2016 (10) TMI 1378 - AT - Income Tax

Assessment orders invalidated for lack of proper satisfaction recording, tribunal quashes orders in favor of assessee

Smt. G. Lakshmi Aruna Versus The Deputy Commissioner of Income Tax, Central Circle - 1 (3), Bangalore

The tribunal found the assessment orders under section 153C read with section 144 invalid due to the lack of proper satisfaction recording by the ... Validity of the assessment order passed u/s 153C - necessity of recording satisfaction - Whether satisfaction was recorded by the A.O. in the case of searched person that the incriminating material found during the course of search belongs to the assessee? - HELD THAT:- As decided in assessee husband case SHRI GALI JANARDHANA REDDY [2016 (11) TMI 530 - ITAT BANGALORE] no satisfaction was recorded by the AO in his capacity as AO of the searched person because it is seen that the so-called satisfaction note prepared by the AO is in his capacity as AO of assessee, although he happens to be the AO of the searched persons also, it could not be shown by the revenue that any satisfaction note was prepared by him as AO of searched persons and therefore, under these facts, this is to be accepted that no satisfaction was recorded by the AO of searched person. As case of M/s. Gopi Apartment [2014 (5) TMI 158 - ALLAHABAD HIGH COURT] and case of Calcutta Knitwears [2014 (4) TMI 33 - SUPREME COURT] and Manish Maheshwari [2007 (2) TMI 148 - SUPREME COURT] are applicable and therefore, respectfully following these judgments, we hold that in the present case, notice issued by the AO u/s. 153C of the I.T. Act deserves to be quashed - Decided in favour of assessee. Issues Involved:1. Validity of the assessment order passed under section 153C read with section 144 of the Income Tax Act.2. Recording of satisfaction by the Assessing Officer (AO) in the case of the searched person.3. Non-compliance by the assessee to the notice issued under section 153C.4. Opportunity of being heard.5. Transportation expenses.6. Applicability of case laws and Supreme Court decisions.Detailed Analysis:1. Validity of the Assessment Order Passed under Section 153C Read with Section 144:The assessee objected to the validity of the assessment order passed under section 153C read with section 144 of the Income Tax Act. The bench noted that the learned counsel for the assessee contended that no satisfaction was recorded by the AO in the case of the searched person that the incriminating material found during the search belonged to the assessee, rendering the assessment under section 153C illegal. The tribunal directed the learned Departmental Representative (DR) to produce the satisfaction recorded in the case of the searched person.2. Recording of Satisfaction by the AO in the Case of the Searched Person:The tribunal examined whether the AO had recorded satisfaction that the incriminating material found during the search belonged to the assessee. The DR submitted written submissions, reiterating that the satisfaction was recorded, and presented the satisfaction note dated 14.12.2012. However, the tribunal found that the satisfaction note was recorded by the AO in his capacity as the AO of the assessee, not as the AO of the searched person. The tribunal cited the judgments of the Hon’ble Supreme Court in the cases of Calcutta Knitwears and Manish Maheshwari, emphasizing that the satisfaction must be recorded by the AO of the searched person before initiating proceedings under section 153C. Since the satisfaction was not recorded in the correct capacity, the tribunal quashed the assessment orders.3. Non-compliance by the Assessee to the Notice Issued under Section 153C:The DR argued that the assessee did not file any return of income in response to the notices issued under section 153C and did not cooperate during the assessment proceedings. The tribunal noted that the non-compliance by the assessee was recorded by the AO, but this did not affect the requirement for proper satisfaction recording.4. Opportunity of Being Heard:The tribunal considered the report of the Deputy Commissioner of Income Tax (DCIT), which elaborated that the assessee did not file returns or cooperate during the assessment proceedings. However, the tribunal focused on the technical aspect of satisfaction recording, which was a prerequisite for valid proceedings under section 153C.5. Transportation Expenses:The DCIT’s report elaborated on transportation expenses, noting that the assessee raised the issue of cross-examination of the transportation contractor’s statement. The tribunal did not delve into the merits of this issue, as the primary focus was on the validity of the assessment under section 153C.6. Applicability of Case Laws and Supreme Court Decisions:The tribunal cited several case laws, including SSP Aviation Ltd., All Cargo Global Logistics Ltd., and CIT vs. Chetan Das Lachman Das, to support the requirement of satisfaction recording. The tribunal also referred to the Supreme Court’s decision in Calcutta Knitwears, which clarified that satisfaction must be recorded by the AO of the searched person before initiating proceedings under section 153C.Conclusion:The tribunal concluded that the assessment orders under section 153C read with section 144 were invalid due to the lack of proper satisfaction recording by the AO in the capacity of the AO of the searched person. Consequently, the tribunal quashed the assessment orders for all the assessment years in question, rendering other grounds raised by the assessee moot. All seven appeals of the assessee were allowed.