2016 (12) TMI 1424 - AT - Income Tax

AO assuming jurisdiction u/s 153C - non recording of satisfaction note by the Assessing Officer of the person searched - Held that - From the satisfaction note it is evident that it is recorded in the case of M/s Sheetal International. Thus, this satisfaction note is recorded by the Assessing Officer in his capacity as the Assessing Officer of M/s Sheetal International and not the Assessing Officer of the person searched i.e., Shri Bal Kishan Saraf. Recording of satisfaction note by the Assessing Officer of the person searched is the primary condition for initiation of proceedings u/s 153C. Admittedly, no satisfaction note is recorded by the Assessing Officer of the person searched. Therefore, in our opinion, the proceeding u/s 153C is not validly initiated. The same is quashed. Once the proceedings u/s 153C are quashed, consequently, the assessment orders passed in pursuance thereto are also quashed. Accordingly, for assessment years 2004-05, 2006-07, 2007-08 & 2008- 09, the proceedings u/s 153C and the consequential assessment orders passed in pursuance to such notice are quashed. - Decided in favour of assessee

Summary

Issues:
Validity of initiation of proceedings u/s 153C based on satisfaction note recorded by Assessing Officer of the assessee instead of the person searched.

Analysis:
In the appeals by the assessee, the common ground challenged the jurisdiction of the CIT(A) in confirming the action of the Assessing Officer for assuming jurisdiction u/s 153C. The counsel argued that the satisfaction note was recorded by the Assessing Officer of the assessee, not the person searched, as required by law. Reference was made to CBDT Circular No.24/2015 and legal precedents supporting the necessity of a separate satisfaction note by the Assessing Officer of the person searched.

The Revenue contended that since the Assessing Officer of the person searched and the assessee was the same, the satisfaction recorded by the Assessing Officer was sufficient. They argued that the CBDT guidelines do not mandate separate satisfaction notes in such cases. However, the CBDT Circular emphasizes the requirement for a satisfaction note by the Assessing Officer of the person searched, even if the same as the other person.

The CBDT Circular clarified that strict compliance with the provisions of Section 153C is essential, and the satisfaction note must be prepared by the Assessing Officer of the person searched. The satisfaction note should accompany the seized documents handed over to the Assessing Officer of the other person for valid initiation of proceedings u/s 153C. The reply to an RTI application revealed that the satisfaction note was recorded in the file of the assessee, not the person searched, rendering the initiation of proceedings invalid.

As the initiation of proceedings u/s 153C was found to be invalid due to the lack of a satisfaction note by the Assessing Officer of the person searched, the subsequent assessment orders were quashed for the relevant years. Consequently, the appeals by the assessee were allowed, and the Revenue's appeals for the same years were dismissed as the assessment orders were quashed.

In conclusion, the judgment emphasized the importance of strict compliance with the statutory requirements for initiating proceedings u/s 153C, specifically regarding the recording of a satisfaction note by the Assessing Officer of the person searched. Failure to adhere to these requirements can render the proceedings invalid and lead to the quashing of assessment orders.