2014 (12) TMI 1067 - HC - Income Tax

High Court affirms Tribunal's decision on Income Tax Act Section 153C, stresses procedural compliance and statutory requirements

Commissioner of Income Tax-III Versus M/s. Shettys Pharmaceuticals And Biologicals Ltd.

The High Court upheld the Tribunal's decision to quash the assessment under Section 153C of the Income Tax Act, 1961, emphasizing the necessity of ... Assessment framed u/s 153C quashed – Assessment of income of any other person - Whether there is no satisfaction recorded by the AO having jurisdiction over the searched person – Held that:- The Tribunal was rightly in not accepting the initiation of the action u/s 153C - This action has to be taken against a third party in respect of the incriminating materials brought out in connection with search and seizure conducted on another party - Section 153C of the Act specifically says that the AO must be satisfied that such action is required to be initiated - the AO having jurisdiction over third party on receipt of the seized material or books of accounts or document being handed over to him shall record his own satisfaction after examining the same independently without being influenced by the satisfaction of the Seizing Officer – the section mandates recording of satisfaction of the AO(s) is a pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act - when a thing is to be done in one particular manner under law this has to be done in that manner alone and no other way – the Tribunal has correctly followed the principle – the order of the Tribunal is upheld – Decided against revenue. Issues:Challenge to quashing of assessment under Section 153C of the Income Tax Act 1961 due to lack of satisfaction recorded by the Assessing Officer having jurisdiction over the searched person.Analysis:Issue 1: Quashing of Assessment under Section 153CThe High Court examined the appeal against the judgment and order of the Tribunal relating to the assessment year 2009-2010. The Tribunal did not accept the initiation of action under Section 153C of the Income Tax Act, 1961. Section 153C requires the Assessing Officer to be satisfied that such action is necessary. The appellant contended that the term 'recording satisfaction' is not mandatory for the section's purpose. However, the Court held that satisfaction must be recorded by the Assessing Officer who conducted the search operation, and then the Assessing Officer having jurisdiction over the third party must independently examine the seized material and record their satisfaction. The Court emphasized that satisfaction by both officers is crucial, and the lack of such satisfaction renders the action invalid.Issue 2: Interpretation of Section 153CThe Court analyzed Section 153C of the Income Tax Act, which outlines the procedure for assessing the income of a person other than the one referred to in Section 153A based on seized materials. The section mandates that the Assessing Officer must be satisfied that the seized items belong to a person other than the one mentioned in Section 153A. The Court highlighted that the satisfaction of both the Seizing Officer and the Assessing Officer having jurisdiction over the third party is essential, and each officer must independently arrive at their satisfaction. The Court emphasized that compliance with the procedural requirements is crucial, as failure to do so renders the action invalid.Issue 3: Legal Precedent and ComplianceThe Court referred to legal precedent emphasizing that when a particular action is required to be done in a specific manner under the law, it must be strictly adhered to. The Court cited the case of Nazir Ahmed v. King Emperor to support the principle that statutory requirements must be followed as prescribed. The Court concluded that the Tribunal correctly followed the legal principles, and there was no legal basis to overturn their decision. Consequently, the Court dismissed the appeal, upholding the Tribunal's decision to quash the assessment under Section 153C of the Income Tax Act, 1961.Additional Appeal: I.T.T.A. NO.668 OF 2014The Court also dismissed an additional appeal (I.T.T.A. NO.668 OF 2014) as the issue raised was identical to the main appeal discussed above (I.T.T.A. No.662 of 2014). The judgment rendered in the main appeal was deemed applicable to the additional appeal, leading to its dismissal as well. The Court reiterated that there would be no order as to costs in both appeals.In conclusion, the High Court's judgment focused on the procedural requirements and the necessity of recording satisfaction by the Assessing Officers in cases involving Section 153C of the Income Tax Act, 1961. The Court emphasized compliance with statutory provisions and legal precedent, ultimately leading to the dismissal of the appeal challenging the quashing of the assessment under Section 153C.