2015 (8) TMI 1393 - AT - Income Tax

Validity of proceedings initiated u/s 158BD - Search and seizure operations carried out u/s 132 - period of limitation - delay of about 20 months in issuing notice - Held that - The assessment under section 158BC of the Act of the searched persons was completed on 24.12.2003 and thereafter, satisfaction note was received by the Assessing Officer in-charge of the assessee on 06.04.2004. In view of the proposition laid down by the Hon ble Supreme Court in CIT vs. Calcutta Knitwears (2014 (4) TMI 33 - SUPREME COURT) we hold that the Assessing Officer in-charge of the searched persons can record satisfaction note after the completion of assessment in the hands of the searched persons and forward the same to the Assessing Officer, who is in-charge of the other person, as provided under section 158BD of the Act. A notice which was issued and served upon the assessee after a considerable delay of about 20 months i.e. from the date of receipt of satisfaction note to the date of issue of notice under section 158BD of the Act, cannot be brushed aside. In view of the said notice under section 158BD of the Act being not issued within reasonable time, though there is no time limit provided under the Act to issue the said notice under section 158BD of the Act, the said notice issued under section 158BD of the Act is invalid notice. Following the ratio laid down by the Hon ble Delhi High Court in CIT Vs. Bharat Bhushan Jain (2015 (1) TMI 705 - DELHI HIGH COURT ) in line with the proposition laid down by the Hon ble Supreme Court in CIT vs. Calcutta Knitwears (supra), we hold that the notice issued under section 158BD of the Act in the present case was unduly delayed and the same is held invalid and void. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the assessment under section 158BD r.w.s. 158BC of the Income Tax Act, 1961.
2. Validity of the notice issued under section 158BD.
3. Non-issuance of notice under section 143(2).
4. Addition of income under sections 68 and 69C.

Detailed Analysis:

1. Jurisdiction of the assessment under section 158BD r.w.s. 158BC of the Income Tax Act, 1961:
The primary issue raised by the assessee was the jurisdiction of the Assessing Officer (AO) to initiate proceedings under section 158BD read with section 158BC. The assessee argued that the notice was issued without holding and assuming proper jurisdiction. The CIT(A) noted that the assessment of the searched persons was completed on 24.12.2003, but the notice under section 158BD was issued on 10.02.2006, which was delayed by over 20 months. The CIT(A) relied on the Special Bench decision in Manoj Aggarwal Vs. DCIT and the Pune Bench decision in Ramchandra Mahadeo Patil Vs. ACIT, which suggested that the satisfaction had to be recorded within a reasonable time. However, the CIT(A) held that the delay was not unreasonable given the complexity and the cross-state nature of the investigation.

2. Validity of the notice issued under section 158BD:
The assessee contended that the notice under section 158BD was invalid as it was issued after an unreasonable delay of 20 months from the date of receipt of the satisfaction note. The Tribunal referred to the Supreme Court decision in CIT vs. Calcutta Knitwears, which held that the satisfaction note could be prepared at various stages, including after the completion of the assessment of the searched person. However, the Tribunal noted the Delhi High Court's decision in CIT Vs. Bharat Bhushan Jain, which emphasized that notices should be issued immediately after the completion of the assessment of the searched person. The Tribunal concluded that the delay of 20 months was unreasonable and held the notice under section 158BD to be invalid and void.

3. Non-issuance of notice under section 143(2):
The assessee argued that no notice under section 143(2) was issued, which was a mandatory requirement. The Revenue contended that since the assessee did not file a return of income in response to the notice under section 158BD, there was no requirement to issue a notice under section 143(2). The CIT(A) found that no notice under section 143(2) was issued and relied on the Supreme Court decision in ACIT Vs. Hotel Blue Moon, which mandated the issuance of such notice. However, since the Tribunal held the initial notice under section 158BD to be invalid, the issue of notice under section 143(2) became academic and was not adjudicated.

4. Addition of income under sections 68 and 69C:
The AO added an amount of Rs. 11 lakhs as unexplained cash credit under section 68 and Rs. 13,49,000 as unexplained expenditure under section 69C, based on the finding that the loans were not genuine. The CIT(A) upheld the addition, noting that the cash deposits were part of a scheme to route unaccounted money through various entities. However, since the Tribunal held the proceedings under section 158BD to be invalid, the additions made under sections 68 and 69C were rendered infructuous and were not upheld.

Conclusion:
The Tribunal concluded that the notice issued under section 158BD was invalid due to unreasonable delay, rendering the subsequent proceedings and additions invalid. Consequently, the Cross Objections of the assessee were allowed, and the appeals of the Revenue were dismissed. The decision applied mutatis mutandis to the other related appeals and cross objections.