Wednesday, 7 May 2014

Whether in absence of satisfaction note recorded by AO of searched person, proceedings initiated u/s 153C is without justification - YES: HC

THE issues before the Bench are - Whether in the absence of the satisfaction note recorded by AO of the searched person, the proceedings initiated u/s 153C is without justification and thus, the entire proceedings are illegal and Whether the provisions of Sec 153C are only procedural in nature. And the verdict goes against the Revenue.
Facts of the case
The AO issued a notice u/s 153C and wrapped up the assessment. The CIT (A) deleted the additions observing that though in the assessment order, AO had specifically stated that satisfaction for issuing notice u/s 153C was recorded, however on examination of record no such satisfaction was recorded. It was thus held that AO could not have assumed jurisdiction u/s 153C. Thus, all the proceedings undertaken u/s 153C were to be declared as invalid, being annulled for want of jurisdiction. The ITAT also confirmed the order of CIT (A) stating that in the absence of such satisfaction having been recorded by the Assessing Officer of the searched person, the present proceedings initiated by the present Assessing Officer against the present assessee u/s 153C was without jurisdiction and in our considered opinion, the same had been rightly quashed by the CIT (A) by following the judgment of Apex Court rendered in the case of Manish Maheshwari.

Before the High Court, Revenue contended that in the instant case, the AO of the 'searched person' and the 'other person' being the same, there was no requirement of handing over of the books of account or documents or assets seized or requisitioned, as was mentioned in Section 153C nor there was any necessity of recording a prior satisfaction before proceeding to assess the 'other person'. The satisfaction subsequently recorded in the assessment order in respect of the 'other person' was sufficient compliance of provisions of Section 153C, which, in any case, was procedural in nature.

The assessee contended that the initiation of the proceedings u/s 153C against the assessee itself was illegal, as no satisfaction was recorded by the AO of the 'searched person' prior to initiation of such proceedings against the assessee as was mandatory.

After hearing both the parties, the High Court held that,

++ a bare perusal of the provision contained in Section 153C leaves no doubt that, as is provided u/s 158BD, where AO, while proceeding u/s 153A against a person who has been subjected to search and seizure u/s 132(1) or has been proceeded u/s 132A, is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A;

++ the initiation of proceedings against 'such other person' are dependant upon a satisfaction being recorded. Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the 'searched person', or even during the assessment proceedings against him or even after completion of the same, but before issuance of notice to the 'such other person' u/s 153C;

++ even in a case, where AO of both the persons is the same and assuming that no handing over of documents is required, the recording of 'satisfaction' is a must, as, that is the foundation, upon which the subsequent proceedings against the 'other person' are initiated. The handing over of documents etc. in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory;

++ the 'satisfaction' has to be in writing and can be gathered from the assessment order passed in respect of the 'searched person', if it is so mentioned/ recorded or from any other order, note or record maintained by the Assessing Officer of the 'searched person'. The word 'satisfaction' refers to the state of mind of the Assessing Officer of the person searched, which gets reflected in a tangible shape/ form, when it is reduced into writing. It is the conclusion drawn or the finding recorded on the foundation of the material available;

++ in the instant case, a categorical finding has been recorded by the C.I.T. (Appeals) and the I.T.A.T. that there is no material showing the recording of satisfaction by AO of the 'searched person' prior to issuance of notice u/s 153C to the respondent assessee, i.e. 'the other person'. It was the admitted case of the Revenue before the C.I.T. (Appeals) and the I.T.A.T. that though the AO (of the other person) in the assessment order had stated that satisfaction for issuing notice u/s 153C was recorded, however, on examination, recording of such satisfaction alleged to be recorded by the AO was not available;

++ the contention of revenue that section 153C is only procedural in nature and therefore, the non-recording of prior satisfaction does not vitiate the assessment order is not acceptable as a clear and plain reading of Section 153C leaves no doubt that recording of satisfaction by AO of the person searched is mandatory and it has to precede the initiation of proceedings against the other person (not searched). Thus, the appeal of revenue is dismissed.

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