2019 (9) TMI 547 - AT - Income Tax

Validity of assessment order u/s. 143(3) r.w.s. 153C - no valid satisfaction as required u/s 153C - HELD THAT - From the conjoint reading of the provisions of section 153C, the decision of the Hon ble Supreme Court in the case of CIT vs M/s Calcutta Knitwears 2014 (4) TMI 33 - SUPREME COURT and CBDT Circular No.24/2015, it is very clear 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 separate satisfaction as required u/s 153C of the Act. If, no satisfaction is recorded, then whole proceedings becomes null and void. In this case, the departmental representative filed to produce satisfaction note recorded by the AO, in spite of bench directed to do so. Therefore, we are of the considered view that, there is no satisfaction was recorded by the AO of the searched person and the AO of the assessee, and hence, the assessment order passed u/s 143(3) r.w.s. 153C of the Act, cannot be held valid. Thus in absence of valid satisfaction as required u/s 153C of the I.T.Act, 1961, the whole proceedings including the assessment order passed u/s 143(3) r.w.s. 153C of the I.T.Act, 1961 is void ab-initio and liable to be quashed - Decided in favour of assessee.

Issues Involved:
1. Validity of assessment order under section 143(3) read with section 153C of the Income Tax Act, 1961.
2. Confirmation of unwarranted adjustments to the Book Profits under section 115JB.
3. Disallowance of donations and addition to book profit under section 115JB.
4. Disallowance of provision for doubtful debts and addition to book profit under section 115JB.
5. Disallowance of set-off of Short Term Capital Loss.
6. Disallowance of Capital Loss on sale of shares and addition to book profit under section 115JB.

Detailed Analysis:

1. Validity of Assessment Order under Section 143(3) read with Section 153C:
The assessee challenged the validity of the assessment order on the grounds that the Assessing Officer (AO) did not record the necessary satisfaction before issuing a notice under section 153C. The Tribunal noted that the AO must record satisfaction that any seized documents or assets belong to a person other than the searched person. This requirement was not met, rendering the assessment order void ab initio. The Tribunal followed the Supreme Court's decision in CIT vs. Calcutta Knitwears and CBDT Circular No. 24/2015, which mandates recording satisfaction even if the AO of the searched person and the other person is the same. The absence of such satisfaction notes led to the quashing of the assessment order.

2. Confirmation of Unwarranted Adjustments to the Book Profits under Section 115JB:
The assessee argued that the AO erred in adjusting the book profits determined under section 115JB. The Tribunal did not specifically address the merits of this issue due to the quashing of the assessment order on jurisdictional grounds.

3. Disallowance of Donations and Addition to Book Profit under Section 115JB:
The AO disallowed donations amounting to ?7,20,00,000, adding it back to the book profit under section 115JB. The Tribunal found that the AO considered these donations as bogus based on statements recorded during a survey. However, due to the quashing of the assessment order, this issue was deemed academic and not adjudicated on merits.

4. Disallowance of Provision for Doubtful Debts and Addition to Book Profit under Section 115JB:
The AO disallowed the provision for doubtful debts amounting to ?5,01,00,000, adding it back to the book profit under section 115JB. The Tribunal noted that the AO viewed this as a colorable device to reduce tax liability. This issue was also rendered academic due to the quashing of the assessment order.

5. Disallowance of Set-off of Short Term Capital Loss:
The AO disallowed the set-off of short-term capital loss incurred on the sale of shares. The Tribunal did not address this issue on merits as the assessment order was quashed on jurisdictional grounds.

6. Disallowance of Capital Loss on Sale of Shares and Addition to Book Profit under Section 115JB:
The AO disallowed the capital loss of ?4,26,87,149 on the sale of shares, adding it back to the book profit under section 115JB. The Tribunal did not adjudicate this issue on merits due to the quashing of the assessment order.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the assessment order passed under section 143(3) read with section 153C of the Income Tax Act, 1961, due to the failure of the AO to record the necessary satisfaction before issuing the notice. Consequently, all other issues on the merits of the case were deemed academic and not adjudicated.

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