2010 (7) TMI 718 - HC - Income Tax

Block assessment - recording of satisfaction under section 158BD - completion of assessment under section 158BC - period of limitation - held that - It is not disputed that the premises of the S. K. Bhatia and group were searched on February 5, 2003, and block assessment under section 158BC was framed on March 30, 2005. The satisfaction as contemplated under section 158BD in the case of the assessee was recorded on July 15, 2005, as observed by the Assessing Officer of the person searched, i.e., the Assistant Commissioner of Income-tax, Central Circle-II, Ludhiana, and notice was issued on February 10, 2006. Since the block assessment in the case of the S. K. Bhatia group under section 158BC of the Act was framed on March 30, 2005, whereas the satisfaction as contemplated under section 158BD in the case of the present assessee was recorded on July 15, 2005, thus, the proceedings were bad in law. - Decided against the revenue.

Summary

Issues:
1. Validity of recording satisfaction under section 158BD and issuance of notice.
2. Justification of the Income-tax Appellate Tribunal's decision to dismiss the appeal of the Department without adjudicating on merits.

Issue 1: Validity of recording satisfaction under section 158BD and issuance of notice:

The appeal under section 260A of the Income-tax Act, 1961 raised the issue of the validity of the recording of satisfaction under section 158BD by the Assessing Officer and the consequent issuance of notice. The Tribunal observed that the recording of satisfaction under section 158BD in this case was belated and beyond the prescribed period. Referring to a previous judgment, the Tribunal held that the recording of satisfaction by the Assessing Officer before completion of assessment under section 158BC is essential for assuming jurisdiction under section 158BD. The Tribunal considered the time limit for recording satisfaction and initiation of action, emphasizing that such satisfaction must be recorded during the block assessment proceedings under section 158BC of the searched person. Any delay beyond this period renders the notice under section 158BD invalid, leading to the assessment being canceled for lack of jurisdiction.

Issue 2: Justification of the Income-tax Appellate Tribunal's decision:

The Tribunal, while dismissing the appeal of the Revenue, allowed the cross-objections of the assessee, rendering the appeal infructuous as the assessment stood canceled after the cross-objections were accepted. The Tribunal based its decision on the precedent set in a previous case, where a similar situation was considered. The Tribunal highlighted that the satisfaction required under section 158BD must be recorded within a specific timeframe, failing which the notice issued would be deemed invalid. Citing provisions of sections 158BD and 158BE, the Tribunal emphasized the importance of adhering to the statutory requirements for initiating actions under these sections. Consequently, the Tribunal upheld the cancellation of the assessment due to the invalid notice issued under section 158BD.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the Revenue's appeal and affirming the cancellation of the assessment due to the invalidity of the notice issued under section 158BD. The judgment underscores the significance of complying with statutory provisions and timelines in the context of recording satisfaction and initiating actions under the Income-tax Act, 1961.