2018 (1) TMI 322 - AT - Income Tax

Assessment u/s 153C - no satisfaction recorded in the case of the searched person - Held that - In the present case, it is undisputed that there is not satisfaction recorded in the case of the searched person, i.e., Shri Subhash Deshmukh that the incriminating materials seized belong to the assessee. The ld. Departmental Representative has also not disputed this proposition. Hence, though the satisfaction is there in the case of assessee, i.e., there is no such satisfaction in the case of searched person that the incriminating material belongs to the assessee. In this situation, the assessment order has been held to be invalid - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 153C of the Income Tax Act.
2. Validity of the assessment order under Section 143(3) read with Section 153C of the Income Tax Act.
3. Requirement of recording satisfaction by the Assessing Officer (AO) of the searched person before assuming jurisdiction under Section 153C.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 153C:
The primary issue revolves around whether the notice issued under Section 153C is valid without the AO of the searched person recording satisfaction that the seized material belongs to an individual other than the searched person. The Commissioner of Income Tax (Appeals) quashed the notice under Section 153C due to the absence of such satisfaction recorded in the case of the searched person, Mr. Subhash Deshmukh. The Tribunal upheld this decision, emphasizing that the AO must record satisfaction in the case of the searched person before issuing a notice under Section 153C. This requirement is supported by various judicial precedents and CBDT Circular No. 24/2015, which mandates that even if the AO for both the searched person and the other person is the same, satisfaction must be recorded at both stages.

2. Validity of Assessment Order Under Section 143(3) Read with Section 153C:
The assessment orders were quashed for the assessment years 2005-06 to 2010-11 due to the lack of jurisdiction. The Commissioner of Income Tax (Appeals) found that no satisfaction note was recorded in the files of the searched person, Mr. Subhash Deshmukh, indicating that any valuable or books of account seized belonged to the assessee. The Tribunal confirmed this decision, noting that the absence of satisfaction in the case of the searched person invalidates the jurisdiction assumed by the AO to issue notice and make assessments under Section 153C. This principle is reinforced by the decisions of the High Courts of Madhya Pradesh and Allahabad, and the Supreme Court's ruling in the case of CIT vs. Calcutta Knitwears.

3. Requirement of Recording Satisfaction by the AO of the Searched Person:
The Tribunal reiterated that recording satisfaction by the AO of the searched person is a sine qua non for assuming jurisdiction under Section 153C. This requirement is not merely procedural but a substantive condition precedent for the AO of the other person to acquire jurisdiction. The Tribunal referenced multiple judicial decisions, including CIT vs. Mechmen Bhopal and CIT vs. Gopi Apartment, which underscore the necessity of recording satisfaction in the case of the searched person. The CBDT Circular No. 24/2015 also clarifies that the AO must record satisfaction even if he is the same for both the searched person and the other person.

In conclusion, the Tribunal dismissed the Revenue's appeals, upholding the decisions of the Commissioner of Income Tax (Appeals) to quash the notices and assessment orders under Section 153C due to the absence of recorded satisfaction in the case of the searched person. The Tribunal emphasized that the failure to record such satisfaction is fatal to the validity of the jurisdiction assumed under Section 153C.