Assessments u/s 153C Quashed: ITAT Rules Notices for AY 2008-09 to 2012-13 Invalid Due to Limitation and Lack of Valid Satisfaction [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has invalidated assessment proceedings initiated under Section153C of the Income Tax Act, 1961 for Assessment Years (AY) 2008-09 to 2012-13 due to the notices being barred by limitation and lacking valid satisfaction as required under the law.

Prema Devi (assessee) representing the estate of her late husband, faced assessment proceedings following a search conducted under Section 132 of the Act on 22.05.2012 at the premises of Shri D. Shanthilal.

During the search, a diary was seized from Prema Devi’s residence, which the Assessing Officer (AO) alleged belonged to the deceased assessee, Dharnichand Jain. The AO issued Notices under Section 153C for AY 2008-09 to 2012-13, leading to assessment orders which made additions to the assessee’s income.

Aggrieved by the AO’s orders, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the assessments being time-barred, lack of incriminating evidence, and improper invocation of Section 153C due to an invalid satisfaction note.

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The CIT(A) upheld the AO’s orders. Aggrieved by the CIT(A)’s orders, the assessee filed an appeal before ITAT.

The assessee’s counsel contended that the notice for AY 2008-09 was issued beyond the six-year limitation period, as the satisfaction note was recorded on 23.09.2014, falling within AY 2015-16.

The counsel argued for AY 2009-10 to 2012-13, that the satisfaction note failed to meet the statutory requirements under Section 153C, as it lacked independent analysis and merely relied on statements from third parties (Shri Shanthilal and Smt. Prema Devi) without establishing that the diary belonged to the deceased.

The counsel cited judicial precedents, including the Supreme Court’s rulings in CIT v. Calcutta Knitwears (2014) and CIT v. Jasjit Singh (2023), which emphasize the necessity of a valid satisfaction note and adherence to limitation periods.

The Two-member bench comprising Shri S.S. Viswanethra Ravi (Judicial Member) and S. R. Raghunatha (Accountant Member) observed that for AY 2008-09, the notice under Section 153C was issued beyond the permissible six-year period, as the satisfaction note fell outside the statutory limit.

The Tribunal relied on the Supreme Court’s decision in CIT v. Calcutta Knitwears and held that the notice and subsequent assessment order for AY 2008-09 were barred by limitation and void ab initio.

The Tribunal found the satisfaction note deficient for AY 2009-10 to 2012-13, . It noted that the AO failed to independently verify that the seized diary belonged to the assessee or contained incriminating material.

The tribunal observed that the note merely recorded third-party statements without establishing a nexus between the seized material and undisclosed income. It quashed the assessment orders for all five assessment years, ruling that the notices under Section 153C and the consequential assessments were bad in law. The appeals of the assessee were allowed.

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