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CIT vs. M/s Mechmen (Madhya Pradesh High Court)
July, 27th 2015

S. 153C: Even if the AO of the searched person and of the "other person" (i.e. the assessee) is the same, the proper satisfaction has to be recorded before assuming jurisdiction over the assessee. Failure to record satisfaction renders the assessment order null and void

The High Court had to consider whether the assessment order passed u/s 153C could be quashed on the ground that the AO had not recorded his satisfaction even though the AO making the assessment of the searched person was himself having jurisdiction over such other person (i.e. the assessee). It also had to consider whether the law laid down in Manish Maheshwari vs. ACIT 289 ITR 341 and CIT vs. Calcutta Knitwears 362 ITR 673 (SC), which were rendered in the context of section 158BD, were applicable to section 153C of the I.T. Act. HELD by the High Court:

(i) The dissimilarity of the form of two provisions of s. 158BC and s. 153C would make no difference to the purpose underlying. The power bestowed on the Assessing Officer having jurisdiction – be it under Section 153C or Section 158BD – is identical. The legal position as applicable to Section 158BD regarding satisfaction in the first instance of the first Assessing Officer forwarding the items to the Assessing Officer having jurisdiction; and in the second instance of the Assessing Officer having jurisdiction whilst sending notice to such other person (other than the person referred to in Section 153A), must apply proprio vigore. The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A). The question as to whether that may influence the opinion of the Assessing Officer having jurisdiction over such other person, also cannot be the basis to take any other view. As a matter of fact, the other Assessing Officer to whom the items are handed over, before issuing notice must himself be satisfied after due verification of the items received and the disclosures made by the other person in the returns for the relevant period already filed by the other person before him. For the same reason, we must reject the argument of the Department that the discretion of the Assessing Officer having jurisdiction will be impaired in any manner, if he were to hold a different view. Similarly, as there is no provision either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the argument of the Department must be negatived.

(ii) After receipt of the materials, the Assessing Officer having jurisdiction is expected to conduct enquiry and due verification of the relevant facts; before forming his prima facie satisfaction. The Assessing Officer having jurisdiction will be well within his rights to form an independent view before issuing notice to the other person (person other than the person referred to in Section 153A) under his jurisdiction on the basis of his own enquiry. In our opinion, the view formed by the Assessing Officer after his own enquiry does not entail sitting in appeal over the satisfaction of the first Assessing Officer, who had handed over the items to him.

(iii) Accordingly, the condition precedent for resorting to action under Section 158BD delineated by the Supreme Court in the case of Manish Maheshwari 289 ITR 341 and in the recent case of Commissioner of Income Tax-III Vs. Calcutta Knitwears 362 ITR 673, would apply on all fours mandating satisfaction of the Assessing Officer(s) dealing with the case at the respective stages referred to in Section 153C.

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