Delhi HC Ruling on Necessity of Recording Satisfaction of the AO of the Other Person for Initiating Proceedings Under Section 153C
In a landmark decision, the Delhi High Court emphasized the necessity of the Assessing Officer’s (AO) satisfaction under Section 153C of the Income Tax Act, 1961, underscoring that mere uploads on the tax department’s portal do not suffice. The ruling reinforces that procedural compliance requires the AO of the searched person to record satisfaction and physically hand over documents related to undisclosed income of another individual.
Key Judicial Findings
A division bench consisting of Acting Chief Justice Vibhu Bakhru and Justice Tushar Rao Gedela presided over the case. The court clarified:
“Uploading of information by the investigation wing of the Income Tax department would not be a substitute for the recording of a satisfaction note by the AO of a searched person and handing over the assets, books of accounts, or other material to the AO of the person other than the searched person for initiation of proceedings under Section 153C of the Act.”
The ruling arose from a petition filed by Builders ATS Township Pvt Ltd, challenging reassessment proceedings initiated based on alleged limitations violations.
Also Read: Search Assessments u/s 153A and Section 153C
Background of Section 153C
Section 153C provides that if the AO of a person subject to a search operation identifies records of undisclosed income relevant to another individual, those materials must be handed over to the AO of the other person. This handover is a critical procedural step before tax proceedings against the non-searched individual can commence.
Arguments and Counter-arguments
The Revenue’s counsel argued that the date of placing material on the tax department’s insight portal should be treated as the search date for calculating limitations under Section 153C. However, the court found this reasoning incompatible with its prior decision in Dinesh Jindal v. Assistant Commissioner of Income Tax, Central Circle 20, Delhi & Others (2024).
The court highlighted that for searches conducted post-March 31, 2021, following the enactment of the Finance Act, 2021, there is no physical handover requirement. However, this does not allow reliance on portal uploads alone for calculating limitation periods.
Observations on Limitation Periods
The court also examined whether assets depicting income escaping assessment were referenced. Since no such reference existed in the present case, reopening assessments for a 10-year period under Section 153A was deemed inapplicable.
Conclusion and Outcome
The High Court concluded that procedural compliance under Section 153C had not been met in this case, and the appeal by Builders ATS Township Pvt Ltd was allowed.
Case Title: ATS Township Pvt Ltd vs. Assistant Commissioner of Income Tax
Citation: W.P.(C) 13790/2024 & CM APPL. 57737/2024
This ruling is a pivotal reminder of the significance of procedural adherence in reassessment proceedings, reinforcing the importance of AO satisfaction over mere technological processes.
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