2018 (10) TMI 238 - AT - Income Tax

Validity of assessment under section 153C - No proper satisfaction has been recorded by the AO of the searched person of Shri Gangadhar Shetty or its group cases - Held that - Satisfaction in the case is not recorded by the AO of the searched party, which is a pre-condition for invoking jurisdiction u/s 153C of the Act and hence, the assessment framed u/s 153C read with Section u/s 143(3) of the Act is bad in law and hence, quashed. The jurisdictional issue of the assessee s cross objection is allowed. Since, we have already adjudicated the jurisdictional issue of assessee s CO by quashing the Block Assessment; we need not to go into the merits of the case raised in Revenue s appeal.

Summary

Issues Involved:
1. Validity of assessment under section 153C of the Income Tax Act, 1961 in the absence of incriminating material.
2. Requirement of recording satisfaction by the Assessing Officer (AO) of the searched person under section 153C.

Detailed Analysis:

1. Validity of Assessment under Section 153C in Absence of Incriminating Material:
The assessee challenged the validity of the assessment under section 153C of the Act, arguing that no incriminating material was found during the search under section 132. The CIT(A) upheld the assessment, noting that the AO of the searched person and the assessee was the same, thus no separate satisfaction needed to be recorded. However, the Tribunal found that no satisfaction note was available on record, which is a prerequisite as per the Supreme Court's ruling in CIT vs. Calcutta Knitwears (2014) and the CBDT Circular No. 24/2015. The Tribunal concluded that the absence of a recorded satisfaction note invalidated the assessment under section 153C, rendering it bad in law and quashed it.

2. Requirement of Recording Satisfaction by the AO of the Searched Person:
The Tribunal emphasized that recording satisfaction by the AO of the searched person is a jurisdictional requirement before invoking section 153C. This satisfaction must be documented even if the AO of the searched person and the assessee is the same. The Tribunal referred to the Supreme Court's judgment in Calcutta Knitwears and the CBDT Circular, which mandates that satisfaction must be recorded at various stages of the proceedings. The Tribunal also cited the Madhya Pradesh High Court's decision in CIT Vs. Mechmen (2016), which reinforced that the AO must record satisfaction that the seized items belong to a person other than the one searched. The Tribunal found that this requirement was not met in the present case, leading to the quashing of the assessment.

Conclusion:
The Tribunal allowed the assessee's cross objection on jurisdictional grounds, quashing the assessment under section 153C due to the absence of a recorded satisfaction note by the AO of the searched person. Consequently, the Revenue's appeal on the merits of the case became academic and was dismissed. The judgment underscores the necessity of adhering to procedural requirements for invoking section 153C, particularly the recording of satisfaction by the AO of the searched person.