2019 (1) TMI 695 - AT - Income Tax

Validity of assessment made u/s 153C - non recording of satisfaction by the AO of the searched person to transfer the incriminating material and to take up the assessment of such other person, i.e. the assessee - reasons for issue of notice u/s 153C not signed - Held that - The satisfaction not only should be recorded but also should be written in detail with valid reasons and it should not be vague. In the instant case, there is no dispute that the department could not establish that the AO of the searched person has recorded satisfaction before issue of notice u/s 153C of the Act. Therefore, following ASSTT. COMMISSIONER OF INCOME TAX & ANOTHER VERSUS PEPSI FOODS PVT. LTD. 2017 (12) TMI 588 - SUPREME COURT we hold that the notice issued u/s 153C is unsustainable. From the perusal of the order sheet both for the A. Y. 2007-08 and 2008-09, it is evident that though the reasons for issue of notice u/s 153C was typed on plain paper, it was not signed by the officer who has recorded the satisfaction and it was also undated. Similarly, the direction for issue of notice u/s 153C was also remained unsigned and undated. The order sheet is a manually maintained record and not a digital document which does not require signature. An order or endorsement required to be dated and duly signed by the officer who is recording the reasons being satisfied that the case is fit case for taking action u/s 153C. An order, without having signature of the person, who recorded the satisfaction or issued the direction for taking action loses its relevance and to be treated as invalid. An order without signature is not an order for execution or for implementation. In the instant case, there is no dispute that the AO of the searched person has not recorded the reasons and order sheet of the AO of the assessee though reasons are typed, it remained unsigned. The direction for issue of notice u/s 153C was also unsigned. We have already decided that unsigned order sheet looses its relevance and it would be construed as non recording of reasons. The reasons typed also are very vague without any valid reason. Therefore, notice issued u/s 153C held to be invalid. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 153C without recording satisfaction by the Assessing Officer (AO) of the searched person.
2. Validity of notice issued under Section 153C based on satisfaction recorded by the AO of the appellant without signing the order sheet.

Issue-Wise Detailed Analysis:

1. Validity of Notice Issued under Section 153C without Recording Satisfaction by the AO of the Searched Person:
The primary contention is that the AO of the searched person (Sai Teja Builders) did not record the required satisfaction before transferring the incriminating material to the AO of the assessee. As per the statutory requirement and the Supreme Court's decision in CIT vs. Calcutta Knitwears, the AO of the searched person must record satisfaction that the material belongs to the assessee before initiating proceedings under Section 153C. The assessee argued that the absence of such satisfaction renders the assessment invalid. The Tribunal noted that the department failed to provide evidence of recorded satisfaction by the AO of the searched person. The Tribunal cited various judicial precedents, including the Delhi High Court's decision in Pepsi Foods Ltd. and ITAT decisions in Shri Srinivas Babu vs. ACIT and Narsi Creations vs. DCIT, which emphasize the necessity of recording satisfaction. Consequently, the Tribunal held that the notice issued under Section 153C is unsustainable due to the lack of recorded satisfaction by the AO of the searched person.

2. Validity of Notice Issued under Section 153C Based on Unsigned Satisfaction Recorded by the AO of the Appellant:
The second issue pertains to the AO of the assessee not signing the satisfaction note before issuing the notice under Section 153C. The assessee provided evidence that the order sheet entries were unsigned and undated, arguing that unsigned entries cannot be considered valid proceedings. The Tribunal agreed, stating that an unsigned order loses its relevance and cannot be treated as a valid order for execution or implementation. The Tribunal referred to the statutory requirement under Section 153C, which mandates the AO to record satisfaction for issuing a notice. It also cited judicial precedents, including ITAT Mumbai's decision in Rajesh A. Yagnik vs. ACIT and ITAT Jaipur's decision in ITO vs. Super Tools India Ltd., which held that unsigned orders lack sanctity and are invalid. Consequently, the Tribunal quashed the notice issued under Section 153C due to the unsigned and undated satisfaction note, rendering the assessment invalid.

Conclusion:
The Tribunal concluded that the notices issued under Section 153C were invalid due to the lack of recorded satisfaction by the AO of the searched person and the unsigned satisfaction note by the AO of the assessee. As a result, the assessments made under Section 153C read with Section 143(3) were quashed. The appeals of the assessee were allowed, and the Tribunal did not find it necessary to adjudicate the remaining grounds on merits. The order was pronounced in the open court on January 11, 2019.