INCOME TAX ACT, 1961

Section 153C Section 153A

Search and seizure - Proceedings under section 153C - Validity of 'satisfaction note' -

Assessee had raised legal issue of jurisdiction of AO to assess the assessee under section 153C. The legal challenge was against the action of the AO inter alia to validly usurp jurisdiction under section 153C without satisfying the mandatory condition precedent prescribed by section 153C, i.e., the AO had not recorded a valid satisfaction note before assumption of jurisdiction under section 153C. In other words, the AO had issued notice under section 153C against the assessee-foundation which was not subjected to search under section 132, by invoking special provision of assessment under section 153C without satisfying the requirement of law as stipulated under section 153C, so, according to assessee, action of AO was ab-initio void. Held: When the challenge was to the validity of the satisfaction note which the AO had recorded to assume jurisdiction, one had to examine the satisfaction recorded as it was. AO of the searched person (Mani Group in this case) was duty bound to record his satisfaction that during search conducted on those persons, the third party (assessee's) assets which belongs to it (assessee) or documents pertained/relates to the third party/other person/assessee as envisaged in section 153C was seized and therefore, need to be proceeded against the said party (assessee in this case). The Satisfaction Note spelling out these facts are sine qua non for usurping the jurisdiction under section 153C and an additional condition precedent is required to be satisfied by the AO of the assessee with effect from 1-10-2014 by virtue of Finance Act, 2014, which is required to be satisfied before the AO of the assessee issuing notice under section 153C. On 30-12-2016, the assessment in respect of assessment year 2014-15 should be treated as completed and so is not pending before the AO and, therefore, it is non-abated assessment and therefore without the aid of incriminating material qua the assessee qua the assessment year 2014-15, no addition/disallowance can be made by the AO. The seized materials marked ID MSL 3/4/5 cannot be termed as incriminating materials and therefore, the assertion of AO in the 'Satisfaction Note' that these were incriminating material qua the assessee foundation qua assessment year 2014-15, does not have any legal basis/evidence/material, so the finding of fact by AO in this respect in the satisfaction note was perverse and so erroneous. Since there was no incriminating material against the assessee which has been unearthed/seized during the search conducted on 22-6-2016 from the premises of Mani Group, the satisfaction note prepared by the AO does not satisfy the requirement of law as stipulated under section 153C and since the legal requirement had not been met in the 'satisfaction note' recorded by the AO, the very assumption of the jurisdiction for assessment year 2014-15 was thus, bad in the eyes of law.

Relied:Hindustan Lever Ltd. (2004) 268 ITR 332 (Bom) : 2004 TaxPub(DT) 1424 (Bom-HC) and CIT v. Sinhgad Technical Education Society (2015) 63 Taxmann.com 14 (Bom-HC) : (2015) 235 Taxman 163 (Bom-HC) : 2015 TaxPub(DT) 1464 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15 & 2016-17

INCOME TAX ACT, 1961

Section 153A Section 131 Section 133A

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