2017 (7) TMI 738 - HC - Income Tax

Validity of proceedings under Section 153-C - satisfaction note - Held that - In the present case, the AO of the searched person and the other person (the Assessee) was the same. In similar circumstances, the Court has recently in Ganpati Fincap Services Pvt Ltd. v. CIT 2017 (5) TMI 1425 - DELHI HIGH COURT held that there do not have to be two separate satisfaction notes prepared by the AO of the searched person even where he is also the AO of the other person. In such event, the AO need make only one satisfaction note. That satisfaction note is qua the other person. In that view of the matter, the impugned order of the ITAT which proceeds to invalidate the proceedings under Section 153C of the Act only for the reason that the AO of the searched who was also that of the Assessee, did not record a separate satisfaction note cannot be sustained in law. - Decided in favour of revenue

Summary

Issues:
1. Validity of initiation of proceedings under Section 153-C of the Income Tax Act, 1961.
2. Existence of incriminating materials against the Assessee under Section 153-C of the Act.

Analysis:
1. The appeals by the Revenue challenged a common order passed by the Income Tax Appellate Tribunal (ITAT) regarding the validity of proceedings under Section 153-C of the Income Tax Act for various Assessment Years. The main question framed for consideration was whether the ITAT was correct in holding that the proceedings were not validly initiated. The ITAT's decision was based on the absence of a satisfaction note recorded by the Assessing Officer (AO) of the searched person. However, a recent decision by the Court clarified that when the AO of the searched person is the same as the Assessee, a satisfaction note must be recorded by the AO of the searched person before initiating proceedings against the Assessee under Section 153-C. The Court found that the absence of a separate satisfaction note by the AO did not invalidate the proceedings, setting aside the ITAT's order in favor of the Revenue.

2. The Assessee argued that there were no incriminating materials available to proceed against them under Section 153-C of the Act. However, this issue was not examined on merits by the ITAT. Therefore, the Court directed that the appeals be restored to the file of the ITAT for a thorough examination of whether incriminating materials exist against the Assessee. The ITAT was instructed to hear the appeals on merits and dispose of them within six months from the specified date.

In conclusion, the High Court ruled in favor of the Revenue regarding the validity of proceedings under Section 153-C, emphasizing the importance of a satisfaction note by the AO of the searched person when also acting as the AO of the Assessee. The Court also highlighted the need for a detailed examination of the existence of incriminating materials against the Assessee, directing the ITAT to review the matter thoroughly and make a decision based on merits within a specified timeframe.