2014 (5) TMI 158 - HC - Income Tax

Block Assessment - Requirement to record the satisfaction Proceeding u/s 153A & 153C versus 158BC, 158BD - Notice to be issued u/s 158BD of the Act - Notice for undisclosed income of any other person - At what stage of the proceedings under Chapter XIV-B does the assessing authority require to record his satisfaction for issuing a notice u/s 158BD of the Act Held that - Following Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana 2014 (4) TMI 33 - SUPREME COURT - For the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person - the assessing officer had not recorded the satisfaction note as required u/s 158BD of the Act - The provisions of Section 158BD are pari materia with the provisions of Section 153C. Bothe the CIT(A) and the ITAT rightly noted that there is no material showing the recording of satisfaction by the AO of the searched person prior to issuance of notice u/s 153C to the assessee, i.e. the other person - though the AO (of the other person) in the assessment order had stated that satisfaction for issuing notice u/s 153C was recorded on examination, it was seen that recording of satisfaction alleged to be recorded by the AO was not available thus, there was no substantial question of law arises in the appeal for interference with the judgment u/s 260-A of the Act Decided against Revenue.

Issues Involved:
1. Legality of proceedings under Section 153C of the Income Tax Act, 1961.
2. Requirement of recording satisfaction by the Assessing Officer of the 'searched person' before initiating proceedings against the 'other person'.
3. Applicability of judgments in similar cases to the present case.

Detailed Analysis:

1. Legality of Proceedings under Section 153C of the Income Tax Act, 1961:
The Revenue's appeal under Section 260-A of the Income Tax Act, 1961, arose from a search and seizure operation conducted on 17.10.2006 in the 'Banarasi Group of Cases'. During this operation, incriminating material was found at the residence of Jeevan Kumar Agrawal, leading to the issuance of a notice under Section 153C to the respondent. The assessment was completed, but the additions made by the Assessing Officer were deleted by the C.I.T. (A) and the I.T.A.T. on the grounds of lack of jurisdiction due to the absence of a recorded satisfaction note by the Assessing Officer of the 'searched person'.

2. Requirement of Recording Satisfaction by the Assessing Officer of the 'Searched Person':
The core issue revolved around whether the Assessing Officer of the 'searched person' had recorded the necessary satisfaction before initiating proceedings against the 'other person' under Section 153C. The C.I.T. (A) and the I.T.A.T. found that no such satisfaction was recorded, rendering the proceedings invalid. The law, as declared by the Supreme Court in Manish Maheshwari Vs. Assistant Commissioner of Income Tax and another, and by the Delhi High Court in New Delhi Auto Finance (P) Ltd. Vs. Joint Commissioner of Income Tax, mandates that the satisfaction note must be recorded before initiating proceedings under Section 153C.

3. Applicability of Judgments in Similar Cases:
The Revenue argued that since the Assessing Officer for both the 'searched person' and the 'other person' was the same, there was no need for a separate satisfaction note. They cited the case of Commissioner of Income Tax Vs. Classic Enterprises to support their contention. However, the court held that the recording of satisfaction is mandatory, irrespective of whether the Assessing Officer is the same for both parties. The court relied on the Supreme Court's judgment in Commissioner of Income Tax-III Vs. M/s Calcutta Knitwears, Ludhiana, which clarified that the satisfaction note must be prepared before transmitting records to the other Assessing Officer.

Conclusion:
The High Court dismissed the Revenue's appeal, affirming that the proceedings under Section 153C were invalid due to the absence of a recorded satisfaction note by the Assessing Officer of the 'searched person'. The court emphasized the mandatory nature of recording such satisfaction before initiating proceedings against the 'other person', aligning with the Supreme Court's interpretation in related cases. The appeal was dismissed as no substantial question of law warranted interference with the impugned judgment under Section 260-A of the Income Tax Act, 1961.

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