2023 (6) TMI 354 - HC - Income Tax

High Court affirms quashing of assessment orders under Income Tax Act due to lack of satisfaction note

Pr. Commissioner of Income-Tax, CIT (A) Central Circle, Bengalur, The Deputy Commissioner of Income-Tax Central Circle, Bengalur Versus Smt. G Lakshmi Aruna

The High Court upheld the Tribunal's decision to quash assessment orders under Section 153C of the Income Tax Act, as the absence of a satisfaction note ... Assessment u/s 153A - necessity of recording satisfaction by AO of the searched person - HELD THAT:-No satisfaction was recorded by the AO of the searched persons and therefore, the order of the Tribunal in Smt. G. Lakshmi Aruna [2016 (10) TMI 1378 - ITAT BANGALORE] and the judgments of M/s. Gopi Apartment [2014 (5) TMI 158 - ALLAHABAD HIGH COURT] and in the case of Calcutta Knitwears [2014 (4) TMI 33 - SUPREME COURT] and Manish Maheshwari [2007 (2) TMI 148 - SUPREME COURT] are applicable to the given facts and circumstances of the case. These judgments were followed by the Income Tax Appellate Tribunal to hold that the notice issued by the AO u/s 153-C of the IT Act deserves to be quashed and accordingly had proceeded to quash the assessment orders framed by the AO u/s 153-C read with Section 143(3) of the Income Tax Act. Accordingly, the additional ground was allowed in all the seven years. Issues Involved:1. Validity of the assessment order under Section 153C of the Income Tax Act.2. Whether the assessment year relevant to the financial year in which the satisfaction note is recorded under Section 153C of the Act will be taken as the year of search.3. Whether the Tribunal was right in setting aside the assessment order for the assessment year 2011-12 due to the absence of satisfaction recorded by the assessing officer of the searched person.4. Whether the Tribunal was right in holding that the assessment order for the assessment year 2011-12 is liable to be set aside for non-compliance with conditions under Section 153C of the Act.Summary:Issue 1: Validity of the assessment order under Section 153C of the Income Tax ActThe High Court examined the validity of the assessment orders under Section 153C, which were issued based on documents seized during a search conducted on 25.10.2010. The Tribunal had quashed these orders due to the absence of a satisfaction note by the assessing officer of the searched person. The High Court upheld the Tribunal's decision, affirming that the absence of such a satisfaction note invalidated the assessments.Issue 2: Whether the assessment year relevant to the financial year in which the satisfaction note is recorded under Section 153C of the Act will be taken as the year of searchThe Tribunal held that the assessment year relevant to the financial year in which the satisfaction note is recorded under Section 153C will be taken as the year of search. This was based on the interpretation that the first proviso to Section 153C refers to the second proviso to Section 153A, which is applicable to clauses (a) and (b) of sub-section (1) of Section 153A. The High Court agreed with this interpretation, emphasizing that the satisfaction note must be recorded by the assessing officer of the searched person.Issue 3: Whether the Tribunal was right in setting aside the assessment order for the assessment year 2011-12 due to the absence of satisfaction recorded by the assessing officer of the searched personThe Tribunal set aside the assessment order for the assessment year 2011-12, holding that no satisfaction was recorded by the assessing officer of the searched person, as required under Section 153C. The High Court upheld this decision, noting that the requirement for recording satisfaction is a sine qua non for initiating proceedings under Section 153C.Issue 4: Whether the Tribunal was right in holding that the assessment order for the assessment year 2011-12 is liable to be set aside for non-compliance with conditions under Section 153C of the ActThe Tribunal held that the assessment order for the assessment year 2011-12 was liable to be set aside due to non-compliance with the conditions under Section 153C, specifically the absence of a satisfaction note by the assessing officer of the searched person. The High Court confirmed this finding, stating that the absence of the satisfaction note invalidated the assessment proceedings.Conclusion:The High Court dismissed the appeal by the Revenue, confirming the Tribunal's orders that quashed the assessment proceedings for the assessment years 2005-06 to 2011-12 due to the absence of a satisfaction note by the assessing officer of the searched person. The Court emphasized the necessity of strict compliance with the statutory requirements under Section 153C for valid assessment proceedings.