Delhi H.C : Notices were not issued to assessee in conformity with requirements of section 158BD and were unduly delayed

High Court Of Delhi

CIT Vs. Bharat Bhushan Jain

Section 158BD

Ravindra Bhat And R.K. Gauba, JJ.

IT Appeal Nos. 648,669,670,711,1075 & 1318 Of 2009 And 196,198,279,777,1145,1313 & 1326 Of 2010

January  8, 2015

S. Ravindra Bhat, J. – These appeals are directed against the impugned order of the Income-tax Appellate Tribunal. Since they involved common questions of law, a common order is being made in the present cases.

2. In all these cases, the assessee-respondents were third parties, who were issued notice under section 158BD pursuant to the search proceedings in respect of other persons. In all these cases, the search proceedings were conducted on August 3, 2000. Thereafter, notice was issued to them for block assessment for filing of relevant returns for the previous years. The assessment proceedings were completed on August 29, 2002. Thereafter, the present assessees-third parties were issued notices under section 158BD. The relevant dates of recording of the satisfaction note by the Assessing Officer, issue of notices to the present assessees and completion of assessments are recorded in tabular statement in the following manner :

I.T.A. No. Date of search on Manoj Aggarwal group Date of assessment of searched person under section 158BC Date of satisfaction note for other person Date of notice under section 158BD Date of completion of assessment under section 158BD
648 of 2009 03-08-2000 29-08-2002 15-07-2003 31-03-2004 31-03-2006
669 of 2009 03-08-2000 29-08-2002 15-07-2003 31-03-2004 31-03-2006
670 of 2009 03-08-2000 29-08-2002 15-07-2003 31-03-2004 31-03-2006
771 of 2009 03-08-2000 29-08-2002 21-07-2003 31-03-2004 31-08-2006
1075 of 2009 03-08-2000 29-08-2002 15-07-2003 17-08-2004 31-03-2006
1318 of 2009 03-08-2000 29-08-2002 15-07-2003 31-03-2004 31-03-2006
196 of 2010 03-08-2000 29-08-2002 13-01-2004 09-02-2004 30-12-2005
198 of 2010 03-08-2000 29-08-2002 14-01-2004 05-02-2004 17-02-2006
279 of 2010 03-08-2000 29-08-2002 26-08-2003 27-08-2003 30-08-2005
777 of 2010 03-08-2000 29-08-2002 13-01-2004 09-02-2004 15-02-2006
1145 of 2010 03-08-2000 29-08-2002 14-01-2004 06-05-2005 29-05-2007
1313 of 2010 03-08-2000 29-08-2002 04-06-2003 18-06-2003 27-06-2005
1326 of 2010 03-08-2000 29-08-2002 04-06-2003 18-06-2003 27-06-2005

3. These appeals were originally disposed of by a common judgment of this court reported as CIT v. Radhey Shyam Bansal [2011] 337 ITR 217/200 Taxman 138 (Mag.)/11 taxmann.com 294. In that judgment, it was held that the satisfaction note in all the cases was recorded and notices were issued beyond the period of limitation. It was held, inter alia, that the satisfaction note recorded in these cases did not accord with the requirements of section 158BD, applying the decision in Manish Maheshwari v. CIT [2007] 289 ITR 341/159 Taxman 258 (SC). In this batch of judgments, along with another batch of cases, appeal was preferred before the Supreme Court, which decided in its judgment reported as CIT v. Calcutta Knitwears [2014] 362 ITR 673/223 Taxman 115 (Mag.)/43 taxmann.com 446 (SC), inter alia, that (page 691) :

“In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages : (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act ; (b) along with the assessment proceedings under section 158BC of the Act ; and (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person.

We are informed by Shri Santosh Krishan, who is appearing in seven of the appeals, that the Assessing Officer had not recorded the satisfaction note as required under section 158BD of the Act, therefore, the Tribunal and the High Court were justified in setting aside the orders of assessment and the orders passed by the first appellate authority. We do not intend to examine the aforesaid contention canvassed by the learned counsel since we are remanding the matters to the High Court for consideration of the individual cases herein in light of the observations made by us on the scope and possible interpretation of section 158BD of the Act.”

4. So far as the determination whether the satisfaction recorded was in conformity with section 158BD is concerned, there is no controversy in view of the concurrent findings. Having regard to the order of this court in Radhey Shyam Bansal’s case (supra), the bone of contention is whether the period when the satisfaction note was recorded, was contemporaneous with the period in which assessment proceedings of the searched person were carried out, as held by the judgment of the Supreme Court in Calcutta Knitwears case (supra). In each of the cases it is evident that the satisfaction note was recorded almost or just short of or more than a year after the completion of assessment of the searched person. In I.T.A. No. 279 of 2010, the satisfaction note was recorded on August 26, 2003, i.e. four days short of a year after completion of assessment of the searched person ; in I. T. A. No. 1145 of 2010 it is recorded on January 14, 2004, i.e., about one year and four months after the searched person’s assessment is completed. In I. T. A. Nos. 1313 of 2010 and 1326 of 2010, satisfaction notes were recorded on June 4, 2003, i.e., about nearly 10 months after the completion of the assessment of the searched person.

5. Additionally, we may note in I. T. A. No. 1318 of 2009 that the main judgment of this court in Radhey Shyam Bansal’s case (supra) itself recorded that the letter/communication note of July 12, 2003, did not accord with section 158BD. The findings in the said judgment are as follows :

“In view of the above, it is clear that on or before August 29, 2002, the Assessing Officer of M/s. Friends Portfolio (P.) Ltd. and that of Shri Manoj Aggarwal did not record any satisfaction. The note dated August 29, 2002, is, therefore, not to be taken for recording satisfaction required under section 158BC/158BD ………..

In view of the aforesaid legal position we can now examine the letter dated July 15, 2003, which was communicated by the Assessing Officer of the searched assessee to the Assessing Officer of the respondent. The question is whether the aforesaid letter can be regarded as ‘satisfaction’ as required under section 158BD, i.e., satisfaction of the Assessing Officer of Manoj Aggarwal that there is material that the respondent-assessee had undisclosed income. The first paragraph of the aforesaid letter states that the diary seized from the possession of Manoj Aggarwal establishes that the respondent-assessee had acted as a mediator for providing accommodation book entries by Manoj Aggarwal. The second sentence in the first paragraph states that the quantum of transactions as shown in the documents were enclosed as annexure A and the photocopies of the papers were enclosed as annexure B. The second paragraph states that there was evidence that cash was received by Manoj Aggarwal from the respondent and the summary of the amounts received as per the seized documents was given in annexure C and the photocopies of the documents were annexed as annexure D. It is accepted that annexures A, B, C and D, referred to in this letter were not filed before the Tribunal and have not been produced before us. It is conceded by the learned counsel for the Revenue that they are also not available on the file of the Assessing Officer of the respondent. There is no explanation forthcoming with regard to the aforesaid annexures. It is well nigh impossible to know their content. The first paragraph of the letter dated July 15, 2003, states that the respondent-assessee had acted as a mediator, i.e., they had introduced Manoj Aggarwal with other persons to whom accommodation book entries were provided by Manoj Aggarwal. There is no allegation in the first paragraph that the respondent-assessee was provided with accommodation book entries or the amounts belong to the respondent-assessee. Book entries were provided to third parties. It is not stated in this ‘satisfaction note’ that Manoj Aggarwal or third parties had paid any amount towards commission for acting as a mediator. There is no such allegation or statement in the ‘satisfaction note’. The second paragraph does create some doubt but what is relevant and important is the fact that in the first paragraph, it is accepted by the Assessing Officer of Manoj Aggarwal that the respondent-assessee was merely acting as a mediator and nothing more. The second paragraph of the letter states that there was evidence that cash was received by Manoj Aggarwal from the respondent-assessee. What was the evidence and material was not brought on record before the Tribunal or even before us. The said material is not mentioned in the assessment order.

It cannot be ipse dixit without material or evidence to satisfy the concept of requirement as engrafted under section 158BD. What was the material was neither highlighted before the Tribunal nor before us. Thus, the appellant-Revenue has not discharged the onus that there was valid satisfaction as required under section 158BD. Therefore, the irresistible conclusion is the pre-requisite of ‘satisfaction’ as engrafted under section 158B for the purpose of initiation of block assessment proceeding is non-existent or absent.”

6. Having regard to the intent of the Supreme Court in paragraph 44 of the Calcutta Knitwears (supra), where it was indicated that the Revenue has to be vigilant in issuing notice to the third party under section 158BD, immediately after the completion of assessment of the searched person, this court is of the opinion that a delay ranging between 10 months of one-and-half years cannot be considered contemporaneous to assessment proceedings. We are of the opinion that notices were not issued in conformity with the requirements of section 158BD, and were unduly delayed. The appeals of the Revenue, accordingly, fail and are dismissed.

[Citation : 370 ITR 695]