2020 (1) TMI 1133 - AT - Income Tax

Rectification of the order u/s 254 - Assessment u/s 153C - satisfaction note need exhibiting fact that during the course of search certain documents belonged to other persons were found and perusal of these documents would indicate that taxable income of the assessee has escaped assessment - HELD THAT - For taking cognizance under section 153C it is mandatory that the AO of the searched person should record a satisfaction note exhibiting fact that during the course of search certain documents belonged to other persons were found and perusal of these documents would indicate that taxable income of the assessee has escaped assessment. After this satisfaction note, he would transmit record along with these documents to the AO who has jurisdiction over such other persons. In the present case, no satisfaction was recorded by the AO of the searched person. It is mandatory to record satisfaction by the AO of the searched person before transmitting record to the AO of other persons to whom documents were found during the course of search; circumstances at which this satisfaction could be recorded has also been contemplated by the Hon ble Supreme Court. We allow these Misc. Applications, and recall the impugned order of the Tribunal. We direct the Registry to re-fix the appeals on 2.3.2020 for hearing afresh. Issue notice to both parties.

Summary

Issues Involved:
1. Recording of satisfaction by the Assessing Officer (AO) under Section 153C of the Income Tax Act.
2. Tribunal’s dismissal of the initial Miscellaneous Applications (MAs) due to their length and vagueness.
3. Tribunal’s error in dismissing the plea regarding the necessity of recording satisfaction.
4. Tribunal’s failure to consider authoritative pronouncements of higher courts.

Issue-wise Detailed Analysis:

1. Recording of Satisfaction by the AO under Section 153C:
The core issue revolves around the mandatory requirement for the AO of the searched person to record a satisfaction note indicating that documents found during the search belonged to another person and suggested that taxable income had escaped assessment. This satisfaction note must then be transmitted to the AO of the other person. In this case, the AO did not record such satisfaction during the assessment proceedings of the searched person, which the Tribunal initially overlooked.

2. Tribunal’s Dismissal of the Initial MAs:
The Tribunal dismissed the initial MAs filed by the assessee on the grounds that the applications were excessively lengthy (50 pages) and included a paper book with 26 decisions running into 300 pages. The Tribunal deemed these applications vague and misleading, thus dismissing them with the liberty to file fresh applications.

3. Tribunal’s Error in Dismissing the Plea Regarding Necessity of Recording Satisfaction:
The assessee argued that the Tribunal erred in dismissing their plea about the necessity of recording satisfaction, contrary to several judicial decisions. The Tribunal initially rejected this plea, stating no requirement for such satisfaction when the AO for both the searched person and the assessee was the same. However, the Tribunal later acknowledged the oversight, recognizing that the satisfaction note is a fundamental requirement under Section 153C, as upheld by various judicial pronouncements, including the Hon’ble Supreme Court.

4. Tribunal’s Failure to Consider Authoritative Pronouncements:
The Tribunal failed to consider authoritative pronouncements from higher courts, including the Hon’ble Supreme Court and the Hon’ble Gujarat High Court, which mandate the recording of satisfaction by the AO of the searched person. The Tribunal’s oversight was highlighted by the assessee, who cited several relevant judgments, including CIT Vs. Calcutta Knitwears, which emphasized the necessity of a satisfaction note under similar provisions.

Conclusion:
Upon re-evaluating the submissions and judicial precedents, the Tribunal recognized its error in not considering the necessity of a recorded satisfaction note under Section 153C. Consequently, the Tribunal allowed the Miscellaneous Applications, recalled its previous order, and directed a fresh hearing of the appeals, scheduled for 2.3.2020. The Tribunal’s acknowledgment of the oversight and adherence to higher judicial pronouncements underscores the importance of procedural compliance in tax assessments.