Where AO of searched person and other person same, there can be one satisfaction note prepared by the Assessing Officer (AO) – Supreme Court
ABCAUS Case Law Citation:
ABCAUS 3285 (2020) (03) SC
Important case law relied upon by the parties:
Commissioner of Income Tax v. Calcutta Knitwears (2014) 6 SCC 444
Pepsi Food Pvt. Ltd. v. Assistant Commissioner of Income Tax 2014 (367) ITR 112 (Delhi)
Commissioner of Income Tax v. Bipinchandra Chimanlal Doshi 2017 (395) ITR 632 (Gujarat)
Ganpati Fincap Service Pvt. Ltd. v. Commissioner of Income Tax 2017 (395) ITR 692 (Delhi)
In the instant case a search and seizure operation under Section 132(1) of the Income Tax Act, 1961 (the Act) was carried out at a group of companies.
During the course of the search a pen drive was found and seized from the vehicle parked in front of the residence of the searched person.
The pend drive contained the details of the cash receipts on sale related the appellant assessee company. As a consequence of the aforesaid search and seizure operation, a notice was issued to the assessee u/s 153C of the Act. Here, the Assessing Officer of the appellant assessee and the AO of the search person was the same.
The assessee filed its return for the relevant assessment year. The assessment was finalised by the Assessing Officer and additions were made.
The assessment order was the subject matter of appeal before the Commissioner of Income Tax (Appeals). The assessment order was challenged mainly on the ground that the satisfaction note recorded under Section 153C of the Act in respect of the appellant assessee, i.e., a third party, was invalid.
The CIT (Appeals) dismissed the assessee’s appeal. However, the Income Tax Appellate Tribunal (ITAT) allowed the appeal preferred by the assessee and held that the satisfaction note recorded u/s 153C of the Act in respect of the assessee, i.e., a third party, was invalid. The ITAT aside the order solely on the satisfaction note being invalid and did not enter into the merits.
The High Court observed and held that there was a compliance of Section 153C of the Act. The High Court also observed that the Assessing Officer was justified in recording the satisfaction that the documents so seized “belonged” to the assessee. Consequently, the High Court set aside the order passed by the ITAT and remanded the matter to the learned ITAT to hear the appeals afresh on merits.
The Revenue contended that in the present case, the Assessing Officer of the assessee and the Assessing Officer of the searched person was the same and therefore from the satisfaction note, it could be seen that there was a satisfaction note by the AO of the searched person also.
It was submitted that as the Assessing Officer was the same, there was no question of thereafter transmitting the documents so seized from the searched person to another AO as he himself was the Assessing Officer of the searched person as well as the Assessing Officer of the assessee. Therefore, there was a sufficient compliance of the requirements under Section 153C of the Act.
The Hon’ble Supreme Court observed that held by various High Courts, before issuing notice under Section 153C of the Act, the AO of the searched person must be “satisfied” that, inter alia, any document seized or requisitioned belongs to” a person other than the searched person. Thereafter, after recording such satisfaction by the AO of the searched person, he may transmit the records /documents/things/papers etc. to the AO having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of such other documents relating to such other person, the jurisdictional Assessing Officer may proceed to issue a notice for the purpose of completion of the assessment under Section 158BD of the Act and the other provisions of Chapter XIV-B shall apply.
The Hon’ble Supreme Court pointed out that there could be two eventualities. It may so happen that the AO of the searched person is different from the AO of the other person and in the second eventuality, the AO of the searched person and the other person is the same.
However, the Hon’ble Supreme Court opined that as rightly observed and held by the High Court the same is for the administrative convenience and the failure by the AO of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under Section 153C of the Act against the other person. At the same time, the satisfaction note by the AO of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the AO of the other person is mandatory.
Where AO of searched person & other person same, there can be one satisfaction note
The Hon’ble Supreme Court opined that in the case where the AO of the searched person and the other person is the same, it is sufficient by the AO 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 of the Act 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 AO, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person.
However, in such case AO 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 second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the AO of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.
The Hon’ble Supreme Court went through the Satisfaction note recorded by the AO in the present case and noted that the AO was satisfied that the documents containing the details belonged to the other person. He was also satisfied that the documents so seized from the residence of the searched person belonged to the other person. Therefore, the Assessing Officer was satisfied and it was specifically mentioned that the documents so seized belonged to the assessee (the other person). Therefore, it cannot be said that the mandatory requirements of Section 153C of the Act had not been complied with.
The Hon’ble Supreme Court stated that the satisfaction note by the AO clearly stated that the documents so seized belonged to the other person and not the searched person. Thus, the High Court was justified in observing that the requirement of Section 153C had been fulfilled before initiating the proceedings under Section 153C of the Act.
Accordingly, the Hon’ble Supreme Court dismissed the appeal.
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