ITAT Quashes Section 153C Income Tax Assessments for Lack of Proper Satisfaction Recorded by Assessing Officer [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘F’, has allowed the appeals by quashing the assessments framed under Section 153C r.w.s. 143(3) of the Income Tax Act, 1961. The Tribunal held that the Assessing Officer (AO) failed to record a valid satisfaction note, a prerequisite for proceeding against a third party under Section 153C of the act.

The AO had incorrectly recorded that the seized documents "belonged to" the assessees, whereas the statutory amendment to Section 153C(1) via the Finance Act 2015 requires that documents must only "pertain to" or "relate to" the third party.

Bhartiya International Ltd. and Avni Polymers Pvt. Ltd., the appellants filed the appeal against the revenue. The Revenue argued that the facts and circumstances should be considered over the grammatical expression used. However, the Tribunal, relying on its recent decision in Narender Nath Vs. DCIT, rejected this contention. The Bench noted that the Revenue could not dispute that documents are treated differently from money or bullion under the law, and thus, the AO's satisfaction regarding documents "belonging" to the third party was legally insufficient to initiate proceedings.

The Coram of Satbeer Singh Godara (Judicial Member) and M. Balaganesh (Accountant Member) observed that since the impugned assessments were based on an improper Section 153C satisfaction, they deserved to be quashed.

The bench observed that there is hardly any dispute that the departmental authorities had carried out the impugned search on 23.03.2021 in M/s KK Spun Group. And that the said searched party’sAssessing Officer recorded his section 153C satisfaction dated 25.02.2023 for proceeding against assessee/appellant before us. The said Assessing Officer appears to have recorded that the corresponding seized document during the course of search “belonged to” the assessee/appellant who happens to be the third party under section 153C of the Act.

Following judicial consistency and finding no exceptions in law or facts, the ITAT set aside the assessments for Assessment Years 2018-19 and 2019-20, rendering all other grounds academic. All three appeals were allowed accordingly.

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