2013 (9) TMI 123 - AT - Income Tax

AO must record satisfaction for searched person before proceeding under Sections 153C and 153A; limitation bar applies

DSL Properties (P.) Ltd. Versus Deputy Commissioner of Income-tax, Central Circle - 8

The ITAT Delhi held that the Assessing Officer (AO) must first record satisfaction during the assessment of the person searched before proceeding against ... Validity of proceedings u/s 153C read with Section 153A - Limitation period - Search an seizure - assessment of other person - Satisfaction of the Assessing officer that books of accounts found in the search belonged to the assessee – Held that:- If the Assessing Officer is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money, bullion, jewellery or other valuable article or thing or books of account or documents belong to the person other than the person searched. Then, the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of person searched to the file of such other person. Thereafter, in the capacity of the Assessing Officer of such other person, he has to issue the notice under Section 153A read with Section 153C. The Assessing Officer of the person searched and such other person may be the same but these are two different assessees and, therefore, the Assessing Officer has to carry out the dual exercise, first as the Assessing Officer of the person searched in which he has to record the satisfaction, during the course of assessment proceedings of the person searched. After recording such satisfaction note in the file of the person searched, the same is to be placed in the file of such other person. In the present case, this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out - The Assessing Officer recorded the satisfaction in the case of such other person which does not satisfy the condition of assuming jurisdiction under Section 153C. Moreover, no original satisfaction note is available on record - The photocopy of the satisfaction note does not bear name of any assessee, name of the Assessing Officer or any seal of the Assessing Officer - satisfaction note cannot be said to be a valid satisfaction note within the meaning of Section 153C – Decided in favor of Assessee. Period of limitation - Held that:- since the Assessing Officer of the person searched and the Assessing Officer of such other person was the same, no handing over or taking over of the document was required. That Section 153C(1) and its proviso have to be read together in a harmonious manner. - the Assessing Officer of the person searched and the Assessing Officer of such other person is the same Since in this case satisfaction is recorded on 21st June, 2010 and notice under Section 153C is also issued on the same date, then only conclusion that can be drawn is that the Assessing Officer of such other person has taken over the possession of seized document on 21st June, 2010. Accordingly, as per Section 153(1), the Assessing Officer can issue the notice for the previous year in which search is conducted (for the purpose of Section 153C the document is handed over) and six assessment years preceding such assessment year. Now, in this case, the previous year in which the document is handed over is 1st April, 2010 to 31st March, 2011. The Assessing Officer has issued notice under Section 153C for AY 2004-05 which is clearly barred by limitation. Therefore, issue of notice under Section 153C issued by the Revenue cannot be sustained on both the above counts, i.e., it is legally not valid as conditions laid down under Section 153C has not been fulfilled and it is barred by limitation. Issues Involved:1. Validity of proceedings under Section 153C read with Section 153A.2. Limitation period for initiating proceedings under Section 153C.3. Jurisdictional satisfaction for initiating proceedings under Section 153C.Issue-wise Detailed Analysis:1. Validity of Proceedings under Section 153C read with Section 153A:The assessee challenged the validity of proceedings under Section 153C read with Section 153A, arguing that the proceedings were illegal and without jurisdiction. The counsel for the assessee contended that the notice under Section 153C was issued based on a photocopy of the profit & loss account and balance sheet found at the premises of the director/shareholder, which had already been submitted with the return of income. It was argued that such documents could not be considered as belonging to the assessee for initiating action under Section 153C. The Tribunal agreed, stating that the photocopy of the profit & loss account and balance sheet belonged to the shareholder/director and not the assessee company. The Tribunal emphasized that for invoking Section 153C, the documents should belong to the assessee and not merely be in possession of a related party.2. Limitation Period for Initiating Proceedings under Section 153C:The assessee argued that the notice under Section 153C was barred by limitation. The search took place on 29th April 2008, but the satisfaction note and notice under Section 153C were dated 21st June 2010. The Tribunal noted that as per the proviso to Section 153C, the date of receiving the books of account or documents by the Assessing Officer having jurisdiction over the other person should be considered for limitation purposes. Since the satisfaction note and notice were both dated 21st June 2010, the Tribunal concluded that the relevant assessment years for reopening would be AY 2005-06 to 2010-11. Therefore, the notice for AY 2004-05 was clearly barred by limitation.3. Jurisdictional Satisfaction for Initiating Proceedings under Section 153C:The Tribunal examined whether the satisfaction recorded for initiating proceedings under Section 153C was valid. The Tribunal found that the satisfaction note did not indicate the name of the assessee, the name of the Assessing Officer, or any seal. It appeared that the satisfaction was recorded by the Assessing Officer of the assessee, not the person searched. The Tribunal held that for valid jurisdiction under Section 153C, the satisfaction must be recorded by the Assessing Officer of the person searched, and the documents must be handed over to the Assessing Officer of the other person. The Tribunal emphasized that even if the Assessing Officer is the same for both persons, the procedural requirements must be followed. The Tribunal concluded that the satisfaction note did not fulfill the conditions laid down under Section 153C.Conclusion:The Tribunal quashed the notice issued under Section 153C and consequently the assessment completed in pursuance to such notice. The Tribunal held that the conditions for invoking Section 153C were not satisfied, and the notice was barred by limitation. Since the assessment order was quashed, the additions challenged by the assessee did not require adjudication. The appeal of the assessee was allowed.