Satisfaction note is Mandatory Requirement in case of Searched Person before Acquiring Jurisdiction u/s 153C of Income Tax Act: ITAT [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that the satisfaction note has been a mandatory requirement in case of a searched person before acquiring jurisdiction under Section 153C of the Income Tax Act 1961.

The assessee,L. Ammini was a resident individual engaged in business under proprietorship concern by the name Jayakumar Textiles. A search was conducted by the department on 10-01-2012 at residential premises of one Madanlal D. Chawla of Salem. During the search, a copy of Sale Agreement was found which was entered into between Shri Sanjay M. Chawla s/o  Madan Lal D. Chawla and the assessee.

The document was seized. Upon perusal of this document, AO arrived at a conclusion that real estate profit of Rs.17 Lacs was unaccounted income of the assessee. Accordingly, notice under Section 153C of the Income Tax Act was issued and the assessee was directed to file the requisite details. After considering assessee’s submissions, AO made certain additions on account of income from land sale and property sale. Similar assessments were framed for AYs 2011-12 and 2012-13.

T.S.Lakshmi Venkataraman, in the absence of any satisfaction note recorded by  AO of the searched person, framing of assessment under Section 153C of the Income Tax Act was bad in law. He relied on the decision of the Supreme Court in the case of Super Malls Pvt. Ltd. Vs. PCIT dated 05-03-2020 which had considered its earlier decision passed in CIT vs. Calcutta Knitwears.

He also relied on Central Board of Direct Tax (CBDT) Circular No.24/2015 dated 31-12- 2015 which stated that for the purpose of Section 158BD, of the Income Tax Act the recording of satisfaction was prerequisite and satisfaction note must be prepared by AO before he transmitted the record to the other AO who had jurisdiction over such person. The CBDT had also accepted the position that this principle would apply to proceedings under Section 153C of the Income Tax Act also.

R.Clement Ramesh Kumar, appeared on behalf of the revenue on the other hand, submitted that AO of searched person as well as the present assessee was same and satisfaction note had been recorded in the case of the assessee which was sufficient compliance of law.

The two-member Bench of V. Durga Rao, (Judicial Member) and Manoj Kumar Aggarwal, (Accountant Member) observed that no satisfaction note had been recorded by AO of the searched person Madanlal D. Chawla but the same had been recorded only in case of assessee for whom an assessment had been framed under Section 153C of the Income Tax Act.

The Bench further observed that, “The primary requirement is that AO of the searched person should record satisfaction before transmitting the record to another person having jurisdiction over such other person under Section158BD. This requirement would apply even if the AO of the searched person as well as the other person is one and the same. It is quite clear that such a satisfaction note could be prepared by AO of the person searched at various stages of framing of assessment under Section 158BC. Therefore, in our considered opinion, in the absence of a satisfactory note in the case of a searched person, the proceedings under Section 153C would be vitiated by law.”

The Bench allowed this ground of appeal filed by the assessee holding that the satisfaction note in case of searched person was a mandatory requirement before acquiring jurisdiction under Section 153C of the Income Tax Act.

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