Income Tax Tribunal Quashes Assessment of ₹46.87 Lakhs, Cites Procedural Lapses

In a significant ruling, the Income Tax Appellate Tribunal (ITAT) has invalidated an assessment involving an addition of ₹46.87 lakhs, initially based on documents seized from a partner of the assessed individual. The Tribunal’s decision hinges on crucial procedural irregularities in the application of Section 153C of the Income Tax Act.

Key Issue: Violation of Section 153C Procedure

The heart of the matter lies in the alleged failure to adhere to the statutory requirements for invoking Section 153C. This section deals with assessments in cases where documents belonging to a person (other than the one searched) are seized during a search operation. Proper procedure is crucial for ensuring fairness and legality in tax assessments.

Absence of Mandatory Satisfaction Note

A primary point of contention was the absence of a satisfaction note. This note, mandatorily required under Section 153C, outlines the Assessing Officer’s (AO) satisfaction that the seized documents indeed belong to a person other than the one searched, and that they have a bearing on their income. The ITAT found that this crucial step was bypassed.

Incorrect Invocation of Section 147

Furthermore, the proceedings were incorrectly conducted under Section 147, which deals with income escaping assessment. The ITAT observed that since the basis of the assessment was information derived from documents seized from a partner, the appropriate course of action should have been strict adherence to the procedures outlined in Section 153C.

The Tribunal emphasized that compliance with statutory procedures is paramount in matters of taxation, ensuring fairness and transparency in the assessment process. The absence of the mandatory satisfaction note and the improper invocation of Section 147 rendered the assessment invalid.