2016 (5) TMI 1018 - AT - Income Tax

Validity of assessment u/s 153C - Satisfaction note to initiate proceeding u/s. 153C r.w.s.153A - Held that - There is no material placed on record before us that the Assessing Officer had kept the case files of the searched party and that of the assessee together before drawing the impugned satisfaction note. It is made clear that the Revenue s contention based on Kolkata bench decision of the tribunal puts a heavy onus on the department to positively prove that the same Assessing Officer in case of searched assessee as well as the third party had collectively examined the case files before recording a satisfaction note contemplated under section 153C of the Act. Needless to say this burden stands un-discharged. We hold in these peculiar facts and circumstances that the Revenue s arguments justifying the impugned satisfaction note are devoid of merits being not supported by any evidence much less in the nature of substantive material. We conclude in view of the above stated legal position board s circular and our discussion hereinabove that the Assessing Officer has not recorded a valid satisfaction before initiating section 153C proceedings in question. The impugned assessment is accordingly quashed. - Decided in favour of assessee

Issues Involved:
1. Legality of section 153C proceedings.
2. Addition of suppressed income.
3. Delay in filing cross objections.
4. Validity of the satisfaction note for initiating section 153C proceedings.

Detailed Analysis:

1. Legality of section 153C proceedings:
The primary issue across all the assessment years (2005-06 to 2008-09) was the legality of the section 153C proceedings. The assessee challenged the initiation of these proceedings, arguing that the seized materials did not belong to him as required under section 153C. The CIT(A) upheld the Assessing Officer's (AO) decision, stating that the incriminating materials indeed belonged to the assessee. However, the tribunal found that the AO did not record a valid satisfaction note in the case of the searched party (M/s. Kunvarji Commodities Brokers Pvt. Ltd.). The tribunal emphasized that recording a satisfaction note is mandatory before initiating section 153C proceedings, as per the legal precedent set by the Hon'ble Supreme Court in Manish Maheshwari vs. ACIT and the CBDT Circular No.24 of 2015. Since the AO failed to record such satisfaction in the searched party's case, the tribunal quashed the section 153C proceedings for all the assessment years.

2. Addition of suppressed income:
For the assessment years 2005-06 to 2008-09, the AO added suppressed income to the assessee's returns based on alleged misuse of the client code facility with M/s. Kunvarji Commodities Brokers Pvt. Ltd. The amounts added were ?63,26,507 for 2005-06, ?1,11,30,886 for 2006-07, ?1,17,61,150 for 2007-08, and ?38,94,648 for 2008-09. The Revenue also sought to revive suppressed profit additions of ?53,40,407 for 2006-07 and ?1,89,43,920 for 2008-09. However, since the tribunal quashed the section 153C proceedings, these additions were rendered moot.

3. Delay in filing cross objections:
The assessee's cross objections for the assessment years 2006-07 to 2008-09 were filed with a delay of three days. The tribunal accepted the assessee's condonation petition, noting the department's fair stance in not opposing the delay. Consequently, the cross objections were admitted for adjudication.

4. Validity of the satisfaction note for initiating section 153C proceedings:
The tribunal scrutinized the satisfaction note used to initiate the section 153C proceedings. The assessee argued that the satisfaction note was not recorded in the case file of the searched party, M/s. Kunvarji Commodities Brokers Pvt. Ltd., but in the assessee's file. The tribunal agreed with the assessee, referencing the jurisdictional high court's decision in DCIT vs. Lalitkumar M. Patel, which mandates that satisfaction must first be recorded in the searched party's case. The tribunal found that the AO did not meet this requirement, leading to the quashing of the section 153C proceedings.

Conclusion:
The tribunal quashed the section 153C proceedings for all the assessment years due to the AO's failure to record a valid satisfaction note in the searched party's case. Consequently, the additions of suppressed income were also nullified. The assessee's appeals and cross objections were allowed, while the Revenue's appeals were dismissed.

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