2021 (12) TMI 203 - AT - Income Tax

Assumption of jurisdiction u/s 153C - whether the satisfaction note recorded by the LD AO is sustainable in law or not? - when there is no satisfaction e- recorded in the case by LD AO of the searched persons, whether assessment u/s 153C in the case of other person can be upheld or not? - HELD THAT - CIT(A) has extensively dealt with the satisfaction note dated 24.04.2012 recorded by the ld AO which does not have reference to any incriminating material found during the course of search. There is also no finding that such material pertaining to the assessee. Therefore, the issue is squarely covered by the decision of the Pepsico Food Products Ltd 2014 (8) TMI 425 - DELHI HIGH COURT and Pepsico India holding pvt ltd. 2014 (8) TMI 898 - DELHI HIGH COURT Further, based on the letter of ld AO dated 22.12.2014 referred to the para No. 4.8 of the order of the ld CIT(A), a finding is recorded that the ld AO of the searched persons has not recorded any satisfaction with respect to any of a material, which pertains to assessee company. On plain reading of the section it is apparent that there has to be a satisfaction in case of the persons searched by assessing officer that particular material or valuable articles found during the course of that search does not belong to the person who has been searched but that material is pertaining to the 3rd party. This is necessary to assume jurisdiction in the case of the third party. In present case there is no such satisfaction recorded by the learned assessing officer of the searched person. Further, there is no reference of any material pertaining to the assessee in the satisfaction note recorded by the ld AO of the assessee i.e. third person. Thus, the issue is squarely covered in favour of the assessee.

Summary

Issues Involved:
1. Validity of assumption of jurisdiction under Section 153C.
2. Adequacy of satisfaction note recorded by the Assessing Officer (AO).
3. Legality of additions made by the AO.
4. Legality of charging interest under Sections 234A and 234B.

Detailed Analysis:

1. Validity of Assumption of Jurisdiction under Section 153C:

The primary issue was whether the assumption of jurisdiction under Section 153C by the AO was valid. The tribunal noted that the AO had issued notices under Section 153C to the assessee based on documents seized during a search on another party. The CIT(A) quashed the AO's order, stating that the satisfaction note did not mention any specific seized documents or assets belonging to the assessee. The tribunal agreed with the CIT(A), emphasizing the necessity of specific satisfaction that the seized materials belonged to the third party (assessee) and not merely because the assessee was related to the searched party. This was supported by the judgments in *Pepsi Foods (P) Ltd. vs. ACIT* and *Pepsico India Holdings Pvt. Ltd. vs. ACIT*, which required clear and specific satisfaction notes for jurisdiction under Section 153C.

2. Adequacy of Satisfaction Note Recorded by the AO:

The tribunal examined the satisfaction note dated 24.04.2012 and found it lacking in specific details about the seized materials belonging to the assessee. The note merely mentioned that the assessee was related to the searched party without any reference to specific documents or assets. The tribunal reiterated that the satisfaction note must display reasons or basis for the conclusion that the seized documents belonged to a person other than the searched person, as per the judgments in *Pepsi Foods (P) Ltd. vs. ACIT* and *Pepsico India Holdings Pvt. Ltd. vs. ACIT*. The tribunal upheld the CIT(A)'s decision that the assumption of jurisdiction was invalid due to the inadequate satisfaction note.

3. Legality of Additions Made by the AO:

The tribunal noted that the CIT(A) had quashed the assessment orders on jurisdictional grounds and did not deal with the merits of the additions. Since the tribunal upheld the CIT(A)'s decision on the jurisdictional issue, it did not find it necessary to address the merits of the additions made by the AO. Consequently, the tribunal dismissed the appeals filed by the AO, which challenged the CIT(A)'s decision on jurisdictional grounds.

4. Legality of Charging Interest under Sections 234A and 234B:

The assessee had raised cross objections regarding the charging of interest under Sections 234A and 234B, claiming it was illegal and unjustified. However, since the tribunal dismissed the appeals on jurisdictional grounds, it did not find it necessary to adjudicate the cross objections related to the merits of the additions or the charging of interest. Consequently, the cross objections were also dismissed.

Conclusion:

The tribunal dismissed all the appeals filed by the AO on the grounds that the assumption of jurisdiction under Section 153C was invalid due to the inadequate satisfaction note. As a result, the tribunal also dismissed the cross objections filed by the assessee, which were related to the merits of the additions and the charging of interest. The order was pronounced in the open court on 25/11/2021.