PR. COMMISSIONER OF INCOME TAX,SURAT-1 vs. M/S. MUNISUVRAT CORPORATION

Facts

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011-12. The ITAT had declared the assessment, made under Section 143(3) read with Section 153C of the Income Tax Act, 1961, as illegal and void-ab-initio. The assessment was based on a search action under Section 132. An addition of Rs. 11,65,31,847/- was made as unexplained expenditure under Section 69C, arising from a document ('saudachithi') recovered from a bank locker. This document reflected a sale price of Rs. 16,17,91,847/-, while the registered sale deed showed Rs. 4,52,60,000/-. The assessee's appeal to the CIT(A) was dismissed, but the ITAT allowed the assessee's appeal.

Held

The Tribunal held that the assessment proceedings initiated under Section 153C read with Section 153A of the Income Tax Act, 1961, were bad in law. The Tribunal found that the AO had not recorded any satisfaction regarding the belongingness of the seized documents to the assessee, either in the case of the searched person or the assessee. This lack of satisfaction was confirmed by the AO's admission that the satisfaction note was not traceable. The Tribunal relied on the Delhi High Court's decision in Pepsi Co. India Holding Pvt. Ltd. v. ACIT and the Madhya Pradesh High Court's decision in CIT v. Mechmen, which emphasize the mandatory requirement for the AO of the searched person to form a satisfaction that the seized items belong to a person other than the searched person. The Tribunal also referred to CBDT Circular No. 24/2015, which advises the Department not to press matters where satisfaction is not recorded. Consequently, the ITAT held the assessment to be illegal and void-ab-initio and allowed the grounds relating to the applicability of Section 153C. The High Court found no error in the Tribunal's order.

Key Issues

1. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in holding the assessment illegal and void-ab-initio? (Question of law) Assessee's Contention: The primary argument was that Section 153C of the Income Tax Act, 1961, mandates the Assessing Officer (AO) of the searched person to record satisfaction regarding the belongingness of seized material to another person. This satisfaction note is crucial before handing over the material to the AO of the other person for assessment. The assessee contended that no such satisfaction was recorded by the AO of the searched person (Shri Kirit M. Shah) concerning documents belonging to the assessee. The assessee relied on CBDT Circular No. 24/2015 and the Delhi High Court's decision in Pepsi Co. India Holding Pvt. Ltd. v. ACIT. The assessee also noted that the satisfaction note was not supplied despite requests and was stated to be untraceable. Revenue's Contention: The judgment does not explicitly record the Revenue's arguments against the ITAT's finding. However, the appeal itself challenges the ITAT's conclusion that the assessment was illegal and void-ab-initio.