2025 (7) TMI 1799 - AT - Income Tax

Assessment under Section 147 quashed for lack of satisfaction note; Section 153C procedures must be followed

M/s Amico Textiles Versus DCIT Central Circle-1 Chandigarh

The ITAT Chandigarh allowed the assessee's appeal, quashing the assessment framed under section 147. The tribunal held that since the material against the ... Assessment u/s 147 v/s 153C - material against the assessee has been found during search on one of the partners - mandation of recording satisfaction - HELD THAT:- As considering the decision of Hon’ble Apex Court in the case of Vikram Sujitkumar Bhatia [2023 (4) TMI 296 - SUPREME COURT] quashed the assessment on the ground that that the same ought to have been framed u/s 153C for which recording of satisfaction note would be required. We find that the case before us has identical facts. The material as used against the assessee has been found during search on one of the partners. The impugned addition is solely based on the seized material only. In such a case, the assessment ought to have been framed u/s 153C for which recording of satisfaction note would be a mandatory statutory requirement. No such satisfaction note has been shown to us. Even otherwise, the assessment has been framed u/s 147 which has no applicability to the facts of the present case since the special provisions of Sec.153A to 153C overrides applicability of other provisions of the act. Respectfully following the decision of co-ordinate bench, we quash the assessment order. Assessee appeal allowed. ISSUES: Whether the assessment against a person, based on documents seized from another person (partner), should be framed under Section 153C or Section 147 of the Income Tax Act.Whether the amended provisions of Section 153C (post Finance Act, 2015) apply to assessments relating to searches conducted before the amendment date.Whether the failure to record satisfaction by the Assessing Officer of the searched person, as required under Section 153C, renders the assessment order unsustainable.Whether the special provisions under Sections 153A to 153C override the applicability of other assessment provisions such as Section 147. RULINGS / HOLDINGS: Assessment framed under Section 147 against a person based on seized documents belonging to another person (partner) is not sustainable; the proper procedure under Section 153C must be followed, which mandates recording of satisfaction and issuance of notice by the Assessing Officer of the searched person.The amendment to Section 153C by the Finance Act, 2015 applies retrospectively to searches conducted before 1-6-2015, as held by the Hon'ble Supreme Court, and therefore governs the present assessment year.Failure to record the mandatory satisfaction note by the Assessing Officer of the searched person before initiating proceedings under Section 153C results in the quashing of the assessment order.Section 153C contains a non obstante clause overriding Sections 139, 147, 148, 149, and others, thereby excluding the applicability of Section 147 when Section 153C is applicable. RATIONALE: The Court applied the amended statutory framework of Section 153C of the Income Tax Act, which provides a special procedure for assessment of income of persons other than the searched person when seized books or documents pertain to them.The non obstante clause commencing Section 153C establishes its overriding effect over other assessment provisions, mandating that assessments based on seized materials relating to other persons must be conducted under Section 153C.The Supreme Court's decision in ITO vs. Vikram Sujitkumar Bhatia confirmed the retrospective applicability of the 2015 amendment to Section 153C, thus binding on the present case despite the search predating the amendment.The Court emphasized the mandatory nature of the procedural steps under Section 153C, including recording of satisfaction by the Assessing Officer of the searched person and transmission of seized materials to the Assessing Officer of the other person, which were not complied with.The decision reflects a doctrinal reaffirmation that procedural safeguards in special assessment provisions must be strictly adhered to, and failure to do so invalidates the assessment.