2013 (7) TMI 778 - HC - Income Tax

Tax appeal dismissed, emphasizing Assessing Officer's satisfaction & procedural compliance under sections 158BD and 158BC. Upheld Tribunal decision.

The court dismissed the tax appeal, affirming the Tribunal's decision to quash the notice under section 158BD and the assessment order. The court ... Validity of notice u/s 158BD - Valid satisfaction - Tribunal quashed notice - Held that:- for taking recourse to block assessment under section 158BC in relation to the person not searched, whenever search has been conducted under section 132 or the documents have been requisitioned under section 132A, the Assessing Officer of the searched person needs to record his satisfaction that undisclosed income belongs to the person, other than the person with respect to whom search was carried out under Section 132 of the Act. He is also required to hand over the books of account or other documents or assets seized, to the Assessing Officer having jurisdiction over such person and thereafter, the Assessing Officer who has the jurisdiction would proceed under Section 158BC against such person who has not been searched - vital and mandatory requirement of recording the satisfaction under section 158BD were absent while issuing notice - Following decision of MANISH MAHESHWARI and INDORE CONSTRUCTION P. LTD. Versus COMMISSIONER OF INCOME-TAX[2007 (2) TMI 148 - SUPREME COURT OF INDIA] - Decided against Revenue. Issues Involved:1. Validity of the notice under section 158BD of the Income Tax Act.2. Validity of the assessment order passed under section 158BD.3. Satisfaction recorded by the Assessing Officer for issuing the notice under section 158BD.4. Compliance with the procedural requirements under sections 158BD and 158BC.Detailed Analysis:1. Validity of the notice under section 158BD of the Income Tax Act:The primary issue was whether the Tribunal was correct in quashing the notice under section 158BD. The court examined the statutory requirements under section 158BD, which necessitates the Assessing Officer to record satisfaction that any undisclosed income belongs to a person other than the one searched. The court referred to the Apex Court's decision in Manish Maheshwari v. Asst. Commissioner of Income-tax, which mandates that such satisfaction must be recorded before issuing a notice under section 158BD. The court found that the Assessing Officer did not record the necessary satisfaction in the case of the searched person (Jayraj Group), which invalidated the notice issued to the assessee respondent.2. Validity of the assessment order passed under section 158BD:The court also addressed the validity of the assessment order passed under section 158BD. Given that the notice itself was deemed invalid due to the lack of recorded satisfaction, the subsequent assessment order was also invalid. The Tribunal's decision to quash the assessment order was upheld, as it was based on the foundational issue of the invalid notice.3. Satisfaction recorded by the Assessing Officer for issuing the notice under section 158BD:The court scrutinized whether the satisfaction recorded by the Assessing Officer was in compliance with the legal requirements. It was noted that the satisfaction was recorded in the case of the assessee respondent, not in the case of the searched person (Jayraj Group). The court emphasized that the satisfaction must be recorded in the case of the person searched, as per the legal precedent set by the Apex Court. The absence of such satisfaction in the case of Jayraj Group rendered the notice and subsequent proceedings invalid.4. Compliance with the procedural requirements under sections 158BD and 158BC:The court examined the procedural requirements under sections 158BD and 158BC. It highlighted that the Assessing Officer must hand over the seized books of account or other documents to the Assessing Officer having jurisdiction over the other person (the assessee respondent). While the court acknowledged that a formal transfer of materials might not be necessary when the same Assessing Officer is involved, the critical requirement of recording satisfaction was not met. The court concluded that the Tribunal correctly quashed the notice and assessment order due to non-compliance with these procedural requirements.Conclusion:The court dismissed the tax appeal, affirming the Tribunal's decision to quash the notice under section 158BD and the assessment order. The court reiterated the necessity of recording satisfaction by the Assessing Officer in the case of the searched person and compliance with procedural requirements under sections 158BD and 158BC. The Tribunal's decision was found to be in line with the legal principles established by the Apex Court.