2014 (9) TMI 134 - HC - Income Tax

Validity of block assessment u/s 158BD Satisfaction note recorded after passing block assessment order u/s 158BC Held that - The reasoning and ratio of the Tribunal is contrary to the law as decided in Commissioner of Income Tax-III versus Calcutta Knitwears, Ludhiana 2014 (4) TMI 33 - SUPREME COURT wherein the relevant provisions of Chapter XIV-B of the Act were considered and it has been held that Section 158BD was a machinery provision inserted in the statute for the purpose of carrying out assessment of persons other than the searched persons - a satisfaction note regarding undisclosed income belonging to another person must be recorded, but the satisfaction note need not be recorded before the block assessment order was passed in the case of the person searched - There was nothing in the language of the provisions, which suggested that the satisfaction note cannot be recorded upon completion of the proceedings u/s 158BC of the Act against the searched person - Tribunal was not correct in holding that the block assessment proceedings were barred and invalid because the satisfaction note was not recorded by the AO before he had passed the block assessment order u/s 158BC in the case of the person searched Decided in favour of revenue.

Summary

Issues:
Validity of block assessment proceedings under Section 158BD of the Income Tax Act, 1961 due to the timing of recording satisfaction note by the Assessing Officer.

Analysis:
The High Court examined the issue of the validity of block assessment proceedings under Section 158BD of the Income Tax Act, 1961. The Tribunal had held the block assessment order invalid as the satisfaction note was recorded after the block assessment order under Section 158BC was passed. The case involved a search and seizure operation on an individual and a company, leading to block assessment orders being passed. The Deputy Commissioner recorded a satisfaction note regarding undisclosed income belonging to another person after the block assessment order was passed. The Tribunal deemed the initiation of block assessment proceedings invalid due to the timing of the satisfaction note.

The High Court referred to a Supreme Court judgment in Commissioner of Income Tax-III versus Calcutta Knitwears, Ludhiana, which clarified the provisions of Chapter XIV-B of the Act. The Supreme Court highlighted that Section 158BD is a machinery provision for assessing persons other than the searched persons. It emphasized that a satisfaction note regarding undisclosed income belonging to another person must be recorded, but it need not be done before the block assessment order of the searched person. The Supreme Court's interpretation indicated that there was no restriction on when the satisfaction note could be recorded, even after completion of proceedings under Section 158BC against the searched person.

Based on the Supreme Court's ruling, the High Court held that the Tribunal's reasoning was flawed. The High Court emphasized that a satisfaction note is essential under Section 158BD but can be prepared at various stages, including during or after the assessment proceedings of the searched person. The High Court concluded that the block assessment proceedings were not invalid solely because the satisfaction note was recorded after the block assessment order of the searched person. Therefore, the High Court ruled in favor of the appellant-Revenue and against the respondent-assessee.

The High Court accepted the respondent's request for remand to examine the addition on merits. The Tribunal had not decided the appeal on its merits, and to avoid delays, the parties were directed to appear before the Tribunal for further proceedings. The appeal was disposed of accordingly.