2018 (8) TMI 510 - AT - Income Tax

Jurisdiction under section 153C - recording of no satisfaction note - Held that - Notice under section 153C was issued on the same day when satisfaction note was recorded by the A.O. of the asseessee-firm i.e., other person. The same A.O. who recorded satisfaction in the case of the asseessee-firm passed the assessment order under section 143(3)/153C. Therefore, the condition precedent for issuing notice under section 153C are not satisfied in this case because no satisfaction note have been recorded under section 153C in the case of the person searched and no specific incriminating material was seized pertaining to assessment year under appeal. Therefore, assumption of jurisdiction under section 153C of the I.T. Act is illegal and bad in law. It is also an admitted fact that no satisfaction note have been recorded under section 153C of the I.T. Act and no notice under section 153C have been issued against the assessee-firm. The A.O. misunderstood it to be a year of search. The Proviso to Section 153C of the I.T. Act provides that six assessment years for which assessments/ reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. Therefore, the six assessment years under section 153C of the Act in the case of the assessee-firm would be A.Ys. 2001-2002 to 2006-2007. The A.O, therefore, shall have to pass the assessment order under section 153C of the I.T. Act. However, A.O. has not done so and passed the order under section 143(3) of the I.T. Act. Therefore, the issue of notice under section 153C and recording of satisfaction being mandatory have not been complied by the A.O. Therefore, conditions of Section 153C are not satisfied in the present case

Summary

Issues Involved:
1. Assumption of jurisdiction under section 153C of the I.T. Act, 1961.
2. Validity of additions made on merits.
3. Legality of the assessment order under section 143(3) for A.Y. 2006-2007.
4. Legality of penalty under section 271(1)(c) of the I.T. Act, 1961.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 153C:
The primary issue was whether the Assessing Officer (A.O.) correctly assumed jurisdiction under section 153C of the Income Tax Act, 1961. The Tribunal noted that no satisfaction note was recorded by the A.O. of the person searched, which is a mandatory requirement for initiating proceedings under section 153C. The Tribunal relied on several judgments, including the Hon'ble Supreme Court's decision in the case of Manish Maheshwari vs. ACIT (2007) 289 ITR 341 (SC), which mandates that satisfaction must be recorded by the A.O. of the person searched before transferring the case to the A.O. of the other person. The Tribunal concluded that the proceedings initiated under section 153C were illegal and void ab initio due to the absence of a proper satisfaction note.

2. Validity of Additions on Merits:
Since the Tribunal found the assumption of jurisdiction under section 153C to be illegal, it did not delve into the merits of the additions made by the A.O. The Tribunal quashed the proceedings under section 153C, rendering the additions academic and unnecessary for further discussion.

3. Legality of the Assessment Order under Section 143(3) for A.Y. 2006-2007:
For A.Y. 2006-2007, the Tribunal admitted additional grounds of appeal, which were purely legal and did not require fresh facts to be investigated. The Tribunal noted that no satisfaction note under section 153C was recorded, and no notice under section 153C was issued against the assessee-firm. The A.O. had incorrectly treated A.Y. 2006-2007 as the year of search and passed the order under section 143(3) instead of section 153C. The Tribunal referred to the judgments of the Hon'ble Delhi High Court in the cases of CIT vs. RRJ Securities Ltd., (2016) 380 ITR 612 (Del.) and Pr. CIT vs. Sarwar Agency P. Ltd., (2017) 397 ITR 400 (Del.), which clarified that the six assessment years for which assessments or reassessments could be made under section 153C should be construed with reference to the date of handing over of assets/documents to the A.O. of the assessee. The Tribunal quashed the assessment order under section 143(3) for A.Y. 2006-2007 as it was invalid.

4. Legality of Penalty under Section 271(1)(c):
Since the assessment orders were quashed, the basis for levying penalties under section 271(1)(c) of the I.T. Act, 1961, was also nullified. The Tribunal set aside the orders of the authorities below and canceled the penalties imposed under section 271(1)(c) for the relevant assessment years.

Conclusion:
The Tribunal allowed all the appeals of the assessee-firm, quashing the proceedings under section 153C and the assessment orders for the relevant assessment years. Consequently, the penalties under section 271(1)(c) were also canceled. The Tribunal's decision was based on the absence of a proper satisfaction note by the A.O. of the person searched, which is a prerequisite for initiating proceedings under section 153C.