2022 (10) TMI 1119 - HC - Income Tax

Assessment u/s 153C - Necessity of recording satisfaction - HELD THAT - Assessees' grievance is that the said proceedings are without jurisdiction because recording satisfaction which is a condition precedent before making over it to the jurisdictional Officer even though the AO and the Searching officer are one and the same, is mandatory. This position of law is not disputed by the Revenue. Admittedly, the assessees have filed rectification application before the ITAT with a prayer to call for records and to examine whether satisfaction as required under Section 153C was recorded. The said applications have been rejected. In Calcutta Knitwears, 2014 (4) TMI 33 - SUPREME COURT it is held that satisfaction note is sine qua non and must be proved by the Assessing Officer before he transmits the records to the jurisdictional Assessing Officer. The Apex Court, in that case was considering Section 158BD of the Act, which is pari materia with Section 153C of the Act. In view of the law laid down in Calcutta Knitwears (supra) and the facts and circumstances of this case, we are of the considered opinion that the matter requires a re-look in the hands of the Tribunal

Summary

Issues:
1. Jurisdictional validity of proceedings under Section 153C of the Income-tax Act, 1961.
2. Requirement of recording satisfaction note before initiating proceedings.
3. Retraction of statement made before tax authorities.
4. Applicability of legal precedent set by the Supreme Court in Commissioner of Income-tax - III Vs. Calcutta Knitwears [2014] 43 taxmann.com 446 (SC).

Analysis:

1. The case involved appeals filed under Section 260A of the Income-tax Act challenging the assessment of undisclosed income by the jurisdictional Officer following a search and seizure conducted at the premises of the assessees' mother. The assessees contended that the initiation of proceedings under Section 153C was without jurisdiction as the satisfaction note, a prerequisite for such proceedings, was not recorded by the Assessing Officer before transmitting the records to the jurisdictional Assessing Officer.

2. The assessees argued that the absence of recorded satisfaction rendered the proceedings invalid, citing the legal requirement established in Commissioner of Income-tax - III Vs. Calcutta Knitwears case. They emphasized that the mere existence of a gift deed, allegedly from their uncle, found during the search, did not constitute incriminating material as gifts are generally exempted from tax. The assessees' uncle had explained the source of the gifted amount from his bank accounts.

3. The Revenue, represented by their advocate, contended that the assessees' uncle had initially claimed to have no source of income, implying no further inquiry was necessary. However, the assessees' representative argued that the uncle had retracted his statement and submitted a sworn affidavit before a Judicial Magistrate, which is permissible under the law.

4. Considering the legal precedent set by the Supreme Court in the Calcutta Knitwears case, the High Court observed that the recording of satisfaction note is mandatory before initiating proceedings under Section 153C. The Court found that the matter required further examination by the Tribunal to determine whether the satisfaction as required under Section 153C was indeed recorded. Consequently, the Court allowed the appeals, set aside the previous orders, and remitted the matter to the ITAT for reevaluation.

In conclusion, the High Court emphasized the importance of complying with legal requirements, such as recording satisfaction notes, before initiating proceedings under Section 153C of the Income-tax Act. The judgment highlighted the need for thorough examination and adherence to legal precedents to ensure the validity of income tax assessments and proceedings.