2019 (4) TMI 54 - HC - Income Tax

Proceeding u/s 158BD - search u/s 132 - Mandation for AO to record his satisfaction that undisclosed income belongs to any person - HELD THAT - In the instant case, admittedly, the Assessing Officer had not recorded his satisfaction about the undisclosed income of the appellant. The result is that the entire proceedings initiated against the appellant stand vitiated. The Tribunal has found that only a prima facie satisfaction of the undisclosed income of the person, other than the person with respect to whom the search was made, is sufficient. The Tribunal has found that the entries in the documents seized during the search and the statement of the appellant recorded on the same day revealed that the appellant had undisclosed income and such a prima facie satisfaction by the authority concerned was sufficient. True, what is required is only a prima facie satisfaction of the Assessing Officer of the undisclosed income of the person other than the person with respect to whom the search was conducted. But, the crucial aspect is recording of such satisfaction by the Assessing Officer. We hold that it is mandatory for the Assessing Officer under Section 158BD of the Act to record his satisfaction about the undisclosed income of the person other than the person with respect to whom the search was conducted. Preparation of satisfaction note by the Assessing Officer is sine qua non before transmission of records by him to the other Assessing Officer who has jurisdiction over such other person. The substantial question of law is answered in favour of the assessee and against the revenue.

Summary

Issues:
Mandatory recording of satisfaction by Assessing Officer under Section 158BD of the Income Tax Act for undisclosed income belonging to a person other than the one searched.

Analysis:
The case involved the question of whether it is mandatory for the Assessing Officer proceeding under Section 158BD of the Income Tax Act to record his satisfaction that undisclosed income belongs to a person other than the one with respect to whom the search was conducted under Section 132 of the Act. The authorities conducted a search at a jewellery in Ernakulam, seizing documents related to shop room purchases by the appellant. The Assessing Officer issued a notice under Section 158BD, leading to an assessment completed in 2006 for a block period. The appellant appealed the assessment order, which was allowed by the Commissioner of Income Tax (Appeals) but overturned by the Income Tax Appellate Tribunal.

The appellant argued that the Assessing Officer must prepare a satisfaction note before handing over seized documents to the officer having jurisdiction over the other person. The appellant contended that since no such satisfaction note was prepared in this case, the proceedings were vitiated. Section 158BD of the Act mandates that the Assessing Officer must be satisfied that undisclosed income belongs to a person other than the one searched, and the books/documents seized must be handed over to the officer having jurisdiction over that person for further proceedings under Section 158BC.

Citing precedent cases, the court emphasized that the preparation of a satisfaction note by the Assessing Officer is essential before proceeding against the other person. The court noted that in this case, the Assessing Officer had not recorded satisfaction about the undisclosed income of the appellant, rendering the proceedings invalid. The Tribunal had opined that a prima facie satisfaction was adequate, but the court clarified that the crucial aspect is the recording of such satisfaction by the Assessing Officer, which was lacking in this case.

The court held that the Assessing Officer must record satisfaction about the undisclosed income of the person other than the one searched under Section 158BD, and the preparation of a satisfaction note is imperative before transmitting records to the officer having jurisdiction over that person. Consequently, the court ruled in favor of the assessee, setting aside the assessment order and the Tribunal's decision. The court concluded that the appeal was allowed, with no costs imposed, as the substantial question of law was resolved in favor of the assessee.