2021 (8) TMI 76 - AT - Income Tax

Validity of initiation of proceedings u/s 153C - validity of satisfaction note - whether seized documents belong to the assessee? - HELD THAT - A careful perusal of the satisfaction notes show that the assessing officer has recorded the fact of conducting of search in the premises of the assessees herein and seizure of certain documents - the search in the premises of the assessee is on the basis of warrant issued in the name of Sri B Nagendra. Hence the assessees herein are Other persons , as referred to in sec.153C - In none of the satisfaction notes, the AO has recorded a finding that the seized documents belong to the assessees herein. Hon ble Supreme Court has held in the case of Super Malls Private Limited 2020 (3) TMI 361 - SUPREME COURT that the AO must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. Hence, it is the duty of the AO to apply his mind and should consciously and mandatorily state in the satisfaction note that the seized documents belong to other person . Without recording such a satisfaction, it cannot be presumed that the seized materials belong to other persons , in which case the AO could not have initiated proceedings against the other persons u/s 153C of the Act. Initiation of proceedings u/s 153C of the Act in the instant cases is bad in law - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 153C of the Income-tax Act, 1961.
2. Compliance with mandatory requirements of Section 153C.

Issue-wise Detailed Analysis:

1. Validity of initiation of proceedings under Section 153C of the Income-tax Act, 1961:
The appeals were directed against the orders passed by the CIT(A)-11, Bengaluru, challenging the validity of initiation of proceedings under Section 153C of the Income-tax Act, 1961. The assessments were completed under Section 143(3) read with Section 153C following search and seizure operations conducted under Section 132 in the case of "Shri B. Nagendra." The premises of the assessees were also searched as part of these operations. The assessees contended that the initiation of proceedings under Section 153C was not valid and hence the assessments should be quashed.

2. Compliance with mandatory requirements of Section 153C:
The Tribunal examined the provisions of Section 153C, which stipulate that the Assessing Officer (AO) must be satisfied that any seized documents or assets belong to a person other than the searched person. The Supreme Court in M/s Super Malls Private Limited Vs. Principal Commissioner of Income Tax had interpreted these provisions, emphasizing the mandatory compliance required before issuing a notice under Section 153C. The AO of the searched person must record satisfaction that the seized documents belong to another person and then transmit these documents to the AO having jurisdiction over that other person.

In cases where the AO of the searched person and the other person is the same, it is sufficient for the AO to note in the satisfaction note that the documents seized belong to the other person. The Tribunal reviewed the satisfaction notes recorded by the AO in the present cases and found that the AO had not explicitly stated that the seized documents belonged to the assessees (other persons). The AO merely recorded the fact of the search and seizure without specifying that the documents belonged to the assessees, which is a mandatory requirement as per the Supreme Court's interpretation.

Conclusion:
The Tribunal concluded that the initiation of proceedings under Section 153C was invalid due to the AO's failure to record the necessary satisfaction that the seized documents belonged to the assessees. Consequently, the orders passed by the tax authorities were quashed, and the appeals of the assessees were allowed.

Order Pronounced:
The Tribunal pronounced the order in the open court on 30th July 2021, treating all the appeals of the assessees as allowed.