CIT, LUDHIANA vs. M/S FASHION FABRICS

ITA/553/2010HC Punjab & HaryanaPHHC01093499201006 December 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL6 pages
AI SummaryDismissed

What were the facts?

The Revenue, Commissioner of Income Tax-III, Ludhiana, filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) dated 31.12.2009. The ITAT had upheld the order of the Commissioner of Income-tax (Appeals) which declared proceedings against the assessee, M/s. Fashion Fabrics, Ludhiana, invalid. These proceedings were initiated under Section 158BD of the Income-Tax Act, 1961, following a search operation on Sh. S.K. Bhatia and M/s. Swastik Trading Company on 5.2.2003, which yielded documents pertaining to the assessee. The assessee filed a 'nil' return for the block period 1.4.1996 to 5.2.2003. The Assessing Officer (AO) computed undisclosed income at Rs. 7,38,770/-. The dispute centers on the validity of the notice issued under Section 158BD.

What did the High Court hold?

The High Court held that the satisfaction required under Section 158BD of the Income-Tax Act, 1961, for initiating proceedings against a third party based on a search must be recorded during the course of the block assessment proceedings of the searched person, i.e., before the completion of the assessment under Section 158BC. The Court relied on its previous decision in CIT vs. Mridula (Prop. M/s. Dhruv Fabrics). In the present case, the block assessment orders for the searched persons (Sh. S.K. Bhatia and M/s. Swastik Trading Company) were passed on 31.3.2005. The satisfaction for initiating proceedings against the assessee was recorded after this date, with the notice under Section 158BD being issued on 27.4.2006. Since the Revenue could not demonstrate that satisfaction was recorded prior to the completion of the block assessment of the searched persons, the proceedings initiated against the assessee under Section 158BD were held to be invalid and void. Therefore, the Tribunal was correct in its decision. The appeal was dismissed.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the ITAT was justified in holding that the recording of satisfaction under Section 158BD of the Income-Tax Act by the AO of the person searched, and the consequent issuance of notice under Section 158BD on 27.4.2006, was belated and beyond the period prescribed by law, when Section 158BD does not specify any period within which the notice is required to be issued? Assessee's Contention: The ITAT upheld the CIT(A)'s finding that the notice and subsequent proceedings were invalid and void. The Tribunal's reasoning, as elaborated in the judgment, is that the satisfaction for initiating proceedings under Section 158BD must be recorded during the course of the block assessment proceedings of the searched person, i.e., before the completion of the block assessment under Section 158BC. Revenue's Contention: The Revenue argued that Section 158BD of the Act does not specify any time limit within which the notice is required to be issued, implying that the satisfaction and notice were not necessarily belated.

Which sections of the Income-tax Act were involved?

Section 260A,Section 132,Section 158BC,Section 158BD,Section 158BE

AI-generated summary — verify with the full judgment below

Income Tax Appeal No. 553 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 553 of 2010 Date of decision: 6.12.2010 The Commissioner of Income Tax-III, Ludhiana --- Appellant Versus M/s. Fashion Fabrics Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Denesh Goyal, Standing Counsel for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 31.12.2009, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in IT (SS) No. 25/CHANDI/2009, relating to the block period from 1.4.1996 to 5.2.2003. The following substantial question of law has been claimed by the Revenue for determination of this Court:

Income Tax Appeal No. 553 of 2010 2 “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is justified in holding that the recording of satisfaction u/s 158BD of I.T. Act, by the Assessing Officer of the person sea

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