2016 (6) TMI 207 - AT - Income Tax

Validity of notice / proceedings u/s.158BD - recording of the satisfaction by the AO - AO of the searched person himself is not sure as to under which provision of the Act, action should be taken - Held that - In the instant case, the paper was seized from the place of Shri Tayyab Habib Chotani during the course of search which contain the amounts received in cash by him. He has already admitted such cash as his undisclosed income, a fact recorded by the CIT(A) and not disputed by the Revenue. Further, the satisfaction note sent by the AO of Shri Tayyab Habib Chotani to the AO of Shirish C. Karis speaks of action to be taken u/s.158BD/148. Therefore, we find merit in the submission of the Ld. Counsel for the assessee that the AO of the searched person himself is not sure as to under which provision of the Act, action should be taken. In our opinion, since the paper was found containing cash payments and cheque payments received by Shri Tayyab Habib Chotani from Shri Shirish C. Karia and Shri Tayyab Habib Chotani has admitted such unaccounted cash as his undisclosed income, therefore, there remains no undisclosed income belonging to any other person other than the searched person. Under these circumstances, the proper course of action here should have been notice u/s.148 and not notice u/s.158BD since the AO of the searched person himself is not sure as to how and under which provisions the notice should be issued. Thus as Shri Tayyab Habib Chotani has already admitted such cash payments as his undisclosed income, therefore, the provisions of section 158BD cannot be applied to the case of the assessee and the proper course of action should have been issue of notice u/s.148. We therefore find merit in the submission of the Ld. Counsel for the assessee that the notice in the instant case could have been issued only u/s.148 and not u/s.158BD. Therefore, the additional ground raised to be decided in favour of the assessee.

Issues Involved:
1. Validity of the notice issued under Section 158BD.
2. Satisfaction requirement for invoking Section 158BD.
3. Addition of ?50,39,695 as undisclosed income.
4. Opportunity for cross-examination of Shri Tayyab Habib Chotani.
5. Timeliness of the notice issued under Section 158BD.
6. Consideration of the appellant's additional ground regarding the applicability of Section 158BD.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 158BD:
The appellant challenged the validity of the notice issued under Section 158BD, arguing it was time-barred and not issued within the prescribed time limit. The Tribunal, referencing the Supreme Court decision in CIT Vs. Calcutta Knitwears (362 ITR 67), dismissed this ground, stating that there is no stipulated time limit for issuing a notice under Section 158BD.

2. Satisfaction Requirement for Invoking Section 158BD:
The appellant contended that the satisfaction note by the AO of Shri Tayyab Habib Chotani was not properly recorded. The Tribunal examined the satisfaction note and found that the AO of Shri Tayyab Habib Chotani had forwarded the information to the AO of the appellant, but it was unclear whether the notice should be issued under Section 158BD or Section 148. The Tribunal emphasized that the AO of the searched person must be satisfied that the undisclosed income belongs to another person, and the documents should be handed over to the AO of that person. Since the AO of Shri Tayyab Habib Chotani was unsure, the Tribunal concluded that the notice should have been issued under Section 148, not Section 158BD. Consequently, the Tribunal held that the proceedings under Section 158BD were void ab initio.

3. Addition of ?50,39,695 as Undisclosed Income:
The AO had added ?50,39,695 as undisclosed income based on seized documents showing cash payments made by the appellant to Shri Tayyab Habib Chotani. The appellant denied the cash payments, admitting only the cheque payments. The Tribunal noted that Shri Tayyab Habib Chotani had admitted to receiving cash payments and had included this amount as his undisclosed income. Given this admission, the Tribunal found that the proper course of action should have been issuing a notice under Section 148, not Section 158BD.

4. Opportunity for Cross-Examination of Shri Tayyab Habib Chotani:
The appellant argued that they were not given a proper opportunity to cross-examine Shri Tayyab Habib Chotani. The Tribunal observed that the AO had provided an opportunity for cross-examination, but the appellant did not avail it. The Tribunal found no merit in the appellant's claim that no opportunity was granted.

5. Timeliness of the Notice Issued Under Section 158BD:
The appellant argued that the notice under Section 158BD was issued much later than the date of the search. The Tribunal noted that there is no specific time limit for issuing a notice under Section 158BD. Therefore, this ground was dismissed.

6. Consideration of the Appellant's Additional Ground Regarding the Applicability of Section 158BD:
The Tribunal admitted the additional ground raised by the appellant, which questioned the applicability of Section 158BD. After examining the facts and the satisfaction note, the Tribunal concluded that the provisions of Section 158BD were not applicable since the cash payments were already admitted as undisclosed income by Shri Tayyab Habib Chotani. The Tribunal held that the proper course of action should have been issuing a notice under Section 148.

Conclusion:
The Tribunal concluded that the proceedings under Section 158BD were invalid and should have been initiated under Section 148. Consequently, the appeal was partly allowed in favor of the appellant on the legal ground, making the alternate ground regarding the merits of the case academic and not considered.

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