2016 (4) TMI 1469 - AT - Income Tax

Validity of Block assessment u/s. 158BD - jurisdiction to record satisfaction - during the course of the Search proceedings at the premises of the UIC Group, no incriminating materials against the appellant company had been found - as argued satisfaction was to be recorded by the AO of the UIC group where the search was conducted but in the case in hand the satisfaction has been recorded by the AO having jurisdiction over the assessee. HELD THAT - As per the provisions of section 158BD of the Act the materials found during search should have been handed over to the AO having jurisdiction over such other person to initiate the action in terms of the aforesaid section. But in the instant case no such procedure has been followed by the authorities. The share certificates found during the search were not handed over to the AO having jurisdiction over the assessee. Thus AO of UIC group was to record the satisfaction before initiating the proceeding under section 115BD - But in the instant case the AO having the jurisdiction over the assessee has recorded the satisfaction which is incorrect as per law. Taking the consistent views in the decisions of Hon'ble Supreme Court in the case of Manish Maheshwari 2007 (2) TMI 148 - SUPREME COURT and Champakbhai Mohanbhai Patel 2014 (2) TMI 1168 - GUJARAT HIGH COURT we reverse the orders of Authorities Below and this ground of assessee's appeal is allowed.

Summary

Issues Involved:
1. Validity of proceedings initiated under section 158BD of the Income Tax Act, 1961.
2. Addition of Rs. 1,39,50,000/- under section 68 of the Income Tax Act, 1961.
3. Opportunity to cross-examine the depositions of four witnesses.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 158BD:

The assessee challenged the validity of the proceedings initiated under section 158BD of the Income Tax Act, 1961, on the grounds that no incriminating material was found during the search at the premises of the UIC Group. The AO had initiated proceedings under section 158BD based on the discovery of share scripts and subsequent inquiries revealing that the funds invested by the assessee in the UIC Group companies were sourced from four individuals whose identities and creditworthiness could not be verified. The assessee argued that the satisfaction required under section 158BD should have been recorded by the AO of the UIC Group, not by the AO having jurisdiction over the assessee.

The tribunal agreed with the assessee, citing the judgments in *CIT vs. Champakbhai Mohanbhai Patel* and *Manish Maheshwari v. ACIT And Another*, which established that the AO of the searched person must record satisfaction before initiating proceedings under section 158BD. Since this procedure was not followed, the tribunal reversed the orders of the lower authorities and allowed the assessee's appeal on this ground.

2. Addition of Rs. 1,39,50,000/- Under Section 68:

The assessee contested the addition of Rs. 1,39,50,000/- under section 68 of the Act, arguing that the amount was received through account payee cheques as consideration for the sale of shares, which was duly recorded in the books of accounts and disclosed in the income tax return. The AO had added this amount on a protective basis, suspecting that the transactions were a means to channel unaccounted money of the UIC Group.

The tribunal did not delve into this issue in detail, as the primary ground regarding the validity of proceedings under section 158BD was decided in favor of the assessee, rendering the discussion on the addition under section 68 unnecessary.

3. Opportunity to Cross-examine the Depositions of Four Witnesses:

The assessee argued that it was not provided with the opportunity to cross-examine the depositions of the four individuals whose statements were used by the AO to make the addition. The lack of cross-examination was a significant point of contention, as these depositions formed the basis of the AO's conclusions.

The tribunal acknowledged this issue but did not provide a separate ruling on it, as the main issue regarding the validity of the proceedings under section 158BD was resolved in favor of the assessee, making further adjudication on this ground unnecessary.

Conclusion:

The tribunal allowed the assessee's appeal, primarily on the grounds that the satisfaction required under section 158BD of the Income Tax Act, 1961, was not recorded by the appropriate AO, as mandated by law. Consequently, the proceedings initiated under section 158BD were deemed invalid, and the other grounds raised by the assessee did not require further adjudication. The order was pronounced in the open court on 27/04/2016.