2019 (5) TMI 297 - AT - Income Tax

Validity of Assessment u/s 153C - recording of satisfaction of AO of assessee or AO of search person - no specific satisfaction recorded by the AO as to how the seized material belonged to the assessee - HELD THAT - The satisfaction note was apparently recorded by the Assessing Officer of the assessee and not by the Assessing Officer of the searched person as required by the provision of section 153C. A perusal of the said note, which is reproduced hereinabove, shows that the documents referred therein and identified as IIPL/13 to IIPL/19 were found and impounded during the course of survey operation carried out at the business premises of the assessee and there is no specific reference in the said satisfaction note to any documents found during the course of search and seizure action conducted in Prakash Group of cases. There is nothing even to indicate as to how these vaguely referred documents were found to be belonging to the assessee. There is no recording about the contents of these documents allegedly pertaining to the assessee and AO nowhere has explained the steps taken by him to determine that the seized material belonged to the assessee. There is no specific satisfaction recorded by the Assessing Officer as to how the seized material belonged to the assessee. There is a failure on the part of the AO to provide clear and cogent reasons, which can explain why the seized material belonged to the assessee apart from saying that the documents belonged to the assessee and he was satisfied that it was a fit case for issuing of notice u/s 153C - If all these facts of the case are considered in the light of the decision of the Hon ble Delhi High Court in the case of N.S. Softwares 2018 (4) TMI 1005 - DELHI HIGH COURT and Pepsi Foods Pvt. Limited 2014 (8) TMI 425 - DELHI HIGH COURT , we find that the satisfaction recorded by the Assessing Officer is neither adequate nor proper and since it does not meet the requirement of the concept of satisfaction as used in section 153C, we hold that the initiation of proceedings u/s 153C itself was bad-in-law and the assessments completed in pursuance of such initiation are liable to be cancelled being invalid - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assessments under section 153C/143(3) of the Income Tax Act.
2. Adequacy and propriety of the satisfaction note recorded by the Assessing Officer.
3. Whether the additions made during the assessments were based on incriminating material found during the search.

Detailed Analysis:

1. Validity of Assessments under Section 153C/143(3):
The Revenue appealed against the orders passed by the Commissioner of Income Tax (Appeals) [CIT(A)] for assessment years 2008-09, 2009-10, and 2012-13. These appeals challenged the validity of assessments made under section 153C/143(3) of the Income Tax Act. The CIT(A) found that the additions made by the Assessing Officer (AO) were not based on any incriminating material found during the search and seizure operations. The Tribunal upheld the CIT(A)'s decision, noting that the satisfaction note required under section 153C was neither adequate nor proper, rendering the initiation of proceedings under section 153C invalid. Consequently, the assessments completed in pursuance of such initiation were deemed invalid.

2. Adequacy and Propriety of the Satisfaction Note:
The Tribunal examined the satisfaction note recorded by the AO, which was pivotal in initiating proceedings under section 153C. The satisfaction note stated that documents identified as IIPL/13 to IIPL/19 were found and impounded during a survey at the assessee's business premises. However, the Tribunal found that the satisfaction note was recorded by the AO of the assessee and not by the AO of the searched person, as required by section 153C. The note was also vague and did not specify any particular document found during the search that belonged to the assessee. Citing the Hon’ble Delhi High Court's decision in the case of CIT vs. N.S. Software and Pepsi Foods Pvt. Limited, the Tribunal held that the satisfaction note did not meet the required standards of specificity and adequacy, thus invalidating the assessments.

3. Incriminating Material and Additions Made:
The CIT(A) had earlier found that the additions made by the AO were not based on any incriminating documents or papers seized during the search operation. The Tribunal agreed with this finding, noting that the documents referred to in the satisfaction note were found during a survey, not a search. The Tribunal emphasized that there was no specific reference to any document seized during the search that pertained to the assessee. Therefore, the additions made by the AO were not sustainable.

Conclusion:
The Tribunal upheld the orders of the CIT(A), which had deleted the additions made by the AO for the assessment years in question. The Tribunal found that the satisfaction note recorded by the AO was inadequate and improper, leading to the conclusion that the initiation of proceedings under section 153C was invalid. Consequently, the assessments completed in pursuance of such initiation were cancelled. The Tribunal dismissed the Revenue's appeals and allowed the Cross Objections filed by the assessee.

Order Pronounced:
The order was pronounced in the open Court on May 01, 2019.