2014 (7) TMI 1203 - AT - Income Tax

Revenue's Appeal Dismissed, Block Assessment Quashed as Invalid & Time-barred

Deputy Commissioner of Income Tax, Circle-20 (1), New Delhi Versus Anupam Nagalia,

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that quashed the block assessment proceedings under Section 158BD as invalid and ... Validity of assessement u/s 158BD - Held that:- For the purposes 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 Tribunal being a final fact finding authority had not recorded any finding with regard to the recording of satisfaction note validity of assessement u/s 158BD rejected. - Decided in favour of assessee Issues Involved:1. Validity of the block assessment proceedings initiated under Section 158BD of the Income Tax Act, 1961.2. Whether the assessment was barred by limitation under Section 158BC of the Income Tax Act, 1961.3. Adequacy of the satisfaction note recorded by the Assessing Officer (AO).Detailed Analysis:1. Validity of the Block Assessment Proceedings Initiated Under Section 158BD:The primary issue was whether the proceedings under Section 158BD were validly initiated. The AO issued a notice under Section 158BD to the assessee based on documents seized during a search operation at the residence of the assessee, who was a director in the Vatika Group of Companies. The CIT(A) quashed the proceedings, stating that the satisfaction note required for initiating proceedings under Section 158BD was not based on material found from the searched person (Vatika Group of Companies) but from the assessee's premises. The Tribunal upheld this view, emphasizing that the statutory precondition for invoking Section 158BD was not satisfied as the satisfaction note was not recorded based on material found from the searched person. The Tribunal cited the Supreme Court's decision in Manish Maheshwari v. ACIT, which mandates that the satisfaction note must be recorded by the AO of the searched person based on seized material.2. Whether the Assessment was Barred by Limitation Under Section 158BC:The CIT(A) further held that the assessment was time-barred under Section 158BC. The search was conducted on 08.05.2003, and the notice under Section 158BD was issued on 31.05.2005. The assessment order was passed on 21.05.2007, which was beyond the permissible period. The Tribunal agreed with this finding, noting that the assessment should have been completed by 31.05.2005 as per Section 158BE. The Tribunal also referenced the Supreme Court's decision in Parshuram Pottery Works Ltd. v. ITO, emphasizing that statutory timelines must be adhered to, and any inaction by the AO cannot be remedied by invoking Section 158BD.3. Adequacy of the Satisfaction Note Recorded by the AO:The Tribunal examined whether the satisfaction note recorded by the AO was adequate and in compliance with legal requirements. The satisfaction note referred to various documents found at the assessee's residence, indicating unaccounted income. However, the Tribunal found that the note was not recorded by the AO having jurisdiction over the searched person (Vatika Group of Companies) but by the AO of the assessee. The Tribunal reiterated that the satisfaction note must be recorded by the AO of the searched person and that the material must pertain to undisclosed income of another person, as laid down in the Supreme Court's decision in CIT v. Calcutta Knitwears. The Tribunal concluded that the satisfaction note did not meet these criteria, rendering the proceedings invalid.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that quashed the block assessment proceedings under Section 158BD as invalid and time-barred. The Tribunal emphasized the necessity of recording a proper satisfaction note based on material found from the searched person and adhering to statutory timelines for completing assessments. The Tribunal also dismissed the assessee's cross-objections as infructuous, given the quashing of the assessment proceedings.