2025 (4) TMI 796 - AT - Income Tax

Revision u/s 263 to revise the assessment order passed u/s 153C - assessee has made on money payment towards purchase of agricultural lands which has neither been offered for taxation in assessment year 2019-2020 by the assessee nor the same was assessed to tax by the AO u/sec.69 - HELD THAT - We find that there is no direct co-relation between the incriminating material found during the course of search qua the assessment years 2019-2020 to allege that the documents found during the course of search belongs to or relates to the assessee s and has a bearing on the total income of the assessee s for the assessment year 2019- 2020. Therefore we are of the considered view that the satisfaction note recorded by the AO u/sec.153C is not in accordance with law as provided u/sec.153C of the Act and this fact is further strengthened by the decision of Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT wherein it has been clearly held that unless the AO records satisfaction with reference to the incriminating material qua each assessment year the initiation of proceedings u/sec.153C and consequent assessment proceedings is null and void abinitio. Since the satisfaction note recorded by the AO is not a valid satisfaction in our considered view any assessment order passed by the AO pursuant to the said invalid satisfaction note also void abinitio and liable to be quashed. Therefore once the assessment order considered to be illegal assessment order in our considered view the assumption of jurisdiction by the PCIT to revise the assessment order in terms of sec.263 of the Income Tax Act 1961 is also illegal and void abinitio and liable to be quashed because an illegal order cannot be legalised by exercising revisionary power u/sec.263 of the Act. Order passed by the PCIT u/sec.263 of the Act is not sustainable in law. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

1. Whether the Principal Commissioner of Income Tax (PCIT) has the authority to invoke revisionary powers under section 263 of the Income Tax Act, 1961, to revise an assessment order passed under section 153C with the prior approval of the Joint Commissioner of Income Tax (JCIT) under section 153D.

2. Whether the assumption of jurisdiction under section 153C by the Assessing Officer (AO) was valid, given the alleged absence of a valid satisfaction note correlating seized material to the determination of total income for the assessment year 2019-2020.

3. Whether the seized material relied upon by the PCIT for revising the assessment order under section 153C was incriminating and relevant to the assessment year 2019-2020.

ISSUE-WISE DETAILED ANALYSIS

1. Authority of PCIT under Section 263

- Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise any order passed by an AO if it is erroneous and prejudicial to the interest of the revenue. However, the revision of orders passed under sections 153A and 153C, with prior approval under section 153D, raises questions about the scope of section 263.

- Court's Interpretation and Reasoning: The Tribunal held that the statute does not explicitly preclude the PCIT from revising such orders. However, the revision powers can only be exercised if the original order is legally valid.

- Application of Law to Facts: The Tribunal found that the original assessment order was void ab initio due to the lack of a valid satisfaction note, rendering the PCIT's revision under section 263 unsustainable.

- Conclusions: The Tribunal concluded that the PCIT's order under section 263 was not sustainable as it sought to revise an assessment order that was void ab initio.

2. Validity of Assumption of Jurisdiction under Section 153C

- Relevant Legal Framework and Precedents: Section 153C requires the AO to record a satisfaction note indicating that seized material pertains to the assessee and has a bearing on the determination of total income for the relevant assessment years. The Supreme Court's decision in CIT v. Sinhgad Technical Education Society emphasized the necessity of a valid satisfaction note.

- Court's Interpretation and Reasoning: The Tribunal found that the AO's satisfaction note did not adequately correlate the seized material to the assessment year 2019-2020, making the assumption of jurisdiction under section 153C invalid.

- Key Evidence and Findings: The Tribunal noted that the satisfaction note lacked specific references to incriminating material relevant to the assessment year 2019-2020.

- Conclusions: The Tribunal held that the assumption of jurisdiction under section 153C was bad in law, rendering the consequent assessment orders void ab initio.

3. Relevance of Seized Material

- Relevant Legal Framework and Precedents: For an assessment under section 153C, the seized material must be incriminating and relevant to the specific assessment year.

- Court's Interpretation and Reasoning: The Tribunal found that the seized material did not contain incriminating information relevant to the assessment year 2019-2020. The PCIT's reliance on the date of the document rather than the content led to an erroneous conclusion.

- Key Evidence and Findings: The Tribunal observed that the seized material pertained to transactions from earlier assessment years, not 2019-2020.

- Conclusions: The Tribunal concluded that the reliance on the seized material for revising the assessment order was misplaced and untenable.

SIGNIFICANT HOLDINGS

- Core Principles Established: The Tribunal reaffirmed that an assessment order passed without a valid satisfaction note is void ab initio and cannot be revised under section 263. The satisfaction note must specifically correlate seized material to the relevant assessment year.

- Final Determinations on Each Issue: The Tribunal quashed the PCIT's order under section 263, holding that the original assessment orders were void due to the invalid assumption of jurisdiction under section 153C. The Tribunal dismissed other grounds as academic, given the primary issue's resolution.

The Tribunal allowed the appeals, setting aside the PCIT's revisionary orders and confirming that the original assessment orders were void ab initio due to the lack of a valid satisfaction note under section 153C.