2016 (9) TMI 1043 - AT - Income Tax

Validity of the initiation of the proceedings under Section 158BD - Held that - Taking recourse with the block assessment u/s 158BD/158BG of the Act the preceding conditions are that firstly satisfaction must be recorded by the Assessing Officer of the searched person that any undisclosed income belongs to any person other than the person who has been searched u/s 132 of the Act and secondly documents or assets or books of accounts seized in relation to such other persons have been handed over to the Assessing Officer having jurisdiction over such other person. Examining the facts of the case in light of above discussion we find that there is no dispute to this fact that no such satisfaction note was provided to the assessee which has been specifically mentioned by the Assessing Officer in his assessment order and also Revenue has not placed on record the copy of satisfaction note if any made. In all the juncture at which proceedings u/s 158BD of the Act commenced for block assessment of a person other than the searched person Assessing Officer completely failed to satisfy the provisions of section 158BD of the Act. We are therefore of the view that the impugned assessment order for the block period passed under section 143(3), r.w.s. 254 r.w.s. 158BD of the Act needs to be quashed in the given facts and circumstances of the case wherein no satisfaction has been recorded as per the provisions of section 158BD of the Act before framing the block assessment. We quash the block assessment order.- Decided in favour of assessee Addition u/s 68 - Held that - Assessee has miserably failed to explain the cash credits appearing in the audited financial statements attached with the original return of income. The later submissions made by assessee that the previous audit report was fictitious (even when signed by independent audit) and the revised balance sheet audited by another auditor is correct is not convincing. It seems that assessee is indulged into mal practices of fabricating books of accounts and depicting unrealistic financial data with a view to cheat the public and therefore deserves no mercy. We find no reason to interfere with the order of ld. CIT(A). The appeal of the assessee is dismissed on this issue. Unaccounted investment in shares - Held that - Addition has been made in the block assessment of the assessee as well as on protective basis in the case of Renco Gears Ltd. Further Assessee has failed to substantiate with any material evidence which could prove that investment did not flow through the funds of assessee. From going through the facts discussed by ld. CIT(A) in his order we find that investment in shares of Renco Gears Ltd. have been duly owned by the investor and the source of investment was from FCNR account with Dena Bank Ambawadi Ahmedabad and the impugned amount was given towards share application money through banking channel but later on these shares have been transferred to Jashwant Shan and Mrudula Shah. Surprisingly these two persons have denied the ownership of the shares. In such situation complete transaction looks doubtful. From going through the facts we are of the view that addition was rightly made for unaccounted investment - Decided in favour of revenue Investment in machinery - Held that - Assessing Officer has completely ignored the facts so much so that all necessary details including purchase bills containing invoice no. date and amount details of payment which were made in the Financial Year 1993-94 itself and the sale consideration was received against the sale of these machines only. Therefore when the source of investment in machines is proved there cannot be any question mark on the sale consideration received against sale of machinery. Ld. CIT(A) has rightly deleted the addition - Decided in favour of assessee

Issues Involved:
1. Validity of the assessment order passed without prior approval of the Commissioner of Income Tax (CIT).
2. Non-recording of satisfaction as required under section 158BD of the IT Act.
3. Various additions made by the Assessing Officer (AO) as unexplained credits/loans and deposits in bank accounts.
4. Additions under section 68 of the IT Act for unexplained cash credits.
5. Additions for unaccounted investments in shares and machinery.
6. Cross Objection by the assessee against certain additions confirmed by the CIT(A).

Detailed Analysis:

1. Validity of the Assessment Order Without Prior Approval of CIT:
The assessee argued that the assessment order under section 143(3) read with section 254, read with section 158BD dated 27/12/2011 was invalid as it was passed without prior approval of the CIT. The Tribunal found that the AO did not obtain the required approval from the CIT before passing the de novo assessment order. The Tribunal quashed the block assessment order on this ground, making further adjudication on this issue academic.

2. Non-recording of Satisfaction as Required Under Section 158BD:
The assessee contended that the assessment order was invalid due to the absence of a recorded satisfaction note as required under section 158BD. The Tribunal observed that the AO failed to record the necessary satisfaction before initiating proceedings under section 158BD. Referring to the judgments in Manish Maheshwari vs. ACIT and other relevant cases, the Tribunal concluded that the assessment proceedings were invalid due to non-compliance with the procedural requirements of section 158BD. The block assessment order was thus quashed.

3. Various Additions as Unexplained Credits/Loans and Deposits:
The AO made several additions treating various amounts as unexplained credits/loans and deposits in bank accounts. The Tribunal quashed the block assessment order due to the procedural lapses discussed above, rendering the adjudication of these specific additions unnecessary.

4. Additions Under Section 68 for Unexplained Cash Credits:
The assessee challenged the additions made under section 68 for unexplained cash credits for the assessment years 1991-92, 1992-93, and 1993-94. The Tribunal upheld the AO's findings, stating that the assessee failed to provide satisfactory explanations or documentary evidence to prove the identity, creditworthiness, and genuineness of the cash credits. The Tribunal dismissed the assessee's appeals on this issue.

5. Additions for Unaccounted Investments in Shares and Machinery:
The AO made several additions for unaccounted investments in shares of Renco Gears Ltd. and machinery. The Tribunal found that the investments were not satisfactorily explained by the assessee. The Tribunal upheld the AO's findings and confirmed the additions for unaccounted investments in shares and machinery.

6. Cross Objection by the Assessee:
The assessee filed a cross objection against certain additions confirmed by the CIT(A). The Tribunal dismissed the cross objection, upholding the CIT(A)'s findings on the unexplained investments in shares and cash credits. The Tribunal found that the assessee failed to provide satisfactory explanations and documentary evidence to support the claims.

Conclusion:
The Tribunal quashed the block assessment order due to procedural lapses, including the lack of prior approval from the CIT and the absence of a recorded satisfaction note under section 158BD. The Tribunal upheld the AO's findings on the unexplained cash credits and unaccounted investments in shares and machinery, dismissing the assessee's appeals and cross objections on these issues. The Revenue's appeal was partly allowed, confirming certain additions made by the AO.

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