2024 (2) TMI 752 - HC - Income Tax

Calcutta HC quashes block assessment under Section 158BC(c) for missing mandatory satisfaction note under Section 158BD

Ashok Vardhan Kothari Versus C.I.T. Central – II, Kolkata

The Calcutta HC set aside a block assessment order under Section 158BC(c) due to procedural violations. The court held that under Section 158BD, the ... Block assessment - Validity of assessment u/s 158BD when record did not show that any satisfaction was recorded nor any notice was issued under the said provision r.w.s.158BC - HELD THAT:- Under Section 158BD, the existence of cogent and demonstrative material is germane to the Assessing Officer’s satisfaction for initiation of action u/s 158BD in concluding that the seized documents belong to a person other than the searched person is necessary for initiating action u/s 158BD. For the purpose of Section 158BD of the Act, a satisfaction note is sine qua non and must be prepared by the Assessing Officer who has jurisdiction over such other person. Since as per admitted case of the assessee, AO has not prepared a satisfaction note either before or along with or even after the assessment proceedings as mandatorily required u/s 158BD, therefore, the entire proceedings initiated by the AO to pass the assessment order u/s 158BC, is patently illegal, particularly when the entire facts and evidences in the form of seizure of books of account including cash book, statement of the appellant assessee and Sri J.M. Kothari u/s 131, statement of parties who made the payment to the entities of the appellant assessee recorded u/s 131 and the letters of Sri J.M. Kothari and the appellant assessee evidencing sufficient explanation regarding cash seized to be belonging to the aforesaid entities and reflected in their cash book were well available on record. Thus impugned order relating to block assessment u/s 158BC(c) passed cannot be sustained and is hereby set aside. Decided in favour of assessee. Issues Involved:1. Jurisdiction and validity of assessment under Section 158BD.2. Acceptance of part of the appellant's statement/admission.3. Presumption of ownership of seized cash and burden of proof.4. Rejection of appellant's explanation regarding ownership of seized cash.Summary:1. Jurisdiction and Validity of Assessment under Section 158BD:The court examined whether the assessment of Rs. 12,57,150/- was without jurisdiction, as the Tribunal presumed the assessment was made by invoking Section 158BD without any recorded satisfaction or notice under Section 158BC. The court found that no satisfaction note was prepared by the Assessing Officer, either before or during the assessment proceedings, as required under Section 158BD. The court cited the Supreme Court's ruling in Commissioner of Income Tax v. Calcutta Knitwears, which mandates a satisfaction note for initiating proceedings under Section 158BD. Consequently, the court held that the entire proceedings were patently illegal due to the absence of a satisfaction note.2. Acceptance of Part of the Appellant's Statement/Admission:The court addressed whether the Assessing Officer could accept only part of the appellant's statement/admission. It noted that the Assessing Officer disbelieved the evidence provided by local parties who confirmed hire purchase agreements and payments, on the grounds that they failed to evidence the source of payments. The court found that the payments were supported by books of account and other documents, and there was no occasion to doubt the availability of cash in hand as reflected in the books of account.3. Presumption of Ownership of Seized Cash and Burden of Proof:The Tribunal presumed the appellant to be the owner of the seized cash and placed the burden of proof on the appellant. The court found that the appellant had established that the cash belonged to his three entities, supported by the cash book seized during the search. The court held that the Assessing Officer and the Tribunal erred in making the addition of Rs. 12,57,150/- in the appellant's hands, ignoring the evidence on record.4. Rejection of Appellant's Explanation Regarding Ownership of Seized Cash:The court examined whether the Tribunal was justified in rejecting the appellant's explanation that the seized cash belonged to M/s. S.K. Investment, M/s. ARC Finance Limited, and M/s. Zenith Finvest Pvt. Limited. The court found that the appellant had provided a sufficient explanation supported by the cash book and statements recorded under Section 131. The court held that the Tribunal's findings were arbitrary, unreasonable, and perverse.Conclusion:The impugned order dated 23.04.2004 by the Income Tax Appellate Tribunal was set aside. The substantial questions of law were answered in favor of the assessee and against the revenue. The appeal (ITA/648/2004) was allowed to the extent indicated.