2017 (5) TMI 1425 - HC - Income Tax

Revision petition u/s 264 - Assessment u/s 153A/153C - satisfaction note - assumption of jurisdiction by the AO under Section 153C of the Act was illegal and therefore the entire proceedings were void ab initio - HELD THAT - In the Ganpati cases, the satisfaction note clearly records the view that the documents listed therein belong to the other person. The satisfaction note is of the AO of the searched person who also happens to be the AO of the other person i.e. Ganpati. Merely because the note also does not categorically state that the documents mentioned therein do not belong to the searched person (Aseem Kumar Gupta Group) will not invalidate the assumption of jurisdiction under Section 153C qua Ganpati. The view taken by the CIT in the impugned order does not call for interference. The remand to the AO for giving Ganpati a further opportunity regarding the nature of the documents and the validity of the additions made as a result thereof also calls for no interference. The writ petitions by Ganpati fail and are hereby dismissed. Orders in the cases of Shushre and Shrey - The Court notes that in the impugned orders dismissing the revision petitions of Shushre and Shrey, the CIT has noted that despite several opportunities being granted to the ARs of the Assessees, they did not appear and no submissions on merits of the case were made by the two Assessees during present proceedings. In the circumstances, no fault can be found with the CIT for declining to interfere on merits with the additions made by the AO. Even otherwise, in these writ proceedings, it is difficult for the Court to examine the documents seized and determine if in fact they could be said to be incriminating qua each of the said Assessees. There could be instances where the very nature of the document for e.g., a balance sheet or P L account of the Assessee, which already stood disclosed during the original assessment proceedings, can be said to be non-incriminating. That again will depend on the facts and circumstances. However, the documents listed out in both the above satisfaction notes qua Shushre and Shrey are not such that can be said to be non-incriminating on a bare perusal. There was sufficient opportunity for both Assessees to demonstrate how they were not. But they did not avail of the opportunity. In the writ jurisdiction, this Court has to be satisfied that the CIT's impugned orders are not unfair, unjust or irrational and are consistent with the basic procedural requirements. On none of these counts do the impugned orders of the CIT in the present case warrant interference. Consequently, the petitions of Shushre and Shrey also are held to be without merit. The impugned orders of the CIT are accordingly upheld and all the writ petitions are dismissed

Issues Involved:
1. Validity of the assumption of jurisdiction under Section 153C of the Income Tax Act, 1961.
2. Requirement and sufficiency of satisfaction notes under Section 153C.
3. Nature of documents seized and their classification as incriminating or non-incriminating.
4. Procedural fairness and adherence to principles of natural justice.

Detailed Analysis:

1. Validity of the Assumption of Jurisdiction under Section 153C:
The core issue in these petitions was the legality of the jurisdiction assumed by the Assessing Officer (AO) under Section 153C of the Income Tax Act, 1961. The petitioners argued that the jurisdiction was assumed without proper satisfaction notes, rendering the entire proceedings void ab initio. The Court examined the satisfaction notes and concluded that the AO had recorded sufficient satisfaction that the seized documents belonged to the petitioners, thus justifying the initiation of proceedings under Section 153C.

2. Requirement and Sufficiency of Satisfaction Notes under Section 153C:
The Court analyzed the necessity and sufficiency of satisfaction notes under Section 153C. It was emphasized that the AO of the searched person must record a satisfaction note indicating that the seized documents belong to another person. This requirement is mandatory even if the AO of the searched person and the other person is the same. The Court clarified that only one satisfaction note is required, and it should be placed in the file of the other person. The Court did not agree with the petitioners' argument that two separate satisfaction notes were necessary. The satisfaction notes in the cases of Ganpati, Shushre, and Shrey were found to be adequate, as they clearly indicated that the documents belonged to the respective petitioners.

3. Nature of Documents Seized and Their Classification as Incriminating or Non-Incriminating:
The petitioners contended that the documents seized were not incriminating and did not warrant additions to their taxable income. The Court noted that the documents listed in the satisfaction notes, such as financial statements and balance sheets, could be considered incriminating depending on the context. The Court held that it is not appropriate to determine the incriminating nature of documents in writ proceedings and that the petitioners had sufficient opportunity to demonstrate their non-incriminating nature during the assessment proceedings, which they failed to utilize.

4. Procedural Fairness and Adherence to Principles of Natural Justice:
The Court examined whether the AO adhered to the principles of natural justice during the assessment proceedings. In the case of Ganpati, the CIT had remanded the matter to the AO for further investigation and verification, ensuring procedural fairness. However, in the cases of Shushre and Shrey, the CIT rejected their revision applications as they did not appear for hearings and failed to make submissions on the merits. The Court found no fault with the CIT's decision, as the petitioners were given ample opportunity to present their case.

Conclusion:
The Court upheld the validity of the assumption of jurisdiction under Section 153C, finding that the satisfaction notes were sufficient and properly recorded. The petitions were dismissed, and the assessment orders and the CIT's decisions were upheld. The Court emphasized the importance of procedural fairness and the necessity for the petitioners to utilize the opportunities provided during the assessment proceedings.

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