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2025 (7) TMI 1043 - AT - Income TaxValidity of notice u/s.153C - period of limitation - reckoning date of proceedings - HELD THAT - We find that date of search in the case of SMC Global Securities Ltd. was 20.07.2018 and the date of satisfaction note recorded in the case of the appellant was 10.06.2021. The AO has issued notice u/s. 153C for 7 years from AY 2013-14 to AY 2019-20 based on date of search. It is now settled law that for initiating the proceedings u/s. 153C the date has to be reckoned from the date of recording of satisfaction note. The date of recording of satisfaction note in the present case is 10.06.2021 (FY 2021-22 i.e. AY 2022-23) and the 6 years which could have been taken up for assessment u/s. 153C are AY 2016-17 to AY 2021-22. Accordingly the notice u/s. 153C for AY 2015-16 could not have been issued by the AO and the same is barred by limitation. The issue is no longer res integra as it is covered by Apex Court decision in the case Jasjit Singh 2023 (10) TMI 572 - SUPREME COURT Accordingly applying the ratio of aforesaid judgment to the assessee s case the initiation of proceedings u/s. 153C for AY 2015-16 is without jurisdiction and barred by limitation. Thus the proceedings initiated and assessment order passed u/s. 153C for the year under consideration is also liable to be quashed as null and void. Assumption of jurisdiction u/s 153C - legal infirmities in recording the satisfaction note by the AO which is claimed to be foundation for assumption of jurisdiction u/s 153C - Mere drawing of a perfunctory satisfaction without meeting basic ingredients of providing some tangible descript information and application of mind thereon has no standing in law and would not confer drastic jurisdiction of assessment u/s 153C of the Act on a person other than searched person. The jurisdiction assumed based on such lackadaisical satisfaction note beset with vital infirmities cannot be countenanced in law. The objections raised on behalf of the assessee towards lack of jurisdiction based on a cryptic and non-descript satisfaction thus deserves to be sustained. While recording a consolidated satisfaction note is not a bar in law per se as rightly contended on behalf of the revenue but however in the same vain the documents/assets searched need to be specified against each year covered in the satisfaction note to depict application of mind and initiation of action under section 153C of the Act qua such assessment years. The AO has apparently failed to do so in the present case. As a corollary the notice issued under section 153C of the Act and consequent assessment order passed under section 153C of the Act is vitiated in law and thus deserves to be quashed. In this view of the matter the jurisdiction assumed under section 153C of the Act based on vague and non-descript satisfaction note is vitiated at the threshold. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in the appeals for assessment years 2015-16 and 2016-17 are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity and limitation of notice issued under section 153C for AY 2015-16 Legal Framework and Precedents: Section 153C empowers the AO to initiate assessment proceedings in the case of a person other than the searched person if incriminating material is found during search on the searched person. The limitation period for issuance of notice under section 153C is six years from the date of recording the satisfaction note, not from the date of search. The Supreme Court's decision in CIT vs. Jasjit Singh (2023) clarified that the limitation period for proceedings under section 153C commences from the date of recording the satisfaction note and not the date of search. Court's Reasoning and Findings: The date of search in the case of the searched person (SMC Global Securities Ltd.) was 20.07.2018, but the satisfaction note in the assessee's case was recorded on 10.06.2021 (FY 2021-22, AY 2022-23). Hence, the AO could only issue notices for assessment years falling within six years from the satisfaction note date, i.e., AY 2016-17 to AY 2021-22. The notice for AY 2015-16 was therefore barred by limitation and without jurisdiction. Application of Law to Facts: The AO issued notice under section 153C for AY 2015-16, which was outside the limitation period reckoned from the satisfaction note date. The Court relied on the Apex Court ruling in CIT vs. Jasjit Singh to hold the notice for AY 2015-16 invalid and the consequent assessment order void. Treatment of Competing Arguments: The Revenue did not controvert the limitation argument. The Court gave effect to binding Supreme Court precedent. Conclusion: The notice under section 153C for AY 2015-16 was barred by limitation and without jurisdiction. The assessment order for AY 2015-16 is quashed and the appeal allowed. Issue 2: Validity and sufficiency of the satisfaction note recorded under section 153C for AY 2016-17 Legal Framework and Precedents: Section 153C requires the AO of the searched person to record a satisfaction note specifying the incriminating material found that relates to the other person (assessee) and its bearing on the determination of income for specific assessment years. The satisfaction note is the foundational document conferring jurisdiction on the AO of the other person. It must be specific, year-wise, and supported by application of mind. The Supreme Court in CIT vs. Sunil Kumar Sharma (2024) and the Karnataka High Court have held that consolidated satisfaction notes covering multiple years without year-wise analysis are invalid. The Delhi High Court in Sakham Commodities Ltd. vs. ITO and the Supreme Court in Sinhgad Technical Education Society have emphasized that jurisdiction under section 153C can only be exercised for years to which incriminating material relates, with proper reasons recorded for multiple years. Court's Interpretation and Reasoning: The satisfaction note in the present case was a consolidated note covering AYs 2013-14 to 2019-20 without year-wise analysis or identification of incriminating material related to each year. The assessee company was incorporated only in 2013 and did not exist in earlier years included in the satisfaction note. The AO failed to relate documents or seized material to specific assessment years or provide details of transactions. The satisfaction note was generic, cryptic, and lacked application of mind, making it legally infirm. Key Evidence and Findings: The satisfaction note merely stated that certain digital data seized during search in the searched person's case related to the assessee and had bearing on determination of income for multiple years. No detailed description or year-wise analysis was provided. The AO did not obtain separate approvals under section 153D for each year nor issue separate notices. The Court relied on binding precedents including the Supreme Court's dismissal of Special Leave Petition in CIT vs. Sunil Kumar Sharma and ITAT decisions quashing assessments based on similar defective satisfaction notes. Application of Law to Facts: The AO's failure to record a valid satisfaction note with requisite particulars and year-wise analysis vitiated the assumption of jurisdiction under section 153C. The notice and assessment order based on such defective satisfaction note are without legal foundation. Treatment of Competing Arguments: The Revenue contended that consolidated satisfaction notes are permissible, but the Court held that while consolidation per se is not barred, it must still specify documents/assets against each year to show application of mind. The assessee's arguments were supported by authoritative case law and the Court found the Revenue's contentions insufficient. Conclusion: The satisfaction note was invalid and jurisdiction under section 153C was not lawfully assumed. The notice and assessment order for AY 2016-17 are quashed. The appeal is allowed. Issue 3: Merits of additions made under sections 68 and 69A in AY 2016-17 Legal Framework: Additions under section 68 relate to unexplained cash credits, while section 69A pertains to undisclosed money found during search. The assessee challenged the additions on merits, relying on earlier orders where additions were deleted by CIT(A) and the ITAT upheld such deletion. The assessment of the lender company was also complete without adverse inference. Court's Reasoning: The Court noted that the AO had already made additions in the original assessment order post-search, which were deleted by the CIT(A) and upheld by the ITAT. No adverse finding was made against the lender company. The Revenue did not controvert this submission. Conclusion: The additions made under sections 68 and 69A are unsustainable and liable to be deleted. 3. SIGNIFICANT HOLDINGS "The date of recording of satisfaction note is the relevant date for limitation under section 153C and the AO cannot issue notice for years beyond six years from such date. The notice issued for AY 2015-16 being outside limitation is without jurisdiction and void." "A satisfaction note under section 153C must be specific, year-wise, and supported by application of mind relating to incriminating material found during search. A consolidated satisfaction note covering multiple years without such particulars is invalid and vitiates jurisdiction." "The jurisdiction under section 153C cannot be exercised arbitrarily or mechanically. The satisfaction note is a foundational document that must enable judicial scrutiny and accountability. Failure to comply with these requirements renders the assessment proceedings void." "Additions under sections 68 and 69A made in assessment proceedings initiated under section 153C are liable to be deleted if earlier appellate orders have set aside such additions and no adverse inference is drawn against the lender or source." "The Court held: 'The jurisdiction assumed based on such lackadaisical satisfaction note beset with vital infirmities cannot be countenanced in law. The notice issued under section 153C and consequent assessment order passed is vitiated in law and thus deserves to be quashed.'" "The appeals for assessment years 2015-16 and 2016-17 are allowed with directions to quash the assessment orders passed under section 153C."
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