AO Erred by Recording Consolidated Satisfaction Note for Multiple AY's: ITAT Quashes S.153C Assessment [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) quashed the assessment orders passed under Section 153C for the Assessment Years (AY) 2015-16 and 2016-17, on the fundamental legal ground that the Assessing Officer (AO) had incorrectly recorded a consolidated satisfaction note for multiple Assessment years.

SRS Panchratan Diamonds Pvt. Ltd. (assessee) was subjected to proceedings under Section 153C after a search operation under Section 132 was conducted on the Jindal Bullion Limited (JBL) Group.

During the search, digital data (the 'Hazir Johri' software) was seized, which allegedly contained unaccounted cash transactions between JBL and the assessee for Financial Years 2014-15, 2015-16, and 2016-17.

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The AO recorded a 'Satisfaction Note' for initiating action under Section 153C for the years AY 2011-12 to AY 2017-18. The AO noted that unaccounted cash transactions had been undertaken between the two parties and was satisfied that the seized ledger accounts had a bearing on the total income of the assessee for the specified AYs.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (appeals) [CIT(A)]. The CIT(A) dismissed the appeal and confirmed the AO’s action. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The Counsel for the assessee contended that the AO had recorded a consolidated satisfaction note for Assessment Years 2011-12 to 2017-18 in one go, instead of recording independent and individual satisfaction notes for each assessment year, which is a mandatory requirement of law.

The two-member bench comprising C. N. Prasad (Judicial Member) and M. Balaganesh (Accountant Member) observed the core issue that whether recording a consolidated satisfaction note for various AYs would be fatal to the very assumption of jurisdiction under Section 153C of theIncome Tax Act.

The Tribunal, after considering the conflicting jurisdictional High Court rulings, decided to follow the judgment of the Karnataka High Court in DCIT vs. Sunil Kumar Sharma which was affirmed by the Supreme Court and the jurisdictional Delhi High Court decision in Saksham Commodities Ltd vs. ITO.

The tribunal held that the recording of a consolidated satisfaction note for multiple assessment years by the AO was fatal to the very assumption of jurisdiction and the consequential framing of assessment under Section 153C of the Act.

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The Tribunal quashed the assessments framed under Section 153C for AY 2015-16 and AY 2016-17. The appeal of the assessee was allowed.

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