S.153C Income Tax Act | Gujarat High Court Quashes Assessment Proceedings Citing 2-Yr Delay & Lack Of Date In 'Satisfaction Note'

The Gujarat High Court quashed a Section 153C Income Tax Act proceedings against a company after noting that the assessing officer's satisfaction note did not bear any date and that the note, though recorded in 2022 was "supplied" to the company only in 2024 i.e., after a delay of two years without any explanation. 

For context, Section 153C empowers the tax authority to assess the income of any person whose documents or assets are found during a search or seizure operation on a different person (searched person). 

The petitioner company had on 09.03.2017 filed its revised return of income for the A.Y 2015-16 declaring its income of Rs. Nil. On 25.06.2018, a search was carried out in case of M/s.World Window Group (searched person). It was the case of the petitioner-Company that it has not undertaken any kind of business or transaction with M/s World Window Group (searched person) more particularly, between the period of F.Y 2012-13 to F.Y. 2018-19. The petitioner-company was issued notice dated 24.06.2022 under Section 153(C) of the IT Act and accordingly, the petitioner-company filed its reply on 22.07.2022.

It was submitted that the satisfaction note of the searched person i.e. M/s.World Window Group was recorded on 06.05.2022 and the petitioner-company has been conveyed the satisfaction note on 30.05.2024, i.e. beyond the reasonable period of limitation. 

A division bench of Justice AS Supehia and Justice Pranav Trivedi in its order noted:

"The search was conducted on M/s World Window Group on 25.06.2018 and a satisfaction note was recorded on 06.05.2022 of the searched person. It is the case of the respondent that the Assessing Officer of the searched person forwarded the materials to the jurisdictional Assessing Officer of present petitioner-company on 17.05.2022 and he recorded the satisfaction note on 23.06.2022. We have perused the satisfaction note recorded by the Assessing Officer of the present petitioner-company. It is apparent and admitted by the respondent that the satisfaction note recorded by the Assessing Officer of the petitioner does not bear any date. It is also established on record and not disputed that the said satisfaction note was supplied to the petitioner-company on 30.05.2024, i.e. after a period of two years. No explanation is coming forward about the intervening period of delay".

The bench referred to Supreme Court's decision in Commissioner of Income-Tax-III vs. Calcutta Knitwears (2014) which held that for the purpose of Section 158BD a satisfaction note can be prepared by the Assessing Officer at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC, (b) along with the assessment proceedings under Section 158BC; and (c) immediately after the assessment proceedings are completed under Section 158BC of the searched person.

The bench noted that the Central Board of Direct Taxes had in view of the Supreme Court ruling issued a Circular in 2015 in light of the provisions of Section 153C clarifying the recording of the satisfaction note at three stages.

"Thus, in the instant case, it is established that the satisfaction note of the jurisdictional Assessing Officer of the petitioner-company does not bear any date and over and above the same, it is also established that it has been supplied to the petitioner on 31.05.2024 i.e. after passage of more than two years. Hence, on both the counts, the impugned notice dated 24.06.2022 issued under Section 153(C) of the IT Act for the A.Y. 2015-16 becomes vulnerable, hence the impugned notice along with all the consequential proceedings are hereby quashed and set aside," the bench said. 

The plea was allowed.

Case title: VIRAT ALLOYS PRIVATE LIMITED v/s  OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE , GANDHINAGAR 

R/SPECIAL CIVIL APPLICATION NO. 5039 of 2024 and connected petitions

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