2024 (6) TMI 1462 - HC - Income Tax

Validity of reassessment proceedings - Issue the satisfaction note w/o DIN number to the assessee at the time of issuance of notice for reassessment - as argued in absence of date or DIN number in the satisfaction note as per the Circular No. 19/2019 dated 14.8.2019 issued CBDT the initiation of the reassessment proceedings would be vitiated and the satisfaction note shall be deemed to have been never issued. HELD THAT - On perusal of the section 148 there is no provision to give a copy of satisfaction note recorded by the AO along with the notice u/s 148. AO has uploaded the satisfaction note which is an internal communication sent along with the proposal which is evident from the communication addressed by the AO to the PCIT which clearly shows the enclosure as a satisfaction note. The said satisfaction note therefore cannot be said to be communication as contemplated under the Circular No.19/2019 and even otherwise the same can be regularized by issuing the copy of the said satisfaction note with DIN number which would be a procedural aspect for issuing notice u/s 148 of the Act which already contains the DIN number and date. With regard to the contention raised on behalf of the petitioner that there was inordinate delay in sending the proposal for reopening the assessment on the basis of the search conducted in the year 2021 as such there is no time limit prescribed for initiation of the reassessment proceedings. The reliance placed on Circular No. 24/2015 dated 31.12.2015 is concerned the same is issued by the CBDT in relation to the recording of the satisfaction of the AO of the searched person either and the time limit is prescribed for recording satisfaction of AO of searched person either at the time along with the initiation of proceedings against the searched person u/s 158BC or during the course of the assessment proceedings u/s 158BC or immediately after the assessment proceedings are completed under Section 158BC of the Act. Therefore such guidelines would not apply for recording of the satisfaction note in case of the person other than the searched person on the basis of the materials seized or found during the course of the search. The reliance placed on behalf of the petitioner on the decision Ashok Commercial Enterprise 2023 (9) TMI 335 - BOMBAY HIGH COURT also provides for regularization of the satisfaction note by issuing the DIN number which learned advocate for the Revenue has agreed and has undertaken to issue the satisfaction note with DIN number to the assessee at the time of issuance of notice for reassessment or as may be requested by the assessee. No interference is called for in the impugned notice issued u/s 148.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the satisfaction note recorded by the Assessing Officer, which lacks a date and Document Identification Number (DIN), complies with the requirements under Circular No. 19/2019 issued by the Central Board of Direct Taxes (CBDT), and whether its absence vitiates the initiation of reassessment proceedings under Section 148 of the Income Tax Act, 1961 (the Act).
• Whether the satisfaction note must specifically reference the petitioner or the incriminating material found during the search to confer jurisdiction for reopening the assessment under Section 147 of the Act.
• Whether the delay between the search conducted in 2021 and the initiation of reassessment proceedings in 2024 constitutes inordinate delay rendering the reassessment invalid.
• Whether the provisions and procedural requirements applicable to satisfaction notes and reassessment notices under the earlier regime (prior to 1.4.2021) apply to the present case, given the amendments to Section 148 and introduction of Section 148A of the Act.
• Whether the satisfaction note uploaded on the portal constitutes a communication to the assessee, and if not, whether it can be regularized by issuance of a dated and DIN-bearing document.
• Whether the impugned notice under Section 148 of the Act is without jurisdiction and liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Satisfaction Note Without Date and DIN under Circular No. 19/2019

Relevant legal framework and precedents: Circular No. 19/2019 mandates that all communications including satisfaction notes must bear a date and DIN to create an audit trail and to be legally valid. The CBDT Circular is binding under Section 119 of the Act. The Hon'ble Bombay High Court in Ashok Commercial Enterprises held that failure to comply with this requirement renders the communication invalid and deemed never issued.

Court's interpretation and reasoning: The petitioner contended that the satisfaction note lacked date and DIN, violating the Circular, thus vitiating the reassessment proceedings. The Court acknowledged the importance of the Circular and the object of ensuring procedural regularity and audit trail. However, the Court observed that the satisfaction note in the present case was an internal communication and not a formal communication to the assessee as contemplated by the Circular.

Key evidence and findings: The satisfaction note was uploaded on the portal without date and DIN. The respondent undertook to regularize the satisfaction note by issuing a dated and DIN-bearing copy.

Application of law to facts: Since Section 148 of the Act does not mandate issuance of the satisfaction note to the assessee along with the notice, and the notice itself bore a date and DIN, the absence of these particulars in the satisfaction note was a procedural lapse that could be cured by regularization.

Treatment of competing arguments: The petitioner relied on the binding nature of the Circular and judicial precedents to argue invalidity. The respondent argued the satisfaction note was an internal document and the notice under Section 148 complied with procedural requirements. The Court accepted the respondent's submission and held that the satisfaction note could be regularized and did not vitiate the proceedings.

Conclusion: The absence of date and DIN in the satisfaction note does not invalidate the reassessment notice under Section 148, provided the notice itself complies with procedural requirements and the satisfaction note is regularized.

Issue 2: Requirement of Specific Reference to Petitioner or Incriminating Material in Satisfaction Note

Relevant legal framework and precedents: The satisfaction note is required to record the Assessing Officer's satisfaction that income has escaped assessment based on material found during search. Earlier CBDT Circular No. 24/2015 and Supreme Court precedent in Calcutta Knitwears emphasized the need for clear recording of satisfaction in search cases.

Court's interpretation and reasoning: The petitioner argued that the satisfaction note did not refer to the petitioner or any incriminating material found during search, thus lacking jurisdiction. The Court examined the scheme of Section 148 post-amendment and noted the shift from block assessments and reliance on Sections 153A and 153C to a composite scheme under Section 148 and 148A.

Key evidence and findings: The satisfaction note was part of the internal proposal to the Principal Commissioner of Income Tax, and the notice under Section 148 was issued based on the recorded satisfaction.

Application of law to facts: The Court held that the satisfaction note need not necessarily be communicated to the assessee or contain detailed references, as it is an internal document evidencing the Assessing Officer's satisfaction. The jurisdiction to issue notice under Section 148 arises from the Assessing Officer's satisfaction recorded in accordance with law.

Treatment of competing arguments: Petitioner's contention of lack of jurisdiction was rejected on the ground that the satisfaction note is an internal document and the notice under Section 148 was validly issued.

Conclusion: The satisfaction note need not specifically reference the petitioner or incriminating material in the communication to the assessee; the Assessing Officer's recorded satisfaction suffices for jurisdiction.

Issue 3: Delay in Initiation of Reassessment Proceedings

Relevant legal framework and precedents: The petitioner relied on Circular No. 24/2015 and judicial precedents requiring timely recording of satisfaction and initiation of proceedings post-search. The time limits under Section 149(1)(b)(3) of the Act prescribe the period for issuance of notice under Section 148.

Court's interpretation and reasoning: The Court noted that the Circular No. 24/2015 and related precedents relate to the earlier regime under Section 158BC and Section 153C applicable before 1.4.2021. The present case is governed by the amended provisions effective from 1.4.2021, which introduced a new scheme under Section 148 and 148A.

Key evidence and findings: The search was conducted on 24.8.2021, and the notice under Section 148 was issued on 26.3.2024, within the time prescribed under Section 149(1)(b)(3).

Application of law to facts: The Court held that no specific time limit is prescribed for recording the satisfaction note for persons other than the searched person. The issuance of notice within the statutory time limit under Section 149 suffices.

Treatment of competing arguments: The petitioner's argument of inordinate delay was rejected as inapplicable to the present statutory scheme.

Conclusion: The delay in sending the proposal for reopening does not invalidate the reassessment proceedings if the notice under Section 148 is issued within the prescribed time limit.

Issue 4: Applicability of Earlier Circulars and Precedents to Present Reopening Scheme

Relevant legal framework and precedents: The petitioner relied on Circular No. 24/2015 and the Supreme Court decision in Calcutta Knitwears, which relate to provisions prior to 1.4.2021.

Court's interpretation and reasoning: The Court observed that the present reassessment scheme under Section 148 and 148A represents a paradigm shift from earlier block assessments and provisions under Sections 153A and 153C. The earlier Circulars and judicial decisions are not strictly applicable to the present scheme.

Application of law to facts: The Court distinguished the present case from the earlier regime and held that the procedural requirements under the new scheme govern the validity of the reassessment notice.

Conclusion: Earlier Circulars and precedents do not govern the present reassessment proceedings initiated under the amended provisions effective from 1.4.2021.

Issue 5: Whether the Satisfaction Note Uploaded on Portal Constitutes Communication to Assessee

Relevant legal framework and precedents: Circular No. 19/2019 requires communications to bear date and DIN. The satisfaction note is an internal communication evidencing Assessing Officer's satisfaction.

Court's interpretation and reasoning: The Court held that the satisfaction note uploaded on the portal is not a formal communication to the assessee but an internal document. The notice under Section 148, which is the formal communication, bears the date and DIN.

Application of law to facts: The procedural lapse in the satisfaction note can be regularized by issuance of a dated and DIN-bearing copy, which the respondent undertook to do.

Conclusion: The satisfaction note uploaded on the portal does not constitute communication to the assessee and can be regularized without vitiating the proceedings.

Issue 6: Jurisdiction and Validity of the Impugned Notice under Section 148

Relevant legal framework and precedents: Section 148 requires prior approval of specified authority and satisfaction that income has escaped assessment. The notice must be issued within prescribed time limits.

Court's interpretation and reasoning: The Court found that the Assessing Officer had recorded satisfaction and obtained prior approval. The notice under Section 148 was issued within the prescribed time limit and bore date and DIN.

Application of law to facts: The impugned notice was validly issued and the procedural defects in the satisfaction note do not render the notice without jurisdiction.

Treatment of competing arguments: The petitioner's challenge on jurisdiction was rejected.

Conclusion: The impugned notice under Section 148 is valid and not without jurisdiction.

3. SIGNIFICANT HOLDINGS

"On first blush it appears that the satisfaction note uploaded on the portal being without date and DIN number, would invalidate and vitiate the entire reassessment proceedings and the impugned notice under Section 148 of the Act would be without jurisdiction."

"...the satisfaction note is an internal communication sent along with the proposal... The said satisfaction note therefore, cannot be said to be communication as contemplated under the Circular No.19/2019 and even otherwise the same can be regularized by issuing the copy of the said satisfaction note with DIN number which would be a procedural aspect for issuing notice under Section 148 of the Act which already contains the DIN number and date."

"...the Circular No. 24/2015 issued by the CBDT in relation to the recording of the satisfaction of the Assessing Officer of the searched person... such guidelines would not apply for recording of the satisfaction note in case of the person other than the searched person on the basis of the materials seized or found during the course of the search."

"...the impugned notice under Section 148 of the Act was issued within the time limit prescribed and that is not even objected by the assessee."

"In view of the foregoing reasons, no interference is called for in the impugned notice issued under Section 148 of the Act. The petition therefore being devoid of any merit is accordingly dismissed."

Core principles established include:

• The satisfaction note is an internal document and need not be communicated to the assessee with date and DIN, though such procedural lapses can be cured by regularization.
• The amended provisions under Section 148 and 148A of the Act post 1.4.2021 constitute a new scheme of reassessment distinct from earlier block assessment and Sections 153A/153C regime.
• Delay in initiation of reassessment proceedings post-search is permissible within the statutory time limits prescribed under the amended provisions.
• The impugned notice under Section 148, if issued with prior approval and within time limits, is valid notwithstanding procedural irregularities in the satisfaction note.