2014 (10) TMI 903 - AT - Income Tax

Assessment u/s.158BD - penalty order u/s.158BFA qua the said assessment - Revenue claims that there has been due recording of satisfaction by the A.O. (of the person searched), coupled with it s conveyance, along with the relevant material, to the assessee s A.O., in due compliance of the procedure contemplated u/s.158BD - tribunal s finding that it is not so, which forms the basis of its quashing the assessment and, consequently, the penalty, is therefore factually incorrect, necessitating rectification Held that - We find no basis to hold that the tribunal had considered the letter dated 21.08.2000, as contended before us by the assessee; it, rather, proceeding on the premise of the absence of recording of any such satisfaction as being the admitted position. There has thus clearly occurred a mistake by the tribunal in so recording. The letters 21.07.2010, 23.09.2009 and 29.12.2008; the statement recorded u/s. 132(4) of Shri G. R. Madani on 18.12.1998 (PB pg.4); the warrant of authorization dated 17.12.1998, et. al. are all supplementary materials, and have to be considered. Whether the satisfaction stands correctly recorded; whether the same is in the manner as contemplated under the Act; whether these matters are at all justiciable, etc. are all matters of arguments, which do not arise out of the tribunal s order, including the questions raised, and the arguments made in pursuance thereof, before it. Even otherwise, it is doubtful if these aspects could be considered in the rectification proceedings. Rather, as apparent from the reading of paras 3 to 7 of the impugned order, the arguments pertained to the satisfaction dated 30.08.2000, i.e., by the assessee s A.O., and which having not been separately recorded again by the present A.O., was argued by the assessee to be violative of the scheme of the Act. As we observe, the tribunal confused the issue of notice u/s.158BD, i.e., on 30.07.2001, with the recording of the relevant satisfaction - which is to be by the A.O. of the person searched, comparing the said date with that of the finalization of his assessment u/s.158BC on 29.12.2000, and which are clearly not to be compared, particularly in the facts and circumstances of the case. The satisfaction in terms of section 158BD, it is clear from the relevant provision, besides being by now well settled, is to be recorded by the A.O. of the person searched and not the assessee s A.O., who though would issue notice u/s. 158BD. Here it may also be pertinent to state that the Revenue had proceeded against the assessee u/s.158BC, i.e., in the first instance, in view of the specification of the assessee s name in the warrant of authorization itself (copy on record), as sought to be emphasized by the assessee s A.O. to the ld. CIT-DR vide the letters afore-referred. Also, there is no gainsaying, being a matter of trite law, that the exercise of power would be referable to a jurisdiction conferring validity upon it and not to a jurisdiction under which it would be nugatory. Further, the assessment u/s. 158BC, even if the assessee is not the person searched, is therefore to be construed as u/s.158BD, which only enables the assessment of the undisclosed income for the block period in respect of the person other than the person searched, and which (assessment) would only be u/s.158BC, as stands amply clarified by the amendment to section 158BD by the insertion of the words under section 158BC , after the words shall proceed and before the words against such other person , by Finance Act, 2002 w.e.f. 01.06.2002, which is therefore only clarificatory in nature, operating to validate even the assessment in the first instance on 29.12.2000; the second being on 28.07.2003 In view of the foregoing, the impugned order is accordingly amended by vacating the findings by the tribunal per the impugned order, i.e., as to the absence of the jurisdictional facts for the Revenue to proceed u/s.158BD. The Revenue s appeals are accordingly restored for being decided on merits, i.e., on all grounds, for which purpose the matter is to be placed before the regular bench. - Decided against revenue

Summary

Issues Involved:

1. Recording of satisfaction under Section 158BD of the Income Tax Act.
2. Validity of the assessment and penalty orders under Sections 158BC and 158BFA.
3. Scope of rectification under Section 254(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Recording of Satisfaction under Section 158BD:

The primary issue revolves around whether there was a proper recording of satisfaction by the Assessing Officer (A.O.) of the person searched, as required under Section 158BD. The Revenue contended that the A.O. of M/s. R. K. Madhani and Co., the person searched, had recorded satisfaction through a letter dated 21.08.2000, which was conveyed to the A.O. of the assessee. The Tribunal had earlier quashed the assessment on the grounds that no such satisfaction was recorded, which was factually incorrect according to the Revenue. The Tribunal's findings in para 9 of its impugned order stated that "no satisfaction u/s.158BD was recorded in the present case," leading to the quashing of the assessment and penalty. However, the Tribunal failed to consider the letter dated 21.08.2000, which indicated that satisfaction was indeed recorded and conveyed. The Tribunal's decision was thus based on an incorrect factual premise, necessitating rectification.

2. Validity of the Assessment and Penalty Orders:

The assessment was initially framed under Section 158BC on 29.12.2000, following a search on 17.12.1998 and 18.12.1998. This assessment was annulled by the Tribunal on the grounds that the assessee was not the person searched. Subsequently, a notice under Section 158BD was issued on 30.07.2001, and the assessment was finalized on 28.07.2003. The penalty order under Section 158BFA(2) was passed on 31.03.2005. The Commissioner of Income Tax Appeals (CIT(A)) provided partial relief to the assessee. The Revenue's appeals against this relief were dismissed by the Tribunal based on the incorrect finding regarding the recording of satisfaction. The Tribunal's decision to quash the assessment and penalty was based on the absence of jurisdictional facts, which was incorrect as per the material on record, including the letter dated 21.08.2000.

3. Scope of Rectification under Section 254(2):

The assessee argued that the Tribunal had already considered the plea now being adopted by the Revenue, and thus, it could not be revisited under the limited scope of Section 254(2), which precludes review. However, the Tribunal found that it had not considered the letter dated 21.08.2000 in its earlier decision, and thus, the rectification was not a review but a correction of a factual mistake. The Tribunal emphasized that the satisfaction recorded by the A.O. of the person searched was a jurisdictional fact, and its absence in the Tribunal's earlier order was a mistake apparent from the record. Therefore, the Tribunal allowed the Revenue's miscellaneous applications, vacated its earlier findings, and restored the Revenue's appeals for decision on merits.

Conclusion:

The Tribunal rectified its earlier order by acknowledging the recording of satisfaction by the A.O. of the person searched, as evidenced by the letter dated 21.08.2000. The appeals were restored for decision on merits, considering all grounds, and the matter was to be placed before the regular bench. The Revenue's miscellaneous applications were allowed, and the order was pronounced in the open court on October 17, 2014.