2015 (3) TMI 345 - AT - Income Tax

Assessment under section 153C deemed void due to lack of proper jurisdiction and satisfaction note.

Tanvir Collections Pvt Ltd (Now Known As Rahab Collections Pvt Ltd) Versus ACIT, Central Circle-21, New Delhi

The tribunal held that the Assessing Officer (AO) lacked jurisdiction to frame the assessment under section 153C of the Income-tax Act, 1961, as the ... Validity of assessment u/s 153C - Held that:- It is palpable that the AO of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd., did not record any satisfaction that some money, bullion, jewellery or books of accounts or other documents found from these persons belonged to the assessee. The absence of such satisfaction, in our considered opinion, failed to confer any valid and lawful jurisdiction on the AO of the assessee to proceed with the matter of the assessment u/s 153C of the Act. We, ergo, set aside the initiation and the ensuing assessment on the assessee as void ab initio. The reliance of the ld. DR on some decisions on other legal issues or merits is of no consequence in view of the lack of jurisdiction of the AO to proceed with the assessments u/s 153C of the Act. - Decided in favour of assessee. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) in framing the assessment under section 153C of the Income-tax Act, 1961.2. Proper recording of satisfaction by the AO before initiating proceedings under section 153C.Detailed Analysis:Jurisdiction of the Assessing Officer under Section 153C:The primary issue revolves around whether the AO had the jurisdiction to frame the assessment under section 153C. The case originated from a search and seizure action under section 132 on certain individuals and entities, during which documents belonging to the assessee were seized. The AO initiated proceedings against the assessee under section 153C read with section 153A based on these documents. The assessee contested the jurisdiction, arguing that the AO did not properly record satisfaction before initiating the proceedings.Proper Recording of Satisfaction:The core of the dispute lies in whether the AO recorded the necessary satisfaction as mandated by law before transferring the case to the AO of the 'other person' (the assessee). According to section 153C, the AO of the person searched must record satisfaction that the seized documents belong to a person other than the one searched. This satisfaction is a precondition for the AO of the 'other person' to acquire jurisdiction.The tribunal emphasized that the satisfaction must be recorded by the AO of the person searched and not by the AO of the 'other person'. This requirement was not fulfilled in the present case. The satisfaction note available in the records was prepared by the AO of the assessee, not by the AO of the individuals/entities searched. Consequently, the jurisdictional requirement was not met, rendering the assessment void ab initio.Comparative Legal Provisions and Judicial Precedents:The tribunal compared section 153C with its predecessor, section 158BD, noting the similarity in the requirement for recording satisfaction. The Supreme Court's rulings in Manish Maheshwari vs. ACIT and CIT vs. Calcutta Knitwears were cited, which underscored the necessity of recording satisfaction by the AO of the person searched before transferring documents to the AO of the 'other person'.Tribunal's Findings:The tribunal found that the satisfaction note was recorded by the AO of the assessee and not by the AO of the persons searched. This discrepancy was confirmed through replies under the RTI Act, which indicated no satisfaction note was recorded in the cases of the persons searched. The tribunal rejected the Revenue's argument that the satisfaction recorded by the common AO (same AO for both the searched persons and the assessee) sufficed. The tribunal clarified that the statutory requirement is for the AO of the person searched to record the satisfaction.Conclusion:The tribunal concluded that the absence of proper satisfaction recording by the AO of the persons searched invalidated the jurisdiction of the AO of the assessee. Therefore, the initiation of proceedings and the ensuing assessment under section 153C were set aside as void ab initio. The appeal was allowed, and the assessment was annulled.Judgment Pronouncement:The order was pronounced in the open court on 16.01.2015, concluding that the appeal by the assessee was allowed due to the lack of jurisdictional foundation for the assessment under section 153C.