2016 (12) TMI 1424 - AT - Income Tax

Invalid initiation of proceedings under section 153C due to incorrect satisfaction note by Assessing Officer.

M/s Sheetal International Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Central Circle-II, New Delhi and Deputy Commissioner of Income Tax, Central Circle-II, New Delhi Versus M/s Sheetal International Pvt. Ltd.

M/s Sheetal International Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Central Circle-II, New Delhi and Deputy Commissioner of Income Tax, ... Issues:Validity of initiation of proceedings u/s 153C based on satisfaction note recorded by Assessing Officer of the assessee instead of the person searched.Analysis:In the appeals by the assessee, the common ground challenged the jurisdiction of the CIT(A) in confirming the action of the Assessing Officer for assuming jurisdiction u/s 153C. The counsel argued that the satisfaction note was recorded by the Assessing Officer of the assessee, not the person searched, as required by law. Reference was made to CBDT Circular No.24/2015 and legal precedents supporting the necessity of a separate satisfaction note by the Assessing Officer of the person searched.The Revenue contended that since the Assessing Officer of the person searched and the assessee was the same, the satisfaction recorded by the Assessing Officer was sufficient. They argued that the CBDT guidelines do not mandate separate satisfaction notes in such cases. However, the CBDT Circular emphasizes the requirement for a satisfaction note by the Assessing Officer of the person searched, even if the same as the other person.The CBDT Circular clarified that strict compliance with the provisions of Section 153C is essential, and the satisfaction note must be prepared by the Assessing Officer of the person searched. The satisfaction note should accompany the seized documents handed over to the Assessing Officer of the other person for valid initiation of proceedings u/s 153C. The reply to an RTI application revealed that the satisfaction note was recorded in the file of the assessee, not the person searched, rendering the initiation of proceedings invalid.As the initiation of proceedings u/s 153C was found to be invalid due to the lack of a satisfaction note by the Assessing Officer of the person searched, the subsequent assessment orders were quashed for the relevant years. Consequently, the appeals by the assessee were allowed, and the Revenue's appeals for the same years were dismissed as the assessment orders were quashed.In conclusion, the judgment emphasized the importance of strict compliance with the statutory requirements for initiating proceedings u/s 153C, specifically regarding the recording of a satisfaction note by the Assessing Officer of the person searched. Failure to adhere to these requirements can render the proceedings invalid and lead to the quashing of assessment orders.