2016 (5) TMI 791 - HC - Income Tax

Validity of assessment u/s 153A - Held that - Tribunal has neither examined the records of all the cases before the AO nor any finding is recorded on the aspects of the satisfaction note and, as the Tribunal is the final fact finding authority, we fi nd that the matter should be relegated to the Tribunal for examining the said aspect, namely whether there was compliance of the requirement of satisfaction recording before final conclusion was drawn and as to whether the assessment made under Section 153C is in accordance with the provisions of the Act or bad in law or li able to be quashed or not. As observed earlier, since there is no consideration by the Tribunal on the said aspects, it would be just and proper to relegate the matter to the Tribunal for reconsidering the matter on the aforesaid aspect. Tribunal has, after dis missing the contention of the assessee regarding the assessment not being in accordance with the provisions of the Act under Section 143(3) read with Section 153C, has examined the other aspects namely of the estimated gross profit at the rate of 7% or 6% and further addition of the amount of liability to pay interest to appellant-assessee. Considering the above it appears to us when we are inclined to relegate the matter to the Tribunal on the issue which goes to the root of the matter, it would be premature on our part to address ourselves on the aspects of the assessment already made and considered by the Tribunal in the impugned order. Hence,the impugned orders passed by the Tribunal are set aside with a further direction that all appeals shall stand restored to the Tribunal. The Tribunal shall examine the aspects of satisfaction note if any, and whether the same can be termed sufficient compliance or not for the assessment to be initiate d or to be made or finalized under Section 153C of the Act.

Summary

Issues:
1. Validity of assessment under Section 143(3) read with Section 153C of the Income Tax Act.
2. Timeliness of issuing notice under Section 143(2) in relation to the return furnished pursuant to Section 153A notice.
3. Validity of issuing notice under Section 153C without a valid search initiated against the main person.
4. Justification of confirming the addition of net profit at 7% against 6% determined by the Assessing Officer.

Analysis:

Issue 1:
The appellant raised concerns regarding the validity of the assessment made under Section 143(3) read with Section 153C of the Income Tax Act. The Tribunal dismissed the appellant's contentions, stating that the assessment orders were in conformity with the provisions of the Act. However, the Tribunal failed to examine the crucial aspect of recording satisfaction notes, which is mandated by a circular issued by CBDT. As a result, the High Court directed the matter to be reconsidered by the Tribunal to determine compliance with the requirement of satisfaction notes before concluding on the validity of the assessment under Section 153C.

Issue 2:
The appellant questioned the timeliness of issuing notice under Section 143(2) concerning the return furnished pursuant to the Section 153A notice. The Tribunal did not address this issue directly but focused on other aspects of the assessment. The High Court emphasized that the examination of compliance with the satisfaction note requirement is essential before delving into other aspects of the assessment, including the timeliness of issuing notices. The matter was remanded to the Tribunal for a comprehensive review.

Issue 3:
The appellant contested the validity of issuing notice under Section 153C without a valid search initiated against the main person. The High Court highlighted the importance of recording satisfaction notes as per the circular issued by CBDT. The Court directed the Tribunal to reevaluate the assessment process, considering the necessity of satisfaction notes at various stages of assessment proceedings.

Issue 4:
The appellant challenged the confirmation of the addition of net profit at 7% by the Assessing Officer against the 6% offered by the appellant. The Tribunal had examined this aspect along with other contentions raised by the appellant. However, the High Court stressed the significance of first determining compliance with the satisfaction note requirement before addressing issues related to profit ratio or additional liabilities. The matter was referred back to the Tribunal for a fresh consideration, including the assessment of gross profit and liabilities to pay interest.

In conclusion, the High Court set aside the Tribunal's orders and directed all appeals to be restored to the Tribunal for a thorough examination of compliance with the satisfaction note requirement and subsequent assessment considerations. The Tribunal was instructed to complete this review within six months from the receipt of the High Court's order.