2015 (2) TMI 713 - HC - Income Tax

Undisclosed income of any other person - notice under section 158BC - petitioner is a co-operative society - Held that - In the present case, the Revenue has not produced any evidence to show that the Assessing Officer of the searched person had arrived at a satisfaction during the course of such proceedings that the undisclosed income belong to the present petitioner. In the affidavit-in-reply also, all that is stated is that during the search against the Piyush Shroff HUF, certain incriminating documents were seized, on the basis of which the deponent of the affidavit-in-reply is satisfied that based on the material seized from the office of the Karta of HUF, undisclosed income belong to the present petitioner Co-operative Credit Society. Even in the affidavit-in-reply, it is nowhere stated that such satisfaction was arrived at during the course of proceedings under section 158BC of the Act and that such satisfaction was recorded by the Assessing Officer. Neither in the affidavit-in-reply nor through the documents this vital aspect emerges. The important precondition for action under section 158BD of the Act, therefore, having not been satisfied, the action must fail. On this ground, the impugned notice dated October 3, 2005 is quashed. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under section 158BD of the Income-tax Act, 1961 by a co-operative society.

Analysis:
The petitioner, a co-operative society, challenged a notice issued by the Deputy Commissioner of Income-tax under section 158BD of the Income-tax Act, 1961. The notice was based on a search operation conducted on another entity, and the authority concluded that undisclosed income belonged to the petitioner. The petitioner contended that the notice demonstrated a lack of application of mind, no satisfaction was recorded by the Assessing Officer of the searched entity, and the action was belated. The counsel for the petitioner cited relevant legal precedents to support the contentions.

The counsel for the Revenue argued that typographical errors in the notice led to references to the petitioner being subjected to the search, but the notice was essentially under section 158BD. The Revenue contended that the Assessing Officer was satisfied that the undisclosed income belonged to the petitioner. The court noted discrepancies in the notice, indicating a lack of application of mind. The court also highlighted the significant legal conditions under section 158BD for taking recourse to block assessment against another person, as established in various legal precedents.

The court emphasized that for action under section 158BD, the Assessing Officer of the searched entity must be satisfied that undisclosed income belongs to the other person. In this case, the Revenue failed to provide evidence that such satisfaction was recorded during the proceedings. The court found that the crucial precondition for action under section 158BD was not satisfied, leading to the quashing of the impugned notice. The court ruled in favor of the petitioner, stating that the action must fail due to the lack of satisfaction by the Assessing Officer. The court quashed the notice dated October 3, 2005, and made no order as to costs.