2017 (8) TMI 1298 - SC - Income Tax

Validity of assessment u/s 153C r.w.s 143(3) - validity of satisfaction note prepared for subsequent years - Registration of the trust cancelled under Section 12AA(3) - Held that - ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. - There was no satisfaction relate to four Assessment Years, namely, 2000-01 to 2003-04 - therefore assessment for four AY i.e. 2000-01 to AY 2003-04 set aside. In these appeals, qua the aforesaid four Assessment Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The necessary consequence would be that insofar as the conclusions of the AO in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of Sections 11 and 12 etc. are concerned, the same would not be affected.

Issues Involved:
1. Validity of proceedings initiated under Section 153C of the Income Tax Act, 1961.
2. Jurisdictional challenge regarding the notice under Section 153C.
3. Time-barred nature of the notice for certain assessment years.
4. Impact of the assessment order on other assessment years.

Detailed Analysis:

1. Validity of proceedings initiated under Section 153C of the Income Tax Act, 1961:
The core issue in these appeals is the validity of the proceedings initiated by the Assessing Officer (AO) under Section 153C of the Income Tax Act, 1961. The respondent, an educational institution registered under the Bombay Public Trusts Act, 1950, and the Societies Registration Act, 1860, was subjected to a search and seizure operation under Section 132 of the Act. The Revenue alleged that the institution was receiving capitation fees, thus violating the trust deed and engaging in activities not genuine to the trust's objectives. Consequently, the AO issued a notice under Section 153C, which was later quashed by the Income Tax Appellate Tribunal (ITAT) and upheld by the High Court.

2. Jurisdictional challenge regarding the notice under Section 153C:
The ITAT allowed the assessee to raise an additional ground questioning the jurisdiction of the notice under Section 153C, arguing that the satisfaction note was not properly recorded. The Tribunal found that the seized documents did not pertain to the assessment years in question, making the notice jurisdictionally defective. This reasoning was upheld by the High Court, which found the Tribunal's approach logical and valid under Section 153C.

3. Time-barred nature of the notice for certain assessment years:
The respondent argued that the notice for the assessment years 2000-01 and 2001-02 was time-barred. The Tribunal and the High Court concurred, noting that the satisfaction note dated April 18, 2007, could not justify notices for these years as they fell outside the permissible six-year period for assessment under Section 153A(1).

4. Impact of the assessment order on other assessment years:
The Supreme Court noted that the assessment order covered eight assessment years, but the ITAT quashed the proceedings only for four years (2000-01 to 2003-04) on technical grounds. The assessments for 1999-2000 (under Section 147) and 2006-07 (under Section 143(3)) were unaffected, as were the assessments for 2004-05 and 2005-06. The Court clarified that its judgment did not address the merits of the AO's findings regarding the trust's activities or the cancellation of its registration. The Court emphasized that any repercussions based on the AO's findings could proceed unaffected by this judgment.

Conclusion:
The Supreme Court dismissed the appeals, affirming the Tribunal and High Court's findings on the invalidity of the Section 153C notice for the specified years. The judgment clarified that the assessments for other years and the AO's findings on the trust's activities remain unaffected.

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