2008 (7) TMI 1004 - HC - Income Tax

Summary

Issues involved: Challenge to impugned notice u/s 158BD of the IT Act, 1961 based on search conducted in partnership firm's premises.

Judgment Summary:

Issue 1: Invocation of provision of s. 158BD without fulfillment of mandatory conditions precedent

The petitioners challenged the impugned notice u/s 158BD on the grounds that the authority did not reach the mandatory satisfaction required by law before invoking the provision. The senior counsel argued that no material or books of accounts were seized during the search to support the satisfaction needed for invoking s. 158BD. The counsel referred to relevant legal provisions and judgments to support the contention that the conditions precedent for invoking s. 158BD were not met in this case.

Issue 2: Compliance with provisions of ss. 158BB and 158BD for computation of undisclosed income

The senior counsel emphasized the importance of fulfilling the conditions under ss. 158BB and 158BD for the computation of undisclosed income. Referring to legal precedents, the counsel argued that the power under s. 158BD could only be exercised subject to the fulfillment of statutory conditions. The judgment of the Hon'ble apex Court and a Division Bench of the Court were cited to support the argument regarding the necessity of meeting the statutory requirements.

Issue 3: Independent satisfaction and compliance with legal requirements

The arguments presented by the Revenue's counsel highlighted that the Addl. Director of IT, Bhavnagar, prepared a report leading to the satisfaction recorded by the authority for issuing the impugned notice u/s 158BD. The counsel contended that there was no error of jurisdiction and that the satisfaction was in compliance with the law. The Court was urged not to quash the impugned notices based on the submissions made by the Revenue's counsel.

In the final analysis, the Court considered the submissions from both sides and closely examined the compliance with the provisions of law, particularly ss. 158BB and 158BD. It was observed that the impugned notice failed to fulfill the mandatory conditions precedent required before resorting to or invoking s. 158BD. The Court, in line with legal precedents and clear observations from relevant judgments, quashed and set aside the impugned notice dated 16th July, 1998. All the petitions were allowed, and the rule was made absolute. The Registry was directed to place a copy of the judgment in each connected matter.