2017 (4) TMI 286 - AT - Income Tax

Validity of assessment u/s 153C - requisite satisfaction was not recorded - Held that - Recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdiction for the issue of notice u/s 153C even if the AO of the searched person and the assessee are same. It is abundantly clear from the satisfaction note recorded in the case of the searched person that there is no requisite satisfaction granting the AO jurisdiction for issuing notice to the assessee u/s 153C of the I.T. Act. The satisfaction note as emanated from files of searched persons, namely, M/s Mukesh Gupta and Gupta Industries Ltd. does not show at all that that the AO in their case has recorded a satisfaction that any of the seized material is belonging to the assessee has been found, and is incriminating in nature which is to be handed over to the AO of the assessee. In such circumstances, in our considered opinion, the assessee deserves to succeed on this account and the assessments are liable to be quashed on account of lack of validity of jurisdiction. Accordingly we set aside the orders of learned CIT(Appeals) on this aspect of jurisdiction and quash the assessments by holding that requisite satisfaction was not recorded before the issue of notice u/s 153C. - Decided in favour of assessee

Issues Involved:
1. Validity of notice issued under Section 153C.
2. Disallowance of financial expenses.
3. Classification of trading transactions as speculative transactions.
4. Financial expenses incurred for speculative transactions.
5. Charging of interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 153C:
The primary issue raised by the assessee was the validity of the notice issued under Section 153C. The assessee argued that the satisfaction of the AO of the searched persons, as required under Section 153C, was not recorded before initiating proceedings. The Tribunal examined the satisfaction notes in the cases of the searched persons and found that there was no specific satisfaction recorded that the seized documents belonged to the assessee. The Tribunal emphasized that recording of satisfaction is a jurisdictional fact and a sine qua non for the AO to assume jurisdiction under Section 153C. The Tribunal cited various case laws and a CBDT Circular (No. 24/2015) to support this proposition. Consequently, the Tribunal held that the absence of proper satisfaction denuded the legality of jurisdiction, rendering the assessments invalid and quashed.

2. Disallowance of Financial Expenses:
The assessee contested the disallowance of financial expenses amounting to ?21,55,722, ?36,87,787, and ?44,19,031 for the assessment years 2007-08, 2008-09, and 2009-10 respectively. The CIT(A) had partly allowed the expenditure. However, since the Tribunal quashed the assessments on jurisdictional grounds, the issue of disallowance of financial expenses became academic and was not adjudicated further.

3. Classification of Trading Transactions as Speculative Transactions:
The assessee challenged the CIT(A)'s decision that trading transactions, where delivery was not enforced, constituted speculative transactions under Section 43(5) of the Income Tax Act. The Tribunal did not delve into this issue as the assessments were quashed on jurisdictional grounds, making this issue academic.

4. Financial Expenses Incurred for Speculative Transactions:
The assessee argued that the financial expenses were incurred for the working capital of the regular business and not for speculative transactions. The CIT(A) had held that part of the financial expenses was incurred for speculative transactions. Again, due to the quashing of the assessments on jurisdictional grounds, this issue was not further examined by the Tribunal.

5. Charging of Interest Under Sections 234A, 234B, and 234C:
The assessee contested the charging of interest under Sections 234A, 234B, and 234C. The CIT(A) had confirmed the AO's action in charging the interest. However, since the assessments were quashed on jurisdictional grounds, this issue was rendered academic and was not adjudicated by the Tribunal.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, quashing the assessments on the ground that the requisite satisfaction under Section 153C was not recorded by the AO of the searched persons, thereby invalidating the jurisdiction for issuing the notice under Section 153C. The other issues raised by the assessee were not adjudicated as they became academic due to the quashing of the assessments on jurisdictional grounds.

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