2017 (11) TMI 1203 - AT - Income Tax

Block assessment - Validity of proceeding under section 158BD - no satisfaction recorded in the case of the searched person by AO before issue of notice - stages of satisfaction recording - Held that - In the case of Calcutta Knitwears (2014 (4) TMI 33 - SUPREME COURT ) the hon ble Supreme Court has held that recording of a satisfaction note is a pre-requisite and such satisfaction note must be prepared by the Assessing Officer of the searched person before he transmits the record to the other Assessing Officer who has jurisdiction over the other person under section 158BD of the Act. However, as held by the hon ble Supreme Court, the satisfaction note in the case of the searched person can be prepared at three stages ; firstly, at the time of initiation of proceedings against the searched person under section 158BC of the Act ; secondly, in the course of assessment proceedings under section 158BC of the Act, and thirdly, immediately after the assessment proceedings are completed under section 158BC of the Act in the case of the searched person. In the facts of the present case, undisputedly, the Assessing Officer in the course of assessment proceedings of the searched person viz Ms. Hoor C. Jhurani, has recorded a satisfaction for initiation of proceedings under section 158BD of the Act in case of the assessee. It is also evident from the facts on record, before issuance of notice under section 158BD of the Act to the assessee, the Assessing Officer has recorded satisfaction under the said provision. Notably, assessment proceedings of both persons were continuing simultaneously before the Assessing Officer. Therefore the conditions of section 158BD stands satisfied. Therefore, the additional ground No. 1, raised by the assessee must fail Addition made on the basis of the credit entries in the bank account - Held that - When the Assessing Officer is making addition only on the basis of a bank account then both credit and debit entries have to be considered and the assessee deserves an opportunity to explain debit and credit entries. It appears from the order of the learned Commissioner (Appeals) that the assessee has contended that the debit entries appearing in the bank account represent expenditures incurred by the assessee. In our considered opinion, the assessee deserves an opportunity to explain both credit and debit entries in the bank account with supporting evidence. In this context, we must observe, if the Assessing Officer relies on any seized/ adverse material he must confront them to the assessee and provide copies of the same if already not provided to the assessee. The Assessing Officer must also afford a reasonable opportunity of being heard to the assessee in the matter. Additional ground No. 2, is allowed for statistical purposes.

Issues Involved:
1. Admission of additional grounds.
2. Validity of assessment under section 158BD of the Income-tax Act, 1961.
3. Addition of ?3,50,52,020 based on credit entries in bank accounts.
4. Imposition of penalty under section 158BFA(2) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Admission of Additional Grounds:
The assessee raised additional grounds challenging the validity of the assessment order under section 158BD of the Income-tax Act, 1961, arguing that no satisfaction was recorded as required. The Tribunal admitted these additional grounds, noting that they were purely legal and jurisdictional issues based on facts already available on record. The Tribunal referenced several decisions, including National Thermal Power Co. Ltd. v. CIT and Jute Corporation of India Ltd. v. CIT, to support the admissibility of these grounds.

2. Validity of Assessment under Section 158BD:
The assessee contested the validity of the assessment under section 158BD, claiming that no satisfaction was recorded in the case of the searched person. The Tribunal examined the facts and found that the Assessing Officer had indeed recorded satisfaction in the case of the searched person, Ms. Hoor C. Jhurani, before initiating proceedings under section 158BD against the assessee. This was in compliance with the requirements laid down by the Supreme Court in CIT v. Calcutta Knitwears and the Central Board of Direct Taxes (CBDT) Circular No. 24 of 2015. Therefore, the Tribunal dismissed the additional ground challenging the validity of the assessment.

3. Addition of ?3,50,52,020 Based on Credit Entries in Bank Accounts:
The assessee challenged the addition of ?3,50,52,020 made by the Assessing Officer based on credit entries in the bank accounts. The Tribunal noted that the assessment was completed ex parte under section 144 read with section 158BD due to the non-cooperative attitude of the assessee. The Tribunal found that the Assessing Officer had only considered the credit entries while ignoring the debit entries, which was improper. The Tribunal directed the Assessing Officer to provide the assessee with copies of the seized documents and allow the assessee an opportunity to explain both the credit and debit entries in the bank accounts. The issue was restored to the Assessing Officer for fresh adjudication, ensuring compliance with the rules of natural justice.

4. Imposition of Penalty under Section 158BFA(2):
The appeal against the imposition of penalty under section 158BFA(2) was linked to the addition of ?3,50,52,020. Since the Tribunal had restored the issue of the addition to the Assessing Officer for fresh adjudication, the penalty imposed under section 158BFA(2) could not survive at this stage. The Tribunal restored the issue of penalty to the Assessing Officer to reconsider, depending on the outcome of the quantum proceedings.

Conclusion:
The Tribunal partly allowed the appeal in I.T. (SS) A. No. 50/Mum./2008 for statistical purposes and allowed the appeal in I.T. (SS) A. No. 5/Mum./2011 for statistical purposes, directing the Assessing Officer to re-examine the issues in compliance with the principles of natural justice and legal requirements.

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