2019 (7) TMI 15 - AT - Income Tax

Block assessment u/s 158BD - compliance of the provision u/s 127 by not issuing notice intimating the assessee regarding transfer of jurisdiction - recording of satisfaction by concern AO or any other AO - HELD THAT - This is the settled principle of law that the notice u/s 158BD r.w.s. 158BC is required to be issued only upon being specified that the undisclosed income belongs to the appellant only by the concerned AO and not by any other authority having the same rank. The judgment as discussed above in the matter of ACIT-vs-Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT reiterates the same principle. Section 158BD further provides the books of account or other incriminating documents or assets ceased or requisitioned u/s 132A shall be handed over to the Assessing Officer having jurisdiction of such other person. In the instant case, the same was also not complied with by the statutory authorities. The entire proceeding has been initiated by the authorities by not applying the provision u/s 127 by not issuing notice intimating the assessee regarding transfer of jurisdiction of the Learned AO and further by not applying the provision of Section 158BC r.w.s. 158 BD by not recording the satisfaction by the jurisdictional AO. In that view of the matter, we find when the very foundation of the block assessment is not stable in the absence of compliance of the statutory provisions as discussed above, the entire proceeding initiated against the assessee is vitiated. Upon considering all the aspect of the matter, we find no merit in the order passed by the authorities below. Further that on the basis of the above discussion and observation we find the entire proceeding is void ab initio i.e. invalid from the very outset and therefore is liable to be quashed and hence the entire proceeding under section 158BD of the Act as initiated by the revenue against the assessee is hereby quashed. - Decided in favour of assessee.

Issues Involved:
1. Legality of the addition of ?98,01,000/- in block assessment under section 158BD read with section 254.
2. Validity of the assessment order due to the lack of cross-examination of the searched party.
3. Treatment of the seized dairy A-1 as a record of finance transactions versus land transactions.
4. Validity of the assessment order due to the lack of satisfaction note by the Assessing Officer.
5. Confirmation of surcharge addition of ?9,99,702/-.
6. Confirmation of interest charged under section 158BFA(1) of ?16,03,272/-.
7. Compliance with section 127 regarding the change of jurisdiction.

Detailed Analysis:

1. Legality of the Addition of ?98,01,000/- in Block Assessment:
The assessee contested the addition of ?98,01,000/- made by the Assessing Officer (AO) in the block assessment under section 158BD read with section 254, arguing that the AO did not allow cross-examination of the searched party, Jivraj V. Desai (JVD), despite specific directions from the ITAT. The ITAT had previously ruled that the seized dairy A-1 was a record of finance transactions and not land transactions. The assessee argued that the land transaction was conducted between Virabhagat Co-op Housing Society and New Virabhagat Co-op Housing Society with payment made by account payee cheque, and there was no evidence of unaccounted money paid by the appellant.

2. Validity of the Assessment Order Due to Lack of Cross-Examination:
The ITAT had directed the AO to allow cross-examination of JVD and AAS, whose statements were the basis for the addition. The AO failed to comply with this directive, which was a procedural defect that could not vitiate the assessment order but created curable irregularities. The ITAT noted that the AO did not provide photocopies of documents in time and initiated proper assessment proceedings only after the assessee filed the return, leaving no worthwhile time for cross-examination.

3. Treatment of the Seized Dairy A-1:
The ITAT observed that the seized dairy A-1, particularly page 45, recorded finance transactions, and there was no indication that the transactions were imaginary or false. The relationship between the assessee and M/s Mahadev Construction Pvt. Ltd. and New Virabhagat Society was not remote and warranted proper examination. The ITAT restored the matter to the AO for de novo assessment, including cross-examination of the parties concerned.

4. Validity of the Assessment Order Due to Lack of Satisfaction Note:
The assessee argued that the AO who issued the notice under section 158BD did not form or note a satisfaction note, and the search records were not forwarded as required by section 158BD. The ITAT found merit in this argument, noting that the satisfaction note was prepared by the ACIT, Central Circle-1(1), Ahmedabad, and not by the AO having jurisdiction over the assessee. The ITAT emphasized that the satisfaction note must be recorded by the jurisdictional AO, and the failure to do so vitiated the entire proceedings.

5. Confirmation of Surcharge Addition of ?9,99,702/-:
The assessee contested the addition of surcharge of ?9,99,702/- on tax. However, the ITAT did not provide a detailed analysis of this issue, focusing instead on the procedural defects and lack of jurisdictional compliance.

6. Confirmation of Interest Charged Under Section 158BFA(1) of ?16,03,272/-:
The assessee argued that the delay in filing the block return was not attributable to them, and therefore, the interest charged under section 158BFA(1) was erroneous. The ITAT did not specifically address this issue in detail, as the primary focus was on the procedural validity of the assessment.

7. Compliance with Section 127 Regarding Change of Jurisdiction:
The assessee argued that the notice intimating the change of jurisdiction of the AO was not issued and served as required under section 127 of the Act. The ITAT found that the jurisdiction over the assessee was changed without issuing the necessary notice under section 127, which rendered the entire proceeding bad in law. The ITAT emphasized that the satisfaction note must be recorded by the jurisdictional AO and that the failure to issue a notice under section 127 further vitiated the proceedings.

Conclusion:
The ITAT quashed the entire proceeding under section 158BD of the Act against the assessee, finding that the assessment was invalid from the outset due to non-compliance with statutory provisions, including the lack of a satisfaction note by the jurisdictional AO and the failure to issue a notice under section 127 regarding the change of jurisdiction. The assessee's appeal was allowed, and the block assessment was annulled.

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