2020 (3) TMI 361 - SC - Income Tax

Supreme Court confirms validity of satisfaction note under Income Tax Act

M/s SUPER MALLS PRIVATE LIMITED Versus PRINCIPAL COMMISSIONER OF INCOME TAX -8, NEW DELHI

M/s SUPER MALLS PRIVATE LIMITED Versus PRINCIPAL COMMISSIONER OF INCOME TAX -8, NEW DELHI - [2020] 423 ITR 281 (SC) Issues Involved:1. Validity of the satisfaction note recorded under Section 153C of the Income Tax Act, 1961.2. Compliance with the procedural requirements of Section 153C of the Act.3. Interpretation and application of judicial precedents and CBDT Circulars regarding Section 153C.Detailed Analysis:Validity of the Satisfaction Note Recorded Under Section 153C:The primary issue in this case revolves around the validity of the satisfaction note recorded by the Assessing Officer (AO) under Section 153C of the Income Tax Act, 1961. The satisfaction note is a prerequisite for initiating proceedings against a third party based on documents seized during a search operation on another person. The appellant argued that the satisfaction note recorded was invalid, while the respondent contended that the note was sufficient and compliant with the statutory requirements.Compliance with Procedural Requirements of Section 153C:The court examined whether the procedural requirements under Section 153C were met. The appellant's counsel argued that the AO of the searched person must be 'satisfied' that the seized documents belong to a third party, and only then can the documents be handed over to the AO of the third party. The appellant cited several judicial precedents, including *Commissioner of Income Tax v. Calcutta Knitwears*, *Pepsi Food Pvt. Ltd. v. Assistant Commissioner of Income Tax*, and *Ganpati Fincap Service Pvt. Ltd. v. Commissioner of Income Tax*, to support their argument that the satisfaction note must be recorded by the AO of the searched person.The respondent's counsel argued that since the AO for both the searched person and the third party was the same, the requirement for a separate satisfaction note and transmission of documents was redundant. The court agreed with this view, referencing the decision in *Ganpati Fincap*, which held that if the AO is the same for both parties, a single satisfaction note suffices.Interpretation and Application of Judicial Precedents and CBDT Circulars:The court analyzed various judicial precedents and CBDT Circulars to determine the correct interpretation of Section 153C. It was emphasized that the AO must be 'satisfied' that the seized documents belong to a third party before initiating proceedings. The court noted that the satisfaction note in this case explicitly stated that the documents seized from the searched person belonged to the assessee (third party), thus fulfilling the mandatory requirements of Section 153C.The court also considered the procedural aspect where the AO is the same for both the searched person and the third party. It concluded that in such cases, a single satisfaction note is adequate, and there is no need for transmission of documents between different AOs.Conclusion:The Supreme Court upheld the High Court's decision, confirming that the satisfaction note recorded by the AO was valid and compliant with Section 153C of the Income Tax Act. The court dismissed the appeals, directing the ITAT to decide the appeals afresh on merits, in accordance with the law.In summary, the judgment clarifies that when the AO for the searched person and the third party is the same, a single satisfaction note is sufficient to meet the requirements of Section 153C, provided it clearly states that the seized documents belong to the third party.