2015 (3) TMI 885 - AT - Income Tax

Assessments Quashed: No Satisfaction Note Recorded - Revenue Appeals Dismissed

The tribunal quashed the assessments framed under Section 153C read with Section 143(3) for the assessment years 2003-04 to 2008-09 due to the absence of ... Validity of assessment framed u/s 153C read with Section 143(3) - whether is a nullity in the eyes of law for want of satisfaction recorded by the A.O. of the searched party? - Held that:- As decided in Pepsi Foods (P) Ltd. [2014 (8) TMI 425 - DELHI HIGH COURT] recording of satisfaction by AO of searched persons is a necessary pre condition for initiation of proceeding u/s 153C. As in the present case the revenue has not placed any satisfaction recorded by the A.O. of the searched persons on record pertaining to Assessment Years 2003-04 to 2008-09. Therefore, in the absence of such satisfaction by the A.O. of the searched persons, the assessment framed by invoking the provisions of Section153C cannot be sustained. Accordingly, the assessment orders pertaining to assessment years 2003-04 to 2008-09 are hereby quashed. - Decided in favour of assessee. Issues Involved:1. Validity of assessment framed under Section 153C read with Section 143(3) of the Income Tax Act, 1961.2. Requirement of satisfaction note by the Assessing Officer (AO) of the searched party.3. Jurisdictional issues concerning the initiation of proceedings under Section 153C.4. Impact of non-recording of satisfaction note on the legality of assessment.Detailed Analysis:1. Validity of Assessment under Section 153C:The primary issue was the validity of the assessment framed by the AO under Section 153C read with Section 143(3) of the Income Tax Act, 1961. The assessee argued that the assessment was a nullity in the eyes of law due to the absence of a satisfaction note recorded by the AO of the searched party, which is a condition precedent for initiating proceedings under Section 153C against a person other than the searched person. This argument was supported by the case of Pepsi Foods Vs CIT (2014) 52 Taxman.com 220 (Del.) and other similar judgments.2. Requirement of Satisfaction Note:The tribunal emphasized that the satisfaction note by the AO of the searched party is a condition precedent for initiating proceedings under Section 153C. It was evident from the information sought under the Right to Information Act that no such satisfaction note was recorded by the AO of the searched person. The tribunal referred to the opening paragraph of the assessment order, which indicated that certain documents belonging to the assessee were found during the search at the premises of other parties. However, the satisfaction note by the AO of the searched party was missing, as confirmed by the RTI replies.3. Jurisdictional Issues:The tribunal reiterated that the satisfaction note must be recorded by the AO of the searched party, and merely mentioning the word 'satisfaction' or 'satisfied' in the order does not fulfill the requirement. The satisfaction note must display the reason and basis for the conclusion that the seized documents belong to a person other than the searched person. The tribunal cited the Hon'ble Delhi High Court's judgment in the case of Pepsi Foods (P) Ltd. Vs. Assistant Commissioner of Income Tax [2014] 52 taxman.com 220 (Delhi), which held that the satisfaction note by the AO of the searched party is a condition precedent for issuing notice under Section 153C.4. Impact of Non-Recording of Satisfaction Note:The tribunal rejected the Revenue's argument that the absence of a satisfaction note is a mere technical defect. It was held that the satisfaction of the AO of the searched party goes to the very root of the assumption of jurisdiction by the AO of the other person for initiating proceedings under Section 153C. The tribunal also rejected the Revenue's reliance on the judgment of the Hon'ble Kerala High Court in the case of Dr. K.M. Mehboob Vs. DCIT Anr. (2012) 76 DTR (Ker) 90, as the assessee falls within the jurisdiction of the Hon'ble Delhi High Court, which had a contrary view.Conclusion:In the absence of a satisfaction note recorded by the AO of the searched party, the tribunal quashed the assessments framed under Section 153C read with Section 143(3) for the assessment years 2003-04 to 2008-09. Consequently, the cross appeals filed by the Revenue were dismissed as infructuous. The tribunal's decision was based on the authoritative judicial pronouncements, including the Hon'ble Delhi High Court's judgment in the case of Pepsi Foods (P) Ltd. Vs. Assistant Commissioner of Income Tax, which mandates the recording of a satisfaction note by the AO of the searched party as a condition precedent for initiating proceedings under Section 153C.