JHARKHAND MUKTI MORCHA PARTY,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘F’’ : NEW DELHI)

BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT AND SHRI SANJAY AWASTHI, HON’BLE ACCOUNTANT MEMBER IT(SS) ANo. 54/Del/1998 Block Period : 1987-88 TO 27.9.1996 Jharkhand Mukti Morcha, VS. ACIT, CC-6, NEW DELHI C/O SHRI SHIBU SOREN, 17, GURUDWARA RAKAB GANJ ROAD, NEW DELHI PAN: AAAAJ0290N) (Appellant) (Respondent)

Appellant by : Shri Salil Agarwal, Sr. Adv., Shri Shailesh Gupta, CA, Shri Uma Shankar, Adv, & Shri Madhur Agarwal, Adv. (VC) Respondent by : Shri K. Hauthang, CIT(DR) Date of Hearing 17.08.2026 Date of Pronouncement 21.08.2026 ORDER PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the Assessee is arising out of the block assessment order framed by the ACIT, CC-6, Delhi for the block period 1987-88 to 27.9.1996 u/s. 158BC read with section 144 of the Income Tax Act, 1961 (hereinafter referred as Act) vide his order dated 18.11.1997. 2. At the outset, ld. Counsel for the assessee drew our attention to ground no. 6 and 7 which read as under:-

occasions none appeared, but finally on 2.9.1997 a show cause notice was served asking the assessee to show cause why block proceedings u/s. 158BC read with section 158BD should not be completed as best judgement u/s. 144 of the Act. Thereafter, considerable opportunities were afforded, but none appeared. AO noted that as per provisions of section 158BC(b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provision of section 142, 143(2), 143(3) and 144 of the Act shall, so far as may be, apply. Accordingly, best judgment assessment u/s. 144 of the Act was framed and assessed the total income for the block period 1.4.1986 to 27.9.1996 At Rs. 2,36,19,160/-. Out of this a sum of Rs. 1,29,98,449/- has already been assessed on protective basis and balance undisclosed income of the assessee for the block period was assessed on protective basis at Rs. 1,06,20,711/- denying the claim of exemption u/s. 13A of the Act. 5. Aggrieved, assessee preferred before the Tribunal (this is the scheme of search assessment started in 1995 where block assessment orders passed by the Assessing Officer are directly challenged before the Tribunal). 6. Before us, ld. Counsel for the assessee argued that assessee time and again requested for supply of copy of satisfaction note, recorded by the AO having jurisdiction over the person searched. Despite the said requests made from time to time and also stated in writing before the Tribunal, and also directed by the Bench, the same has not been supplied to the assessee till date. However, the revenue has

placed on record a document, which is a letter dated 31.12.1996 and is purported on record a document, where the note of satisfaction was recorded by the AO of the person searched. Ld. Counsel for the assessee first of all, drew our attention a letter written by the Commissioner of Income Tax, Circle-II, Ranchi dated 31.12.1996addressed to ACIT, Central Circle-6, New Delhi which is enclosed at APB-IV Page 4.For the sake of convenience, the same is reproduced as under:- GOVT. OF INDIA OFFICE OF THE COMMISSIONER OF INCOME TAX, CIRCLE-II, RANCHI F.NO. A.C.I.T./C-I/RAN/96-97/3359 Dated, Ranchi the 31st December, 1996. To The Asstt. Commissioner of Income Tax, Central Circle-6, 4th floor, Mayur Bhawan, New Delhi Sir, Sub:- Transfer of seized books of accounts/ papers marked as BBV-17, 18 and 19 in the case of Jharkhand Mukti Morcha – Regarding Ref:- Addl. Director of Income Tax (Inv.), Unit-I, New Delhi’s letter No. 771 dated 9.12.96 communicated to Sri N.P. Bhagat, DDI, Ranchi on 18.12.96 (copy marked as I enclosed) Kindly refer to above. The search and seizure operation as well as survey u/s. 133A of the I.T. Act were conducted in the official premises and residential premises of M/s Anjali Jain& Associates, located at Ranchi, Patna and other places in Bihar. Some books of accounts and other documents were seized with identification marks as BBV-1 to BBV-19 and JD-1 to JD-10. No detailed description of the nature of documents have been mentioned in the letter through which books of accounts were handed over to this Circle on 4

24.12.96 (a copy of letter marked as II enclosed). However, on perusal of the seized documents and books of accounts it is found that some books of accounts and documents marked as BBV-17, 18 and 19 relates Anjali Jain and Associates, Ranchi for Audit purpose which has got no relation in view of assessment in the hands of M/s Anjali Jain & Associates. 2. A letter in connection with verification of Agriculture landed properties and house properties owned by the 4 MPs/Ex MPs of JMM party has been received at this end on 30.12.96 (a copy of letter marked III enclosed for reference). Since the jurisdiction over the case has ben transferred to you from this Circle, it would be convenient for immediate actin if DDIT (Inv.), Ranchi Bihar (Sri NP Bhagat) would be requested to make necessary investigation as the enquiry and investigation in this case have been partially taken up by him at his level. 3. The cash book, ledger and loose sheets marked as BBV-17, 18 and 19 are being transferred herewith for your necessary action at your end.” 7. It was further stated that this letter is regarding transferring of seized books of accounts papers marked as BBV-17, 18 & 19 in the case of Jharkhand Mukti Morcha. Ld. Counsel also drew our attention towards a letter dated 9.12.1996 written by the ADIT (Investigation), Unit-I, Delhi addressed to the Commissioner of Income Tax, Ranchi which is enclosed in Assessee’s Paper Book-IV Page no. 2-3. For the sake of convenience, the same is reproduced as under:- “OFFICE OF THE ADDITIONAL DIRECTOR OF INCOME TAX, INVESTIGATION, UNIT-I ,NEW DELHI F.No. Addl. DIT (Inv.)D-1/96-97/771 dated 9.12.96.

To The Commissioner of Income Tax Ranchi Sir,

Sub: Transfer of books of account of JMM party for the FINANCIAL YEAR 94-95 seized by the DDIT (Inv.) Ranchi from the premises of Smt. Anjali Jain, Chartered Accountant – reg. It is believed that search and seizure operations were carried out at the end of September, 1996 at residential and office premises of Anjali Jain CA Ranchi by the DDIT (Inv.) Ranchi. During the course of search books of account and other documents pertaining to JMM party were seized from the premises of Smt. Anjali Jain. As per entries in the books of accounts and other documents pertaining to JMM party\ were seized from the premises of 18 mt. Anjali Jain. As per information gathered, it is further believed that original entries in the books of account of JMM party for the FYr. 94-95 were scored out and several entries with pencil have been made suggesting possible interpolation and changes in the books of accounts to be made or actually made so as to adjust to show cash balance found in the personal accounts of 4 Ex MPs of JMM party as balances in the books of the party and therefore belonging to the party lying pending with individuals. These books of accounts if such interpolation are true will be very useful evidence to establish that books of account and evidence have been fabricated and are being fabricated to show the money as belonging to the party. Since order u/s. 127 of the I.T. Act, has already been passed by you transferring the case of JMM party and individuals to CIT(C)-I. Delhi, it is necessary that investigation wing in Delhi and AO in Delhi having jurisdiction over the cases of the party and four MP’s get an occasion to examine these entries and take assistance from the handwriting expert if considered necessary. This matter was discussed with Shri R.D. Jolly, Sr. Standing Counsel of the Department who is representing the Department before the Hon’ble Delhi High Court which is monitoring the process of the investigation. I have been advised by him to request you to kindly direct the AO having jurisdiction over Smt. Anjali Jain to take decision u/s 158BD immediately and if he is satisfied than transfer books of 6

accounts and other documents pertaining to JMM party and four Ex. MPs and found during the course of search at the premises of Smt. Anjali Jain to AO. Yours faithfully, Sd/- (D.C. AGARWAL) Addl. Director of Income Tax Iinv.) Unit01, New Delhi Copy to: 1. The DGIT (Inv.) North, New Delhi 2. CCIT, Patna 3. CIT(C)-I, Delhi, New Delhi. 4. The DIT (Inv.) New Delhi 5. DDIT (Inv.) New Delhi. 6. Shir R.D. Jolly, Sr. Standing Counsel. Delhi High Court, New Delhi with reference to discussion held on 7.12.96. Sd/- (D.C. AGARWAL) Addl. Director of Income Tax Iinv.) Unit01, New Delhi”

records to the AO having jurisdiction over the assessee and has nowhere stated that, the documents /records marked as BV-17, 18 & 19, relates to the assessee shows any undisclosed income. Hence, he stated that the facts are clear that no satisfaction note was recorded by the AO of the searched person and hence, in the absence of the same the block period assessment u/s. 158BD is bad in law. Ld. Counsel for the assessee relied upon the following case laws:- - CIT vs. Calcutta Knitwears 362 ITR 673 (SC) - Tapan Kumar Dutta vs. CIT 404 ITR 28 (SC) 9. On the other hand, Ld. CIT(DR) has stated that during the search and seizure operation conducted under section 132(1) on 27.9.1996 at the premises of the assessee’s auditor, M/s Anjali Jain and Associates, in Ranchi and Patna, books of accounts and documents marked as BBV-17, BBV-18 and BBV-19 were found and seized. He further informed that on 31.12.1996, the ACIT Circle-II, Ranchi being the Assessing Officer of the searched person, transferred the seized books to the ACIT, Central Circle-6, New Delhi, and issued a transfer of memo explicitly recording that upon perusal, the documents BBV-17, 18 and 19 were found to relate to Jharkhand Mukti Morcha and had no relation to the assessment of M/s Anjali Jain and Associates. He further submitted that this administrative communication in writing inherently encapsulates the requisite satisfaction that the seized assets belong to a person other than the searched person. He further submitted that the statute does not prescribe a rigid, standardized format for a satisfaction note; the transmission of documents coupled with a clear, written 8

observation satisfies the jurisdictional threshold. Consequently notice under section 158BD was validly issued to the assessee on 20.1.1997, initiating block assessment proceedings for the period 1.4.1986 to 27.9.1996. 10. We have heard the rival contentions and gone through the facts and circumstances of the case. From the above communication i.e. letter dated 31.12.1996 by the Commissioner of Income Tax, Circle-II, Ranchi is just transferring of seized books of accounts, papers marked as BBV-17, BBV-18 & BBV-19 and reference is in regard to the letter of Additional Director of Income Tax (Investigation Unit-I) New Delhi letter no. 771 dated 09.12.2016 communicated to Sri N.P. Bhagat, DDIT (Inv.), Ranchi on 18.2.1996. This is simple internal communication for transferring the records of the assessee from Ranchi to New Delhi i.e. to the ACIT, Central Circle-6, New Delhi. On perusal of these documents, it is evident that the same are neither note of satisfaction nor even the purportedly note of satisfaction in the eyes of law. From the above letter, it is clear that it is just a simple transferring of books of accounts, which narrates the following:- i) search and seizure operation as well as; ii) survey u/s. 133A of the Act had been conducted in the official premises and residential premises of M/s Anjali Jain & Associates located at Ranchi, Patna and other places in Bihar. iii) some books of account and other documents were seized with identification marks as BBV-1 to BBV-19 and JD-1 to JD-10.

iv) no detailed description of the nature of documents has been mentioned in the letter through which books of account were handed over to this circle on 24.12.1996. v) That on the perusal of the seized documents and books of account it is found that some books of account and documents marked as BBV-17, 18 and 19 relates to Jharkhand Mukti Morcha, which must been retained by M/s Anjali Jain and Associates for audit purposes, which has got no relation in view of assessment in the hands of M/s Anjali Jain and Associates. 11. The aforesaid letter also states that 4 MPs/Ex-MPs of Jharkhand Mukti Morcha party owned agricultural land properties and house properties at their end as on 30.12.1996. From the above, it is evidently clear that it is a simple transfer of records to the Assessing Officer having jurisdiction over the assessee and has nowhere stated that the documents / records marked as BBV-17, BBV-18 and BBV-19 relates to the assessee shows that any undisclosed income. 12. We note that this issue, in the given facts and circumstances of the case remains no res integra because the Hon’ble Supreme Court in the case of Calcutta Knitwears reported in 362 ITR 673 has held as under:-

“41. We would certainly say that before initiating proceedings under Section 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers’ satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment 10

proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 42. Further, Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after 01.01.1997. The said section does neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation the satisfaction note under Section 158BD and consequent issuance of notice to the other person. 43. In the lead case, the assessing officer had prepared a satisfaction note on 15.07.2005 though the assessment proceedings in the case of a searched person, namely, S.K. Bhatia were completed on 30.03.2005. As we have already noticed, the Tribunal and the High Court are of the opinion that since the satisfaction note was prepared after the proceedings were completed by the assessing officer under Section 158BC of the Act which is contrary to the provisions of Section 158BD read with Section 158BE(2)(b) and therefore, have dismissed the case of the Revenue. In our considered opinion, the reasoning of the learned Judges of the High Court is contrary to the plain and simple language employed by the legislature under Section 158BD of the Act which clearly provides adequate flexibility to the assessing officer for recording the satisfaction note after the completion of proceedings in respect of the searched person under Section 158BC. Further, the interpretation placed by the Courts below by reading into the plain language of Section 158BE(2)(b) such as to extend the period of limitation to recording of satisfaction note would run counter to the avowed object of introduction of Chapter to provide for cost- effective, efficient and expeditious completion of search assessments and avoiding or reducing long drawn proceedings. 44. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages:

(a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person.” 13. We further note that the Hon’ble Supreme Court in the case of Tapan Kumar Dutta vs. CIT reported in 404 ITR 28 has observed as under:- “…..It can be seen that notice under Section 158BD can be issued to a person with respect to whom search was not conducted but undisclosed income was found as belonging to such person from the material seized from the residence or business premises of the person with respect to whom search was made under Section 132. Section 158BD speaks of the condition that “where the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the searched person”, which means that the Assessing Officer must have to be satisfied that any undisclosed income belongs to any person other than the searched person. In the present case, it is not in dispute that the Assessing Officer, who is assessing the Firm as well as the Appellant, is the same person. In other words, the same Assessing Officer having jurisdiction over the searched person can proceed against the present Appellant. Therefore, the present Assessing Officer had jurisdiction to proceed against the present Appellant to make a block assessment under Chapter XIV-B of the IT Act, in case the Assessing Officer is prima facie satisfied that any undisclosed income belongs to the present Appellant. 9) It is well settled that there must be prima facie satisfaction on the part of the Assessing Officer on the basis of searched books of accounts or other documents or assets that any undisclosed income belongs to any person other than the searched person. In support of the contention that there was prima facie satisfaction of the Assessing Officer, his order was based upon the material on record that undisclosed income belonged to the present Appellant, when he issued the notice under Section 158BC on 09.09.1999. The jurisdiction under Section 158BD is based on the satisfaction of the Assessing Officer that:-

(a) there is undisclosed income; (b) such undisclosed income does not belong to the person with respect to whom action under Section 132 was taken and; (c) such undisclosed income belongs to some other person.

Therefore, mere disclosure made by the present assessee before the authority cannot be the basis for reaching a satisfaction that any undisclosed income belongs to him unless the seized books of accounts or other documents or assets are perused, examined or verified by the concerned Assessing Officer. We are of the opinion that in the present case, only after being satisfied that the Appellant fell within the ambit of Section 158BD, a notice was issued by the Assessing Officer. 10) Further, on a conjoint reading of Sections 158BC and 158BD, it is clear that no satisfaction to the effect that undisclosed income belongs to the searched person is necessary before issuing the notice under Section 158BC against the searched person as Section 158BC speaks of a condition that where any search had been conducted under Section 132 or books of accounts or other documents or assets or requisition under Section 132A in case of any person, then, the Assessing Officer shall serve notice to such person requiring him to furnish within specified time a return in the prescribed form. Therefore, at the time when notice under Section 158BC was issued by the Assessing Officer to M/s Nitya Kali Rice Mill, it was not necessary for the Assessing Officer to arrive at a satisfaction that any undisclosed income belongs to M/s Nitya Kali Rice Mill. A search was conducted against M/s Nitya Kali Rice Mill under Section 132 of the IT Act. Since the notice under Section 158BC issued to M/s Nitya Kali Rice Mill and the notice under Section 158BC issued to the Appellant were on the same day i.e., on 09.09.1999, the question of coming to a satisfaction that any undisclosed income based on seized books of accounts or documents or assets belonged to the present Appellant did or could not arise inasmuch as no reasonable or prudent man can come to such satisfaction unless the seized books of accounts or documents or assets are perused, examined and verified. Therefore, the Assessing Officer was right in arriving at a decision that the notice under Section 158BC issued to the present Appellant on 09.09.1999 did not satisfy the requirement of Section 158BD of the IT Act. He, therefore, rightly proceeded to issue fresh notice (Second Notice) under Section 158BD on 20.11.2000 after recording a satisfaction that any undisclosed income based on seized books of account or document or assets or other materials may belong to the Appellant. In fact, in the present case, the AO has himself come to a conclusion that the notice issued under Section 158BC on 09.09.1999 to the assessee was not in conformity with the requirement of Section 158BD of the IT Act. The Assessing Officer proceeded under Section 158BD of the IT Act not in pursuance of any direction by the Joint Commissioner but after being satisfied that the case squarely fell within the ambit of Section 158BD of the IT Act. 11) A perusal of Section 158BD of the IT Act makes it clear that the Assessing Officer needs to satisfy himself that the undisclosed income belongs to any person other than the person with respect to whom the search 13

was made under Section 132 or whose books of accounts or other documents or assets were requisitioned under Section 132A. The very object of the Section 158BD is to give jurisdiction to the Assessing Officer to proceed against any person other than the person against whom a search warrant is issued. Although Section 158BD does not speak of ‘recording of reasons’ as postulated in Section 148, but since proceedings under Section 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the Assessing Officer in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings under Section 158BD….” 14. In terms of above and in view of the admitted position that no satisfaction note was recorded, thus in the absence thereof, assumption of jurisdiction by the Assessing Officer is thus untenable and deserves to be held as without jurisdiction and therefore, the assessment on this account deserves to be quashed. We hold and direct accordingly. Since we have quashed the assessment, as aforesaid, the other pleadings have become academic. 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 21.08.2026.

Sd/- Sd/-

(SANJAY AWASTHI) (MAHAVIR SINGH) ACCOUNTANT MEMBER VICE PRESIDENT SRBhatnagar Date: 21-08-2026 Copy forwarded to: - 1. Appellant 2. Respondent 3. DIT 4. CIT (A) 5. DR, ITAT Assistant Registrar, ITAT, Delhi Bench