2019 (6) TMI 1429 - AT - Income Tax

Validity of issue of notice u/s 153C - HELD THAT - CIT(A) has called for the remand report and the AO in the remand report submitted that AO of the searched person and that of the assessee are one and the same. Since the search u/s 132 was conducted in the partner s case i.e. R.Venkatramaiah and the incriminating material was found belonging to the assessee, the proceedings u/s 153C were initiated in the case of the assessee, after duly recording the satisfaction as per the notings recorded on the order sheet of the assessee. The CIT(A) viewed that the AO had initiated proceedings u/s 153C of the Act, after duly recording satisfaction in the case of the assessee and clearly mentioning the seized material hence held that the grounds raised by the assessee with regard to validity of notice u/s 153C are not tenable and accordingly dismissed. The appeal of the assessee on the validity of the issue of notice was dismissed. Non recording the reasons in the case of searched person - As relying on M/S. SHETTYS PHARMACEUTICALS AND BIOLOGICALS LTD. 2014 (12) TMI 1067 - ANDHRA PRADESH HIGH COURT we hold that the issue of notice u/s 153C without recording the reasons in the case of searched person renders the notice issued u/s 153C as invalid. Accordingly, we quash the notice issued u/s 153C and the cancel the consequent assessment made u/s 143(3) r.w.s. 153C. Since we have quashed the notice issued u/s 153C and cancelled the consequent assessment, we consider it is not necessary to adjudicate the revenue s appeal which is on quantum of additions and the remaining grounds of appeal raised by the assessee in this appeal. Accordingly, the appeals of the assessee is allowed

Summary

Issues Involved:
1. Validity of the notice issued under Section 153C of the Income Tax Act, 1961.
2. Merits of the additions confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Stay application for the demand of ?1,01,01,761/-.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 153C:

The primary issue in this case revolves around the validity of the notice issued under Section 153C of the Income Tax Act, 1961. The assessee argued that the Assessing Officer (AO) did not follow the prescribed procedure for issuing the notice and that there was no satisfaction recorded as required. The AO of the searched person and the assessee were the same, and the assessee contended that satisfaction should have been recorded in the case of the searched person before transferring the seized material.

The CIT(A) called for a remand report, and the AO stated that satisfaction was recorded in the case of the assessee. However, there was no evidence of satisfaction recorded in the case of the searched person, R. Venkataramaiah, which is a mandatory requirement as per the Supreme Court's decision in CIT Vs. Calcutta Knitwears and the CBDT Circular No.24/2015. The Tribunal emphasized that recording satisfaction in the case of the searched person is essential, even if the AO is the same for both parties. The Tribunal quashed the notice issued under Section 153C and canceled the consequent assessment made under Section 143(3) r.w.s. 153C.

2. Merits of the Additions Confirmed by the CIT(A):

Since the Tribunal quashed the notice issued under Section 153C, it did not find it necessary to adjudicate on the merits of the additions confirmed by the CIT(A). The primary focus was on the procedural validity of the notice, which, once found invalid, rendered the subsequent assessment and additions moot.

3. Stay Application for the Demand of ?1,01,01,761/-:

The assessee filed a stay application requesting a stay on the demand of ?1,01,01,761/-. However, since the appeals were taken up simultaneously and the primary issue of the validity of the notice under Section 153C was addressed, the stay application was not pressed by the assessee and was subsequently dismissed.

Conclusion:

The Tribunal allowed the appeal of the assessee, quashed the notice issued under Section 153C, and canceled the consequent assessment. The revenue's appeal and the cross objections filed by the assessee were dismissed. The stay application filed by the assessee was also dismissed. The judgment emphasizes the importance of following the procedural requirements for issuing notices under Section 153C, particularly the need for recording satisfaction in the case of the searched person.