2016 (9) TMI 851 - AT - Income Tax

Validity of proceedings u/s 153C/143(3) - absence of satisfaction note - Held that - As it is undisputed that no satisfaction was recorded by the AO of the searched persons in this case. A communication from the ACIT to the ld. CIT-DR IV, ITAT Delhi also confirms the contention of the assessee. It is also undoubted that the Circulars issued by the CBDT have a binding force at least as far as the assessee s interest are to be safe guarded. Para 4 of the circular specifically directs that even if the AO of the searched person and the other person is one and the same, then also he is required to record his satisfaction. In the light of the factual matrix of the case duly supported by the circular, we find that the assessee has a strong case on this issue. We, accordingly, hold that proceedings u/s 153C/143(3) for both the assessment years under appeal were void ab initio as the fundamental requirement of recording the satisfaction note was not complied with. Hence, the assessments for both the years are quashed - Decided against revenue

Summary

Issues:
1. Validity of invoking provision of Sec. 153C for AY 2005-06 and AY 2006-07.
2. Requirement of recording satisfaction note under Sec. 153C.
3. Impact of Circular No. 24/2015 on the proceedings.
4. Decision on appeals filed by the assessee and the Department.

Issue 1: Validity of invoking provision of Sec. 153C for AY 2005-06 and AY 2006-07:
The case involved appeals against orders passed by the CIT (A) for AY 2005-06 and AY 2006-07, where substantial additions were made under Sec. 153C/143(3) of the Income Tax Act, 1961. The assessee contended that the AO lacked jurisdiction to invoke Sec. 153C without fulfilling the necessary conditions. However, the CIT (A) upheld the validity of the proceedings under Sec. 153C and made some relief to the assessee on merits.

Issue 2: Requirement of recording satisfaction note under Sec. 153C:
The assessee challenged the invocation of Sec. 153C on the grounds that the assessment was void ab initio due to the absence of a satisfaction note for certain assessment years. The Circular No. 24/2015 issued by CBDT emphasized the necessity of recording a satisfaction note for proceedings under Sec. 153C. The ITAT found that no satisfaction was recorded by the AO of the searched persons, rendering the assessments void ab initio. The ITAT held that the fundamental requirement of recording the satisfaction note was not complied with, leading to the quashing of assessments for both years.

Issue 3: Impact of Circular No. 24/2015 on the proceedings:
The Circular No. 24/2015 clarified the requirement of recording a satisfaction note under Sec. 153C, following the guidelines laid down by the Hon'ble Supreme Court. The Circular emphasized that even if the AO of the searched person and the other person were the same, recording satisfaction was mandatory. The ITAT considered the circular's binding nature and found in favor of the assessee due to the non-compliance with the satisfaction note requirement.

Issue 4: Decision on appeals filed by the assessee and the Department:
The ITAT partly allowed the appeals filed by the assessee for AY 2005-06 and AY 2006-07, quashing the assessments due to the absence of a satisfaction note. Additionally, the ITAT dismissed the Department's appeal for AY 2006-07, upholding the deletion of an addition of ?10 lakhs. Consequently, the appeals of the assessee were partly allowed, and the Department's appeal was dismissed.

This detailed analysis of the judgment highlights the key issues surrounding the validity of invoking Sec. 153C, the requirement of recording a satisfaction note, the impact of Circular No. 24/2015, and the final decision on the appeals filed by the assessee and the Department.