requirements under Section 153C, particularly the recording of satisfaction by the A.O. of the searched person.