2021 (5) TMI 547 - AT - Income Tax

Assessment u/s 153C - Revenue pleaded to reverse the CIT(A)'s action quashing Section 153C proceedings on the ground that the Assessing Officer; common for both the searched as well as the instant assessee, failed to record the twin satisfaction(s) as per the CBDT Circular No. 24/2015, dt. 31-12-2015 - HELD THAT - We find that the hon'ble apex court's latest decision in M/s. Super Malls Pvt. Ltd. 2020 (3) TMI 361 - SUPREME COURT has settled the law on the issue of the Assessing Officer being common in the searched as well as third party that the twin round(s) of satisfaction is nowhere mandatory after considering CBDT's circular. As the instant issue of twin satisfactions in case of the common Assessing Officer assessing both the searched as well as the third party; stands settled against the assessee and in favour of the department. The CIT(A)'s order quashing the impugned assessment on identical lines stands reversed therefore. We further keep in mind the fact that the CIT(A) has not dealt with the assessee's grievance(s) on merits and direct him to decide the same afresh within three effective opportunities of hearing. The assessee or its authorised representative shall appear before the CIT(A) on or before 30-09-2021 with all the relevant details and evidences to be followed by three effective opportunities of hearing; at its own risk and responsibility. Revenue's appeals allowed for statistical purposes.

Issues Involved:
1. Validity of assessment under Section 153C of the Income Tax Act, 1961.
2. Recording of satisfaction by the Assessing Officer (AO) of the searched person and the other person.
3. Compliance with CBDT Circular No. 24/2015.

Detailed Analysis:

1. Validity of Assessment under Section 153C:
The core issue revolves around the validity of proceedings under Section 153C of the Income Tax Act, 1961. The appellant contended that the assessment under Section 153C is invalid due to the failure of the Assessing Officer (AO) to record the mandatory twin satisfactions as per CBDT Circular No. 24/2015. The AO must record satisfaction that the documents seized during the search belong to a person other than the searched person and have a bearing on the income of such other person.

2. Recording of Satisfaction by the AO:
The appellant argued that the satisfaction note was not properly recorded by the AO of the searched person. The satisfaction note found in the appellant's file did not indicate that the AO was recording satisfaction in the capacity of the AO of the searched person or the other person (the appellant). The appellant provided copies of order sheets and satisfaction notes obtained via RTI, showing that the satisfaction note was recorded only in the appellant's order sheet and not in the order sheet of the searched person. This omission was deemed a critical flaw, rendering the Section 153C notice invalid and the subsequent assessment bad in law.

3. Compliance with CBDT Circular No. 24/2015:
The appellant cited various judicial decisions, including those from the Supreme Court and jurisdictional High Court, emphasizing that satisfaction must be recorded separately by the AO of the searched person and the AO of the other person. The appellant relied on the case of CIT vs. M/s. S. Shetty Pharmaceuticals & Biologicals Ltd., where the Andhra Pradesh High Court held that satisfaction must be recorded by both AOs independently. The Supreme Court in Income Tax Officer Vs. M/s. Canyon Financial Services Limited reinforced that mechanical recording of satisfaction is insufficient and must be logical and fact-based.

The CIT(A) found that the AO did not record satisfaction in the file of the searched person, and the satisfaction note in the searched party's file was merely a carbon copy of the one in the appellant's file. This failure to record satisfaction separately by the AO of the searched person invalidated the proceedings under Section 153C.

Tribunal's Findings:
The Tribunal considered the Revenue's contention that the common AO for both the searched person and the appellant negated the need for separate satisfactions. However, the Tribunal referred to the Supreme Court's decision in M/s. Super Malls Pvt. Ltd. Vs. PCIT, which clarified that when the AO is common, a single satisfaction note indicating that the documents seized belong to the other person suffices. The Tribunal concluded that the twin satisfactions are not mandatory when the AO is common for both parties.

Consequently, the Tribunal reversed the CIT(A)'s order quashing the assessment under Section 153C, allowing the Revenue's appeals. The Tribunal directed the CIT(A) to decide the appellant's grievances on merits within three effective opportunities of hearing, emphasizing compliance with procedural requirements.

Conclusion:
The Tribunal ruled in favor of the Revenue, holding that the twin satisfactions are not mandatory when the AO is common for both the searched person and the other person. The CIT(A)'s order was reversed, and the case was remanded for fresh adjudication on merits. The appeals were allowed for statistical purposes, with instructions for the CIT(A) to provide the appellant with three effective opportunities of hearing.

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