2015 (5) TMI 362 - HC - Income Tax

Validity of proceedings under section 153-C - whether no satisfaction is recorded by the AO before initiating proceedings under section 153-C as held by ITAT admitting additional evidence? - Held that - The Assessing Officer did not allow inspection of the record to the assessee or its counsel and that is why they have raised additional ground about validity of the proceedings under section 153-C. That is about absence of any satisfaction being recorded by the officer who was assessing the search party. In terms of section 153-A and 153-C proceedings can only be initiated after the Assessing Officer arrives at a satisfaction that the seized material pertains to other persons, namely, persons other than the searched party. It is only then the persons other than the searched parties can be proceeded against. There is nothing in the assessment order which would indicate that the assessment officer arrived at such satisfaction. The Tribunal noted that it has allowed this additional ground to be raised after hearing the departmental representatives' objection. To do complete justice and to both sides the Tribunal gave enough opportunity to the Revenue to produce the files and if the same contain the satisfaction of the Assessing Officer, then, to rely upon it before the Tribunal. The Tribunal noted that more than 20 months passed after the first direction to produce the record was issued. Despite repeated adjournments and as noted by the Tribunal in paragraph 9 of the impugned order, the satisfaction requisite for initiation of the proceedings under section 153-C was not available, in these circumstances, not only did the Tribunal find that it was necessary and in the interest of justice to permit raising of an additional ground, but to answer it. No substantial questions of law. - Decided against revenue.

Summary

Issues:
1. Satisfaction recorded by the Assessing Officer before initiating proceedings under section 153-C of the Income Tax Act.
2. Admissibility of additional ground raised for the first time before the Tribunal.

Analysis:
1. The appeal arose from the Tribunal's order regarding assessment years 2002-03 to 2007-08, following a search and seizure action under section 132(1) of the Income Tax Act. The issue revolved around whether the Assessing Officer recorded satisfaction before initiating proceedings under section 153-C. The Tribunal allowed an additional ground challenging the validity of the proceedings. The petitioner argued that the Tribunal should not have permitted this ground and should have verified if there was material for initiating section 153-C proceedings. The Tribunal found that the absence of recorded satisfaction by the Assessing Officer was crucial, and the petitioner was not given the opportunity to produce such material.

2. The respondents contended that the additional ground allowed by the Tribunal was fundamental to the case. They highlighted that the Tribunal had granted multiple opportunities for the production of material regarding the satisfaction recorded by the Assessing Officer. The Tribunal concluded that the absence of such satisfaction would nullify further proceedings. The Assessing Officer did not provide access to relevant records, leading to the challenge on the validity of section 153-C proceedings. The Tribunal relied on established principles and a Supreme Court judgment to address this issue comprehensively.

3. Upon review, the Court concurred with the respondents that the absence of recorded satisfaction by the Assessing Officer was pivotal. The Tribunal's decision to allow the additional ground was justified as it pertained to the core issue of the case. The Court emphasized that for proceedings under section 153-C, the Assessing Officer must be satisfied that the seized material relates to persons other than the searched party. Despite repeated opportunities, the Revenue failed to produce the necessary records, leading to the conclusion that the proceedings were vitiated due to the lack of recorded satisfaction.

4. The Court found that the appeals did not raise any substantial questions of law beyond the necessity of recorded satisfaction before initiating section 153-C proceedings. As the satisfaction was not produced despite ample opportunities, the Court dismissed the appeals, emphasizing the mandatory nature of the requirement for recorded satisfaction. The judgment underscored the importance of procedural compliance and the consequences of failing to meet statutory prerequisites in tax proceedings.