Loading judgment…
Facts
A search and seizure operation was conducted on the Hubtown Group, which the assessee is a major promoter of. The assessee had filed his return of income earlier. Subsequently, a notice under section 153C of the Income Tax Act was issued to the assessee.
Held
The Tribunal held that the recording of satisfaction by the AO before issuing a notice under section 153C is a statutory and jurisdictional requirement. Since this was not complied with, the assessment order was quashed.
Key Issues
Whether the assessment order is valid when the AO failed to record satisfaction before issuing notice under section 153C, and whether the entire assessment is void.
Sections Cited
68, 69C, 143(2), 153C, 153D, 144, 153A, 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
Assessee by : Shri Pavan Ved, A/R (appeared virtually) Revenue by : Shri Vivek Perampurna, CIT D/R सुनवाई की तारीख/Date of Hearing : 28/07/2025 घोषणा की तारीख /Date of Pronouncement: 30/07/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: & C.O. No. 140/Mum/2025, are appeals and the cross objection by the assessee preferred against the I.T.A. No. 3042/Mum/2025 C.O. No. 140/Mum/2025 2 order of ld. CIT(A)-48, Mumbai dated 28/02/2025 pertaining to AY 2018-19.
2. The grievance of the revenue reads as under:- “i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 100,99,62,585/- made under section 68 of the Income Tax Act on account of bogus Long-Term Capital Gains, without properly considering the evidence indicating price manipulation of shares, which facilitated the conversion of unaccounted money into tax-free capital gains. ii. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has failed to adequately appreciate the incriminating material discovered during the search and seizure action conducted on the Hubtown Group, which clearly indicated that the share prices of Hubtown Ltd. were manipulated by entities involved in the facilitation of bogus Long-Term Capital Gains entries. iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,02,63,082/- made under Section 69C for unexplained commission expenses, without appreciating that such payments were made Jar obtaining accommodation entries in the form of bogus Long-Term Capital Gains rather than legitimate brokerage service.”
3. Grounds of cross-objections raised by the assessee are as under:- “1. The whole assessment is invalid and liable to be annulled as no notice u/s 143(2) of the Income Tax Act, 1961 (the Act') was issued as admitted by LAO himself in para 4 page 1 of assessment order.
The whole assessment is invalid on the ground that neither the AO of searched person, nor the AO of assessee had recorded any satisfaction before issue of notice u/s 153C of the Act as observed by Ld. CIT(A) himself in para 6.3 page 55 and para 6.3.5 para 69 of appeal order.
Assessment u/s 153C is invalid as it was a completed assessment and there was no incriminating material for this AY as per assessment order itself.
The whole assessment is invalid and liable to be annulled as approval given by Ld. JCIT u/s 153D of Act was without application of mind for various reasons and also on the ground that it does not bear mandatory DIN as per assessment order itself.
The assessment order is u/s 144 of the Act which is invalid as there was no non- compliance of any notice by LAO justifying for invoking section 144 of the Act. C.O. No. 140/Mum/2025 3 6. It was observed in the assessment order that the assessee was searched. Hence either assessment u/s 1530 of the Act is invalid as it should have been u/s 153A of the Act; or in the alternative, approval u/s 153D of the Act is invalid. 7. The respondent reserves the right to add amend or alter or all the ground of cross objection as above.” 4. Since the cross-objection goes to the root of the matter, we decided to adjudicate it first. The cross objection is barred by limitation. The assessee has requested for condonation of delay. The reasons for delay are mentioned in the application supported by an affidavit on record. The delay is condoned. 5. Briefly stated the facts of the case are that a search and seizure action u/s 132 of the Act was conducted in the Hubtown Group of cases on 30/07/2019 and the family of the assessee are the major promoters of Hubtown Group. The assessee had electronically filed his return of income on 28/08/2018 declaring total income at ₹21,52,740/-. Subsequent to the search operation, notice u/s 153C of the Act was issued to the assessee on 02/09/2021. Though at paragraph 4 of his order, the AO has mentioned that no return pursuant to notice u/s 153C of the Act is available on ITBA portal, but at the time of hearing the assessee has displayed the screenshot of the return filed pursuant to the notice u/s 153C of the Act. Therefore, to this extent the assessment order is factually incorrect and since the AO proceeded with the assumption that no return was filed, no notice u/s 143(2) of the Act was issued and served upon the assessee and the assessment order was framed u/s 144 of the Act.
Be that as it may, a perusal of the orders of the authorities below show that neither the AO of searched person nor the AO of the assessee I.T.A. No. 3042/Mum/2025 C.O. No. 140/Mum/2025 4 had recorded any satisfaction before issuing notice u/s 153C of the Act. This fact has also been accepted by the ld. CIT(A) in his order. Further the entire assessment is devoid of any incriminating material pertaining to the year under consideration.
The fact relating to no satisfaction, has been captured by the ld. CIT(A) at paragraph 6.3.5 of his order where he has mentioned that a remand report was called for to provide copy of satisfaction report along with copy of incriminating material but the same was not sent by the AO.
In the considered opinion of the Bench, recording of satisfaction is a statutory requirement before initiating proceedings against a third party u/s 153C of the Act. The AO must record a clear and specific satisfaction note. This is a jurisdictional requirement. If such satisfaction is not properly recorded any consequent assessment is rendered invalid and liable to be quashed. The satisfaction note should explicitly mention the relevant material found during the search, establish that it pertains to the assessee in question and specify the assessment year concerned. The satisfaction note forms the foundation for assuming jurisdiction u/s 153C of the Act. Thus, recording of satisfaction is not mere procedural formality but a substantive, mandatory and jurisdictional requirement before invoking Section 153C of the Act. As this mandatory requirement has not been complied by the AO, the assessment order is liable to be quashed. As the assessment order is quashed, we do not find it necessary to delve into the other issues. Accordingly, the cross objection C.O. No. 140/Mum/2025 5 filed by the assessee is allowed and the appeal by the revenue is dismissed.
In the result, the cross objection filed by the assessee is allowed and the appeal by the revenue is dismissed.