TaxTMI 
TaxTMI 
2010 (7) TMI 728
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....se the decision of the 'CIT(A)' on the issue of validity of initiation of proceedings under section 158BD and completion of block assessment order thereunder, has been arrived at on a wholly wrong premise and without considering the material and information on record, as was specifically brought to his notice during the course of hearing of appeal, and the same is not sustainable. 3. Because the diaries in question, as have been referred to in the impugned block assessment order dt. 31st Jan., 2007, could not have been treated to be the incriminating material in the case of the appellant, so as to vest the AO with the jurisdiction to initiate block assessment proceedings in its case, by issue of notice dt. 25th Jan., 2005. 4. Because Jain Group' of cases, where search and seizure action had been carried out, having been admitted by the Hon'ble ITSC, Delhi vide order dt. 30th Aug., 2004 passed under section 245D(1), the provision of section 245F had become applicable and the 'satisfaction' if at all called for on the facts and circumstances of the case, could have been recorded by the learned Dy. CIT, Circle-V, Kanpur and consequently notice 'under section 158BC se....
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....gal issue has been raised which relates to the validity of the block assessment by issuing the notice under section 158BD read with section 158BC. 3. The facts related to this case, in brief, are that a search and seizure operation under section 132(1) of the Act was conducted by the Department on 3rd April, 2002 at the business premises of M/s Vijay Kumar Vinay Kumar (P) Ltd., its sister concerns as well as the residential premises of the connected persons. During the course of search and seizure certain incriminating documents, loose papers and books of account were found and seized/impounded. Prima facie scrutiny of those materials indicated that certain documents/loose papers/books of account pertained to the assessee. Accordingly, notice under s. 158BD of the IT Act, 1961 was issued on 25th Jan., 2005 after recording reasons and served upon the assessee. The assessee furnished its return of income declaring undisclosed income of nil on 22nd Jan., 2007. During the assessment proceedings, the assessee raised the legal objections vide letters dt. 9th Aug., 2005 and 17th Nov., 2005. 3.1 The AO disposed of the objections of the assessee by observing as under : 'This has re....
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....ishna Sugar Corporation for initiation of proceedings under s. 158BD r/w s. 158BC of the IT Act, 1961. 2. The seized requisitioned material should indicate that the same contained particulars of undisclosed income as is envisaged in Chapter XIV-B of the IT Act, 1961 which is assessable in the hands of somebody else (other than the person subject to the search/requisition. Even the copies of relevant seized material have been supplied to M/s Krishna Sugar Corporation along with the notice dt. 19th July, 2005. There is detailed discussion in the notice dt. 19th July, 2005 as to how and how much undisclosed income has been earned by the assessee. Relevant page numbers and annexures have been mentioned in the notice. 3. The AO having jurisdiction in the case of the person subjected to search/requisition should himself be satisfied to the foregoing fact. The AO had been assigned jurisdiction under s. 127 of the IT Act, 1961 vide order dt. 10th Jan., 2005. There was absolute satisfaction that the undisclosed income computed at Rs. 64,25,851 relates to the assessee i.e., M/s Krishna Sugar Corporation and none else. There are no conjectures, surmises, estimates etc. as ro....
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....Ltd. were subjected to proceedings before Hon'ble ITSC. In its statement of facts in the group cases of M/s Vijay Kumar Vinay Kumar (P) Ltd. deductions of payments made to M/s Krishna Sugar Corporation and other such concerns were claimed in computation of undisclosed income. The proceedings in the case of M/s Krishna Sugar Corporation were initiated after it was ascertained that in the group cases of M/s Vijay Kumar Vinay Kumar (P) Ltd., deduction of payments made to M/s Krishna Sugar Corporation has been claimed. There has not been any delay in initiating proceedings under s. 158BD r/w s. 158BC after centralization of the case under s. 127 of the IT Act, 1961. It also vindicates that the proceedings under s. 158BD r/w s. 158BC have been initiated after actually satisfying myself after verification of seized records, copies of the returns of income of M/s Krishna Sugar Corporation for relevant assessment years and perusal of statement of facts of the group cases of M/s Vijay Kumar Vinay Kumar (P) Ltd. filed before Hon'ble ITSC." The AO also observed that : "(a) Assessee filed its return of income on 22nd Jan., 2007 i.e., when the proceeding was reaching to ....
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....assessee and in view of the facts mentioned above is of no consequence. Thus, the transactions as mentioned in these copies against the name of the M/s Krishna Sugar Corporation are the transactions of the assessee with the Vijay Kumar Vinay Kumar Group." 3.3 The AO completed the assessment, by observing as under : "During the course of search various loose papers and copies were found out of which Annexs. A51, 53, 55, 57 and 59 contain details of transactions in the name of the assessee. These copies are complete account of incomings and outgoings of the Vijay Kumar Vinay Kumar Group and had been written by the patriarch of the family and the main person of the group late Shri Satya Narain Jain. This group has moved a petition before the Hon'ble Settlement Commission. The group has admitted that left side of the pages of these copies contained details of receipts and the right side of the pages of these copies contained details of payments made. These contain mostly undisclosed payments in respect of commission paid for sugar business as well as the undisclosed loan transactions. On perusal of these copies, it was observed that Vinay Kumar Vijay Kumar Group had made the paym....
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....appellant firm lay with the territorial AO and he alone, after being apprised of the seized material, could have taken action under Section 158BD Section 158BC in its case." 4.1 The learned CIT(A), after considering the submissions of the assessee and the discussion made by the AO in the assessment order, held that the objections of the assessee were not sustainable as per law and that the issue of notice for the proceedings of the assessment under Section 158BD Section 158BC was in order. Now the assessee is in appeal. 5. The learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that since the requisite satisfaction having not been recorded in the cases of the person subjected to search under Section 132(1), the block assessment order dt. 31st Jan., 2007 is void ab initio. It was further submitted that the assessee challenged the validity of block assessment order dt. 31st Jan., 2007 in the first appeal before the learned CIT(A) and made the submissions from time to time that the requisite satisfaction had not been recorded in the cases of persons falling to Jain Group and that the cases of Jain Group had already been adm....
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.... this file as right from the very beginning when the notice under s. 158BC of the Act was issued on 21st Oct., 2002, M/s Vijay Kumar Vinay Kumar Group filed application for settlement before Hon'ble ITSC, New Delhi on 21st July, 2003. Consequently, the jurisdiction of the AO seized to exist over the group. Hence no satisfaction could have been recorded on the file of the person subjected to search. As far as the second procedural aspect of the ratio laid down is concerned, the satisfaction was recorded by the AO on 25th Jan., 2005, the date which is much earlier than the date of logical completion of assessment proceedings in the case of person subjected to search in the form of order passed under Section 245D(4) of the IT Act, 1961 by the Hon'ble ITSC, New Delhi on 30th May, 2008. Therefore, the statutory date of completion of block assessment under Section 158BC in the case of person searched which was 30th April, 2004 is not applicable in this case as proceeding was completed by the Hon'ble ITSC and not by the AO. As the jurisdiction over the person searched becomes exclusive with ITSC as per the provision of Section 245F, therefore, the date of limitation to pass order un....
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....as admitted that right sides of the pages contain undisclosed payments in respect of commission paid for sugar business as well as the undisclosed loan transaction. It has also been dealt with in para 29(2) of page Nos. 16 and 17 of learned CIT(A)'s order that before ITSC the assessee (Vijay Kumar Vinay Kumar Group) has admitted that quantum of Rs. 64,15,851 has been paid to the appellant, the fact which has been upheld by ITSC. During the course of assessment proceedings also the appellant disowned the seized/incriminating material which has been rebutted elaborately by the AO in assessment order in page Nos. 11 and 12. 4. The proceeding under s. 158BC read with section 158BD was rightly initiated by the AO, Dy. CIT, Central Circle-V, Kanpur after recording the satisfaction because jurisdiction over both the cases i.e., the person subjected to search and other person were lying with the same AO i.e., Dy. CIT, Central Circle-V, Kanpur, hence the block assessment order dt. 31st Jan., 2007 is liable to be upheld. 5. Comments as offered in ground No. 3 6.(a) Seized incriminating material itself speaks that entries on the left side of pages are receipts while....
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.... had been carried out. It was further stated that Jain Group of cases had filed an application for settlement of their respective cases on 21st July, 2003 before the Settlement Commission, therefore, the Settlement Commission had acquired exclusive jurisdiction in view of the provisions of Section 245F of the Act on 3rd Aug., 2004 and ever since then it alone could have exercised the jurisdiction of various IT authorities including the AO. Therefore, it was permissible for the AO in Jain Group of cases to approach the ITSC for this purpose by invoking the provisions of Section 245D(3). It was further stated that the ITSC at the admission stage under s. 245D(1) of the Act directed the applicants i.e., Jain Group of cases to file an affidavit stating facts related to payments aggregating to Rs. 2.19 crores as appearing in the seized records in the names of the assessee as also in the names of various other persons as per the following particulars : 1. M/s Ramgarh Chini Mills Ltd. Rs. 1,09,1 1,277 2. M/s Ghaghra Sugar Ltd. Rs. 39,02,736 3. M/s Krishna Sugar Corporation Rs. 64,39,332 4. M/s Balrampur Chini Mills Ltd. Rs. 6,24,951 Total ....
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....now filed by the Department, para-wise comments on the affidavits dt. 24th July, 2004 filed by the applicants were also furnished. He pointed out that certain payments had been made outside the regular books of account but mentioned in the seized books to the following concerns : 1. M/s Ramgarh Chini Mills Ltd. Rs. 1,09,11,277 2. M/s Ghaghra Sugar Ltd. Rs. 39,02,736 3. M/s Krishna Sugar Corporation Rs. 64,39,332 4. M/s Balrampur Chini Mills Ltd. Rs. 6,24,951 Total Rs. 2,18,76,296 He took us through the details of the commission received and paid as given in Annex. B to the report of the CIT, Kanpur. He pointed out that certain heavy payments had been made to Krishna Sugar Corporation, Ramgarh Chini Mills and Ghaghra Sugar Ltd., and some of the payments were made with small time gaps. According to him, such payments of heavy amount on certain dates close to each other could not have been made for incurring expenditure on such sites as stated by the applicants. Shri Srivastava further submitted that it should be seen as to whether the applicants had made a f....
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....are debatable issues and need clarification. These issues can be examined only after the case is admitted under section 245D(1) since there is no doubt that complexity of investigation is involved in the case. For the purpose of examining the issues arising in this case if the Department thinks it necessary to conduct further investigation in the matter, it would be at liberty to approach the Commission for making an order under section 245D(3) enabling the Department to carry out the investigation. 11. In view of the aforesaid discussion and also having regard to the nature and circumstances of the case and the complexity of investigation involved, we allow all these applications to be proceeded with." 5.5 It was contended that from the aforesaid paras, it was clear that the ITSC had accepted the pleas raised by the applicants in Jain Group of cases that the outgoing aggregating to Rs. 2.19 crores (against which names of various persons including the assessee were mentioned), represented the reimbursement made by them to themselves, out of collections made from the customers for rendering a host of services at sugar mill site and the same did not represent any payment made t....
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....action recorded by the AO in the case of the assessee. It was submitted that the facts of the case of Manish Maheshwari (supra), relied on by the learned counsel for the assessee, are distinguishable from the instant case as so far as in the case of Manish Maheshwari (supra), two AOs were involved and Hon'ble Apex Court required recording of satisfaction by the AO of the person searched as well as the AO of other person whereas in the present case there is only one AO who had jurisdiction over both the cases and therefore facts being distinguishable, only one satisfaction as recorded by AO in the case of assessee is sufficient compliance. 7. The learned counsel for the assessee, in his rejoinder, submitted that the AO in his report dt. 4th June, 2010 made the assertion that the AO in the case of Jain Group could not have recorded the satisfaction, as his jurisdiction to do so got ceased as soon as the Jain Group filed applications for settlement of their respective cases before the ITSC on 21st July, 2004 and as such applications were allowed to be processed vide order dt. 3rd Aug., 2004 by the ITSC. This does not mean that in such an event, the satisfaction as recorded by the A....
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....o such action has been taken. We are also of the opinion that even when the AO in the case of "person searched" and "other person" is same, the satisfaction is to be recorded in the case of the "person searched" before taking any action under section 158BD in the case of the other person. 8.1 A similar issue was subject-matter of adjudication by the Tribunal, Lucknow 'A' Bench, Lucknow in the case of Kamal Raheja (supra), and one of us (AM) is the author of the order dt. 12th Sept., 2008 passed in the said case in ITA No. 1302/Luck/2006 for the block period ending on 4th June, 2002 and the relevant findings given therein at paras 10 to 12 read as under : "10. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case it is not in dispute that a search was conducted in the case of Jaswant Singh on 4th June, 2002 and the block assessment in his case was completed under section 158BC vide order dt. 18th June, 2004. Upto that date i.e., completion of the block assessment, no notice was issued to the assessee under section 158BD. The provisions of section 158BD read as under : '158BD. Where the AO is s....
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....section 158BD of the Act. As we have noted earlier under the scheme provided for issuance of notice under section 158BD of the Act, section 158BE, which details the time-limits, is helpful only to ascertain the time-limits fixed for completion of block assessment. Sub- section (2) of section 158BE provides the period of limitation for completion of block assessment in the case of the 'other person' referred to in section 158BD of the Act. Thus, the plea of the Revenue is that a notice under section 158BD of the Act can be issued by the AO on such other person at any stage. Referring to the case on hand it has also been specifically argued that there has been no undue delay in issuance of notice under section 158BD on 15th March, 2002. It is thus contended that as there is no time-limit prescribed for issuance of notice under section 158BD, thus the satisfaction contemplated under the section can be recorded without any limitation. The plea of the assessee on the other hand is that the satisfaction contemplated is to be recorded by the AO of the searched person before completion of assessment under section 158BC, notwithstanding the absence of any specific provision in this regard. ....
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....ny conducted by him, he forms an opinion as to what constitutes undisclosed incomes thereof. On the basis of such an exercise the AO proceeds to finalize an assessment under Chapter XTV-B determining the undisclosed income of the person searched under section 132 or put to requisition under section 132 of the Act. It is also at this stage, the AO upon discovering the existence of an undisclosed income is in a position to decipher as to whether such undisclosed income, belongs to the person put to search under section 132 or to requisition under section 132A or it belongs to any 'other person'. Therefore it is only during the course of assessment of the person put to search under section 132 or requisition under section 132A that the AO is in a position not only to detect an undisclosed income but also identify the person to whom it belongs. We have held earlier, on the basis of Manish Maheshwari's case (supra) that the satisfaction contemplated under section 158BD is to be recorded by the 'AO' of the person put to search under section 132(1) or to requisition under section 132A of the Act. Once the assessment of such a person is finalized under section 158BC by the concerned AO, he....
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....tion 158BD, being a jurisdictional aspect is required to be objectively arrived at by the assessing authority. The satisfaction contemplated is not merely a subjective satisfaction but is required to be based on the material seized under section 132 or requisitioned under section 132A of the Act. The AO is required to sift, examine, analyse and investigate the material before him and only on the basis of the result thereon a satisfaction has to be recorded that any undisclosed income belongs to any person other than the person with respect to whom search under section 132 or a requisition under section 132A of the Act is made. This aspect finds support from the reasoning enunciated by the Hon'ble Delhi High Court in the case of Amity Hotels (P) Ltd. (supra), wherein it has been held that satisfaction is required to be preceded by necessary investigations and not that the investigations are required to be preceded by recording of satisfaction. The nature of the satisfaction contemplated under section 158BD therefore is of a level much higher than what an AO acquires in order to invoke section 147 and 148 of the Act. The satisfaction, in our view, must be based on some positive mater....
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....58BD of the IT Act, 1961 are invoked against a person other than a person who is put to search under section 132 or under section 132A the conditions prescribed under section 158BD are required to be strictly complied with. It has further been held that conditions precedent in such case for taking recourse of block assessment in terms of section 158BD require the AO to record his satisfaction that any undisclosed income belonged to any person other than the person with respect to whom search is made under section 132 or a requisition is put under section 132A and that the books of account, or other documents or assets seized or requisitioned are required to be handed over to the AO having jurisdiction over such 'other person'. 12.1 In view of the above discussion, a premise, which can be safely deduced, is that the satisfaction as contemplated under section 158BD is to be of the AO of the person who has been put to search or requisition under section 132 or 132A respectively. Another premise which can safely be deduced from the decision of the Hon'ble Supreme Court is that the requirement of recording of such satisfaction is a mandatory condition. Therefore, the plea advanced on....