2017 (1) TMI 1627 - HC - Income Tax

Validity of proceedings u/s 158BD - proceedings initiated against the assessee pursuant to a search and seizure action under section 132 against Bimbis group of concerns - whether at the time of initiating the proceedings under section 158BC for the completion of the assessments of the searched person under section 132 or 132A of the Act or during the course of the assessment proceedings under section 158BC or after completion of the proceedings under section 158BC? - Held that - The issue arising in this case as to whether non-recording of satisfaction as provided under section 158BD of the Act in a case where the AO is common did not arise for consideration of the apex court and therefore we are unable to accept the plea of the learned senior counsel for the assessee that the judgment in Calcutta Knitwears (2014 (4) TMI 33 - SUPREME COURT) impliedly overruled the judgment in Panchajanyam (2010 (11) TMI 366 - KERALA HIGH COURT). Therefore, the judgment in Panchajanyam being that of a Co-ordinate Division Bench of this court, against which though an appeal filed by the assessee is pending before the apex court, is a precedent binding on this court. Therefore, since the AO is common, the reasoning of the Tribunal that non-recording of reason by the Assessing Officer is fatal to the assessment cannot be sustained. Therefore, answering the questions of law framed by the Revenue in its favour, the appeal is allowed and the order passed by the Tribunal is set aside.

Summary

Issues Involved:
1. Validity of proceedings under section 158BD of the Income-tax Act, 1961.
2. Requirement of recording satisfaction by the Assessing Officer under section 158BD.
3. Applicability of the Supreme Court decision in Manish Maheshwari v. Asst. CIT to the case.

Detailed Analysis:

1. Validity of Proceedings under Section 158BD:
The Revenue appealed against the Tribunal's order which invalidated the proceedings under section 158BD initiated against the respondent-assessee. The Tribunal had allowed the assessee's appeal on the ground that the Assessing Officer did not record the necessary satisfaction as mandated by section 158BD, referencing the Supreme Court's judgment in Manish Maheshwari v. Asst. CIT. The Revenue's appeal was dismissed by the Tribunal based on this jurisdictional ground.

2. Requirement of Recording Satisfaction by the Assessing Officer:
Section 158BD requires the Assessing Officer to record satisfaction that any undisclosed income belongs to a person other than the one searched under section 132. The Tribunal's decision was based on the non-recording of this satisfaction, which it deemed void ab initio. However, the High Court referred to the Division Bench judgment in CIT v. Panchajanyam Management Agencies and Services, which held that if the Assessing Officer for both the searched person and the other person is the same, non-recording of satisfaction does not invalidate the assessment. This judgment emphasized that section 158BD is an enabling provision and does not explicitly require the recording of satisfaction in writing before transferring the file to another officer.

3. Applicability of the Supreme Court Decision in Manish Maheshwari v. Asst. CIT:
The Supreme Court in Manish Maheshwari held that recording of satisfaction is a condition precedent for invoking a block assessment under section 158BD. However, the High Court noted that the judgment in CIT v. Panchajanyam, which is binding, was not overruled by the Supreme Court's decision in CIT v. Calcutta Knitwears. The latter case dealt with the timing of preparing the satisfaction note and did not address the issue of non-recording of satisfaction where the Assessing Officer is common for both the searched person and the other person.

Conclusion:
The High Court concluded that the Tribunal's reasoning that non-recording of satisfaction by the Assessing Officer invalidated the assessment was incorrect. Since the Assessing Officer was common for both the searched person and the other person, the non-recording of satisfaction did not affect the validity of the assessment. The High Court allowed the Revenue's appeal, set aside the Tribunal's order, and restored the appeals to the Tribunal for a decision on the merits after hearing both sides.