SMT. ALKA SHARMA,NEW DELHI vs. ACIT, NEW DELHI

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ITSSA 23/DEL/2014Status: DisposedITAT Delhi29 January 202510 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the appeal of the assessee. The primary issue before the Tribunal was the validity of the block assessment proceedings initiated under Section 158BD of the Income Tax Act, 1961, due to the alleged absence of a mandatory satisfaction note by the Assessing Officer (AO) of the searched person. The assessee's counsel argued that the AO initiated proceedings without recording a satisfaction note, which is a jurisdictional prerequisite, and that the revenue failed to produce this note despite requests. The revenue acknowledged the difficulty in tracing old records. The Tribunal, respectfully following the judgment of the Hon'ble Jurisdictional Delhi High Court in the case of Haryana Paneer Bhandar vs. CIT (ITA No. 537/2015), held that the absence of a satisfaction note, which is a mandatory requirement under Section 158BD, renders the entire block assessment proceedings bad in law. The court cited Supreme Court decisions emphasizing the sine qua non nature of the satisfaction note. Consequently, the Tribunal found that the block assessment proceedings were unsustainable. The appeal was allowed on this ground, and the other grounds were not adjudicated upon.

What were the facts?

A search under Section 132 of the Income Tax Act, 1961, was conducted on 31.01.2003, in the case of Sh. Jatinder Singh Sharma, Smt. Manju Sharma, and M/s. Kamdhenu Restaurant, which also covered the residential premises of the assessee, Alka Sharma. Incriminating documents were found relating to the acquisition of property by the assessee and Mamta Sharma for Rs. 10 lakhs, though the sale deed was executed for Rs. 50,000/-. Proceedings under Section 158BC were initiated, and the assessee filed a return showing nil income. The initial assessment was completed at Rs. 5,15,000/-. Subsequently, fresh notices under Section 143(2) were issued. The assessee claimed the investment was funded by gifts received at the time of marriage and during festivals. The Assessing Officer (AO) held that the entire Rs. 10,30,000/- shown as gifts belonged to the assessee and treated Rs. 5,15,000/- as her undisclosed income. The Commissioner of Income Tax (Appeals) dismissed the assessee's appeal, leading to the present appeal before the Tribunal.

What were the issues?

1. Whether the Assessing Officer erred in law by initiating proceedings under Section 158BD of the Income Tax Act, 1961, without recording a necessary satisfaction note, thereby rendering the block assessment proceedings void ab initio. 2. Whether the Assessing Officer erred in law by issuing a notice without recording satisfaction that the material had a bearing on the determination of the total income of the assessee, making the proceedings invalid. 3. Whether the Assessing Officer failed to appreciate that the assessee submitted all necessary evidence, documents, and affidavits to his satisfaction, and erred in disbelieving the assessee's claim. 4. Whether the Assessing Officer erred on facts by doubting the veracity of affidavits without subjecting the deponents to cross-examination. Assessee's Contentions: - The AO initiated proceedings under Section 158BD without a satisfaction note, which is a mandatory prerequisite, making the block assessment proceedings lack jurisdiction and be void ab initio. - The AO failed to provide the satisfaction note despite repeated requests. - Relied on the Delhi High Court judgment in Haryana Paneer Bhandar vs. CIT, which held that a satisfaction note is a pre-condition for initiating proceedings under Section 158BD. Revenue's Contentions: - The Revenue stated that efforts were being made to trace the old records, including the satisfaction note and subsequent assessment order, as they were difficult to locate due to their age.

Which sections of the Income-tax Act were involved?

Section 132,Section 158BD,Section 158BC,Section 143(2),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘A’: NEW DELHI

Before: SHRI S.RIFAUR RAHMAN & SHRI SUDHIR PAREEK

For Appellant: Shri Gurdeep Singh, CA
For Respondent: Shri Javed Akhtar, CIT DR
Hearing: 12.11.2024Pronounced: 29.01.2025

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

BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI SUDHIR PAREEK, JUDICIAL MEMBER IT(SS) No:- 23/Del/2014 (Assessment Year- --) Alka Sharma ACIT R/o 1073/A-3, Ward No.1, Vs. Circle – 24 (1) Mehrauli, New Delhi New Delhi PAN No: BKJPS6529N APPELLANT RESPONDENT Appellant by : Shri Gurdeep Singh, CA Respondent by : Shri Javed Akhtar, CIT DR Date of Hearing : 12.11.2024 Date of Pronouncement : 29.01.2025

ORDER PER SUDHIR PAREEK, JM

The aforetitled appeal arising out of the order dated 21.02.2014 passed by the Commissioner of Income Tax-XXII, New Delhi (for the sake of convenience, here in after referred in short as CIT(A)] by which the application filed by the Assessee/ appellant against the order dated 15.11.2011 passed by the Assessing Officer [(for the sake of convenience, here in after referred in short as Ld. AO)] Page 1 of 11

2.

The grievance of the assessee reads as under :-

1.

That the Ld. AO has erred in law in initiating the proceedings u/s 158BD of the Act that without recording of satisfaction note that is a necessary ingredient to validate block assessment proceedings.

2.

That the Ld. AO further erred in law issuing a notice without recording the satisfaction that the material have bearing on the determination of the total income of the other person, the proceedings are void ab-initio and invalid.

3.

That the Ld. AO failed to appreciate that the assessee submitted all the evidences, documents, affidavits, gift deeds to the satisfaction of the AO, but the AO disbelieved the claim of the assessee.

4.

That the Ld. AO has erred on facts that there was no material on record for doubting the veracity of the statement made in the affidavits and the deponents have not been subjected to cross examination for bringing out the falsity of their statements.

3.

Facts of the case may be summarized as that assessee/ appellant is an individual and a house wife and a search was Page 2 of 11

carried out u/s. 132 of the Act on 31.01.2003 in the case of Sh. Jatinder Singh Sharma, Smt. Manju Sharma and M/s. Kamdhenu Restaurant covering residential premises No. 1073/A-3, Ward No. 1 Mehrauli, New Delhi, certain incriminating documents were found relating to the acquisition of property bearing No. 1061/5, Ward – 7, Mehrauli, New Delhi by assessee / appellant Smt. Alka w/o Sh. Rishi Sharma and Mamta Sharma W/o Rohit Sharma during the F.Y. 2002-03. It was noted by the Learned AO the real consideration of the above property transaction mentioned as Rs.10 lakhs whereas the sale deed for the same was executed for Rs. 50,000/- only.

4.

In the course of proceedings notice issued u/s. 158 BC and assessee / appellant filed the return of the above block period on 10.01.2005 wherein nil income was shown and original assessment in this case was completed by the concerned AO u/s. 151BC/ 144 of the Act on 31.01.2007 at a total and disclosed income of Rs. 5,15,000/-. Thereafter, the learned AO issued fresh notices u/s. 143 (2) of the Act for 19.09.2011 in compliance to the directions of the ITAT to decide the case fresh. The assessee / appellant filed her reply vide letter dated 17.11.2011 wherein it was submitted that she and Smt. Mamta Sharma are real sisters and married to real brothers and purchased above property jointly in the year 2002. For the reply it was submitted that the source of investment was various gifts received by them from their close relatives at the time

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of their marriage/ during festivals concluding the assessment proceedings it was held by the learned AO that all the money shown under gifts actually belongs to assessee which assessee tried to manipulate as gifts and the learned AO tread the entire amount of Rs.10,30,000/- as undisclosed income having 50% share in the same of the assessee which was utilized for the purchase of property No. 1061/5, Ward-7, Mehrauli, New Delhi and assessee share undisclosed income was determined at Rs.5,15000/-.

5.

Aggrieved by the order of the learned AO, the appeal preferred by the assessee / appellant before the CIT(A), the learned CIT(A) dismissed the appeal and hence, the assessee preferred an appeal before the Tribunal.

6.

Heard rival submission and carefully scanned the material available on record.

7.

In the course of hearing, reiterating the grounds of appeal, the learned AR submitted that the learned AO issued a notice dated 06.01.2005 u/s. 158BD read with section 158 of the Act without having any satisfactory note of the AO of the search person that the undisclosed income belongs to the assessee. It was further submitted that in the absence of mandatory satisfactory note, the proceedings of the block assessment period lacking jurisdiction. It

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is also submitted that he applied to the AO for supply of the copy of satisfaction note three times on 24.05.2023, 18.09.2023 and 07.03.2024 but the same was not provided.

8.

In this regard, it is relevant to mention here that the learned DR submitted that he made communication with department by stating that the Hon’ble Bench has directed to obtain the satisfactory note drawn for the period ending 31.01.2003 u/s. 158BD of the Act but requisite document i.e. copy of the satisfaction note and the subsequent assessment order not provided or submitted by the revenue and also asserted that it has been communicated by dept that as records are very old, being tried to trace.

9.

In above context, the learned AR relied on the judgment passed by the Hon’ble Delhi High Court and in support of his arguments/ submissions the learned AR relied on the judgment passed by the Hon’ble Jurisdictional Delhi High Court in the case of Haryana Paneer Bhandar Vs. CIT ITA No. 537/2015 dated 05.11.2015 by stating that the satisfaction is pre condition to initiate proceedings u/s. 158BD and in the absence of the said satisfaction note the entire block assessment proceedings held to be bad in law. The relevant para of judgment 13 to 17 reproduced as under :-

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13.

Section 158BD requires the AO of the searched person to record a proper note of satisfaction that there is "cogent and demonstrated material" to conclude that the seized documents show that some undisclosed income belongs to a person other than the searched person. Explaining the mandatory nature of this requirement, the Supreme Court in Commissioner of Income-Tax v. Calcutta Knitwears (2014) 362 ITR 673 (SC) observed 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 account 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 proceedings. It does

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not mean that after completion of the assessment, the Assessing Officer cannot prepare the satisfaction note to the effect that there exists income tax (sic income) 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 account 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."

14.

It was further held in paragraph 44 as under:

"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

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(c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."

15.

Turning to the decisions of this Court, in Commissioner of Income Tax v. Sunil Bhala (2011) 336 ITR 50 (Del) the Court held that the AO of the searched person "has to record satisfaction to the effect that there was undisclosed income belonging to the assessees," in the absence of there being any recording of the satisfaction of the AO while forwarding the case to the AO of the other person', the block assessment proceedings were held to have been rightly invalidated. In Commissioner of Income Tax v. Feather Breweries & Market (2008) 166 Taxman 271 (Del) the Court noted that the Revenue "is unable to produce the satisfaction recorded by the Assessing Officer in terms of Section 158 BD of the Act" and held that the in view of the decision of the Supreme Court in Manish Maheshwari v. Asst. CIT (2007) 289 IT'R 341 (SC), the block assessment proceedings were unsustainable in law.

16.

Recently, in Commissioner of Income Tax v. Manju Finance Corporation (2015) 231 Taxman 44 (Del) the Court reiterated as under:

"The requirement of Section 158 BD is that the Assessing Officer of the person searched or against whom an order under Section 132 A has been passed, should be satisfied that any

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undisclosed income belongs to a third person. This is the statutory mandate and a jurisdictional prerequisite before proceedings under Section 158 BD are.initiated. Violation of the said requisite and mandatory requirement would result in annulment of the assessment under Section 158 BD read with Section 158 BC."

17.

In the present case, as already noticed, the Revenue has been unable to produce the satisfaction note of the AO of the searched person, to the effect that there was "cogent and demonstrative" material to conclude that the seized documents showed undisclosed income belonging to the Assessee. The absence of such satisfaction note on the file also explains why the AO resorted to Section 147 of the Act to reopen the assessment in the first place instead of issuing notice under Section 158 BD of the Act. Consequently, on this short ground of there being no satisfaction note, which is a mandatory requirement under Section 158 BD of the Act, as explained by the Supreme Court in Commissioner of Income-Tax v. Calcutta Knitwears (supra), the entire block assessment proceedings are held to be bad in law. Question (b) is accordingly answered in the affirmative and in favour of the Assessee and against the Revenue. 10. Respectfully following the judgment of Hon’ble Jurisdictional Delhi High Court the appeal of the assessee is allowed.

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11.

In the result, the appeal of the assessee is allowed.

Order pronounced in open Court on 29th January, 2025 .

Sd/- Sd/- (S.RIFAUR RAHMAN) (SUDHIR PAREEK) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29/01/2025 NEHA, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT NEW DELHI

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