Loading judgment…
No AI summary yet for this case.
This is an appeal filed by the assessee against the order of the ACIT, Investigation Circle-1,Chandigarh passed under section 158BC/158BD read with Section 144 of the Act dt. 28/10/1996 pertaining to Block Period 01/04/1985 to 17/07/1995.
Briefly the facts of the case are that a search and seizure operation under section 132(1) was conducted at the business premises of M/s Chandigarh Wires Pvt. Ltd. and the residence of its Directors, Shri Anil Gupta and business premises of M/s Chandigarh Steel Products and its Proprietor Shri Sunil Gupta in the month of July / August 1995. From the seized material and information collected during the assessment of Shri Anil Gupta and Shri Sunil Gupta and Chandigarh Wires Pvt. Ltd. in whose cases, search was undertaken under Section 132, certain diaries and loose papers and undisclosed income belongs to the assessee Shri Prem Chand Aggarwal (since deceased) was stated by the AO as found during the search. Notice under section 158BC r.w.s 158 BD was thereafter issued and duly served on the assessee. In response, the assessee submitted that return originally filed may be treated as the return in compliance to the notice issued under section 158BC r.w.s 158BD of the Act. Thereafter, notice under section 143(2) and 142(1) alongwith questionnaire were issued and served on the assessee and thereafter, the AO passed the impugned assessment order under section 158BC/158BD r.w.s 144 dt. 28/10/1996 determining undisclosed income of the assessee for the block period 01/04/1985 to 17/07/1995 at Rs. 1,39,96,007/-
The assessee thereafter carried the matter in appeal before the Tribunal on various grounds both on law and on facts. The Coordinate Bench vide its order dt. 27/11/2007 in adverting to a solitary ground of appeal relating to validity of assumption of jurisdiction by the AO to make the impugned assessment order by issuing of notice under section 158BD dt. 13/09/1996 disposed off the said ground in favour of the assessee. The Coordinate Bench held that the assumption of jurisdiction by AO by issuing notice under section 158BD dt. 13/09/1996 is vitiated in law for the reason that the purported satisfaction under section 158BD has been recorded after the completion of assessment in the case of person who were put to search under section 132(1) of the Act and by following the earlier Coordinate Bench decision in case of Kishore Lal Balwant Rai & Others (ITSS No. 15/Chandi/05 dt. 29/06/2007).
The Revenue thereafter carried the matter in further appeal before the Hon’ble Punjab & Haryana High Court assailing the decision so taken by the Coordinate Bench and raising the substantial question of law as to whether in facts and circumstances of the case and in law, the ITAT was right in drawing a conclusion that satisfaction under section 158BD has to be recorded before the completion of assessment under section 158BC of the Act.
The Hon’ble Punjab & Haryana High Court vide its order dt. 03/09/2014 in of 2008 (O&M) has held that the issue required to be decided afresh in light of the judgment of the Hon’ble Apex Court in case of CIT Vs. Calcutta Knitwears, Ludhiana (Civil Appeal No. 3958 of 2014 dt. 12/03/2014) reported in (2014) 362 ITR 673 (SC) and this court order in Om Prakash & Sons (ITA No. 147 of 2010 dt. 14/02/2011) and the order so passed by the Coordinate Bench dt. 27/11/2007 was remitted back to the Tribunal to decide the same afresh in accordance with law after providing opportunity of hearing to both the parties.
6. In the aforesaid background, the matter has again come up for adjudication before us. In this appeal, the assessee has originally taken the following grounds of appeal.
“1. That the assessment, as framed u/s 158BC/158BD read with section 144 is barred by limitation, without jurisdiction and against all canons of natural justice and as such, the same is liable to be annulled straightaway.
2. That the Ld. Assessing Officer has failed to appreciate that he was not holding proper jurisdiction and the assessment was being framed out of time, against the statutory provisions and as such, the entire assessment is null and void.
3. That without prejudice to the above legal position, the Ld. Assessing Officer has erred in framing the assessment at an exorbitantly high income of Rs.1,39,96,007/- creating a demand of tax of Rs.83,97,604/- which is wholly arbitrary, imaginary and based on conjectures and surmises without there being any basis for the same.
4. That the Ld. Assessing Officer has erred in making an addition of Rs.16,06,021/- on a/c of the alleged unexplained household expenses incurred during the period 1.10.1987 to 9/94 allegedly recorded in the pocket diaries which is arbitrary and unjustified. The Ld. AO has not takes into consideration the incoming amounts from the books while he has admitted in his order that the withdrawals from the bank accounts are less compared to the household expenses incurred. But no adjustment has been allowed on account of withdrawals from the banks and other sources. Section 69 is not applicable in such circumstances.
5. That the Ld. Assessing Officer has erred in law as well as on facts in making an addition of Rs.20,000/- on a/c of the alleged investment in NSCs for the assessment year 1987-88 in the name of Smt. Shakuntla Devi wife of the appellant which is arbitrary and unjustified. The addition is wholly unsustainable as made under section 69 of the Acct and that too, in the hands of the assessee, in the absence of any proof of investment having been made by the assessee-appellant.
6. That the Ld. Assessing Officer has further erred in making the two additions of Rs.18,005/- and Rs.14,630/- on a/c of investment in fixed deposit receipts in the name of the assessee and his wife, Smt. Shakuntla Devi respectively. The Ld. AO has not been able to bring any material on record to justify the addition under Section 69 of the Acct. In any case the amount of F.D. in the name of Smt. Shakuntala Devi can not be added in the hands of the assessee in the absence of any evidence to show that the amount was invested by himself in the name of his wife. Both the additions are liable to be deleted.
That the Ld. Assessing Officer has further erred in making an addition of Rs. 1,75,000/- allegedly on a/c of money transactions u/s 69C of the Act for the assessment year 1992-93. The Ld. Assessing Officer has made the addition on misappreciation of the facts and circumstances of the case and as such, the addition is wholly unwarranted.
8. That the Assessing Officer has further erred in making an addition of Rs.5,94,000/- for some transactions holding the same to be investments u/s 69 of the Act for the assessment year 1996-97 as undisclosed income of the appellant which is arbitrary and unjustified.
9. That the Ld. Assessing Officer has further erred in making an addition of Rs.20,000/- on account of the alleged investment in UTI Tax Saving Scheme u/s 69 of the Act treating the same as undisclosed income of the appellant for the assessment year 1991- 92 which is again arbitrary and unjustified.
That the Ld. Assessing Officer has further erred in making an addition of Rs.15,000/- on a/c of purchase of NSCs in the year 1995- 96 invoking the provisions of the section 69 of the Act which is arbitrary and unjustified.
11. That the Ld. Assessing Officer has further erred in making an addition of Rs.15,000/- for the alleged purchase of NSC worth Rs.15,000/- as per pages 67 and 79 of item A-49 in the year 1995 which is arbitrary and unjustified. The amount has wrongly be treated as undisclosed income as per provisions of Section 69 of the Act.
12. That the Ld. Assessing Officer has further erred in making an addition of Rs.10,000/- for the alleged purchase of shares of MGP- 91 treating the same to be undisclosed income of the appellant for the assessment year 1991-92 u/s 69 of the Act which is arbitrary and unjustified.
13. That the Ld. Assessing Officer has grossly erred in making the addition of Rs.54,795/- allegedly for application money, Rs.12,61,146/- allegedly for registration money and Rs.26,910/- allegedly spent as Misc. amount in respect of a plot of Smt. Renu Gupta, daughter of the assessee which is arbitrary and unjustified in as much as Rs. 54,795/- is the application No. and not the application money, Rs. 12,61,146/- is the registration NO. and not the registration money and Rs. 26,910/- is an amount refunded to her as the plot could not be allotted to her which is not the miscellaneous amount spent as taken by the Ld. AO. The entire addition is based on misappreciation of the fact properly. In any case, no addition is warranted in the hands of the appellant in respect of the plot applied for allotment by the daughter of the assessee Smt. Renu Gupta, thus, the entire amount being misconceived is liable to be deleted.
14. That the Ld. Assessing Officer has further erred in making an addition of Rs.14,01,000/- for the alleged purchase of plots worth Rs.4 lacs as per page 98 of item A-22, for the alleged purchase of plots, one worth Rs.6 lacs and other worth Rs.2.5 lacs as per page 77, other amounts of Rs.1.25 lacs and Rs.26,000/- has been made on a/c of the alleged investments made by Smt. Shakuntla Devi wife of the assessee as per page 75 of item No. A-22. Thus, the total addition of Rs.14,01,000/- made by the Ld. Assessing Officer is wholly unwarranted as made u/s 69 of the Act especially in the absence of any material or evidence brought on record to justify the same. In any case the addition for the alleged investment by Smt. Shakuntala Devi wife of the assessee amounting to Rs. 1.25 lacs and Rs. 26,000/- cannot be made in the hands of the assessee and as such the total addition is liable to be deleted.
15. That the Ld. Assessing Officer has further erred in making an addition of Rs.3,26,500/- for the alleged investment in the plot in the name of Shri Dharam Kumar treated the same to be unexplained investment for an addition under Section 69 of the Act for the assessment year 1993-94 which is arbitrary and unjustified. There is no such purchase of plot by the assessee in the name of Shri Dharam Kumar and in any case no addition can be made in the hands of the assessee.
16. That the Ld. Assessing Officer has further erred in making an addition of Rs.25,000/- for the purchase of Kisan Vikas Patra worth Rs.25,000/- in the name of Smt. Shakuntla Devi as unexplained income of the assessee under section 69 of the Act which is arbitrary and unjustified. No such addition is warranted in the hands of the assessee.
17. That the Ld. Assessing Officer has further erred in making an addition of Rs. 3.90 lacs on a/c of certain entries admittedly relating to Shri Dharam Pal which is arbitrary and unjustified.
18. That the Ld. Assessing Officer has further erred in making an addition of Rs.79,45,000/- on the basis of certain entries on pages 77,80,91 and 94 of item A-22 which is again arbitrary and unjustified. The Ld. AO has erroneously held it to be an investment allegedly made by the assessee for which there is absolutely no material or evidence on record to justify the addition. Hence the addition, being wholly unwarranted, is liable to be deleted.
19. That the Ld. Assessing Officer has further erred in treating the income of Rs.39,000/- each for the assessment years 1994-95 and 1995- 96 totaling Rs.78,000/- to be the undisclosed income of the appellant. This amount represent the salary earned by the assessee and being below the taxable limit, no returns were filed and as such, the same cannot be treated as unexplained income for the purposes of assessment under section 158BC of the Income tax Act, 1961.
20. That the Ld. Assessing Officer has erred in determining the total undisclosed income of the appellant for the block years of assessment at Rs.1,39,96,007/- which is wholly unsustainable, in as much as Section 69 has been wrongly applied for the purposes of making additions in the hands of the assessee. The onus of proof under section 69 lies on the Ld. A.O which has not been discharged
and in the absence thereof the assessment is liable to be cancelled. 21. That the entire assessment being illegal, incompetent, erroneous, opposed to law and facts of the case is unsustainable and liable to be quashed.” 7. Further, during the course of hearing, the Ld. AR submitted that the assessee wishes to take following additional ground of appeal and has moved a prayer in this regard:
“A1. That the notice issued u/s 158 BD dated 13.09.1996 to the appellant by the Assessing officer during the pendency of the proceeding initiated by way of notices u/s 158BC dated 28.02.1996, 26.04.1996 and 7.06.1996 for the same period is against the law laid down by the Hon'ble Supreme Court of India in the case of Mr.S.B.Jain ITO Nagpur Vs Mahandera SC 83 ITR page 104 followed by the various High Courts from time to time needs to be set aside being against the judicial decisions in this behalf. A2. That the order passed u/s 144 read with section 158BD by the Assessing officer holding the appellant as a person not searched instead of a person searched under section 158BC is bad in view of the statement recorded u/s 132(1) dated 17.07.1995 and the notices issued u/s 158BC dated 28.2.1996, 26.4.1996 and 7.06.1996 needs to be set-aside. A3. That the order of assessment making various additions to the income of the appellant on the basis of loose papers is bad in law in view of the decision of The Hon'ble Supreme Court of India in the case of Common Causes (A registered society) and others Vs Union of India and others 394 ITR page 220 (SC) and needs to be set- aside. A4. That the order appealed against passed under section 144 read with section 158BC read with section 158BD is bad in law as the additions made in this case are based on the documents which relates to persons other than the appellant which is against the law and scheme of the Act and needs to be set-aside. A5. That the order appealed against is stated to have been passed after transfer of jurisdiction u/s 127 but such order has neither been supplied to the appellant nor has been produced during the proceedings before this Hon'ble Tribunal and thus the order is without jurisdiction. A6 That the order appealed against is contradictory in itself more particularly with regard to the addition for the assessment year 1996-97 where in the finding the total addition has been held to be at Rs 79.45 lacs whereas in the computation of the income the same has been taken at Rs 1,11,21,851/- thus the order needs to be set-aside.”
The ld AR submitted that these additional grounds are legal in nature and no fresh facts are to be investigated. He also submitted that the additional grounds goes to the root of the matter and therefore, prayed that the same may be admitted for disposal of the appeal. He has relied upon the decision of Hon’ble Supreme Court in the case of NTPC Limited vs. CIT reported in 229 ITR 383 (SC).
The ld CIT/DR objected to the admission of additional grounds of appeal.
10. After hearing both the parties and considering the facts of the case, we are of the view that additional grounds so raised are purely legal in nature and goes to the root of the matter, which does not require any investigation of facts and is borne out from the order and material on record. Therefore, the same is hereby admitted for adjudication on merits.
11. During the course of hearing, the Ld. AR has broadly raised the contentions challenging the assumption of jurisdiction by the AO under section 158BD of the Act on account of pendency of the proceedings by issue of initial notice under section 158BC in case of the assessee, on account of lack of proper satisfaction recorded by the Assessing officer before assumption of jurisdiction under section 158BD of the Act, on account of delayed timing of the satisfaction so recorded (matter remitted back by the Hon’ble High Court) and on account of the fact that no order under section 127 is available on record for the transferring the jurisdiction of the case to the AO who has passed the impugned order. Besides that, the arguments were also advanced by the ld AR challenging the various additions so made by the AO basis loose papers/diaries including the additions in respect of transactions which prima facie doesn’t belong to the assessee but to other family members who are separately assessed to tax.
12. We therefore deem it appropriate to first examine the matter challenging the assumption of jurisdiction by the AO by issuing of notice under section 158BD of the Act and the various contentions so raised by the Ld. AR and the rebuttal by the Revenue.
13. During the course of hearing, the Ld. AR submitted that search and seizure operations were conducted by the Revenue authorities on the business premises of Chandigarh Wires Pvt. Ltd and at the residential premises of its Directors. It was submitted that the assessee was the Managing Director of Chandigarh Wires Pvt. Ltd and Shri Anil Gupta and Shri Sunil Gupta were the Directors of the said company and all of them were residing at the said premises which was owned by another son, Shri Vinod Gupta. It was submitted that the wife of the assessee as well as children of Shri Anil Gupta and Shri Sunil Gupta were also residing in the said premises. In other words, the assessee along with other members of the joint family were staying together at the residential premises. It was submitted that the statement of the assessee as well as that of Shri Anil Gupta and Shri Sunil Gupta were recorded under section 132(4) of the Act. Thereafter, notices dt. 28/02/1996 under section 158BC(a) for A.Y. 1994-95 and for A.Y. 1995-96 were issued by ACIT, Investigation Circle-1, Chandigarh. Thereafter, another notice dt. 26/04/1996 was issued to the assessee for furnishing explanation regarding the income of the assessee as per the return regularly filed for the relevant Assessment Year. In response, the assessee filed his reply on 10/05/1996. Thereafter, a penalty notice dt. 27/05/1996 was also issued. Thereafter, another notice dt. 07/06/1996 was issued to file return in Form 2B and in response, the assessee filed return for the block period on 20/06/1996. It was accordingly submitted that the assessee was initially served notices to assess him under the provisions of Section 158BC of the Act. However, from the perusal of the record, it can be noted that no order under section 158BC has been passed nor any order for dropping the proceeding has been passed.
14. It was submitted that the said proceedings initiated by way of various notices under section 158BC were alive when fresh proceeding under the provisions of Section 158BD were initiated against the assessee by issuance of notice dt. 13/09/1996 which was issued by the same officer who issued the initial notice dt. 07/06/1996 under section 158BC of the Act. It was submitted that it is thus an admitted fact that the notice under section 158BC was initially issued to the assessee, a fact which has not been disputed by the Revenue and in such a situation, it is a settled law that where proceedings for a particular year(s) are pending by virtue of issue of notice, then no second notice initiating proceedings against the assessee for the same year can be issued and therefore, the notice issued under section 158BD dt. 13/09/1996 during the pendency of the proceedings initiated by way of notice under section 158BC dt. 28/02/1996, 26/04/1996 and 07/06/1996 for the same block period is against the law laid down by Hon’ble Supreme Court in case of Mr. S. B Jain, ITO Nagpur Vs. Mahandera 83 ITR 104, Hon’ble Delhi High Court in case of CIT Vs. Sanjay Kumar Garg (2015) TMI 390, Hon’ble Kerala High Court in case of Nilafer Hameed Vs. ITO(1999) 235 ITR 161.
It was further submitted that ACIT Investigation Circle -1, Chandigarh vide his letter dt. 01/10/1996 informed the assessee that the jurisdiction of the case has been transferred to him under provisions of Section 127 however no order under section 127 has either been brought on record by the AO during the assessment proceedings or supplied to the assessee by the Department till date. It was accordingly submitted that since there was no order under section 127 for transferring the jurisdiction to the AO who has passed the impugned order, the order so passed by the AO is without any jurisdiction and therefore deserves to be set aside.
Further, our reference was drawn to the satisfaction note so recorded by the AO dt. 10/09/1996 before assumption of jurisdiction under section 158BD of the Act. It was submitted that for assumption of jurisdiction under section 158BD of the Act, the AO has to record his satisfaction that any undisclosed income belongs to any person other than the person in respect of whom the search was undertaken under section 132 and thereafter, once such satisfaction is recorded, the books of accounts, other documents or asset seized shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed under section 158BD against such other person and the provision of section 158BD shall apply accordingly.
17. It was submitted that in the instant case it can be observed from the satisfaction note wherein the ACIT, Investigation -1, Chandigarh noticed that during the assessment proceedings of cases related to Chandigarh Wires Pvt. Ltd., Mini Associates, Shri Sunil Gupta Proprietor and Shri Anil Gupta, it was found that there were several documents in the form of Diaries and loose papers (which were seized during search) which were recorded by Shri Prem Chand Aggarwal. It was also stated by the AO that Shri Sunil Gupta stated that expenses like household expenses mentioned in the diary are in knowledge of his father Shri Prem Chand Aggarwal and should be considered in his case. It was noted by the AO that there were several NSC, FDR etc in the name of Shri Prem Chand Aggarwal and his wife. Similarly Item No. A-34 contains several entries which are related to Shri Prem Chand Aggarwal which has been discussed in the assessment order of Shri Sunil Gupta. Accordingly, the AO recorded his satisfaction that these documents relates to undisclosed income of Shri Prem Chand Aggarwal so notice under section 158BC r.w.s 158BD was issued to the assessee.
Referring to the definition of “undisclosed income” as so defined in Section 158B(b) wherein the undisclosed income has been defined to include any money, bullion, jewellery or other valuable article or things or any income based on any entry in the books of account or other documents or transactions where such money, bullion, jewellery valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the Act or any expense deduction or allowance claimed under this Act which is found to be false, it was submitted that in the instant case as apparent from the satisfaction so recorded by the AO, what has been seized are certain diaries, loose papers which cannot be read as the books of account maintained by the assessee. The assessee was not required to maintain any books of account and his only source of income is from salary and certain income from other sources and he was not carrying out any business in his individual capacity. It was further submitted that the AO has nowhere stated in the satisfaction so recorded as to how such diaries and loose papers even though written by the assessee represents wholly or partly income or property which has not been or would not have been disclosed by the assessee for purposes of the Act. It was further submitted that merely the statement of Shri Sunil Gupta that house hold expenses should be considered in the case of the assessee cannot be a basis for holding that certain undisclosed income belonging to the assessee has been found. It was further submitted that the various other documents so referred by the AO relates to other family members and how the same has been considered as representing the undisclosed income of the assessee has not been spelt out in the satisfaction so recorded by the AO. In support, reliance was placed on the decisions of the Hon’ble Supreme Court in case of Manish Maheswari vs ACIT (2007) 289 ITR 341(SC), CIT vs Calcutta Knitwears (Supra), Tapan Kumar Dutta vs CIT (2018) 404 ITR 28 (SC), decision of the Hon’ble Delhi High Court in case of Amity Hotels Pvt Ltd, 272 ITR 75 (Del), decision of Hon’ble Calcutta High Court in case of Subhas Chandra Bhaniranka vs ACIT (2010) 320 ITR 349 (Cal). It was accordingly submitted that the satisfaction so recorded for exercise of jurisdiction under section 158BD does not satisfy the test so laid down by the Courts from time to time and therefore on this ground as well, the order so passed by the AO deserves to be set aside.
Regarding timing of the recording of the satisfaction, the Ld. AR submitted that the Hon’ble Supreme Court in case of Calcutta Knitwears, Ludhiana (supra) has held that the satisfaction note could be prepared at either of the following stages namely at the time of or alongwith initiation of proceedings against the searched person under section 158BC of the Act or alongwith assessment proceedings under section 158BC of the Act or immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person. It was submitted that in the instant case, it is a matter of record that the satisfaction note has not been prepared at the time of or alongwith initiation of proceedings against the searched person under section 158BC of the Act or alongwith assessment proceedings under section 158BC of the Act. It was further submitted that the assessment proceedings in case of Shri Sunil Gupta being one of the persons searched was completed under section 158BC r.w.s 144(3)(iii) on 30/07/1996 and thereafter the satisfaction was recorded by the AO on 10/09/1996 after a period of 40 days for the purposes of assumption of jurisdiction under section 158BD of the Act. It was submitted that the satisfaction so recorded cannot be held to be recorded immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person and therefore, even on this count, the order so passed by the AO deserves to be set aside
In her submissions, the Ld. CIT/DR has stated that though there is no dispute that the AO had initially issued notice to the assessee under section 158BC of the Act. However, the same was issued under the wrong impression that the assessee was one of the persons being searched. However, later on, when the Assessing Officer realized that the assessee was not the one of the persons who was searched and on whom search warrant was executed and considering the fact that the certain diaries and loose papers have been seized during the course of search and which were subject matter of examination during the course of assessment proceedings of the person being searched namely Shri Sunil Gupta, the AO recorded his satisfaction on 10/09/1996 and thereafter notice under section 158BC r.w.s 158BD was issued to the assessee on 13/09/1996.
It was submitted that the search was carried out at the business / residence premises of M/s Chandigarh Wires Pvt. Ltd., M/s Mini Associates and Shri Sunil Gupta and Shri Anil Gupta on July 1995, the last search warrant which was executed was on 17/07/1995 and the search was concluded in August 1995 and as per the provisions of Section 158BE, the order under section 158BC can be passed within one year from the end of the month in which the last of the authorization for search under section 132 was executed and in the instant case, the limitation therefore expired on 31/08/1996. It was accordingly submitted that as on the date of recording of satisfaction on 10/09/1996 as well as the issuance of notice under section 158BC r.w.s 158BD on 13/09/1996, the earlier proceedings were not pending and stands barred by limitation. It was accordingly submitted that even though there is nothing available on record as to the formal passing of any order under section 158BC whereby the proceedings so initiated under section 158BC of the Act in case of the assessee were dropped, the fact that the proceedings stands barred by limitation, it cannot be held that the proceedings continue to remain pending in absence of any specific order so passed by the AO. It was accordingly submitted that there is no merit in the contention so advanced by the Ld. AR and the same deserves to be dismissed.
Regarding transfer of jurisdiction and passing of the order under section 127 of the Act, it was submitted that the same is clearly evident from the impugned order that it is only on passing of the order under section 127, the jurisdiction was assumed by the AO and again on this count, the contention so advanced by the Ld. AR deserves to be dismissed.
Regarding recording of satisfaction, it was submitted that at the time of the recording of satisfaction, the AO has to record his prima facie findings that any undisclosed income belongs to the assessee, being a person other than the searched person and in the instant case, the AO has clearly stated in the satisfaction note that there are various diaries and the loose papers which have been found and seized during the course of search and which have been written in the handwriting of the assessee and therefore on perusal of the same, it can be safely inferred that the AO has correctly recorded the satisfaction and assumed the jurisdiction under section 158BD of the Act. In this regard, our reference was drawn to the subsequent notice issued by the AO dt. 04/10/1996 where the AO has clearly highlighted the specific entries in the seized documents which belongs to the assessee and it was accordingly submitted that the AO has correctly recorded the satisfaction and assumed the jurisdiction by issuance of notice under section 158BD of the Act.
Regarding timing of the recording of the satisfaction, it was submitted that it is an admitted fact that the Hon’ble Supreme Court in case of Calcutta Knitwears (supra) has clearly stated that the satisfaction note could be prepared at either of the following stages, namely at the time of or alongwith of initiation of proceedings against the searched person under section 158BC of the Act or alongwith assessment proceedings under section 158BC of the Act or immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person. It was submitted that in the instant case, the assessment proceedings in case of Shri Sunil Gupta being one of the persons searched was completed under section 158BC r.w.s 144(3)(iii) on 30/07/1996 and thereafter, with in a period of one month and 10 days, the satisfaction was recorded before assumption of jurisdiction under section 158BD of the Act. It was submitted that the direction of the Hon’ble Supreme Court as to recording of the satisfaction immediately after the assessment proceedings of the searched person being completed have to be read in a practical or pragmatic sense and the same cannot be read as within the next day or next few days of passing of the assessment order under section 158BC of the Act. In support, reliance was placed on the decision of the Hon’ble Punjab and Haryana High Court in case of Mridula Mridula, Prop. M/s Dhruv Fabrics, Ludhiana (ITA No.591 of 2009 decided on 10.4.2015) and in case of Om Prakash and Sons (supra). It was accordingly submitted that even on this count, the order so passed by the AO cannot be vitiated and there is thus no merit in the contention so advanced by the ld AR.
We have heard the rival contentions and perused the material available on record. Firstly, we refer to the contention advanced by the ld AR that during the pendency of the proceedings u/s 158BC, the fresh proceedings u/s 158BD had been initiated for the same block period and the same is not sustainable in law. In this regard, we find that it is an admitted position that the assessee was initially issued notice u/s 158BC of the Act which was served on the assessee in the month of Oct 1995 wherein the assessee was required to furnish return of income in prescribed Form 2B. The return of income in prescribed Form 2B was filed by the assessee on 20/06/1996 for the block period 1/04/1985 to 17/07/1995. It is also not in dispute that the last search warrant was executed on 17/07/1995. Therefore, for the purpose of determining the limitation period of completion of proceedings and passing of the assessment order under section 158BC, if we consider the aforesaid day on which last of the search warrant was executed, the proceedings get time barred on 31/08/1996 as per the provisions of Section 158BE wherein it has been provided that the order under section 158BC can be passed within one year from the end of the month in which the last of the authorization for search under section 132 was executed.
Subsequently, the satisfaction u/s 158BD was recorded by the AO on 10/09/1996 and thereafter, notice under section 158BC rw.s 158BD was issued on 13/09/1996. Therefore, as on the date of recording of satisfaction u/s 158BD of the Act and subsequent issuance of notice under section 158BC r/w 158BD, the earlier proceedings u/s 158BC were not pending and stands barred by limitation. In view of the same, even though no formal order has been passed dropping the proceedings u/s 158BC, it cannot be held that the proceedings so initiated by issuance of notice u/s 158BC continue to remain alive and pending before issuance of notice u/s 158BD as so contended by the ld AR. The various authorities relied upon by the ld AR thus stand distinguishable and doesn’t support the case of the assessee and the contention so advanced by the ld AR therefore cannot be accepted.
Now, coming to the second contention advanced by the ld AR wherein it has been contended that since there was no order under section 127 either available on record or supplied to the assessee for transferring the jurisdiction to the AO who has passed the impugned order, the order so passed by the AO is without jurisdiction and therefore deserves to be set aside. In this regard, we find that all the initial notices under Section 158BC and thereafter, under Section 158BD were issued by Assistant Commissioner of Income tax, Investigation Circle – 1 Chandigarh who has also passed the impugned assessment order. He is also the Assessing officer of the persons searched, namely Shri Sunil Gupta and Shri Anil Gupta and whose assessment orders are also available on record. For the first time, the assessee in his letter addressed to Assistant Commissioner of Income tax, Investigation Circle – 1 Chandigarh and which was submitted on 30/09/1996 has stated that there was no search warrant against him referring to the notice issued under section 158BC and correct jurisdiction over his case and other family members/concern may kindly be ascertained as per law and record in your possession by transferred to concerned officer for further appropriate action as required under Section 158BD of the Act. In response, the Assistant Commissioner of Income tax, Investigation Circle – 1 Chandigarh vide his letter dated 01/10/1996 informed the assessee that the jurisdiction of the case has been transferred to him under provisions of Section 127 and the notice has been rightly issued by him. Thereafter, on 11/10/1996, Shri Anil Gupta, son of the assessee appeared on behalf of the assessee and he was also informed by the AO that the jurisdiction of the case lies with him. These facts are matter of record and are emerging from the correspondence available on record and also duly stated by the AO in the impugned assessment order. We therefore find that the assessee has never objected to the jurisdiction so acquired by the AO, that the assessee has never asked for an opportunity to be provided before passing of the order u/s 127 and that the assessee has never asked for copy of the order so issued u/s 127 by Commissioner of Income-tax, Patiala and has participated in the proceedings so conducted by the AO. All the assessee had asked was to ascertain the correct jurisdiction by the AO as he was not the person searched and in response, the AO has stated that even though the assessee was not the person searched, he continues to hold the jurisdiction over the case as necessary order has been passed u/s 127 of the Act. Therefore, it is not a case where the AO has acquired the jurisdiction without passing of order u/s 127 of the Act. The order u/s 127 has clearly been passed by the Commissioner of Income-tax, Patiala and the factum thereof cannot be denied. At this stage, given the afflux of time and the matter almost three decades old, the Revenue has not be able to retrieve the order so passed u/s 127 of the Act, however, the same cannot be basis to challenge the jurisdiction of the AO at this stage and the contention so advanced by the Ld. AR cannot be accepted.
Now, coming to the third contention advanced by the ld AR wherein it has been contended that the assessment proceedings in case of Shri Sunil Gupta, being one of the persons searched was completed under section 158BC r.w.s 144(3)(iii) on 30/07/1996 and thereafter the satisfaction under section 158BD was recorded by the AO in the instant case on 10/09/1996 after a period of 40 days and the same cannot be said to be recorded immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person in compliance with the directions/guidelines so laid down by the Hon’ble Supreme Court in case of Calcutta Knitwears (supra). In her submissions, the ld CIT/DR has submitted that the direction of the Hon’ble Supreme Court as to recording of the satisfaction immediately after the assessment proceedings of the searched person being completed have to be read in a practical or pragmatic sense and the same cannot be read as within the next day or next few days of passing of the assessment order under section 158BC of the Act.
As noted supra, in the assessee’s case, the Coordinate Bench had earlier held that the assumption of jurisdiction by AO by issuing notice under section 158BD dated 13/09/1996 is vitiated in law for the reason that the purported satisfaction under section 158BD has been recorded after the completion of assessment in the case of person who were put to search under section 132(1) of the Act. The Revenue thereafter carried the matter in further appeal before the Hon’ble Punjab & Haryana High Court assailing the decision so taken by the Coordinate Bench. The Hon’ble Punjab & Haryana High Court vide its order dt. 03/09/2014 in of 2008 (O&M) has held that the issue required to be decided afresh in light of the judgment of the Hon’ble Apex Court in case of CIT Vs. Calcutta Knitwears, Ludhiana (Civil Appeal No. 3958 of 2014 dt. 12/03/2014) and decision in case of Om Prakash & Sons (ITA No. 147 of 2010 dt. 14/02/2011) and the order so passed by the Coordinate Bench dt. 27/11/2007 was remitted back to the Tribunal to decide the same afresh in accordance with law.
In Calcutta Knitwears Limited's case (supra), the Hon’ble Supreme Court has held that for purposes of Section 158BD of the Act, a satisfaction note is sine qua non and must be prepared by the Assessing Officer of the searched person 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 alongwith the initiation of proceedings against the person against whom search was conducted under Section 158BC of the Act; (b) alongwith 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 person against whom search was conducted.
In the instant case, admittedly, the first two stages are not relevant and it is at the third stage, after the assessment proceedings are completed under Section 158BC of the Act of the person against whom search was conducted, the satisfaction has been recorded and the question that arise for consideration is whether the satisfaction so recorded is "immediately after" the assessment proceedings are completed under Section 158BC of the Act of the person against whom search was conducted and how to interpret the phrase “immediately after” and apply the same in the facts of the present case.
In this regard, we find that on remand by the Hon’ble Supreme Court in case of Calcutta Knitwears (supra) and other similar matters, the matter again came up for consideration before the Hon’ble Punjab and Haryana High Court in batch of cases and the lead case being that of Mridula, Prop. M/s Dhruv Fabrics, Ludhiana (Supra) wherein, following the judgment of the Hon’ble Supreme Court in Calcutta Knitwears Limited's case (supra), it was held as under:
“10. Mr. Mittal and Mr. Jain, learned counsel appearing on behalf of the respondents in these appeals rightly agreed that in view of the judgment of the Supreme Court the Assessing Officer was entitled to record his satisfaction even after the assessment proceedings were completed under Section 158BC of the Act of the searched person. They, however, contended that the satisfaction must be recorded not at any time after the assessment proceedings are completed under section 158BC of the Act of the searched person but immediately thereafter.
11. The question that falls for our consideration, therefore, is the meaning of the words "immediately after" in the judgment. The Supreme Court did not specify any outer limit. In our view, the words indicate that the satisfaction note must be prepared as soon as practicably possible and without undue delay after the assessment proceedings are completed under section 158BC of the Act of the searched person. This must necessarily depend upon the facts of each case. We do not read the words "immediately after" to mean something as drastic or rigid as the very next moment or even the very next day or even week after the completion of the assessment proceedings under section 158 BC of the searched person. The error in the respondent's submission is in reading the words "immediately after" so rigidly arisen on account of considering them in isolation instead of reading the judgment as a whole. For instance, in paragraph 43, the Supreme Court observed:- "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." (emphasis supplied).
It is neither possible nor necessary to have any strict formula in this regard. For instance, there may be cases where after the assessment proceedings are completed under section 158BC of the Act of the searched person, the Assessing Officer is indisposed for some reason such as on the ground of health. It would not be unreasonable if the satisfaction is recorded soon after he recovers. The Assessing Officer may have enormous burden of work upon completing the assessment proceedings under Section 158BC of the Act. It would be permissible if he took some time after completing such pending work to prepare the satisfaction note. Each case must be judged upon its own facts.
Our view is supported by the judgment of a Division Bench of this Court dated 14.02.2011 in Income Tax Appeal No. 147 of 2010 Commissioner of Income Tax, Faridabad v. M/s Om Parkash and sons. The Division Bench held as under:- "17. .........................As regards delay in issuing notice to the assessee, we find merit in the contention that it was a case which involved a huge fraud of tax evasion where business of searched person was to give accommodation entries resulting in tax evasion to the extent of Rs.132 Crores in total, spread over the cases of various assesses in all over India. The coordination by the assessing officer of the searched person was time consuming affair. In these circumstances, delay cannot be held to be unreasonable and cannot be held to vitiate the assessment. No doubt once satisfaction is formed during block assessment of searched person, action must be promptly taken as submitted on behalf of the assessee and as held by the Gujarat High Court in Khandubhai Vasanji Desai and others Vs. DCIT and another (1999) 236 ITR 73. Whether or not action was prompt depends upon circumstances of each case."
In the present case, the notices were issued to about 70 persons on the documents seized from the Bhatia Group. The Assessing Officer, therefore, had to take action against the 70 persons on account of the same search operation under Section 132 of the Act. He could not possibly do so the same day or even by the next day. The paperwork in such cases is itself enormous. Moreover, this presumably was not the only work that the Assessing Officer had. A period of three and a half months in the facts of this case was entirely reasonable. The respondent is in any event not prejudiced on account of the satisfaction having been prepared thereafter. In these circumstances, the appellant having taken three and a half months to record his satisfaction cannot be held to be unreasonable.”
As held by the Hon’ble Punjab and Haryana High Court in aforesaid case, the words “immediately after” indicate that the satisfaction note must be prepared as soon as practicably possible and without undue delay after the assessment proceedings are completed under section 158BC of the Act of the searched person. It was held that the words "immediately after" cannot be read to mean something as drastic or rigid as the very next moment or even the very next day or even week after the completion of the assessment proceedings under section 158BC of the searched person. It was held that it is neither possible nor necessary to have any strict formula in this regard and the same necessarily depend upon the facts of each case and each case must be judged upon its own facts and considering the facts of the said case, it was held that the AO having taken three and a half months to record his satisfaction cannot be held to be unreasonable.
In the instant case, the assessment under Section 158BC in hands of the searched persons, namely Shri Sunil Gupta, was completed on 30/07/1996 and the satisfaction for initiating of proceedings u/s 158BD in hands of the assessee was recorded by the AO on 10/09/1996 and thereafter, the notice u/s 158BD was issued to the assessee on 13/09/1996. We therefore find that the satisfaction has been recorded by the AO within a period of one month and 10 days of completion of assessment in case of searched persons and the said period cannot be held as unreasonable involving substantial delay taking into consideration the fact that the Assessing officer was holding the charge as ACIT, Investigation having jurisdiction over various search cases involving complex issues where the search was carried out which involves enormous work responsibility which were undertaken along with handling the case of the assessee.
Similarly, in case of CIT vs Om Prakash and Sons (Supra), the facts of the case were that the assessment under Section 158BC in hands of the searched person was completed on 29/08/2002 and the satisfaction for proceedings u/s 158BD was recorded on 29/03/2004. The ld CIT(A) held that the satisfaction was not recorded properly and validly as it was not recorded during the course of assessment of the searched person, on further appeal, the Tribunal held that the notice u/s 158BD should be issued within 15 days of completion of block assessment in case of searched person and at any rate not later than 60 days and that once the AO has reached the requisite satisfaction, he is bound to act swiftly to proceed against the other person and upheld the findings of the ld CIT(A). On further appeal by the Revenue, the Hon’ble Punjab and Haryana High held that both ld CIT(A) and Tribunal were not justified in holding that no requisite satisfaction has been recorded by the AO and the delay in issuing notice cannot be held to be unreasonable in the facts of the said case and the relevant findings read as under:
“16. Learned counsel for the assessee supported the impugned finding by relying upon the judgment of this Court dated 20.7.2010 in of 2009 (Commissioner of Income-Tax-I, Ludhiana Vs. Mridula, Prop. M/s Dhruv Fabrics, Ludhiana) and submitted that if satisfaction was not recorded during the assessment of the searched person, block assessment could not proceed against the assessee. He submitted that the assessment of the searched person was completed on 29.8.2002 while notice in the present case was issued on 23.9.2004 which was subsequent of the assessment of the searched person. Order of assessment of searched person did not specifically record the requisite satisfaction as held by the CIT (A) and the Tribunal. It was further submitted that as required under the law, laid down in Manish Maheshwari Vs. ACIT and another (2007) 289 ITR 341 (SC), block assessment has to be referable to material found during the search. He further submitted that the notice should be issued under Section 15BD immediately after the satisfaction was reached while in the present case notice was issued after two years.
After considering the rival submissions, we are satisfied that the questions raised on behalf of the revenue have to be answered in its favour and against the assessee. It is patent from the order of assessment in the case of searched person that during the assessment of the searched person, the assessing officer was satisfied that the assessee had undisclosed income which had nexus to the material found during search. In these circumstances the judgment of this Court in Mridula could not come to the rescue of the assessee as what was held therein was that requisite satisfaction must be formed during assessment of searched person. This Court did not hold that law required any particular form in which the same should be recorded. In the present case such satisfaction having been duly formed, learned counsel for the revenue rightly relies upon the judgment of this Court in Commissioner of Income Tax Vs. Pearey Lai and sons (EP) Ltd. (2009) 308 ITR 438 (P&H) to submit that requirement of law was met. As regards delay in issuing notice to the assessee, we find merit in the contention that it was a case which involved a huge fraud of tax evasion where business of searched person was to give accommodation entries resulting in tax evasion to the extent of Rs.132 Crores in total, spread over the cases of various assesses in all over India. The coordination by the assessing officer of the searched person was time consuming affair. In these circumstances, delay cannot be held to be unreasonable and cannot be held to vitiate the assessment. No doubt once satisfaction is formed during block assessment of searched person, action must be promptly taken as submitted on behalf of the assessee and as held by the Gujarat High Court in Khandubhai Vasanji Desai and others Vs. DCIT and another (1999) 236 ITR 73. Whether or not action was prompt depends upon circumstances of each case.
18. The CIT(A) as well as the Tribunal are not justified in holding that no requisite satisfaction was recorded and that block assessment proceedings are vitiated. The questions have to be answered in favour of the revenue accordingly. On reaching this conclusion, even though we would have quashed the impugned orders and restored the order of the assessment officer, by way of abundant caution, we consider it appropriate to give further opportunity to the assessee and for this purpose, we remand the matter to the CIT(A) for fresh decision in accordance with law. The assessee may appear before the learned CIT (A) on 25.4.2011.”
In the instant case as well, we find that as soon the AO has recorded the satisfaction u/s 158BD on 10/09/1996, the notice has been issued to the assessee on 13/09/1996 and thereafter, the assessment proceedings have been completed on 28/10/1996 and therefore, there is as such no delay on part of the AO in carrying out subsequent action in terms of issue of notice and completion of assessment proceedings which has been done in real quick time soon after recording of the satisfaction. In light of the aforesaid discussions, we are unable to accede to the contention so advanced by the ld AR and on this count as well, the order so passed by the AO cannot held to be vitiated.
Now, coming to last of the contentions advanced by the ld AR challenging the assumption of jurisdiction by the AO. It has been contended that for assumption of jurisdiction under section 158BD of the Act, the AO has to record his satisfaction that any undisclosed income belongs to any person other than the person in respect of whom the search was undertaken under section 132 and thereafter, once such satisfaction is recorded, the books of accounts, other documents or asset seized shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed under section 158BD against such other person and the provision of section 158BD shall apply accordingly. Referring to the definition of “undisclosed income” as so defined in Section 158B(b) wherein the undisclosed income has been defined, it was submitted that in the instant case as apparent from the satisfaction so recorded by the AO, what has been seized are certain diaries, loose papers which cannot be read as the books of account maintained by the assessee as the assessee was not required to maintain any books of account and his only source of income is from salary and certain income from other sources and he was not carrying out any business in his individual capacity. It was further submitted that the AO has nowhere stated in the satisfaction so recorded as to how such diaries and loose papers even though written by the assessee represents wholly or partly income or property which has not been or would not have been disclosed by the assessee for purposes of the Act. It was further submitted that merely the statement of Shri Sunil Gupta that house hold expenses should be considered in the case of the assessee cannot be a basis for holding that certain undisclosed income belonging to the assessee has been found. It was further submitted that the various other documents so referred by the AO relates to other family members and how the same has been considered as representing the undisclosed income of the assessee has not been spelt out in the satisfaction so recorded by the AO. It was accordingly submitted that the satisfaction so recorded for exercise of jurisdiction under section 158BD does not satisfy the test so laid down by the Courts from time to time and therefore on this ground, the order so passed by the AO deserves to be set aside.
In her rebuttal, the ld CIT/DR submitted that at the time of the recording of satisfaction, the AO has to record his prima facie findings that any undisclosed income belongs to the assessee, being a person other than the searched person and in the instant case, the AO has clearly stated in the satisfaction note that there are various diaries and the loose papers which have been found and seized during the course of search and which have been written in the handwriting of the assessee and therefore on perusal of the same, it can be safely inferred that the AO has correctly recorded the satisfaction and assumed the jurisdiction under section 158BD of the Act. In this regard, our reference was drawn to the subsequent notice issued by the AO dt. 04/10/1996 where the AO has clearly highlighted the specific entries in the seized documents which belong to the assessee and it was accordingly submitted that the AO has correctly recorded the satisfaction and assume the jurisdiction by issuance of notice under section 158BD of the Act.
It is a settled position in law that before the provision of Section 158BD are invoked against the person other than the person who has been searched under section 132, the condition precedent have to be satisfied and on perusal of the provisions of Section 158BD, it mandates that the AO of the person being searched and on whom the search was undertaken should be satisfied that any undisclosed income belongs to any other person (other than the person in respect to whom the search was undertaken) and it is after recording such satisfaction that the books of accounts, the documents or assets so seized are required to be handed over to the AO having jurisdiction over such other person and the AO shall proceed against such other person.
The matter has been dealt with by the Hon’ble Courts from time to time and it would be useful to refer to the decision of Hon’ble Supreme Court in case of Manish Maheshwari vs. ACIT (Supra) wherein the Hon’ble Supreme Court has held that before the provisions of Section 158BD are invoked against a person other than the person whose premises have been searched under section 132 or documents and other assets have been requisitioned under section 132A, the conditions precedents are required to be satisfied and such conditions precedent are (i) satisfaction must be recorded by the Assessing officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132; (ii) the books of accounts or other documents or assets seized or requisitioned had been handed over to the Assessing officer having jurisdiction over such other person; and (iii) the Assessing officer has proceeded under section 158BD against such other person.
Further, reference can be drawn to another decision of Hon’ble Supreme Court in case of CIT Vs. Calcutta Knitwears (Supra) wherein the Hon’ble Supreme Court has held that before initiating the proceedings under section 158BD, the AO of the searched person should be satisfied that there is an undisclosed income which has been traced out when a person was searched under section 132 and existence of cogent and demonstrative material is germane to the AO’s satisfaction and the satisfaction note is sine qua non and must be prepared by the AO before he transmits the records to the other AO having jurisdiction over such other person and the relevant findings read as under:
“38. Having said that, let us revert to discussion of Section 158BD of the Act. The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under Sections 132 or 132A of the Act. Under Section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc. to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD of the Act, the other provisions of XIV-B shall apply.
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 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.
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.” 41. Further, reference can be drawn to the another decision of Hon’ble Supreme Court in case of Tapan Kumar Dutta Vs. CIT (Supra) wherein the Hon’ble Supreme Court has held that the very object of Section 158BD is to give jurisdiction to the AO to proceed against any person other than the person against whom the search warrant is issued. It was held in the said case that a perusal of Section 158BD of the 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 was made under Section 132 or whose books of accounts or other documents or assets were requisitioned under Section 132A and a mere disclosure made by the 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. It was further held in the said case that although Section 158BD does not speak of 'recording of reasons' as postulated in Section 148, but since proceedings under Section 158BD will 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 of the Act and the relevant findings read as under:
“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.
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 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.” 42. Further, reference can be drawn to the decision of Hon’ble Calcutta High Court in case of Subhas Chandra Bhaniranka vs ACIT (Supra) wherein the Hon’ble High Court has held that though Section 158BD contains the word "satisfy" and does not contain the words "record his reasons" as postulated in Section 148, however, before proceeding, the AO has to record his reasons for being "satisfied" and satisfaction so recorded has to be independent and subjective and not a casual reference of the seized documents even though the same have been owned up by the person, other than the person searched. It was further held by the Hon’ble High Court that since proceedings under Section 158BD may have financial implications, such satisfaction must reveal the mental and the dispassionate thought process of the AO in arriving at a conclusion and satisfaction so recorded must contain reasons which should be the basis of initiating the proceedings under Section 158BD and the relevant findings read as under:
“8. In order to decide the second issue it is appropriate to refer to the satisfaction recorded, as evident from para 5(b) of the affidavit in opposition (in short ‘the affidavit’), which is as under : "5(b) On 18 Aug., 2005, the Asstt. CIT/Dy. CIT, Central Circle-XXIII, Kolkata initiated proceedings under s. 158BD of the IT Act, 1961 and recorded the following reasons : During the course of proceedings under s. 158BC in the case of Gangaram Bhaniramka that the following seized documents, jewellery, shares, bank account and cash found during the course of search on 28th Oct., 2002 belongs to Shri Subhas Chandra Bhaniramka. Shri Subhash Chandra Bhaniramka filed affidavit during the course of proceeding under s. 158BC of Shri Gangaram Bhaniramka owning up the following documents, cash etc.
Seized documents Bearing identification marked GB/2
2. Inventorised cash Rs. 13,200
3. I.V.P. Rs. 4,000
4. Shares Rs….. Annex.4 serial Nos. 22 to 44
5. Bank accounts 4 to 12
Jewelleries GB/12 to GB/38 In view of the above, I am satisfied that the case is fit for proceedings under s. 158BD of the IT Act, 1961. Issue notice under s. 158BD of the IT Act, 1961." (Emphasis supplied) 9. During argument relying on para 5(b) of the affidavit it was submitted by the learned advocate for the respondents since s. 158BD postulates the AO to record his satisfaction and is not required to record "reasons" as enumerated in s. 148, satisfaction is proper. Interestingly from the affidavit it is evident that the respondent No. 2 has "recorded the following reasons" in arriving at the satisfaction. True s. 158BD does not speak of recording of "reasons" as postulated in s.
But does it mean simple statement of seized documents, jewellery, shares, bank accounts and cash found in course of search and mere reference to the affidavit sworn by the petitioner "owning up" the "following documents, cash etc." mentioned in item Nos. 1 to 6 ? The answer has to be in the negative.
Reasons are not far to see. Though the petitioner has owned up the documents mentioned in the affidavit, yet satisfaction recorded has to be independent and subjective and not a casual reference of the seized documents. Since proceedings under s. 158BD may have financial implications, such satisfaction must reveal the mental and the dispassionate thought process of the AO in arriving at a conclusion. Naturally conclusion, that is, satisfaction however, brief it may be, must contain reasons which should be the basis of initiating the proceedings under s. 158BD. Therefore, though s. 158BD contains the word "satisfy" and does not contain the words "record his reasons" as postulated in s. 148, however, before proceeding, the AO has to record his reasons for being "satisfied", which in the instant case is absent. In this case as there is nothing on record to show that there was subjective and independent satisfaction, the answer to the second issue has to be in the negative.”
Applying the aforesaid legal preposition so laid down by the Hon’ble Courts in the instant case, it is relevant to examine the satisfaction so recorded by the AO. The contents of the satisfaction note which is available as part the Revenue’s paper book at page 2 read as under:
“Reasons for issue of notice u/s 158BC read with section 158BD for Block Assessment
During the assessment proceedings of cases related to Chandigarh Wires Pvt. Ltd., Mini Associates, Shri Sunil Gupta Proprietor Chandigarh Steel products and Shri Anil Gupta, it was found that there were several documents in the form of Diaries and loose papers (which were seized during search) which were written by Shri Prem Chand Aggarwal. Also Shri Sunil Gupta stated that expenses like household expenses mentioned in the diary are in knowledge of his father Shri Prem Chand Aggarwal and should be considered in his case. There are several NSC, FDR etc in the name of Shri Prem Chand Aggarwal and his wife (dependent upon him). Similarly Item No. A-34 contains several entries which are related to Shri Prem Chand Aggarwal. So, I am satisfied that these relates to undisclosed income of Shri Prem Chand Aggarwal so notice under section 158BC r.w.s 158BD is being issued.”
44. On perusal of the satisfaction note so recorded by the AO, it is evident that the AO has referred to certain diaries and loose papers found during the course of search which were found written in the handwriting of the assessee. What are the contents of the diaries and loose papers have not been specified by the AO. What transactions/entries and particulars thereof have not been stated by the AO. What period to which such transactions/entries pertain to has not been specified by the AO. What is the amount involved/reflected in relation to such transactions/entries and quantification thereof have not been specified by the AO. What are the contents of papers marked as item No. A-34 and how they are belonging to the assessee has not been specified. We therefore find that the satisfaction so recorded by the AO doesn’t even reflect that the AO has gone through the diaries and loose papers so seized and he has examined/verified the same. Merely the fact that the diaries and loose papers are in handwriting of the assessee are not sufficient for arriving at the satisfaction that the same reflects the undisclosed income belonging to the assessee. Similarly, the factum of NSC and FDR in the name of the assessee including that in name of his wife without specifying anything further as to how the same reflects the undisclosed income belonging to the assessee is not sufficient. Further, the statement of Sunil Gupta that the entries relating to household expenses in the diaries so seized are in knowledge of his father, the assessee and should be considered in his case is not sufficient more so where the assessee was admittedly staying in the joint family and household expenses cannot be held to belong solely to the assessee but to the joint family. As we have noted supra, the Courts have held that a mere disclosure made by the assessee before the authorities and even where the assessee has owned up the documents, the same cannot a 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 and verified by the AO and basis such verification/examination, he records his satisfaction that there is an undisclosed income belonging to the assessee which has been found and the same needs to be brought to tax. The existence of cogent and demonstrative material is germane to the AO’s arriving at the satisfaction that undisclosed income belonging to the assessee has been found.
We find that the mandate of the statue is clear that the AO should be satisfied that any undisclosed income belongs to any other person (other than the person in respect to whom the search was undertaken) and it is after recording such satisfaction that the books of accounts, the documents or assets so seized are required to be handed over to the AO having jurisdiction over such other person and the AO shall proceed against such other person. Therefore, in the instant case, the satisfaction that has to be recorded by the AO should reflect the material and basis for determining the undisclosed income belonging to the assessee and not just the fact that the diaries and loose papers are in handwriting of the assessee and thus belong to the assessee. There is thus a fine distinction between the undisclosed income belonging to the assessee and diaries/loose papers belonging to the assessee which apparently the AO has lost sight of while recording the satisfaction. And for arriving at the satisfaction that certain undisclosed income has been found and which belong to the assessee, the AO has to examine and verify the contents of the diaries/loose papers, and taking into consideration what can be classified as “undisclosed income” as so defined in the statute, quantify and workout the quantum of undisclosed income, which apparently has not happened as can be seen from the contents of the satisfaction note so recorded by the AO. It is for the AO to disclose and open his mind through the satisfaction so recorded by him and he has to speak through the same and the same has to be read as so recorded by the AO and the same cannot be supplemented by subsequent conduct/action of the AO including issue of notice dated 04/10/1996, which is evidently subsequent to recording of satisfaction on 10/09/1996. As held by the Courts, the proceedings under Section 158BD have financial implications for the assessee and therefore, such satisfaction must reveal the mental and the dispassionate thought process of the AO in arriving at a conclusion and satisfaction so recorded must contain reasons which should be the basis of initiating the proceedings under Section 158BD and should not be based merely on causal reference to the seized documents which apparently has happened in the instant case.
In light of aforesaid discussions and in the entirety of the facts and circumstances of the case and respectfully following the dicta laid down by the Hon’ble Courts as referred supra, we agree with the contentions of the ld AR in this regard and are of the considered view that the mandate of the statute for acquiring jurisdiction u/s 158BD has not been satisfied in the instant case and in absence of requisite satisfaction so recorded by the AO, the issue of notice u/s 158BC r/w 158BD dated 13/09/1996 cannot be sustained in the eyes of law and the notice so issued and subsequent assessment order dated 28/10/1996 is hereby set-aside.
In view of the aforesaid, the other grounds of appeal have become academic in nature and we don’t deem it appropriate to delve further on them and the same are hereby dismissed as infructious.
In the result, the appeal of the assessee is allowed.