AO Lacks Jurisdiction To Frame Assessment U/s 153C/143(3) In Absence Of Valid Satisfaction Note: Mumbai ITAT

The Bench of the ITAT comprising of Aby T. Varkey (Judicial Member) and S Rifuar Rahman (Accountant Member) observed that, “AO has simply stated that he has verified the records of the group of Milan Dalal/ Vinod Faria, after search action, and according to him, the case of the assessee falls u/s 153C of the Act. And therefore, he issued notice u/s 153C of the Act. This assertion of the AO in no way can be termed as valid satisfaction because the AO has not referred to any incriminating material belonging/pertaining/relating to the assessee which was seized/ unearthed from the premises of the searched person [i.e. Milan Dalal/Vinod Faria group], which was the essential jurisdictional fact, which is absent in the satisfaction note.” (Para 12)

The Bench further added that, “Perusal of the satisfaction note dated 08.12.2009 (supra) does not reveal that the AO has made any averment as to his satisfaction that any money, bullion, jewellery or other valuable articles belongs to assessee or things or books of account or documents seized pertains/relates to the assessee which is the jurisdictional fact required to be made by AO in order to usurp jurisdiction u/s 153C which is clearly absent in this case and therefore on this legal issue itself the assessee has to succeed and we hold that AO did not record valid satisfaction before issuing notice to assessee u/s 153C.” (Para 12)

As per the brief facts of the case, a search and seizure action u/s 132(1) was conducted in Business and Residential Premises of another group. The assessee was close associate and was signatory Authority of the Bank account. There were several cash transactions, purchase/sale and investments in immovable properties done by the assessee on behalf of the key person of said group. The assessment was completed by AO wherein order /s. 143(3) r.w.s.153C was passed with various additions made to the income declared by the assessee, after taking approval of the Addl Commissioner u/s. 153D. Noting by the AO on order sheet, in the case records clearly mentions about invoking of provisions of Section 153C. The case was received on transfer from ITO 24(1)(1) in view of the order u/s 127(2). The case was already selected under CASS for scrutiny by the concerned AO. The case records are received today After verification of the search/seizure of said group, it is noticed that the case falls under the provisions of 153C. Hence the assessment proceedings pending u/s. 143(3) and the notice u/s. 153C were being issued.

The Bench noted that the AO before issuing notice u/s 153C, had not successfully usurped the jurisdiction vested u/s 153C by not recording his “satisfaction” as required u/s 153C.

The Bench observed that AO takes note that “verification of case records of searched person Shri. Vinod Faria/Milan Dalal group (date of search 30.05.2009) would reveal that assesse's case would fall under the provision of section 153C of the Act and hence the assessment proceedings pending before him got abated and issued notice accordingly.”

the Bench further observed that the noting of the AO cannot be termed as 'valid satisfaction' as envisaged u/s 153C even though AO of the searched person as well as of the 'other person/assessee in this case' is the same.

The Bench observed that the AO of the other person, before usurping the jurisdiction u/s 153C has to mandatorily record satisfaction that the material seized from searched person belongs/pertains/relates to assessee.

The Bench noted that there is no such findings of fact which was the jurisdictional fact has been recorded by AO in his satisfaction/order-sheet noting produced before the Bench.

The Bench reiterated while referring the decision of Supreme Court in the case of M/s Super Malls Pvt Ltd. V/s Pr. CIT-8 new Delhi [(2020) 423 ITR 281 (SC)] that, “in the case where the Assessing Officer of the searched person and the other person is the same, it is sufficient by the Assessing Officer to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of section 153C is fulfilled. In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person.”

The Bench also observed while referring the case M/s Super Malls Pvt Ltd. V/s Pr. CIT-8 new Delhi [(2020) 423 ITR 281 (SC)] that when the AO of the searched person and other person are the same, then there is no requirement of AO preparing two (2) satisfaction notes but only one satisfaction note is necessary i.e. at the stage before he usurps the jurisdiction of other person (assessee in this case) has to mandatorily record satisfaction that the material seized from searched person belongs/pertains/relates to assessee [viz jurisdictional fact] and thereafter only he can issue notice u/s 153C.

Therefore, on finding AO did not had requisite jurisdiction to issue notice to assessee u/s 153C, ITAT allowed the assessee's appeal.

Counsel for Appellant/Taxpayer: Pavan Ved

Counsel for Respondent/Department: Ankush kappor

Case Title: Dilip B Patel verses DCIT

Case Number: I.T.A. No. 354/Mum/2012

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