SMT. SHAKUNTLA DEVI,CHANDIGARH vs. ACIT, CHANDIGARH

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.

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.

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.

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.

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.

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.

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:

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:

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:

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.

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.

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:

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.