2026 (2) TMI 420 - AT - Income Tax

Validity of proceedings under section 153C: AO's date of satisfaction fixes the search year; 153C notice required, appeal allowed.

Interpretation of the date of satisfaction recorded by the assessing officer determines the taxable years reachable under search-linked proceedings. ... Validity of proceedings u/s 153C - date of satisfaction recorded by the AO - order was passed u/s 143(3) making addition u/s 69A of unexplained money of the assessee company, being the amount of loan to BCC Cement Pvt. Ltd. as accommodation entries - HELD THAT:- In the present case, admittedly, the satisfaction was recorded by the AO of the assessee on 24.05.2022 which is falling in the Financial Year 2022-23 relevant to AY 2023- 24. As per First proviso to section 153C(1), the date of search should be construed from the date when satisfaction is recorded by the AO of the assessee upon receiving the books of accounts or other documents or assets seized or re-questioned from the AO of the person searched. This view is supported by the judgement of Jasjit Singh [2023 (10) TMI 572 - SUPREME COURT] and followed by the Tribunal in the cases relied upon by the assessee as stated herein above. In the present case, as per the date of satisfaction recorded by the AO, the year under which search is conducted will be AY 2023- 24 and 06 Assessment Years immediately preceding AY relevant for the previous year in which search was conducted for initiating proceedings u/s 153C of the Act will be AY 2017-18 to AY 2022-23. Therefore, we hold that the assessment for AY 2021-22 should have been completed by issuance of notice u/s 153C of the Act and not by issuing notice u/s 143(2) of the Act. Assessee appeal allowed. Issues: Whether the assessment for Assessment Year 2021-22 was required to be initiated and completed under section 153C of the Income-tax Act, 1961 (because satisfaction was recorded on 24.05.2022) rather than by issuance of notice under section 143(2) and completion under section 143(3), and whether the assessment framed under section 143(3) without initiating proceedings under section 153C is valid.Analysis: Legal framework: Section 153C applies where an assessing officer of a person searched supplies books, documents or assets to the assessing officer of another person and the latter records satisfaction; the relevant search year is to be determined with reference to the date when satisfaction is recorded by the assessing officer receiving such material. The first proviso to section 153C(1) and related provisions govern which assessment years fall within the six-year window for initiation of proceedings. Controlling authorities and precedents establish that the date of recording satisfaction by the assessing officer receiving seized material fixes the search year for purposes of section 153C and thereby the assessment mechanism to be followed. Application to present facts: Satisfaction in the present matter was recorded on 24.05.2022, placing the search year in the financial year 2022-23 (relevant to AY 2023-24). Accordingly, the six assessment years available for proceedings under section 153C are AY 2017-18 to AY 2022-23, which includes AY 2021-22. The assessment for AY 2021-22 therefore fell to be initiated under section 153C and not by issuing notice under section 143(2) and completing assessment under section 143(3). Precedents addressing the date-of-satisfaction rule were applied to reach this conclusion.Conclusion: The assessment for AY 2021-22 was required to be initiated under section 153C of the Income-tax Act, 1961 and the assessment order passed under section 143(3) after issuing notice under section 143(2) without initiating proceedings under section 153C is bad in law and is quashed. Grounds of appeal Nos. 1 to 3 are allowed in favour of the assessee.