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2022 (10) TMI 559 - AT - Income TaxValidity of assessment/re-assessment u/s 153C - Necessity of Satisfaction Note regarding initiation of proceedings - HELD THAT - In the case in hand, pre-amended law u/s 153C of the Act needs to be applied since the date of search was on 27.10.2014, that has to be considered to be relevant date for the purpose of applying the provision of section 153C(1) of the Act, even though the satisfaction note was handed over to AO of assessee on 15.03.2017 . The essential jurisdictional fact for initiation of assessment u/s 153C of the Act as per the pre-amended section 153C of the Act is that AO of the searched person should be able to return a finding of fact that the seized material belongs to assessee and thereby rebutting the presumption that documents seized belongs to searched party. Whether the satisfaction note recorded by the AO of the searched person (M/s. Navjeevan Trust) i.e. DCIT-CC-2(1), Mumbai satisfies the requirement of law as prescribed under the pre-amended section 153C ? - Jurisdictional fact seized material from M/s Navjeevan belongs to third party the assessee does not exist, and the DCIT/AO of searched person wrongly assumed that the documents seized during searched on 27.10.2014 at the premises of M/s. Navjeevan Trust belongs to the assessee which was on wrong assumption of facts and therefore the foundational fact recorded by DCIT in his satisfaction note itself is bad in law. Therefore, we are of the considered opinion that the satisfaction note prepared at the first stage by AO of the searched persons DCIT-CC-2(1) in respect of third party assessee for initiation of proceedings u/s 153C of the Act does not satisfy the requirement of the law and consequently all actions taken pursuant thereto by the AO of the assessee i.e. ITO, Ward (4)(3) also is void-ab-initio and we hold accordingly. Penalty levied u/s 271(1)(c) - In the light of us quashing the assessments framed u/s 153C of the Act for AY 2010-11, 2011-12, 2012-13, the penalty levied also based on those assessments, has to fall because the case of assessee is squarely covered by the legal Maxim Sublato Fundamento credit opus meaning in case foundation is removed, the super-structure falls. In the case of Badarinath Vs. Tamilnadu 2000 (9) TMI 1044 - SUPREME COURT held that once the basis of proceedings is gone, all consequential order/action would fall on the ground automatically which is applicable to judicial and quasi-judicial proceedings also. Thereafter, the impugned penalty for all the captioned appeals needs to be cancelled and we do so. All the appeals of the assessee are allowed.
Issues Involved:
1. Validity of the jurisdictional action under Section 153C of the Income Tax Act. 2. Applicability of pre-amended vs. post-amended Section 153C. 3. Validity of the satisfaction note prepared by the Assessing Officer (AO) of the searched person. 4. Legality of the quantum assessments for AY 2010-11, 2011-12, and 2012-13. 5. Validity of the penalty levied under Section 271(1)(c) of the Act. Detailed Analysis: 1. Validity of the Jurisdictional Action under Section 153C: The primary issue raised by the assessee was the jurisdiction of the AO to initiate assessment/re-assessment under Section 153C of the Income Tax Act. The assessee argued that the AO did not have a valid satisfaction note from the AO of the searched person, which is a prerequisite for assuming jurisdiction under Section 153C. 2. Applicability of Pre-Amended vs. Post-Amended Section 153C: The court noted that the search took place on 27.10.2014, and the satisfaction note was handed over to the AO of the assessee on 15.03.2017. The relevant date for applying the provision of Section 153C is the date of the search. Therefore, the pre-amended Section 153C (applicable before 01.06.2015) was applicable in this case. 3. Validity of the Satisfaction Note Prepared by the AO of the Searched Person: The satisfaction note dated 03.03.2017, prepared by the AO of the searched person (M/s. Navjeevan Trust), stated that certain ledger documents (pages A-1/154 to 156 and A-2/45) belonged to the assessee. However, upon examination, these documents were found to be merely ledger accounts of the assessee maintained by the searched person in their books. The court observed that these documents could not be said to "belong" to the assessee as required by the pre-amended Section 153C. Therefore, the satisfaction note was deemed erroneous and did not satisfy the legal requirements. 4. Legality of the Quantum Assessments for AY 2010-11, 2011-12, and 2012-13: Since the satisfaction note was found to be invalid, the court held that the jurisdictional fact necessary for initiating assessment under Section 153C did not exist. Consequently, the assessments made for AY 2010-11, 2011-12, and 2012-13 were quashed. 5. Validity of the Penalty Levied under Section 271(1)(c) of the Act: The penalties levied under Section 271(1)(c) were based on the assessments made under Section 153C. Since the assessments were quashed, the penalties also had to be cancelled. The court applied the legal maxim "Sublato Fundamento credit opus," meaning that if the foundation is removed, the superstructure falls. Hence, the penalties were invalidated. Conclusion: The court quashed the quantum assessments for AY 2010-11, 2011-12, and 2012-13 and cancelled the penalties levied under Section 271(1)(c) of the Income Tax Act. The appeals of the assessee were allowed, and the order was pronounced on 04/08/2022.
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