2016 (6) TMI 526 - AT - Income Tax

Tribunal invalidates assessments under Income Tax Act, emphasizes need for objective satisfaction before proceeding.

ACIT, Circle 18 (2), Mumbai Versus M/s. Gyan Construction Co.

The Tribunal dismissed the revenue's appeals concerning the validity of assessments under sections 158BC and 158BD of the Income Tax Act for the block ... Validity of assessment u/s 158BD - Held that:- The provisions of sec. 158BD, in our view, contemplates that the satisfaction should be arrived in an objective manner by the AO of searched person and thereafter, he should hand over the relevant documents to the AO of other person. A careful reading of the letter dated 21.8.2000, referred above, would show that the AO of the searched person has merely given the facts relating to the admissions made by Shri Gyanchand R Madhani and further refers to the disclosure made on account of inflated expenses. While section 158BD refers to the “undisclosed income”, the AO did not refer to any undisclosed income emanating from the documents found during the course of search. The AO simply refers to the admission made in the sworn statement and also to the disclosure relating to incriminating documents, but not to the undisclosed income. It is pertinent to note that the admission made in the sworn statement taken u/s 132(4) of the Act is rebuttable one. Accordingly, we are of the view that the AO of the searched person has merely intimated the details of search proceedings to the AO of the assessee and the same, in our considered view, shall not constitute “satisfaction” about “undisclosed income” as contemplated u/s 158BD of the Act. Accordingly, we find merit in the contentions of the assessee on the legal issue. Accordingly, we hold that the “satisfaction” mandated u/s 158BD of the Act was not recorded by the AO of the searched person. In view of the above, we quash the assessment order passed by the AO. - Decided in favour of assessee. Issues:1. Validity of assessment under section 158BD of the Income Tax Act.2. Interpretation of the letter dated 21.8.2000 as a satisfaction note under section 158BD.3. Effect of the letter on the assessment proceedings.Issue 1: Validity of assessment under section 158BD of the Income Tax Act:The case involved appeals by the revenue against an order dated 28-01-2004 relating to the block period from 1.4.1988 to 17.12.1998. The revenue carried out search and seizure operations on a company, and subsequently issued notices to the assessee under sections 158BC and 158BD of the Act. The CIT(A) annulled the assessment, but the revenue issued a fresh notice under section 158BD, leading to further proceedings and appeals.Issue 2: Interpretation of the letter dated 21.8.2000 as a satisfaction note under section 158BD:The assessee contended that the letter from the assessing officer of the searched person did not constitute a satisfaction note as mandated by section 158BD. The revenue argued that the letter should be considered as a satisfaction note despite the absence of a prescribed format for recording satisfaction. The Tribunal analyzed the content of the letter, which detailed disclosures made during the search, but concluded that it did not establish satisfaction regarding undisclosed income as required by the Act.Issue 3: Effect of the letter on the assessment proceedings:The Tribunal held that the letter dated 21.8.2000 did not meet the legal requirement of recording satisfaction under section 158BD. Consequently, the assessment order was quashed, rendering the CIT(A)'s order irrelevant. As a result, the appeals filed by the revenue in both quantum and penalty proceedings were dismissed. The Tribunal emphasized the importance of objective satisfaction by the assessing officer of the searched person before initiating proceedings under section 158BD.In conclusion, the Tribunal's detailed analysis of the letter's content and legal implications led to the dismissal of the revenue's appeals, highlighting the significance of complying with statutory requirements for initiating assessment proceedings under section 158BD of the Income Tax Act.