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2010 (7) TMI 728 - AT - Income TaxBlock assessment- validity of initiation of proceedings under section 158BD- Held that -The satisfaction contemplated under section 158BD to the effect that any undisclosed income belongs to any person other than the person with respect to whom search was conducted under section 132 or requisition made under section 132A is to be recorded in writing by the AO of the person with respect to whom search under section 132 or a requisition under section 132A is made. Further the satisfaction contemplated under section 158BD is required to be recorded by the AO of the person searched at any time but not later than the finalization of assessment of undisclosed income for the block period under Chapter XIV-B in the case of the person put to search or requisition as the case may be. Secondly insofar as the issuance of notice under section 158BD is concerned the same is to be issued by the AO of the person other than the person put to search under section 132 or requisition under section 132A. That too after transmission of the relevant material from the first-mentioned AO i.e. the AO of the person put to search under section 132 or requisition under section 132A .Therefore the proceeding initiated by issuing the notice under section 158BD in the case of the assessee was not valid proceeding. As such the block assessment framed in the hands of the assessee was bad in law. See Manish Maheshwari v. Asstt. CIT (2007 - TMI - 40384 - Supreme Court). Decided in favor of the assessee.
Issues Involved:
1. Validity of notice under Section 158BC read with Section 158BD. 2. Validity of initiation and completion of block assessment proceedings under Section 158BD. 3. Treatment of seized diaries as incriminating material. 4. Jurisdiction and satisfaction recording requirements under Section 158BD. 5. Assessment of undisclosed income amounting to Rs. 64,15,851. Detailed Analysis: 1. Validity of Notice under Section 158BC read with Section 158BD: The assessee challenged the validity of the notice issued under Section 158BC read with Section 158BD dated 25th January 2005, and the subsequent block assessment order dated 31st January 2007. The CIT(A) upheld the validity of the notice and the block assessment, stating that the objections raised by the appellant were not sustainable as per law. The Tribunal examined whether the notice and the block assessment were issued in accordance with the legal requirements. 2. Validity of Initiation and Completion of Block Assessment Proceedings under Section 158BD: The assessee argued that the initiation of proceedings under Section 158BD was invalid as the requisite satisfaction was not recorded in the case of the person subjected to search (Jain Group). The Tribunal noted that the search and seizure operation was conducted on 3rd April 2002 at the premises of M/s Vijay Kumar Vinay Kumar (P) Ltd. and its associates, and certain documents indicated undisclosed income related to the assessee. The Tribunal found that the satisfaction note was recorded on 25th January 2005, which was before the completion of the assessment proceedings in the Jain Group by the ITSC on 30th May 2008. 3. Treatment of Seized Diaries as Incriminating Material: The assessee contended that the diaries referred to in the block assessment order could not be treated as incriminating material. The AO observed that the seized documents indicated payments made to the assessee, which were not disclosed in the regular books of account. The Tribunal examined whether the entries in the diaries could be considered as sufficient evidence to initiate block assessment proceedings. 4. Jurisdiction and Satisfaction Recording Requirements under Section 158BD: The Tribunal addressed the issue of whether the AO had recorded the necessary satisfaction as required under Section 158BD. The Tribunal referred to the Supreme Court's decision in Manish Maheshwari v. Asstt. CIT, which mandates that satisfaction must be recorded by the AO of the person subjected to search before initiating proceedings against another person. The Tribunal found that no satisfaction was recorded in the case of the person searched (Jain Group) before the completion of the assessment under Section 158BC. 5. Assessment of Undisclosed Income Amounting to Rs. 64,15,851: The AO assessed an undisclosed income of Rs. 64,15,851 based on the seized documents, which indicated payments made to the assessee by the Vijay Kumar Vinay Kumar Group. The assessee argued that these payments did not pertain to them and provided evidence to support their claim. The Tribunal examined whether the AO's assessment was justified based on the evidence presented. Conclusion: The Tribunal concluded that the proceedings initiated under Section 158BD in the hands of the assessee were invalid due to the failure to record the necessary satisfaction in the case of the person searched (Jain Group) before the completion of the assessment under Section 158BC. As a result, the block assessment order dated 31st January 2007 was deemed void ab initio. Consequently, the Tribunal did not provide findings on the merits of the case. The appeal was allowed in favor of the assessee.
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