2012 (10) TMI 399 - AT - Income Tax

Validity of notice issued u/s 158BD Satisfaction recorded by AO in pursuance of issuance of notice u/s 158BD - Assessee contended that no satisfaction whatsoever has been recorded by the A.O of the searched persons(s) against the assessee which could validate the assessment proceedings against the assessee - AO of the assessee requested the AO of the searched persons(s) to issue him a letter so that the proceedings can be started against the assessee u/s 158 BD - Notice u/s 158BD cannot be issued by him unless a letter to that effect is received - Held that - The quantification by the DDI(Inv) of the undisclosed income in the hands of assessee cannot be termed or equated with satisfaction recorded by the AO of the searched persons(s). And also no material whatsoever has been handed over by the AO of the searched person(s) to the AO of the assessee on the basis of which such alleged satisfaction is recorded. There is complete lack of any satisfaction recorded by the AO of the searched persons(s) as the letter dated 8/3/2001 does not record any satisfaction against the assessee which can only be said to be the satisfaction of AO of the searched person(s). Therefore, assessment proceedings carried out against the assessee are not valid for the reason that notice u/s 158BD was issued without fulfilling the condition precedent necessary for issue of notice u/s 158BD. Appeal decides in favour of assessee

Issues Involved:

1. Jurisdiction and validity of the order under section 158BD.
2. Treatment of income from a completed project as undisclosed income.
3. Addition of unexplained payment for acquisition of development rights.
4. Addition of unexplained cash credit under section 68.
5. Deletion of addition based on estimated premium on sale of flats.
6. Valuation of flats and cost estimation.
7. Addition under section 40A(3) for unexplained expenditure.
8. Date of receipt of on-money for a specific flat.

Issue-Wise Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 158BD:

The assessee contended that the order under section 158BD was without jurisdiction and bad in law due to the lack of a recorded "satisfaction" by the Assessing Officer (AO) of the searched person. The Tribunal examined the letter dated 8th March 2001, which the department claimed as the "satisfaction note." The Tribunal found that this letter was written in response to a request from the AO of the assessee and did not independently record any satisfaction. The Tribunal cited the Supreme Court's ruling in Manish Maheshwari vs. ACIT, which mandates that the AO of the searched person must record satisfaction and hand over relevant materials to the AO of the other person. The Tribunal concluded that the absence of a recorded satisfaction invalidated the assessment proceedings under section 158BD.

2. Treatment of Income from a Completed Project as Undisclosed Income:

The assessee argued that the income from the completed project, declared in the return for A.Y. 1998-99, should not be treated as undisclosed income under Chapter XIVB. The Tribunal did not specifically address this issue due to the annulment of the assessment order on jurisdictional grounds.

3. Addition of Unexplained Payment for Acquisition of Development Rights:

The assessee challenged the addition of Rs. 54,84,006/- under section 69C for unexplained expenditure. This issue was rendered academic as the Tribunal annulled the assessment order on the primary ground of lack of jurisdiction.

4. Addition of Unexplained Cash Credit under Section 68:

The assessee contested the addition of Rs. 18,50,000/- as unexplained cash credit. Similar to the previous issue, this was not adjudicated due to the annulment of the assessment order.

5. Deletion of Addition Based on Estimated Premium on Sale of Flats:

The Revenue appealed against the deletion of Rs. 17,28,540/- added by the AO based on estimated premium on the sale of flats. The Tribunal did not address this issue as the primary ground of jurisdictional validity took precedence.

6. Valuation of Flats and Cost Estimation:

The Revenue also contested the valuation adjustments made by the CIT(A), including the direction to adopt a lower value for certain flats and the estimation of cost for an unsold flat. These issues were not adjudicated due to the annulment of the assessment order.

7. Addition under Section 40A(3) for Unexplained Expenditure:

The Revenue challenged the deletion of Rs. 26,49,371/- added under section 40A(3) for unexplained expenditure. This issue was not addressed due to the primary ground of jurisdictional invalidity.

8. Date of Receipt of On-Money for a Specific Flat:

The Revenue contested the CIT(A)'s treatment of the date of receipt of on-money for Flat No. 15. This issue was also rendered academic due to the annulment of the assessment order.

Conclusion:

The Tribunal allowed the assessee's appeal on the ground that the assessment proceedings under section 158BD were invalid due to the lack of recorded satisfaction by the AO of the searched person. Consequently, the Tribunal did not adjudicate the other grounds raised by both the assessee and the Revenue, rendering them academic. The Revenue's appeal was dismissed.

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