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2020 (3) TMI 427 - AT - Income TaxBlock assessment u/s 158BD - no valid satisfaction has been recorded by the AO of the searched person before issuance of notice under section 158BD - HELD THAT - As in the present case satisfaction was duly recorded by the AO of the searched person in the Assessment Order passed by the AO in the case of searched person under section 158BC of the IT Act. Addition to the extent of 1/4th share of the investment made in the property at Hosur Road Bengaluru - HELD THAT - We find that the dispute is this in the present case that it is admitted position of fact that to the extent of 20 lakhs the amount is explained by the assessee by way of liability payable to Mr. J. K. Malik but he AO has rejected this claim of the assessee on this basis that on the date of search no such liability was in existence because the same was cleared on account of some property transaction. This is not the case of the AO that the property handed over to Mr. Malik to clear this liability was an unaccounted property acquired during the block period. Even if that property is unaccounted property but acquired by assessee prior to block period then also the said property cannot be added in the block period as undisclosed income. If an unaccounted property is acquired prior to block period then no addition can be made on account of that property in block period. This is also not the finding of the AO that any money in cash was paid by the assessee to clear this liability of Mr. Malik. Hence we hold that this amount of 20 lakhs cannot be considered for the purpose of making addition in the hands of the assessee because this is not the case of the AO that no liability was incurred by the assessee payable to Mr. Malik. This is also not the case of the AO that the liability in question payable to Malik was squared up by the assessee by way of cash payment or by way of transferring the property being undisclosed property acquired during block period. Hence to this extent the source of investment has to be accepted and we order accordingly. Even as per the AO the explanation of the assessee is documented and appear prima facie reasonable. The AO has rejected this explanation merely because the assessee has not produced the concerned person for examination. If the examination of that person was so much important for AO the AO should have used his powers to summon him and ensure his examination but this is not done by the AO. Hence in our considered opinion this explanation of the assessee cannot be rejected for this reason alone that the assessee could not produce the person when it is found by the AO that the explanation of the assessee is documented and is prima facie reasonable. Hence we hold that on this issue also the explanation of the assessee should be accepted and the addition made by the AO is not justified. Addition made by the AO is not justified without giving finding that liability was cleared by making cash payment or that liability was cleared by way of property transaction settlement being unexplained property acquired during block period. For this transaction also this is not the finding of the AO that the liability of Mr. Raju is cleared by way of cash payment or that the liability was cleared by way of a property transaction of undisclosed investment in property acquired during block period. Hence we hold that this addition is also not justified. Penalty u/s 158BFA(2) - HELD THAT - Penalty is almost automatic unless it is covered by the proviso. In the present case return was not filed by these two assesses after receipt of notice u/s 158BD. Hence the proviso is not applicable and hence we uphold the penalty but direct the AO to recompute the same on the quantum addition of 4 Lacs only upheld by us while deciding the relevant quantum appeals.
Issues Involved:
1. Validity of block assessment under section 158BD. 2. Addition of ?25.75 lakhs in the quantum appeals. 3. Penalty proceedings under section 158BFA(2). Issue-wise Detailed Analysis: 1. Validity of Block Assessment under Section 158BD: The assessee contended that the block assessment order under section 158BD was void-ab-initio due to the absence of valid satisfaction recorded by the Assessing Officer (AO) of the searched person before issuing the notice. The assessee cited the Supreme Court judgment in Manish Maheshwari to support this claim. However, the Revenue argued that the satisfaction was duly recorded in the assessment order of the searched person, and this was valid even if recorded in the file of the assessee. The Tribunal upheld the Revenue's stance, noting that the satisfaction was clearly recorded in the assessment order of the searched person, and thus the notice under section 158BD was valid. The judgment of the Hon’ble Apex Court in Manish Maheshwari was found inapplicable as the required satisfaction was recorded in this case. 2. Addition of ?25.75 Lakhs in the Quantum Appeals: a. Case of Smt. Farah Rafi: The AO made an addition of ?25.75 lakhs, attributing 1/4th share of ?103 lakhs as unexplained investment. The assessee argued that the amounts were explained through various liabilities and transactions. The Tribunal examined each component: - Loan to Mr. Malik (?20 lakhs): The AO noted that the liability was cleared through property transactions, not cash payments. The Tribunal held that since no cash payment was made and no unaccounted property was involved, this amount should be accepted as explained. - Loan to Mr. Javid and Mr. Navid (?25 lakhs): The AO found the explanation documented and prima facie reasonable but rejected it due to non-production of the creditor. The Tribunal ruled that the explanation should be accepted as the AO did not use his powers to summon the creditor. - Loan from Mr. Raju (?12 lakhs): Similar to the loan to Mr. Malik, the liability was cleared through property transactions. The Tribunal held that the addition was unjustified as no cash payment or unaccounted property was involved. The Tribunal deleted the addition of ?14.25 lakhs (1/4th of ?57 lakhs) and confirmed the addition of ?4 lakhs declared by the assessee. b. Case of Shri. Fasi Baig: The grounds and facts were identical to those in Smt. Farah Rafi’s case. The Tribunal deleted the addition of ?21.75 lakhs and confirmed ?4 lakhs. c. Case of Shri. Riaz Baig: Similar grounds and facts as in the other cases. The Tribunal deleted ?21.75 lakhs and confirmed ?4 lakhs. 3. Penalty Proceedings under Section 158BFA(2): The AO imposed penalties based on the additions confirmed. The Tribunal noted that penalties are almost automatic unless covered by the proviso, which was not applicable as no returns were filed after receiving notices under section 158BD. The Tribunal upheld the penalties but directed the AO to recompute them based on the quantum addition of ?4 lakhs in each case. Conclusion: All three quantum appeals and two penalty appeals were partly allowed. The Tribunal deleted significant portions of the additions while confirming minor amounts and upheld the penalties with directions for recomputation based on the reduced quantum.
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