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2019 (4) TMI 700 - AT - Income TaxAssessment u/s 153A/153C - Non recording mandatory satisfaction - recording of satisfaction as the AO of the searched person vs recording mandatory satisfaction as AO third person i.e. assessee - HELD THAT - The decision in the case of Ganpati Fincap Services ltd. 2017 (5) TMI 1425 - DELHI HIGH COURT holds the field and the recording of satisfaction not by the AO of the searched person qua the other person prior to the initiation of the proceedings against the other person is a sine qua non for triggering the proceedings against the other person u/s 153C and, therefore, in the absence of such recording of satisfaction by the AO of the searched person qua the other person, assumption of jurisdiction by the AO by issuance of notice u/s 153C cannot be sustained. There do not have to be two separate satisfaction notes prepared by the AO of the searched person where such person happens to the AO of the other person but one satisfaction note by such AO qua the other person would meet this requirement. However, there is no such satisfaction recorded by the AO of the searched person qua the other person - assessment of jurisdiction for issuance of notice u/s 153C of the Act cannot be sustained and, on that ground, the assessee succeeds in this appeal. - Decided in favour of assessee.
Issues Involved:
1. Assumption of jurisdiction under Section 153C read with Section 153A(1)(b) of the Income Tax Act. 2. Confirmation of addition of ?50 lakhs on account of investment made in cash from unexplained sources. Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction under Section 153C read with Section 153A(1)(b): The primary issue in this case is whether the Assessing Officer (AO) had the proper jurisdiction to initiate proceedings under Section 153C of the Income Tax Act. The assessee argued that the AO did not record the mandatory satisfaction as required under Section 153C, which is a prerequisite for assuming jurisdiction. The facts indicate that the search was conducted on 9.11.2011, and the documents belonging to the assessee were received by the Central Circle on 29.8.2013. The satisfaction note was recorded by the AO on 3.10.2013. The assessee contended that the satisfaction note was recorded by the AO of the assessee and not by the AO of the searched person, as required by law. The legal framework, as established by the Hon’ble jurisdictional High Court in cases like RRJ Securities, Pepsi Foods, and Ganpati Fincap Services P. Ltd., mandates that the AO of the searched person must first record satisfaction that the documents do not belong to the searched person but to another person. Only then can the documents be transmitted to the AO of the other person, who must also record satisfaction regarding the escapement of income. The Tribunal found that the satisfaction note dated 3.10.2013 was indeed recorded by the AO of the assessee and not by the AO of the searched person, which is contrary to the legal requirement. The Tribunal referred to the case of Ganpati Fincap Services P. Ltd., where it was held that recording satisfaction by the AO of the searched person is a sine qua non for triggering proceedings under Section 153C. The Tribunal concluded that the absence of such satisfaction recorded by the AO of the searched person invalidated the jurisdiction assumed by the AO under Section 153C. Consequently, the assumption of jurisdiction by issuing a notice under Section 153C was deemed unsustainable. 2. Confirmation of Addition of ?50 Lakhs: The second issue pertains to the confirmation of an addition of ?50 lakhs made by the AO on account of investment in cash from unexplained sources. The AO based this addition on collaboration agreements and receipts seized during the search and seizure operation, which allegedly indicated cash payments. The assessee challenged this addition by arguing that there was no evidence to support the claim that the payment was made in cash or cheque. The Tribunal, however, did not delve deeper into the merits of this issue because the assessee succeeded on the primary jurisdictional issue. Conclusion: The Tribunal allowed the appeal of the assessee, primarily on the ground that the assumption of jurisdiction under Section 153C was invalid due to the lack of a proper satisfaction note by the AO of the searched person. As a result, the Tribunal did not find it necessary to address the merits of the addition of ?50 lakhs. The appeal was accordingly allowed, and the order was pronounced in the Open Court on 9th April 2019.
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