Section 153C notice unjustified without recording Satisfaction Note

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

16. A perusal of the same shows that the name and address of the assessee with PAN numbers have been mentioned at the top of the satisfaction note and the name of the searched person is not mentioned. Further, nowhere it is mentioned that these documents are incriminating in nature. Further, there is nothing on record to suggest that any satisfaction note has been recorded in the file of the searched person. We find, the Hon’ble Delhi High Court in the case of Pepsi Foods (supra) has held that the satisfaction note itself must display the reasons or basis for the conclusion that the AO of the searched person is satisfied that the seized documents belonged to a person other than the searched person. The relevant observation of the Hon’ble High Court at para 11 of the order read as under:-

“11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word “satisfaction” or the words “1 am satisfied” in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any “satisfaction” of the kind required under Section 153C of the said Act.”

17. We find, the Hon’ble Delhi High Court in the case of NS Software (supra) has held that failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the note issued under it vitiates the assessment. We find the Hon’ble Delhi High Court in the case of Pepsico (supra) has held that before the provisions of section 153C of the Act can be invoked, the AO of the searched person must be satisfied that the seized material does not belong to the searched person. The Hon’ble Delhi High Court in the case of Canyon Financial Services Ltd. vs. ITO, 399 ITR 202, has held that in absence of conclusion either in satisfaction note that the seized documents mentioned there in belonged not to the searched person, but, to the assessee makes the 153C proceedings invalid. We find, the Hon’ble Delhi High Court in the case of ARN Infrastructure India Ltd. (supra) has held that the amendment to Section 153C of the Act is prospective with effect from 1st June, 2015. In the case of Renu Constructions Pvt. Ltd. (supra), the Hon’ble Delhi High Court has held that “pertained to” added with effect from 01.06.2015 is prospective in nature.

18. Since, in the instant case, no satisfaction has been recorded in the file of the searched person that the seized documents belonged to the other party and do not belong to the searched person, therefore, in view of the decisions cited above, we do not find any infirmity in the order of the CIT(A) on this issue holding that the jurisdiction assumed under section 153C in the case of the assessee is not in accordance with law. We accordingly uphold the same and the grounds raised by the Revenue are dismissed.

19. In the result, the appeal filed by the Revenue is dismissed.

The decision was pronounced in the open court on 22.10.2020.