Satisfaction recording 153C-same AO for searched-other person. Even if AO is one then also satisfaction has to be recorded as held by Supreme Court

Satisfaction recording 153C-same AO for searched-other person. Even if AO is one then also satisfaction has to be recorded as held by Supreme Court 

ABCAUS Case Law Citation:
1050 (2016) (11) ITAT

The Grievance:
In the instant case both Revenue and the assessee were aggrieved by the order of learned CIT(A). The assessee was aggrieved by the Commissioner of Income Tax (Appeal) in confirming the Assessing Officer (AO) for assuming misconceived and illegal jurisdiction u/s 153C.

Important Case Laws Cited:
Commissioner of Income Tax vs. CIT vs. M/s Calcutta Knitwears (SC)
Narsi Creation Vs. DCIT – [2016] (Delhi HC)
Singla Realtors Ltd. in ITA No.1144 & 1145/Del/2009 ITAT Delhi

Brief Facts of the Case:
A search and seizure operation was carried out at the premises of the individual assessee. However the assessee alleged that no satisfaction was recorded by his Assessing Officer (AO) for initiating proceedings u/s 153C and it was the AO of one Private Limited Company who recorded the satisfaction and initiated proceedings. Thus accordingly to the assessee the action of the AO was illegal without jurisdiction, contrary to facts and provision of law and he prayed that the assessment based thereon be quashed as erroneous and void.

Contentions of the Appellant:
In support of his contention, the assessee referred to the reply given by the Assessing Officer in response to information sought under Right to Information (RTI) Act. He stated that in such reply, it had been stated that no satisfaction was recorded by the AO of the person searched (i.e. the assessee). Instead in the RTI reply it was stated that since the AO of the person searched and the assessee are the same, the recording of statement in the file of the private limited company was suffice to initiate proceedings u/s 153C against the assessee.

The assessee further submitted that this issue had been dealt by CBDT vide its Circular No.24/2015 dated 31st December, 2015 in which the Board had clarified that even if the AO of the searched person and other person is one and the same, then also satisfaction has to be recorded as held by Hon’ble Supreme Court in Calcutta Knitwears, Delhi High Court and ITAT Delhi.

Contentions of the Revenue:
It was contended that the case of the assessee and the private limited company was centralized with the same AO. Therefore, the satisfaction recorded by the AO was, in effect, the satisfaction recorded by the AO of the person searched as well as the assessee.

It was submitted that the CBDT Circular nowhere stated that when the AO of the searched person and the other person is one and the same, then two different satisfactions were to be recorded by him. The CBDT circular only lays down that the proper satisfaction is to be recorded which was already done in this case. Thus, the proceedings u/s 153C were validly initiated and the same should be upheld.

Observations made by the ITAT:
The Tribunal observed that CBDT had held that recording of satisfaction note is pre-requisite and satisfaction note must be prepared by the AO before he transmits the record to the other AO who has the jurisdiction over such other person. Thus, the satisfaction note is to be recorded by the AO of the person searched because only he has the seized record and along with this satisfaction note, he has to hand over the seized record to the other Assessing Officer who has jurisdiction over such other person.  

The ITAT also noted that as per the CBDT circular, it had mentioned that there should be strict compliance of the provisions of Section 153C.

The ITAT further observed that as per the circular, the CBDT had also clarified that even if the AO of the searched person and the other person is one and the same, then also he is required to record his satisfaction as held by the Courts.

Referring to the reply received under RTI Act, the ITAT opined that from the perusal of the reply it was evident that the satisfaction note was recorded in the file of the private limited company by his AO and not in the file of the person searched (the assessee).

Held:
It was held that recording of satisfaction note by the Assessing Officer of the person searched is the primary condition for initiation of proceedings u/s 153C. No satisfaction note was recorded by the AO of the person searched. Therefore, the proceeding u/s 153C was held not validly initiated and quashed.

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