2025 (1) TMI 693 - AT - Income Tax

Assessment proceedings under section 153C quashed due to jurisdictional defects and invalid satisfaction note

ITAT DELHI held that assessment proceedings under section 153C were invalid due to jurisdictional defects. For AY 2011-12, the assessment was barred by ... Assumption of jurisdiction u/s 153C - ‘satisfaction note’ recorded or not? - AY - 2011-12 - HELD THAT:- As pointed out on behalf of the assessee, the identical issue cropped up in the identical ‘satisfaction note’ in the case of DCIT vs M/s. Manglam Multiplex Private Limited. [2024 (10) TMI 253 - ITAT DELHI]. The Co-ordinate Bench of the Tribunal found the AY 2011-12 to be out of purview of the provisions of section 153C of the Act being barred by limitation. The Co-ordinate Bench further found that the consolidated ‘satisfaction note’ drawn in respect of AYs 2011-12 to 2017-18 suffers from incorrigible legal infirmities and consequently found that the AO acted without valid jurisdiction u/s 153C of the Act. In consonance with view towards lack of jurisdiction u/s 153C of the Act, both on the ground of bar of limitation as well as legal infirmities in the ‘satisfaction note’ in the identical set of facts, we hold that the assessment framed u/s 153C for the AY 2011-12 in question is both barred by limitation and nonest ‘satisfaction’ and consequently, the entire proceedings under s. 153C of the Act is a complete non-starter and vitiated in law. Appeal of assessee allowed. Conferment of jurisdiction u/s 153C based on a ‘satisfaction note’ - AYs 2012-13 to 2015-16 - The ‘satisfaction note’ must suggest some degree of objectivity and lack of relevant particulars giving rise to purported satisfaction renders such satisfaction to be a nullity. In consonance with the view expressed in DCIT vs M/s. Manglam Multiplex Private Limited [2024 (10) TMI 253 - ITAT DELHI] and Renu Singh [2024 (12) TMI 184 - ITAT DELHI] we find potency in the plea of the assessee towards incorrigible legal infirmities rendering the assumption of jurisdiction based on ‘satisfaction note’ bereft of objectivity, to be vitiated in law. Thus, the assessment proceedings based on nonest jurisdiction is a complete non-starter. The resultant assessment orders passed u/s 153C of the Act for different AYs in question are bad in law and thus stand quashed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment are:1. Whether the assumption of jurisdiction under Section 153C of the Income Tax Act, 1961, was valid for the assessment years in question.2. Whether the assessment orders for the years 2011-12, 2012-13, 2013-14, and 2015-16 were barred by limitation.3. Whether the 'satisfaction note' recorded for the assumption of jurisdiction under Section 153C was legally sufficient and specific to each assessment year.4. Whether the additions made to the income of the assessee in these assessment years were justified and based on incriminating material.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Jurisdiction under Section 153CRelevant Legal Framework and Precedents:Section 153C pertains to the assessment of income in cases where certain documents or assets pertain to a person other than the one searched. The jurisdiction under Section 153C is contingent upon a valid 'satisfaction note' by the Assessing Officer (AO) of the searched person.Court's Interpretation and Reasoning:The court scrutinized the 'satisfaction note' and found it to be vague and lacking specific details necessary to confer jurisdiction under Section 153C. The note failed to identify incriminating material specific to each assessment year.Key Evidence and Findings:The 'satisfaction note' was found to be a generalized statement covering multiple years without specifying the incriminating material for each year.Application of Law to Facts:The court applied the legal requirement for specificity in the 'satisfaction note' and found the note inadequate to justify the assumption of jurisdiction under Section 153C.Treatment of Competing Arguments:The court considered the arguments from the Revenue, which relied on the orders of lower authorities, but found them insufficient to overcome the deficiencies in the 'satisfaction note'.Conclusions:The assumption of jurisdiction under Section 153C was found invalid due to the inadequacies in the 'satisfaction note'.Issue 2: Limitation Period for Assessment YearsRelevant Legal Framework and Precedents:The limitation period for assessments under Section 153C is determined by the date of requisition of documents by the AO, not the date of search.Court's Interpretation and Reasoning:The court referred to the precedent set in the case of DCIT vs M/s. Manglam Multiplex Private Limited, which established that the assessment year 2011-12 was outside the limitation period.Key Evidence and Findings:The 'satisfaction note' was drawn on 25.09.2018, making the relevant assessment year 2018-19, thus barring the assessment for 2011-12 by limitation.Application of Law to Facts:The court applied the limitation rules and found that the assessment for 2011-12 was time-barred.Treatment of Competing Arguments:The Revenue did not successfully counter the limitation argument, leading to the court's decision in favor of the assessee.Conclusions:The assessment for the year 2011-12 was barred by limitation and therefore invalid.Issue 3: Sufficiency of the 'Satisfaction Note'Relevant Legal Framework and Precedents:A 'satisfaction note' must be specific and relate to the incriminating material for each assessment year to confer jurisdiction under Section 153C.Court's Interpretation and Reasoning:The court found the 'satisfaction note' to be non-specific and inadequate, as it did not identify the incriminating material for each year.Key Evidence and Findings:The note was a consolidated statement for multiple years, lacking the necessary specificity.Application of Law to Facts:The court applied the requirement for specificity and found the note insufficient to confer jurisdiction.Treatment of Competing Arguments:The court found the Revenue's reliance on the note insufficient to overcome its deficiencies.Conclusions:The 'satisfaction note' was legally insufficient, rendering the jurisdiction under Section 153C invalid.Issue 4: Justification of Additions to IncomeRelevant Legal Framework and Precedents:Additions to income under Section 153C must be based on incriminating material discovered during the search.Court's Interpretation and Reasoning:The court found that the additions were not based on any specific incriminating material related to the assessment years in question.Key Evidence and Findings:The court noted the lack of specific incriminating material tied to the additions made.Application of Law to Facts:The court found the additions unjustified due to the absence of incriminating material.Treatment of Competing Arguments:The court dismissed the Revenue's arguments supporting the additions due to lack of evidence.Conclusions:The additions to income were not justified and were thus invalid.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The 'satisfaction note' recorded under s. 153C being germane to the subject matter of the controversy is reproduced hereunder...the alleged undisclosed income is not identifiable with any assessment year.'Core principles established:1. A 'satisfaction note' must be specific to each assessment year and identify incriminating material related to that year.2. The limitation period for assessments under Section 153C is determined by the date of requisition, not the date of search.Final determinations on each issue:1. The assumption of jurisdiction under Section 153C was invalid due to deficiencies in the 'satisfaction note'.2. The assessment for the year 2011-12 was barred by limitation.3. The additions to income were not justified and were invalid.In conclusion, the appeals of the assessee were allowed, and the assessment orders for the years in question were quashed.