2014 (4) TMI 205 - AT - Income Tax

Assessment u/s.158BD - recording of necessary satisfaction - period of limitation for issuance of notice - Held that - CIT(A) has decided issue in a causal manner without referring to facts of case - CIT(A) has not given any finding on submission of assessee that satisfaction was recorded by AO of searched party in respect of company but not in respect of Appellant - CIT(A) failed to appreciate fact that company is having distinct entity - Even if Revenue wanted to proceed against appellant, AO of searched party should have recorded his statement - Under facts and circumstances of present case, satisfaction as recorded by the AO is not valid in view of fact that satisfaction has been recorded by AO other than AO of searched party - Ratio laid down by Jurisdictional High Court in case of Chandrakantbhai Amratlal Thakkar vs. Dy.CIT & Anr 2011 (4) TMI 582 - Gujarat High Court would apply Assessment made is required to be quashed on this basis alone - Decided in favour of Assessee. Limitation for notice u/s 158BD Held that - Search was conducted on 27/04/2000 and notice was issued u/s.158BD on 29/03/2006, i.e. after a lapse of nearly six years - Proceedings are required to be initiated within a reasonable time even if there is no limitation is provided - As per section 158BE(1) of Act, order u/s.158BC is required to be passed within 2 years from end of month in which last of authorizations for search under section 132 was executed - In respect of assessment made u/s.158BD of Act, two years from end of month in which notice under this Chapter was served on such other person - However, there is no limitation for issuing a notice u/s.158BD is provided under Act, but this cannot be construed as proceedings can be initiated even after lapse of many years or after indefinite period Decided in favour of Assessee.

Issues Involved:

1. Validity of assessment under Section 158BD of the Income-Tax Act, 1961.
2. Limitation period for issuing notice under Section 158BD.
3. Opportunity for cross-examination and provision of seized materials.
4. Confirmation of addition as unexplained investment under Section 69 of the Income-Tax Act, 1961.

Detailed Analysis:

1. Validity of Assessment under Section 158BD:
The appellant argued that the assessment under Section 158BD was invalid due to the absence of a valid satisfaction recorded by the Assessing Officer (AO) of the searched party. The AO of the searched party, M/s. Sarkar Plywood (P) Ltd., initially recorded satisfaction, but since the company was not incorporated at the relevant time, the proceedings were dropped. The AO of M/s. Sarkar Plywood (P) Ltd. informed the AO of the appellant through the Additional Commissioner of Income-tax, Range-2 Surat, without recording a fresh satisfaction specific to the appellant. The Tribunal found that the satisfaction recorded by the AO of the searched party was not valid for the appellant, as per the provisions of Section 158BD, which require the AO of the searched party to record satisfaction that any undisclosed income belongs to a person other than the searched party. Therefore, the assessment was deemed invalid.

2. Limitation Period for Issuing Notice under Section 158BD:
The appellant contended that the notice under Section 158BD was time-barred, as it was issued nearly six years after the search. The Tribunal referred to the decision of the Special Bench of the Delhi Tribunal in the case of Manoj Aggarwal vs. DCIT, which held that proceedings under Section 158BD should be initiated within a reasonable time, even if no specific limitation period is provided by the Act. The Tribunal concurred that the delay of six years was unreasonable and thus invalidated the assessment on this ground as well.

3. Opportunity for Cross-Examination and Provision of Seized Materials:
The appellant argued that they were not given a sufficient opportunity to cross-examine Shri Shashikant V. Tamakuwala, whose statement formed the basis of the impugned addition, nor were they provided with copies of the seized materials. The Tribunal upheld the appellant's right to cross-examination, citing the Supreme Court's decision in Kishinchand Chellaram vs. CIT, which emphasized the legal right to cross-examine when material is used against a person. The Tribunal found that the authorities failed to provide this opportunity, further invalidating the assessment.

4. Confirmation of Addition as Unexplained Investment under Section 69:
The appellant challenged the addition of Rs. 2,25,750/- as unexplained investment under Section 69. Given the Tribunal's findings on the invalidity of the assessment under Section 158BD and the procedural lapses, the confirmation of the addition was also quashed.

Conclusion:
In the combined result, both appeals by the assessees were allowed. The Tribunal quashed the assessments made under Section 158BD due to the absence of a valid satisfaction recorded by the AO of the searched party, the unreasonable delay in issuing the notice, and the denial of the opportunity for cross-examination. Consequently, the addition of Rs. 2,25,750/- as unexplained investment was also invalidated.

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