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2011 (9) TMI 1001 - AT - Income TaxIssue of notice under Section 158BD validity - Held that - the reasons recorded for issue of notice under Section 158BD by the AO of the assessee cannot be said to be valid satisfaction for issue of notice under Section 158BD, we therefore respectfully following the decision of the Hon ble Apex Court in the case of Manish Maheshwari (2007 (2) TMI 148 - SUPREME COURT OF INDIA) hold that the issue of notice under Section 158BD in the case of the assessee was not valid. We quash the same. Once the notice under Section 158BD itself is quashed, the assessment order passed under Section 158BC in pursuance to the notice issued under section 158BD is also quashed.
Issues Involved:
1. Validity of action under Section 158BD of the Income Tax Act. 2. Time limitation under Section 158BE. 3. Satisfaction recording requirement under Section 158BD. 4. Legal grounds for additional grounds raised by the assessee. 5. Quashing of the assessment order under Section 158BC. Issue-wise Detailed Analysis: 1. Validity of action under Section 158BD of the Income Tax Act: The assessee challenged the initiation of proceedings under Section 158BD on the grounds that it was initiated after the completion of the assessment in the case of Jayaraj Group and that no satisfaction was recorded during the assessment proceedings of Jayaraj Group. The Tribunal referred to the Supreme Court decision in Manish Maheshwari v. ACIT, which stipulates that satisfaction must be recorded by the Assessing Officer (AO) of the person searched, indicating that the undisclosed income belongs to another person, and this must be done during the assessment proceedings under Section 158BC. 2. Time limitation under Section 158BE: The assessee argued that the action under Section 158BD was time-barred as it was initiated on 27/02/2004, while the time limit under Section 158BE expired on 31/12/2003 for Jayaraj Group cases. The Tribunal noted that the search and seizure action took place on 19/12/2001, and the assessment order for Jayaraj Group was completed on 30/01/2004. Thus, the initiation of action under Section 158BD after the completion of the assessment in the case of Jayaraj Group was not valid. 3. Satisfaction recording requirement under Section 158BD: The Tribunal emphasized that the satisfaction for initiating action under Section 158BD must be recorded by the AO of the person searched during the course of proceedings under Section 158BC. In this case, the satisfaction note was recorded by the AO of the assessee and not by the AO of Jayaraj Group, which was a violation of the requirements set forth by the Supreme Court and the Special Bench of the ITAT in Manoj Agarwal v. DCIT. The Tribunal concluded that the satisfaction recorded by the AO of the assessee was not valid for issuing notice under Section 158BD. 4. Legal grounds for additional grounds raised by the assessee: The Tribunal admitted the additional grounds raised by the assessee, citing the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT, which allows the Tribunal to consider questions of law not raised earlier if the relevant facts are on record. The Tribunal found that the additional grounds were legal and went to the root of the matter, and thus, they were admitted for adjudication. 5. Quashing of the assessment order under Section 158BC: Given that the notice under Section 158BD was quashed due to invalid satisfaction, the subsequent assessment order passed under Section 158BC was also quashed. The Tribunal held that once the notice under Section 158BD is invalid, the assessment order based on such notice cannot stand. Conclusion: The Tribunal allowed the assessee's appeal, quashing both the notice under Section 158BD and the assessment order under Section 158BC. The decision was pronounced in open court on 30th September 2011.
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