Court Upholds Validity of Section 153C Proceedings in Tax Case

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Case Name:

Principal Commissioner of Income Tax Vs Satkar Fincap Ltd. (High Court of Delhi)

ITA 82/2016

Date: 16th November 2016

Key Takeaways:

1. Proper recording of satisfaction by the AO is crucial for initiating proceedings under Section 153C.

2. The High Court emphasized the importance of examining the AO's notes thoroughly before concluding on the validity of Section 153C proceedings.

3. The case highlights the procedural aspects of tax assessment in cases involving search and seizure operations.

Issue: 

Did the Income Tax Appellate Tribunal (ITAT) err in holding that the satisfaction recorded by the Assessing Officer (AO) of the respondent was not in accordance with Section 153C of the Income Tax Act, 1961?

Facts:

1. A search and seizure operation was conducted on the premises of M/s Madhusudan Buildcon P. Ltd. and other parties on October 20, 2008.

2. During the search, materials belonging to M/s Satkar Fincap Ltd. were seized.

3. The AO, who was responsible for both the searched persons and Satkar Fincap Ltd., recorded a satisfaction note on September 8, 2010.

4. Based on this note, a notice under Section 153C was issued to Satkar Fincap Ltd. on the same day.

5. The assessment was concluded on December 31, 2010.

Arguments:

- Assessee (Satkar Fincap Ltd.): Argued that no proper satisfaction was recorded by the AO to issue notice under Section 153C.

- Tax Department: Contended that the AO had properly recorded satisfaction in the note dated September 8, 2010.

Key Legal Precedents:

The judgment doesn't explicitly mention any specific legal precedents. However, it focuses on the interpretation and application of Section 153C of the Income Tax Act, 1961.

Judgement:

1. The High Court set aside the ITAT's findings regarding the absence of satisfaction under Section 153C.

2. The court remitted the appeals back to the ITAT for consideration on merits.

3. The High Court emphasized that the AO's note clearly stated that documents belonging to Satkar Fincap Ltd. were found during the search and that Section 153C was invokable in this case.

4. All rights and contentions of the parties were kept open, and the court clarified that nothing in the order should be considered a binding expression on the merits of the case.

FAQs:

1. Q: What is Section 153C of the Income Tax Act?

  A: Section 153C deals with assessment of income of a person other than the person who was subject to search and seizure operations.

2. Q: Why did the High Court set aside the ITAT's decision?

  A: The High Court found that the ITAT's conclusion couldn't be sustained given the categorical statement in the AO's note about invoking Section 153C.

3. Q: Does this judgment conclude the case?

  A: No, the High Court remitted the case back to the ITAT for consideration on merits, keeping all rights and contentions of the parties open.

4. Q: What was the significance of the AO's note dated September 8, 2010?

  A: The note was crucial as it recorded the AO's satisfaction that documents belonging to Satkar Fincap Ltd. were found during the search, justifying the invocation of Section 153C.

5. Q: What's the key lesson from this case for tax authorities?

  A: It underscores the importance of properly recording satisfaction before initiating proceedings under Section 153C of the Income Tax Act.

1. The question of law urged in these appeals is:

Whether in the facts and circumstances of the case, the ITAT fell into error in holding that the satisfaction recorded by the AO of the respondent, was not in accordance with Section 153C of the Income Tax Act, 1961.

2. The search and seizure proceedings were conducted in the premises of M/s Madhusudan Buildcon P. Ltd. and a few other parties. In the course of the search, materials were seized. The Assessing Officer (‘AO’) of the searched persons, coincidentally, also happens to be the AO of the present assessee. On 08.09.2010 the AO made the following noting:

"Satisfaction Note for issuing Notice u/s 153C of the I.T. Act, 1961 in the case of M/s. Satkar Fincap Ld. C-I05, Ramdutt Enclave, Uttam Nagar, New Delhi, PAN : AAJCS6828A for A.Y. 2003-04 to 2008-09. 08.09.2010: In the case of Sh. B.K. Dhingra, Smt. Poonam Dhingra, M/s Madhusudan Buildcon Pvt. Ltd., M/s. Mayank Traders Pvt. Ltd., M/s. Horizon Pvt. Ltd., search & seizure took place uls 132 on 20.1 0.2008. The undersigned is the jurisdictional AO of these cases. During the course of search & seizure documents/ papers page 1 to 31 of Annexure A-28 seized by Party R-2, Annexures A-56, A- 57 and A-58 seized by party 04 are found to belong to of M/s Satkar Fincap Ld., C-I05, Ramdutt Enclave, Uttam Nagar, New Delhi. I have examined the above mentioned documents/papers and provision of section 153C is invokeable in this case. As the undersigned is also the jurisdictional AO of M/s. Satkar Fincap Ld.,C-I05, Ramdutt Enclave, Uttam Nagar, New Delhi, this satisfaction note is recorded and is placed in the file before issuing notice U/S 153C.

Sd/-

ACIT, Central Circle - 17, New Delhi"

3. On the basis of the above note this 153C notice was issued on the same day to the assessee and, subsequently, assessment was concluded on 31.12.2010. The assessee’s appeal was rejected. The contention that no satisfaction was recorded too was turned down by the Commissioner of Income Tax (Appeals). The assessee’s further appeals to the Income Tax Appellate Tribunal (‘ITAT’) succeeded. The ITAT quashed the assessment order on the ground that there was no proper recording of satisfaction by the AO to issue notice under Section 153A, that proceedings under Section 153C were to be undertaken or drawn up.

4. This Court has considered this submission. During the course of the hearing it was suggested to the respondent/ assessee through its counsel that having regard to the categorical statement in the note that: “During the course of search & seizure documents/ papers page 1 to 31 of Annexure A-28 seized by Party R-2, Annexures A-56, A-57 and A-58 seized by party 04 are found to belong to of M/s Satkar Fincap Ld., C-I05, Ramdutt Enclave, Uttam Nagar, New Delhi. I have examined the above mentioned documents/papers and provision of section 153C is invokeable in this case”, the ITAT’s findings and conclusion cannot be sustained.

5. The learned counsel for the assessee had sought instructions and thereafter submitted that having regard to these facts the ITAT’s findings with respect to no proper recording of satisfaction under Section 153C of the Act may be set aside and the matter be remitted for consideration on the merits of the assessee’s appeal.

6. We, accordingly, set aside the ITAT’s findings with regard to absence of any satisfaction under Section 153C and as a consequence remit the appeals for consideration by the ITAT on merits. All rights and contentions of the parties are kept open. Nothing stated in the present order shall be concluded as a binding expression on the merits of the case.

7. The appeals are allowed in the above terms.

S. RAVINDRA BHAT, J

NAJMI WAZIRI, J

NOVEMBER 16, 2016