2015 (4) TMI 632 - HC - Income Tax

Recording of satisfaction under section 158BD - whether person searched and consequent issuance of notice under section 158BD on 02.09.2005 was belated and beyond the period prescribed by law when the section 158BD read with section 158BE does not specify that satisfaction has to be recorded by the Assessing Officer before completion of assessment under section 158BC? - Held that - In the present case, the notices were issued to about 70 persons on the documents seized from the Bhatia Group. The Assessing Officer, therefore, had to take action against the 70 persons on account of the same search operation under Section 132 of the Act. He could not possibly do so the same day or even by the next day. The paperwork in such cases is itself enormous. Moreover, this presumably was not the only work that the Assessing Officer had. A period of three and a half months in the facts of this case was entirely reasonable. The respondent is in any event not prejudiced on account of the satisfaction having been prepared thereafter. In these circumstances, the appellant having taken three and a half months to record his satisfaction cannot be held to be unreasonable. The appellant contended that the satisfaction was recorded on 15.07.2005. If that is established, as held earlier, it is sufficient compliance with the provisions of Section 158-BD of the Act. The respondents, however, contended that there was never any satisfaction recorded at all. The orders of the Assessment Officer and of C.I.T. (Appeals) refer to the satisfaction note of 15.07.2005. The issue as to whether the same is genuine as contended by the appellant or fabricated and false as contended by the respondents may be considered by the Tribunal. All the appeals are accordingly allowed. The question of law is answered in favour of the appellant. The appeals are restored to the file of the ITAT and shall be decided on-merits by the Tribunal. - Decided in favour of revenue

Issues Involved:
1. Justification of the Income Tax Appellate Tribunal's decision regarding the timing of recording satisfaction under Section 158BD.
2. Validity of the addition of Rs. 91,96,083/- made by the Assessing Officer.
3. Jurisdiction of the Assessing Officer under Section 158BD.
4. Interpretation of the timing for recording satisfaction under Section 158BD as per the Supreme Court ruling.

Issue-wise Detailed Analysis:

1. Justification of the Income Tax Appellate Tribunal's decision regarding the timing of recording satisfaction under Section 158BD:

The primary issue was whether the Income Tax Appellate Tribunal was justified in holding that the recording of satisfaction under Section 158BD by the Assessing Officer was belated and beyond the period prescribed by law. The Tribunal had upheld the decision of the CIT (Appeals), which deleted an addition made by the Assessing Officer on account of transactions noticed during a search operation. The Tribunal's decision was challenged on the grounds that Section 158BD read with Section 158BE does not specify that satisfaction has to be recorded before the completion of assessment under Section 158BC.

2. Validity of the addition of Rs. 91,96,083/- made by the Assessing Officer:

The Assessing Officer had added Rs. 91,96,083/- to the respondent's income based on transactions with the Bhatia Group, which were not recorded in the respondent's books. However, the CIT (Appeals) deleted this addition, accepting the respondent's claim that the unaccounted transactions were covered by a prior surrender of Rs. 2.75 crores during a survey under Section 133A.

3. Jurisdiction of the Assessing Officer under Section 158BD:

The respondent contended that the Assessing Officer lacked jurisdiction to make the assessment because the satisfaction required under Section 158BD was not recorded before initiating proceedings. The assessment for the person searched (S.K. Bhatia) was completed on 30.03.2005, but the satisfaction was recorded only on 15.07.2005, which the respondent argued was not in compliance with the statutory requirements.

4. Interpretation of the timing for recording satisfaction under Section 158BD as per the Supreme Court ruling:

The Supreme Court's decision in Commissioner of Income Tax v. M/s Calcutta Knitwears clarified that the satisfaction note under Section 158BD must be prepared by the Assessing Officer before transmitting records to the officer having jurisdiction over the other person. The satisfaction note could be prepared at the time of initiating proceedings, during the assessment, or immediately after completing the assessment of the searched person. The Supreme Court emphasized that the satisfaction note must be prepared without undue delay.

Detailed Judgment Analysis:

The High Court referred to the Supreme Court's ruling, which held that the satisfaction note under Section 158BD must be prepared before transmitting records to the other Assessing Officer. The Supreme Court did not impose a rigid timeframe but indicated that the note should be prepared as soon as practicably possible without undue delay.

The High Court noted that the satisfaction note in this case was prepared three and a half months after the assessment of the searched person, which it found reasonable given the circumstances. The High Court also emphasized that the interpretation of "immediately after" must be flexible and context-specific, considering factors such as the Assessing Officer's workload and other practical constraints.

The High Court concluded that the satisfaction recorded on 15.07.2005 was sufficient compliance with Section 158BD. However, it left the question of the genuineness of the satisfaction note to be determined by the Tribunal.

Conclusion:

The appeals were allowed, and the question of law was answered in favor of the appellant. The cases were remanded to the ITAT for a decision on merits. The cross-objections were dismissed, and no costs were awarded.

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