Validity of proceedings under Section 153C read with 153A: notice invalid where satisfaction note not recorded and notice time-barred

Assessment under provisions allowing use of seized books for assessing a third person requires the assessing officer of the searched person to record a valid jurisdictional satisfaction during assessment, place that satisfaction note in the other person's file and transfer relevant documents; only thereafter may the assessing officer of the other person issue notice. Failure to record the original satisfaction in the searched person's proceedings renders assumption of jurisdiction invalid. Separately, where documents were treated as handed over on 21 June 2010, notices issued for an earlier assessment year beyond the six-year look-back are barred by limitation, so the notices were held invalid.

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Issues: Whether the notice issued under Section 153C read with Section 153A for the assessment year 2004-05 was validly issued - (i) whether the mandatory satisfaction by the Assessing Officer of the person searched and the handing over of seized documents to the Assessing Officer of the other person were properly recorded so as to confer jurisdiction under Section 153C; and (ii) whether the proceedings were barred by limitation under the proviso to Section 153C.

Analysis: Section 153C requires a recorded satisfaction by the Assessing Officer of the person searched that seized books, documents or assets belong to a person other than the person searched, followed by handing over of such materials to the Assessing Officer having jurisdiction over that other person; only thereafter may assessment proceedings under Section 153A/153C be initiated. The proviso to Section 153C substitutes the date of search with the date on which the Assessing Officer having jurisdiction over the other person receives the seized documents for computing the six-year limitation window. A valid satisfaction note must identify the officer recording the satisfaction and must be placed in the file of the person searched before being taken into account for initiating proceedings against the other person. Where the satisfaction note is not in the file of the person searched, is not an original, and does not identify the officer or the search in whose course the documents were seized, the statutory precondition for assuming jurisdiction under Section 153C is not fulfilled. If the seized documents are taken over on a later date, that later date governs the limitation period and restricts reopening to the six assessment years preceding the assessment year corresponding to the date of takeover.

Conclusion: The notice issued under Section 153C read with Section 153A is invalid. The recorded satisfaction does not meet the statutory requirement and the proceedings are time-barred for the assessment year 2004-05; accordingly the notice and the assessment made pursuant thereto are quashed and the appeal is allowed in favour of the appellant.

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