2018 (4) TMI 1375 - SC - Income Tax

Validity of Second (Fresh) Notice u/s 158BD - search proceedings - First notice u/s 158BC was issued to the firm - Assessing Officer, who is assessing the Firm as well as the Appellant, is the same person - Held that - Section 158BD makes it clear that the AO needs to satisfy himself that the undisclosed income belongs to any person other than the person with respect to whom the search was made under Section 132 or whose books of accounts or other documents or assets were requisitioned under Section 132A. Mere disclosure made by the present assessee before the authority cannot be the basis for reaching a satisfaction that any undisclosed income belongs to him unless the seized books of accounts or other documents or assets are perused, examined or verified by the concerned Assessing Officer. The very object of the Section 158BD is to give jurisdiction to the AO to proceed against any person other than the person against whom a search warrant is issued. Although Section 158BD does not speak of recording of reasons as postulated in Section 148, but since proceedings under Section 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the Assessing Officer in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings under Section 158BD. The order dated 14.08.2000, passed by the Additional Commissioner of Income Tax (Appeals), under Section 144A whereby he, inter-alia, directed the Assessing Officer to take the undisclosed income of the Appellant including from the benami business in the name of two other persons at an aggregate sum of ₹ 17 lakhs as against ₹ 14 lakhs declared by the Appellant in his block return was passed in contravention of law and is not sustainable in the eyes of law. Appeal dismissed - Decided against the assessee.

Summary

Issues Involved:
1. Validity of the second notice under Section 158BD of the Income Tax Act.
2. Jurisdiction and satisfaction of the Assessing Officer under Sections 158BC and 158BD.
3. Procedural correctness and legal sustainability of the orders passed by the Income Tax authorities.

Issue-wise Detailed Analysis:

1. Validity of the Second Notice under Section 158BD:
The core issue before the Supreme Court was the validity of the second notice issued under Section 158BD of the Income Tax Act. The appellant argued that the first notice issued under Section 158BC on 09.09.1999 was valid, and the Assessing Officer (AO) had no authority to issue a second notice under Section 158BD. The appellant contended that the proceedings based on the second notice were invalid and without jurisdiction. The respondent countered that the second notice was valid as it was issued after the AO was satisfied that the undisclosed income belonged to the appellant and not the Firm.

2. Jurisdiction and Satisfaction of the Assessing Officer under Sections 158BC and 158BD:
The Supreme Court examined whether the AO had the jurisdiction and satisfaction to issue the second notice under Section 158BD. The Court noted that Section 158BD allows the AO to issue a notice to a person other than the one searched if undisclosed income is found to belong to such person. The AO must be satisfied that the undisclosed income belongs to a person other than the one searched. In this case, the same AO assessed both the Firm and the appellant. The Court found that the AO had jurisdiction to proceed against the appellant for block assessment under Chapter XIV-B, provided there was prima facie satisfaction that the undisclosed income belonged to the appellant.

3. Procedural Correctness and Legal Sustainability of the Orders:
The Court discussed the procedural correctness of the AO’s actions and the legal sustainability of the orders passed by the Income Tax authorities. It emphasized that the AO must have prima facie satisfaction based on the searched books of accounts or other documents that the undisclosed income belongs to a person other than the searched person. The AO’s satisfaction must be based on material on record. The Court found that the AO rightly issued the second notice under Section 158BD on 20.11.2000 after being satisfied that the undisclosed income belonged to the appellant. The Court also noted that the AO’s decision was not influenced by the Joint Commissioner but was based on the AO’s satisfaction.

Conclusion:
The Supreme Court upheld the High Court’s judgment, ruling that the second notice issued under Section 158BD was valid. It found that the AO had the jurisdiction and satisfaction to issue the notice and proceed with the block assessment. The Court dismissed the appeal, concluding that the orders passed by the Income Tax authorities were procedurally correct and legally sustainable. The appeal was dismissed with no order as to costs.