2012 (8) TMI 309 - AT - Income Tax

Inordinate delay in inflation of action u/s.158BD - There is no justification for initiation of block assessment proceedings u/s 158BD of the IT. Act against the assessee after long gap of completion of the assessment in the case of persons searched.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 158BD due to inordinate delay.
2. Requirement of satisfaction note by the Assessing Officer before initiating proceedings under Section 158BD.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated under Section 158BD due to inordinate delay:

The primary issue raised by the Revenue was the deletion of an addition of Rs. 6,36,270 made by the Assessing Officer (AO) on account of unaccounted on-money paid by the assessee for the purchase of a flat. The AO initiated proceedings under Section 158BD of the Income Tax Act, 1961, based on a search conducted at the premises of M/s. Ohm Developers on 29/10/1999. However, the notice under Section 158BD read with Section 158BC was issued on 22/01/2007, and served on 31/01/2007, which was significantly delayed.

The assessee contended that the proceedings were invalid due to the delay in initiation, relying on the legal precedents set by the Supreme Court in Manish Maheshwari (289 ITR 341) and the Gujarat High Court in Khandubhai Vasanji Desai & Ors. (236 ITR 73). The CIT(A) upheld this contention, noting that the assessment of M/s. Ohm Developers was completed on 30/11/2001, and the notice under Section 158BD was issued five years later, which was deemed inordinately delayed and invalid.

The Tribunal referred to several cases, including Vimal Vadilal Shah vs. DCIT and others, where it was consistently held that the belated issuance of notice under Section 158BD was barred by limitation. The Tribunal emphasized that the proceedings should not be kept pending indefinitely, and the taxpayer should not be subjected to an indefinite period of uncertainty.

2. Requirement of satisfaction note by the Assessing Officer before initiating proceedings under Section 158BD:

The assessee also argued that there was no satisfaction note recorded by the AO in possession of the search material before initiating proceedings under Section 158BD. This requirement was supported by the Supreme Court's decision in Manish Maheshwari, which mandated that the satisfaction note must be recorded before the completion of the assessment of the person searched.

The Tribunal affirmed this requirement, referencing multiple cases where the absence of a satisfaction note prior to the completion of the assessment of the person searched rendered the proceedings under Section 158BD invalid. The Tribunal reiterated that the satisfaction for initiating action under Section 158BD must be recorded between the initiation of proceedings under Section 158BC and before the completion of the block assessment under Section 158BC of the searched person.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the proceedings under Section 158BD were invalid due to inordinate delay and the absence of a timely satisfaction note. The Tribunal's decision was consistent with established legal precedents, emphasizing the necessity of timely and procedurally correct initiation of proceedings under Section 158BD.