2005 (8) TMI 297 - AT - Income Tax

Tribunal overturns CIT(A)'s order, upholds AO's action under Section 158BD, remits issues for reassessment

The Tribunal set aside the CIT(A)'s order deleting the addition of Rs. 3,87,283, holding that the AO was justified in taking action under Section 158BD ... Search And Seizure Issues Involved:1. Addition of Rs. 3,87,283 under Section 158BD read with Section 158BC.2. Satisfaction recording under Section 158BD before issuing notice.3. Merits of the addition.Detailed Analysis:1. Addition of Rs. 3,87,283 under Section 158BD read with Section 158BCThe Revenue's appeal concerns the deletion of an addition of Rs. 3,87,283 by the CIT(A). The addition was initially made by the AO based on a search under Section 132 of the IT Act, 1961, at M/s Classic Global Impex Ltd. The AO found that the company was involved in bogus capital gains transactions. The AO received information about the assessee's transactions involving 15,800 shares of the company and initiated proceedings under Section 158BD. The AO deemed the transactions bogus and added Rs. 3,79,660 as undisclosed income, plus Rs. 7,593 as commission.The CIT(A) quashed the assessment, stating that since the transactions were disclosed in the original return, the AO was precluded from issuing notice under Section 158BD. The CIT(A) did not address the satisfaction recording or the merits of the addition.2. Satisfaction Recording under Section 158BD Before Issuing NoticeThe assessee argued that the AO did not record satisfaction before issuing the notice under Section 158BD. The CIT(A) did not find it necessary to record a finding on this issue due to the quashing of the assessment based on the disclosed transactions.3. Merits of the AdditionThe CIT(A) did not delve into the merits of the addition due to the primary ground of disclosed transactions in the original return.Tribunal's Judgment:On the Addition of Rs. 3,87,283The Tribunal emphasized the principle laid down by the Punjab & Haryana High Court in CIT vs. Geeta Gupta, which mandates that block assessments must be based on incriminating material found during the search. The Tribunal noted that the search at M/s Classic Global Impex Ltd. revealed the company's involvement in bogus transactions, and the assessee's transactions with the company were also found to be bogus. The Tribunal held that the AO was justified in taking action under Section 158BD, as the incriminating documents found during the search indicated undisclosed income.On Satisfaction RecordingThe Tribunal remitted the issue of satisfaction recording to the CIT(A) for a fresh decision, emphasizing the need for a fair opportunity for the assessee to be heard.On Merits of the AdditionSimilarly, the Tribunal remitted the issue of the merits of the addition to the CIT(A) for reconsideration, ensuring that the assessee gets a reasonable opportunity to present their case.ConclusionThe Tribunal set aside the CIT(A)'s order regarding the addition of Rs. 3,87,283, holding that the AO was justified in taking action under Section 158BD based on the incriminating material found. The Tribunal remitted the issues of satisfaction recording and the merits of the addition to the CIT(A) for fresh consideration, ensuring due process and fair hearing for the assessee. For statistical purposes, the appeal of the Revenue was allowed.