2023 (8) TMI 1188 - AT - Income Tax

Assessment u/s 153C - mandation of recording of satisfaction note by AO of searched person - HELD THAT - As no satisfaction note has been recorded by AO of searched person i.e., Shri Madanlal D. Chawla but the same has been recorded only in case of assessee for whom an assessment has been framed u/s 153C. Thus, the undisputed position that emerges is that no satisfaction note has been recorded by AO in case of searched person - The argument of Ld. CIT-DR is that since AO of searched person as well as the AO of the assessee is one and the same person, it is sufficient compliance of law if the satisfaction note is recorded in either of the case. Thus recording of satisfaction note by AO of searched person is mandatory but vice versa may not be true. The primary requirement is that AO of the searched person should record satisfaction before transmitting the record to other person having jurisdiction over such other person u/s 158BD. This requirement would apply even if AO of searched person as well as other person is one and the same. Such a satisfaction note could be prepared by AO of searched person at various stages of framing of assessment u/s 158BC. Therefore, in our considered opinion, in the absence of satisfaction note in the case of searched person, the proceedings u/s 153C would be vitiated by law. The recording of satisfaction note in the case of present assessee is not sufficient compliance of law. When proceedings are proposed to be initiated u/s 153C against the other person , it has to be preceded by a satisfaction note by the Assessing Officer of the searched person. Without fulfilling this requirement, no jurisdiction could be acquired u/s 153C. Gain on sale of land - HELD THAT - The assessee has purchased the plots in joint ownership with Shri Sanjay Chawla. Therefore, we direct Ld. AO to adopt sale rate of Rs. 400/- per Sq. ft. Assessment of income - Head of income - We find that the assessee has consistently developed and sold plot of lands. The intention was to develop and sell the land as real estate dealer. The assessee has also incurred development expenses for plotting out the land and selling the same. The land has been sold as vacant house sites and not as single tract of land. The land has been purchased jointly with Shri Sanjay Chawla who is into real estate business. For all these reasons, the income has rightly been assessed as Business Income . We order so

Summary

Issues Involved:

1. Legality of the assessment framed under Section 153C due to the absence of a satisfaction note recorded by the Assessing Officer (AO) of the searched person.
2. Determination of the appropriate sale rate and head of income for the assessment year (AY) 2013-14.

Summary of Judgment:

1. Legality of Assessment under Section 153C:

The primary issue was whether the assessments for AYs 2010-11 to 2012-13 were valid given the absence of a satisfaction note recorded by the AO of the searched person, Shri Madanlal D. Chawla. The assessee argued that the jurisdiction acquired by the AO under Section 153C was invalid due to this lapse. The Tribunal noted that no satisfaction note was recorded by the AO of the searched person, which is a mandatory requirement as per the CBDT Circular No. 24/2015 and the Supreme Court ruling in the case of M/s. Super Malls Pvt. Ltd. Vs. PCIT-8 (115 Taxmann.com 105). The Tribunal held that the recording of a satisfaction note by the AO of the searched person is a prerequisite for valid proceedings under Section 153C. Since this requirement was not fulfilled, the jurisdiction acquired for AYs 2010-11 to 2012-13 stood vitiated by law, and the assessments were quashed.

2. Determination of Sale Rate and Head of Income for AY 2013-14:

For AY 2013-14, the issue was the appropriate sale rate and whether the income should be classified as Long Term Capital Gains or Business Income. The Tribunal referred to its earlier decision in the case of Shri Sanjay Chawla, where the sale rate was estimated at Rs. 400/- per sq. ft. The Tribunal directed the AO to adopt this rate for the assessee as well. Regarding the head of income, the Tribunal found that the assessee had consistently developed and sold plots of land, incurring development expenses and selling the land as vacant house sites. Given these facts, the Tribunal upheld the classification of the income as Business Income.

Conclusion:

The appeals for AYs 2010-11 to 2012-13 were allowed, quashing the assessments due to the invalid jurisdiction under Section 153C. The appeal for AY 2013-14 was partly allowed, directing the AO to adopt the sale rate of Rs. 400/- per sq. ft. and confirming the classification of income as Business Income. The order was pronounced on 23rd August, 2023.