2015 (7) TMI 538 - HC - Income Tax

Validity of assessment under Section 153C - whether Tribunal was justified in law in upholding the order of the CIT(A) quashing the assessment proceedings on the ground that the AO had not recorded, his satisfaction even which the AO making the assessment of searched person was himself having jurisdiction over such other person (i.e. the assesse) and thus was not required to record any satisfaction for initiating proceedings u/s 153C in case of the assessee? - whether there is any distinction or dissimilarity between Section 158BD and Section 153C of the I.T. Act? - Held that - In the present case, the concurrent finding of fact recorded by the Appellate Forums is that, no satisfaction has been recorded by the Assessing Officer before issuing of notice under section 153C. Further, none of the papers seized belongs or belong to the assessee (noticee). The Appellate Forums have further found that no addition or even observations have been made by the Assessing Officer in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified. These findings of fact need no interference and have not been questioned before us. The power bestowed on the Assessing Officer having jurisdiction be it under Section 153C or Section 158BD is identical.Suffice it to observe that the dissimilarity of the form of two provisions would make no difference to the purpose underlying. We are not inclined to accept the argument of the Department that the purpose underlying the two provisions is different. We also find that even the procedure is not different. The subject matter of the action would differ in the context of the machinery provision invoked, in the given case. That, however, cannot be the basis to extricate the Assessing Officer, who resorts to power under Section 153C of handing over the items referred to in Section 153C to the Assessing Officer having jurisdiction, of his duty to be satisfied about the jurisdictional fact that the items belongs or belong to a person other than the person referred to in Section 153A. After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail in seating in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him. As a result, we hold that there is no infirmity in the view taken by the Tribunal on the questions under consideration. The view taken by us is reinforced from the decisions of other High Courts in the cases of Commissioner of Income Tax (Central) Vs. Gopi Apartment (2014 (5) TMI 158 - ALLAHABAD HIGH COURT ), Pepsi Foods P. Ltd. (2014 (8) TMI 425 - DELHI HIGH COURT ), Pepsico India Holdings P. Ltd. (2014 (8) TMI 898 - DELHI HIGH COURT) and lastly CIT Vs. Madhi Keshwani (2015 (3) TMI 542 - ALLAHABAD HIGH COURT). - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 153C.
2. Requirement of satisfaction before issuing notice under Section 153C.
3. Comparison of Section 153C with Section 158BD.
4. Recording of satisfaction by the Assessing Officer at different stages.
5. Validity of assessment proceedings under Section 153C.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 153C:
The primary issue was whether the Assessing Officer (AO) properly assumed jurisdiction under Section 153C of the Income Tax Act. The respondent argued that no incriminating material attributable to them was seized during the search, and no satisfaction for issuing a notice under Section 153C was recorded. The First Appellate Authority and the Tribunal both found that the AO had not recorded the necessary satisfaction before issuing the notice, making the action illegal and invalid.

2. Requirement of Satisfaction Before Issuing Notice under Section 153C:
The judgment emphasized that the satisfaction of the AO is a sine qua non before issuing a notice under Section 153C. This satisfaction must be recorded in writing, indicating that the seized material belongs to a person other than the one referred to in Section 153A. The Tribunal and the Appellate Authority found that no such satisfaction was recorded, rendering the proceedings void ab initio.

3. Comparison of Section 153C with Section 158BD:
The court analyzed whether the procedures under Section 153C and Section 158BD are identical. It concluded that despite differences in form and placement within the statute, both sections serve a similar purpose. The court held that the principles applicable to Section 158BD, as elucidated by the Supreme Court, apply equally to Section 153C. Specifically, the satisfaction of the AO is mandatory before proceeding against a person other than the one searched.

4. Recording of Satisfaction by the Assessing Officer at Different Stages:
The court discussed the necessity of recording satisfaction at two stages: first by the AO conducting the search and second by the AO having jurisdiction over the other person. This dual satisfaction ensures that the AO's actions are justified and transparent. The court rejected the argument that the same AO handling both stages could bypass this requirement, emphasizing that satisfaction must be recorded at each stage independently.

5. Validity of Assessment Proceedings under Section 153C:
The court upheld the findings of the Appellate Forums that the AO did not record the required satisfaction and that no incriminating material belonging to the respondent was found. Consequently, the assessment proceedings under Section 153C were deemed invalid. The court dismissed the appeals, reinforcing that the requirement of satisfaction is not just procedural but fundamental to the validity of the proceedings.

In conclusion, the court affirmed that the satisfaction of the AO is essential under Section 153C, similar to Section 158BD, and must be recorded at both stages of the proceedings. The failure to do so renders the assessment proceedings void, as seen in this case. The appeals were dismissed, and the assessments quashed, with no costs awarded.

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