Punjab & Haryana H.C : The Hon’ble Income Tax Appellate Tribunal was justified in holding the recording of satisfaction u/s 158BD by the Assessing Officer of the person searched and consequent issuance and service of notice u/s 158BD on 08.12.2005 was belated and beyond the period prescribed by law when the section 158BD read with section 158BE does not specify that satisfaction has to be recorded by the Assessing Officer before completion of assessment u/s 158BC

High Court Of Punjab & Haryana

CIT-1, Ludhiana vs. Ramesh Kumar, Proprietor

Block Period :  1-4-1998 To 5-2-2003

Section : 158BD

Adarsh Kumar Goel, Actg., CJ. And Ajay Kumar Mittal, J.

IT Appeal No. 171 Of 2011

July 19, 2011

ORDER

Ajay Kumar Mittal, J. – This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 25.06.2010, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘B’, Chandigarh (in short “the Tribunal”) in ITSS(A) No. 5/CHANDI/2010, for the block period from 01.04.1998 to 05.02.2003.

2. The following substantial question of law has been claimed for determination of this Court:

“Whether on the facts and in law, the Hon’ble Income Tax Appellate Tribunal was justified in holding the recording of satisfaction u/s 158BD by the Assessing Officer of the person searched and consequent issuance and service of notice u/s 158BD on 08.12.2005 was belated and beyond the period prescribed by law when the section 158BD read with section 158BE does not specify that satisfaction has to be recorded by the Assessing Officer before completion of assessment u/s 158BC of the Income Tax Act, 1961.”

3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee is an individual who is carrying on business of manufacturing of hosiery goods. On 05.02.2003, a search operation u/s 132(1) of the Act was carried out at the residence of one S.K. Bhatia, a yarn dealer. During the course of the search, certain loose documents were seized which related to two business concerns of S.K. Bhatia viz. M/s. Swastik Trading Co., and M/s Kavita International agencies. It was found that the entries recorded in those documents had not been incorporated in the books of account of the aforesaid two concerns. It was revealed from the seized documents that the assessee had made purchases worth Rs. 7,44,900/- from M/s. Swastik Trading co. and of Rs. 2,24,000/- from M/s Kavita International Agencies on different dates during the financial years 2001-02 and 2002-03.

4. The Assessing officer, Central Circle II, Ludhiana having jurisdiction over the cases of Bhatia group, on examination of the matter sent his satisfaction u/s 158BD of the Act in the case of the present assessee for the block period from 01.04.1998 to 05.02.2003 on 15.7.2005. The block assessment in the case of Bhatia group of companies was completed on 30.3.2005. After service of relevant notice and completion of other legal formalities the undisclosed income of the assessee for the block period aforesaid was computed at Rs. 8,81,830/-. Accordingly, the block assessment was finalized at the aforesaid undisclosed income, vide order u/s 158BC read with section 158BD of the Act, on 18.12.2007.

5. The Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], on an appeal being filed by the respondent-assessee observed vide order dated 27.1.2010 that assumption of jurisdiction by the assessing officer u/s 158BD of the Act and the proceedings initiated pursuant thereto were rendered invalid and void as the block assessment orders in the case of Bhatia group of cases were passed on 30.3.2005 whereas the satisfaction note in the case of the assessee was recorded on 15.7.2005 as per assessment order.

6. The Tribunal on appeal carried by the Revenue, upheld the order passed by the CIT(A) and consequently dismissed the appeal vide the order under appeal.

7. This is how the Revenue is in appeal before us.

8. The issue that arises for consideration in this appeal is, whether proceedings under Section 158BD of the Act would be valid where satisfaction recorded in the case of the assessee is after the block assessment proceedings under Section 158BC of the Act in the case of the searched person had already been finalized?

9. Learned counsel for the revenue did not dispute that identical issue came up for consideration before this court in CIT v. Mridula, Prop. Dhruv Fabrics [2011] 335 ITR 266 which was decided against the revenue and the appeal was dismissed. After analyzing the provisions u/s 158BD and 158BE of the Act, it was held as under:-

“According to plain reading of Section 158BD ibid, the assessing officer, while framing assessment of an assessee under Section 158BC of the Act against whom action has been taken under Section 132 or 132A of the Act, is mandatorily required to record satisfaction before action can be initiated under Section 158BD of the Act against such other person. In other words, the satisfaction by the assessing officer making assessment under Section 158BC of the Act, in the case of the person searched, that there is certain undisclosed income as a result of examination of seized material which belongs to some other identified person, is essential for assuming jurisdiction under Section 158BD of the Act. The satisfaction required to be recorded is prima facie satisfaction and is not firm or conclusive satisfaction at that stage.

Section 158BE of the Act prescribes time limit for framing of assessments under Section 158BC and 158BD of the Act. The assessing officer of the person against whom action under Section 132 or 132A of the Act has been taken, is the assessing officer who initiates the proceedings under Section 158BD of the Act by recording satisfaction that any undisclosed income belongs to such other person so as to take action under Section 158BD of the Act against that person. The Act nowhere specifically prescribes any time limit or limitation for initiation of proceedings under Section 158BD of the Act or for recording of satisfaction before taking action under that provision. The plain and reasonable construction that can be placed on the aforesaid provision would be that the recording of satisfaction for taking action against any other person under Section 158BD of the Act has to be between initiation of proceedings under section 158BC and before completion of block assessment under Section 158BC of the Act in the case of the person searched. It would, thus, mean that the action contemplated under Section 158BD of the Act against a third party to a search, is necessarily to be during the course of block assessment proceedings under Section 158BC of the searched person. It cannot be after the conclusion of the same as there is no occasion for an assessing officer to examine the seized material or documents of the searched person when the block assessment proceedings have concluded and no other proceedings are pending before him. If any other time limit is read in the provisions/statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment under Section 158BC of the Act in the case of an assessee against whom action under Section 132 or 132A of the Act had been carried out is finalized, Revenue can take action at any time in the absence of any specific limitation prescribed in the statute. A construction which leads to such an anomaly should be avoided.”

10. In view of the above, no substantial question of law as claimed by the Revenue arises and finding no merit in the appeal, the same is accordingly dismissed.

[Citation : 338 ITR 126]

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