Ori HC | Absence of satisfaction note recorded by AO in case of searched person makes the assessment under S. 153 C of IT Act, 1961 invalid

Orissa High Court: A Division bench of S. Muralidhar CJ and B.P Routray J. allowed the petition and sets aside the impugned assessment order and the consequential demand order being unsustainable in law.

 The background facts are that the Petitioner firm is engaged in the business of manufacturing/processing of cashew nuts into cashew kernel. It filed its original return of income on 18-10-2016 for the AY 2016-17 declaring the total income at Rs 8,94,1000/-. The Authorized Officer undertook a survey operation under Section 133A of the Act and instead of survey assessment Opposite Party 2 invoked the jurisdiction under Section 153C of the Act for making a block assessment for the AYs 2010-11 to 2016-17. The challenge in the present writ petition is to an assessment order dated 29-12-2017 passed by the Assistant Commissioner of Income Tax, Central Circle-I, Bhubaneswar (Opposite Party 2) under Section 143(3) read with Section 153 C of the Income Tax Act, 1961 (‘Act’) for the Assessment Year (AY) 2016-17 and the second notice of demand of the same date issued by the Opposite Party 2 under Section 156 of the Act calling upon the Petitioner to pay a sum of Rs 7,71,81,350/-.

Counsel for the petitioner Mr S. Ray, submitted that there was no recording of satisfaction by the AO of the searched Persons and the materials seized during the said search revealed the undisclosed income of the present Petitioner and no such note of satisfaction was transmitted to the AO having jurisdiction to assess the present Petitioner under Section 153C of the Act. It was further submitted that even the assessment orders passed under Sections 153A in respect of the searched persons do not indicate that any incriminating materials vis-à-vis the present Petitioner was found during the course of search.

The Court observed that in the present case the documents relied upon by the AO were found in the course of survey of the Petitioner and not during the search of the aforementioned two persons viz., Sri Jami Ramesh and Sri Jami Sivasai against whom the search authorization was issued under Section 132 of the Act.

The Court relied on judgment Pepsi Foods P. Ltd. v. Assistant Commissioner of Income Tax (2014) 367 ITR 112 (Delhi) where it was observed as under: 

“On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be “satisfied” that inter alia any document seized or requisitioned “belongs to” a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or re-assess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is – after such satisfaction is arrived at – that the document is handed over to the Assessing Officer of the person to whom the said document “belongs”. In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132 (4A) (i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C (1) (i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of “satisfaction”.”

The Court further relied on judgment PepsiCo India Holdings P. Ltd. v. Assistant Commissioner of Income Tax (2015) 370 ITR 295 (Del) wherein it was observed that

“From the foregoing discussion, it is evident that in order that the Assessing Officer of the searched person comes to the satisfaction that documents or materials found during the search belong to a person other than the searched person, it is necessary that he arrives at the satisfaction that the said documents or materials do not belong to the searched person.”

The Court thus held that in view of the clear legal position explained in the above decisions, and in the absence of incriminating materials vis-à-vis the present Petitioner being found in the course of the search of the searched persons viz., Sri Jami Ramesh and Sri Jami Sivasai, the impugned assessment order and the consequential demand order are unsustainable in law and are hereby set aside.[Sri Sai Cashews v. Chief Commissioner of Income Tax, Writ Petition (Civil) No. 2936 of 2018, decided on 23-08-2021]


Arunima Bose, Editorial Assistant has reported this brief.


Appearances:

For Petitioner: Mr Sidhartha Ray, Advocate

For Opposite Parties: Mr R.S. Chimanka

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