2018 (6) TMI 1223 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision, Dismisses Department's Appeal on Block Assessment

The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to quash the block assessment under Section 158BD of the Income Tax Act. ... Block assessment completed u/s 158BC r.w.s 158BD - Whether neither objection was raised against legal validity of proceedings before the A.O. nor any remedy was sought at any other level? - non recording of satisfaction - Held that:- There were no positive material found to arrive at satisfaction that undisclosed income has been earned by assessee. In the absence of any material, no satisfaction as is required under section 158BD could have been recorded. A.O. has failed to initiate valid proceedings against the assessee. The satisfaction note is an afterthought and ante- dated and prepared after submissions made by the assessee. No explanation have been given in this regard by the department. No satisfaction have been recorded by the A.O. in the case of the person searched. Therefore, no interference is called for in the matter. PB-365 is submission of the assessee in detail which have not been rebutted by the department in which the assessee has similarly explained that there were no incriminating material found during the course of search against the assessee in the case of Vatika Group of Companies and satisfaction note is anti dated. No satisfaction note has been recorded on the date of issue of notice under section 158BD of the Act dated 31.05.2005. The satisfaction note supplied to the assessee on 27.01.2006 is thus, anti-dated and had not been recorded on the date purported i.e., 31.05.2005. Our findings are based mainly on reasons that in the case of person searched, no incriminating material was found against the assessee, therefore, there were no reason to record satisfaction under section 158BD of the Act in the case of the person searched. - Decided in favour of assessee Issues Involved:1. Validity of the proceedings initiated under Section 158BD of the Income Tax Act.2. The correctness of the satisfaction note recorded by the Assessing Officer.3. The legality of the block assessment and its timing.4. Whether the documents used for assessment were seized from the correct premises.Issue-wise Detailed Analysis:1. Validity of the proceedings initiated under Section 158BD of the Income Tax Act:The appeal by the Revenue challenged the order of the CIT(A) that quashed the block assessment under Section 158BD. The CIT(A) found that the satisfaction note was not recorded by the Assessing Officer of the searched person (Vatika Group of Companies), but rather in the case of the assessee. The Tribunal upheld this finding, noting that the statutory precondition for invoking Section 158BD was not met, as the satisfaction note was based on materials seized from the assessee's premises, not from the searched person.2. The correctness of the satisfaction note recorded by the Assessing Officer:The Tribunal scrutinized the satisfaction note dated 31.05.2005, which was recorded by the same officer who issued the notice under Section 158BD. The Tribunal noted that the satisfaction note was anti-dated and was not recorded in the case of the person searched. The satisfaction note should have been recorded by the Assessing Officer having jurisdiction over the searched person (Vatika Group), which was not done. The Tribunal drew an adverse inference against the Revenue for failing to produce the original assessment records.3. The legality of the block assessment and its timing:The Tribunal observed that the satisfaction note and the subsequent notice were issued after a significant delay, which was not explained by the Revenue. The delay in providing the satisfaction note to the assessee suggested that the note was prepared after the assessee's request, making it anti-dated. The Tribunal found that the block assessment order dated 21.05.2007 was barred by limitation, as the notice under Section 158BD was issued on 31.05.2005, the last permissible date for such action.4. Whether the documents used for assessment were seized from the correct premises:The Tribunal confirmed that the documents used to assess the undisclosed income were seized from the assessee's premises and not from the premises of the Vatika Group of Companies. This contradicted the requirement that the satisfaction note should be based on materials found during the search of the person searched (Vatika Group). The Tribunal concluded that since no materials were found from the searched person that related to the assessee, the satisfaction note and subsequent proceedings under Section 158BD were invalid.Conclusion:The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to quash the block assessment under Section 158BD. The Tribunal found that the satisfaction note was not recorded as required by law, was anti-dated, and the assessment was time-barred. The materials used for the assessment were improperly sourced from the assessee's premises rather than the searched person, invalidating the proceedings.