Notice under Section 153C - Delay in recording satisfaction note invalidates the notice

Gujarat High Court Quashes Income Tax Notices Due to Delayed Satisfaction Note The court ruled that a 22-month delay in recording the satisfaction note invalidates notices under Section 153C of the Income Tax Act.

In a significant judgment, the Gujarat High Court has quashed notices issued by the Income Tax Department under Section 153C of the Income Tax Act, 1961, citing undue delay in recording the satisfaction note. The case, Parag Rameshbhai Gathani v. Income Tax Officer, involved the issuance of a notice related to the assessment year 2017-18, which was challenged by the petitioner, Parag Rameshbhai Gathani.

The division bench, comprising Justices A.S. Supehia and Pranav Trivedi, found that the satisfaction note, a prerequisite for invoking jurisdiction under Section 153C, was recorded nearly 22 months after the assessment of the searched person was completed. This delay was deemed contrary to the guidelines set forth by the Supreme Court in the landmark case of Commissioner of Income-Tax-III v. Calcutta Knitwears and Circular No.24/2015, which stipulates that such notes must be prepared promptly to ensure efficient and timely assessments.

The court emphasized that the satisfaction note should be recorded at the time of initiation, during, or immediately after the assessment proceedings of the searched person. The delay in this case, the court observed, defeated the purpose of cost-effective, efficient, and expeditious completion of search assessments.

The Income Tax Department had argued that the delay was justified due to the constraints posed by the Covid-19 pandemic and the transition to the Faceless Assessment Scheme. However, the court rejected these excuses, noting that the assessment of the searched person was completed during the pandemic and that Sections 153A and 153C proceedings were not covered under the Faceless Scheme.

In its judgment, the court highlighted the importance of adhering to the procedural timelines to maintain the integrity of the assessment process. It ruled that both the writ petitions challenging the notices were successful, and the impugned notices for the respective assessment years were quashed.

This ruling underscores the judiciary's commitment to ensuring that tax authorities adhere to procedural requirements, providing a critical check on administrative actions. The decision is expected to have significant implications for similar cases where procedural delays have been a point of contention.

Bottom Line:

Issuance of notice under Section 153C - Delay in recording satisfaction note invalidates the notice - Satisfaction note must be prepared promptly as per the guidelines laid down by Supreme Court and Circular No.24/2015.

Statutory provision(s): Income Tax Act, 1961 Section 153C

Parag Rameshbhai Gathani v. Income Tax Officer, (Gujarat)(DB) : Law Finder Doc Id # 2810502