2024 (11) TMI 1465 - HC - Income Tax

Assessment proceedings completed u/s 158BC (now section 153A) of the Act against the searched person - delay in preparing the satisfaction note and proceeding further against the petitioner - HELD THAT - We find that immediately after the assessment proceedings were completed against the searched person under section 153A of the Act within nine months the satisfaction notice was prepared by the concerned AO. The words immediately after the assessment proceedings as mentioned in the observations of the Hon ble Supreme Court and noted in the circular No.24/2015 issued on 31.12.2015 cannot be read to mean that the same has to be done within a day or two or within a particular period. What is important is that before AO issues a satisfaction note he must look into all the documents and pass a reasoned order. For that purpose considering various aspects certain time should be allowed to be granted to the authorities too and it cannot be a mechanical process. We do not agree that there is any delay in preparing the satisfaction note and proceeding further against the petitioner. Argument raised by petitioner with regard to the 1st proviso to section 153C of the Act relating to the period of six years - There are four different circumstances which are to be taken into consideration for calculation of the period. Since the petitioner has not taken any such objection before the concerned AO we leave it open for the petitioner to raise the said objection at the relevant time as and when if so required and we need not delve on the said issue as the petitioner himself did not take up the said issue before the concerned AO and the AO had no opportunity to pass any order on the said aspect. The proceedings u/s 153C of the Act are comprehensive in nature and the person against whom notice is issued ought to take all the objections and wait for a final decision in the matter. It cannot be said that they are in any manner of such a nature which can affect the day to day functioning of the petitioner and prejudice him. The writ petition in our opinion at this stage would therefore not be required to be entertained except on jurisdictional issue. Since we have noted that there is no jurisdictional error we need not further delve with the petitions. Petitions are accordingly dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the notices issued under section 153C of the Income Tax Act, 1961 ('the Act') to the petitioner were validly issued or were without jurisdiction, particularly in light of the timing of the satisfaction note recording and the issuance of notices after completion of assessment proceedings against the searched person.

(b) Whether the satisfaction note under section 153C of the Act can be validly recorded after a delay exceeding one year from the completion of assessment proceedings against the searched person, in view of circular No.24/2015 and the Supreme Court's judgment in Commissioner of Income-tax III vs. Calcutta Knitwears.

(c) Whether the limitation period of six years prescribed under the proviso to section 153C of the Act bars the initiation of assessment proceedings for the relevant assessment years, as argued by the petitioner relying on the Supreme Court's judgment in Commissioner of Income-tax vs. Jasjit Singh.

(d) Whether the petitioner's objections regarding delay in issuance of notice and limitation period were properly raised and adjudicated upon by the Assessing Officer, and the implications of non-raising certain objections before the AO on the petitioner's entitlement to relief before the High Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of issuance of notice under section 153C and timing of satisfaction note

Relevant legal framework and precedents: Section 153C of the Income Tax Act empowers the Assessing Officer (AO) to initiate proceedings against a person other than the searched person based on documents or assets seized during a search under section 132. The satisfaction note recording the reasons for initiating such proceedings is a pre-condition for issuing notice under section 153C. The Supreme Court in Commissioner of Income-tax III vs. Calcutta Knitwears (2014) emphasized the requirement of recording satisfaction and the timing thereof. Circular No.24/2015 issued by the Ministry of Finance provides that the satisfaction note can be recorded at three stages: (a) at or along with initiation of proceedings against the searched person under section 158BC (now section 153A), (b) during the assessment proceedings under section 158BC, or (c) immediately after completion of such proceedings.

Court's interpretation and reasoning: The Court examined the timeline: the search was conducted on 28.01.2021; assessment proceedings against the searched person were completed in September 2022; the AO of the searched person recorded satisfaction on 07.06.2023; the AO of the petitioner recorded satisfaction on 31.10.2023; and the notice under section 153C was issued on 30.03.2024. The Court held that the phrase "immediately after the assessment proceedings" does not require the satisfaction note to be recorded within a day or two but allows reasonable time for the AO to examine seized documents and pass a reasoned order. The Court rejected the petitioner's contention that the satisfaction note was belated and held that the nine-month period post-completion of assessment proceedings was permissible and not a mechanical or rigid timeframe.

Key evidence and findings: The sequence of events and dates of satisfaction notes and notice issuance were critical. The AO's reasoned satisfaction note dated 31.10.2023 was within a reasonable period after completion of assessment proceedings in September 2022.

Application of law to facts: Applying the principles from the Supreme Court judgment and the Ministry's circular, the Court found no jurisdictional error or procedural lapse in issuing the notice under section 153C after the satisfaction note was recorded within a reasonable timeframe.

Treatment of competing arguments: The petitioner's argument rested on a strict interpretation of "immediately" and the circular's directions. The Court balanced the need for procedural fairness against practical considerations of time required for examination of seized material, rejecting a rigid timeline.

Conclusion: The issuance of notice under section 153C was valid and not barred by any delay in recording the satisfaction note.

Issue (c): Limitation period under proviso to section 153C

Relevant legal framework and precedents: The proviso to section 153C refers to the period of limitation for initiating proceedings against the "other person" and provides that the date of initiation of search or requisition under section 132/132A shall be construed as the date of receiving the seized books of account or documents by the AO having jurisdiction over such other person. The Supreme Court judgment in Commissioner of Income-tax vs. Jasjit Singh (2023) clarified the application of limitation periods in such cases.

Court's interpretation and reasoning: The Court noted that the petitioner had not raised the limitation objection before the AO, and therefore the AO had not adjudicated on this issue. The Court held that since the petitioner failed to raise this objection at the appropriate stage, it cannot be entertained at this writ petition stage. The Court left the petitioner free to raise the limitation objection at the relevant time before the AO or appellate authorities.

Key evidence and findings: The absence of any objection or order on limitation from the AO was decisive.

Application of law to facts: The Court applied the principle that objections must be raised before the AO to enable adjudication and that failure to do so precludes raising them later in writ proceedings.

Treatment of competing arguments: The petitioner's reliance on the limitation period was acknowledged but held premature and procedurally improper at this stage.

Conclusion: The limitation objection was not adjudicated and was left open for future consideration; it was not a ground for quashing the present notices.

Issue (d): Jurisdictional error and scope of writ petition

Relevant legal framework: The scope of judicial review in writ petitions challenging income tax proceedings is generally limited to jurisdictional errors and procedural irregularities. The Court must ensure that the AO acts within the statutory framework and does not exceed jurisdiction.

Court's interpretation and reasoning: The Court found no jurisdictional error in issuing the notices under section 153C. The petitioner's objections related to delay and limitation were either addressed or not raised before the AO. The Court emphasized that proceedings under section 153C are comprehensive and the petitioner must raise all objections and await final adjudication.

Key evidence and findings: The AO's reasoned satisfaction note and the procedural compliance with statutory requirements negated any jurisdictional defect.

Application of law to facts: The Court applied the principle that writ petitions are not a substitute for statutory remedies and should not be entertained unless jurisdictional errors exist.

Treatment of competing arguments: The petitioner's contention that the notices affected day-to-day functioning was rejected as the Court found no prejudice or irreparable harm.

Conclusion: The writ petitions were dismissed as there was no jurisdictional infirmity warranting interference.

3. SIGNIFICANT HOLDINGS

"The words 'immediately after the assessment proceedings' as mentioned in the observations of the Hon'ble Supreme Court and noted in the circular No.24/2015 issued on 31.12.2015 cannot be read to mean that the same has to be done within a day or two or within a particular period. What is important is that before AO issues a satisfaction note, he must look into all the documents and pass a reasoned order. For that purpose, considering various aspects, certain time should be allowed to be granted to the authorities too, and it cannot be a mechanical process."

This principle establishes that the timing for recording satisfaction under section 153C is flexible and must be understood in a practical context allowing reasonable time for examination of seized material.

"Since the petitioner has not taken any such objection [relating to limitation] before the concerned AO, we leave it open for the petitioner to raise the said objection at the relevant time as and when, if so required, and we need not delve on the said issue as the petitioner himself did not take up the said issue before the concerned AO, and the AO had no opportunity to pass any order on the said aspect."

This holding underscores the procedural requirement that objections must be raised before the AO to be considered and that failure to do so precludes raising them at the writ petition stage.

Final determinations:

(i) Notices under section 153C issued after recording of satisfaction note within a reasonable period post-assessment proceedings completion are valid and not barred by delay.

(ii) Limitation objections under proviso to section 153C must be raised before the AO and cannot be entertained for the first time in writ petitions.

(iii) No jurisdictional error was found in issuance of notices; hence, writ petitions challenging them on these grounds were dismissed.