2014 (12) TMI 188 - HC - Income Tax

Validity of proceedings u/s 158BC Notice not issued - Whether non-issuance of notice u/s 158BD would vitiate the proceedings initiated u/s 158BC Held that - The Tribunal rightly recorded that no search was conducted on the assessee, neither any warrant of search was issued in the name of assessee nor any Panchnama was prepared in the name of the assessee - no proceedings can be taken against the assessee u/s 158BC there is no material difference between the notice u/s 158BD and notice u/s 158BC - the provisions of sections 158BC and 158BD are separate and distinct - The proceedings u/s 158BC can be initiated only on the assessee on whom the search was conducted and proceedings u/s 158BD are to be initiated where the concerned AO has received an information or intimation from Assessing Officer of the person on whom the search was conducted - no material was brought on record whether any intimation or information was received by the AO of the assessee from the AO of Nem Chand Gupta i.e. the person on whom search was conducted - the AO of the person searched and the AO of the assessee were the same as there is an order u/s 127 - Violation of the requisite and mandatory requirement would result in annulment of assessment u/s 158BD r.w. section 158BC relying upon Commissioner of Income Tax vs. Calcutta Knitwears, Ludhiana 2014 (4) TMI 33 - SUPREME COURT - the block assessment proceedings initiated u/s 158BD r.w. section 158BC is set aside Decided against revenue.

Summary

Issues:
1. Validity of block assessment proceedings under Section 158BD of the Income Tax Act, 1961.
2. Requirement of notice under Section 158BD for initiating proceedings under Section 158BC.

Analysis:
1. The appeal by the revenue challenged the order annulling block assessment proceedings under Section 158BD of the Act for the period from 01.04.1986 to 29.08.1996. The respondent assessee, a firm, had its jurisdiction transferred to another DCIT after search and seizure operations at a different location. The Tribunal annulled the block assessment order citing lack of jurisdiction due to the absence of a search on the assessee and failure to issue a notice under Section 158BD. The High Court noted discrepancies in the grounds of appeal and upheld the Tribunal's decision, emphasizing the necessity of the Assessing Officer's satisfaction under Section 158BD before initiating proceedings.

2. The High Court referred to the Supreme Court's ruling in Commissioner of Income Tax vs. Calcutta Knitwears, Ludhiana [2014] 362 ITR 673 (SC), which clarified the requirement of the Assessing Officer's satisfaction under Section 158BD. The Court highlighted that the satisfaction note should be prepared before initiating proceedings under Section 158BD and that the existence of demonstrative material is crucial. The Court emphasized that the Assessing Officer must be satisfied that undisclosed income belongs to a third person before initiating action under Section 158BD. In this case, the absence of the satisfaction note led to the annulment of the block assessment proceedings. The Court ruled in favor of the respondent assessee, holding the proceedings under Section 158BD read with Section 158BC as bad and contrary to law due to the lack of the Assessing Officer's satisfaction note.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the statutory mandate of the Assessing Officer's satisfaction under Section 158BD before initiating block assessment proceedings. The absence of the satisfaction note rendered the proceedings invalid, leading to the annulment of the assessment order. The Court ruled in favor of the respondent assessee, disposing of the appeal with no order as to costs.