2008 (3) TMI 766 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice under Section 158BD.
2. Satisfaction note and its timing.
3. Validity of block assessment order.
4. Addition of undisclosed income.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 158BD:
The assessee challenged the notice under Section 158BD on the grounds that it was undated and did not indicate the material or basis on which it was issued. The notice failed to specify the person in whose case the search was conducted and the material found during the search. It was argued that the notice was vague and issued without application of mind. The Tribunal found that the notice did not meet the requirements of law as it did not record the satisfaction of the AO nor other necessary details, making it invalid. This conclusion was supported by precedents from the Supreme Court and the Delhi High Court, which emphasized the need for a detailed and specific notice to initiate proceedings under Section 158BD.

2. Satisfaction Note and Its Timing:
The assessee argued that the satisfaction note was recorded on 19th Dec., 2002, which was after the completion of the assessment order in the case of Manoj Aggarwal on 29th Aug., 2002. The Tribunal examined the satisfaction note and found that it was indeed dated 19th Dec., 2002, indicating that the AO's decision to initiate action under Section 158BD against the assessee was made after the assessment in the case of Manoj Aggarwal. This was contrary to the requirement that satisfaction should be recorded before completing the assessment in the case of the searched person. The Tribunal also noted that the Department failed to produce the proposal for centralizing the case and the approval granted, leading to an adverse inference against the Department.

3. Validity of Block Assessment Order:
The Tribunal quashed the block assessment order under Section 158BD on the grounds that the satisfaction note was recorded after the completion of the assessment in the case of the searched person, and the notice issued was vague and showed non-application of mind. The Tribunal held that such a notice could not form a legal foundation for initiating proceedings under Section 158BD. This decision was based on the Supreme Court's ruling in the case of Manish Maheshwari and the Delhi High Court's decision in New Delhi Auto Finance (P) Ltd.

4. Addition of Undisclosed Income:
Although the assessment order was quashed on legal grounds, the Tribunal also examined the merits of the addition made by the AO. The AO had added Rs. 2,47,31,304 as undisclosed income based on the statement of Manoj Aggarwal and the examination of transactions. However, the Tribunal found that no incriminating material was found during the search relating to the assessee, and the transactions were duly recorded in the books of account. The CIT(A) had already deleted the addition on merits, and the Tribunal upheld this decision, finding no scope to interfere.

Conclusion:
The cross-objection filed by the assessee was allowed, and the appeal of the Revenue was dismissed. The Tribunal quashed the assessment order under Section 158BD due to the invalidity of the notice and the improper recording of the satisfaction note. The addition of undisclosed income was also found to be unjustified on merits.