2002 (12) TMI 193 - AT - Income Tax

Summary

Issues Involved:
1. Legality and jurisdiction of the order dated 31st July, 1998.
2. Validity of the notice dated 28th July, 1997, under Section 158BC/158BD of the IT Act.
3. Compliance with Section 282 of the IT Act.
4. Validity of approval under Section 158BG.
5. Recording of satisfaction as per Section 158BD.

Detailed Analysis:

1. Legality and Jurisdiction of the Order:
The assessee challenged the order dated 31st July, 1998, claiming it was "wholly illegal and without jurisdiction" due to non-compliance with mandatory notice requirements under Section 158BC of the IT Act. The Tribunal examined the procedural aspects and found that the notice issued was defective and vague, leading to a conclusion that the order was indeed without proper jurisdiction.

2. Validity of the Notice Dated 28th July, 1997:
The notice required the assessee to prepare a return of undisclosed income but failed to specify the status (individual, HUF, firm, etc.) under which the return should be filed. This ambiguity rendered the notice non-compliant with the law. The Tribunal referenced similar cases (Monga Metals (P) Ltd. and V.V.S. Alloys Ltd.) where such notices were deemed invalid. The Tribunal concluded that the notice was "defective, vague and illegal" and could not confer valid jurisdiction on the AO.

3. Compliance with Section 282 of the IT Act:
The Tribunal noted that the notice did not address the principal officer as required under Section 282, further invalidating the notice. The lack of clarity on the status and verification of the return compounded the issue, making the notice non-compliant with statutory requirements.

4. Validity of Approval under Section 158BG:
The assessee argued that the approval for the order was not validly given. The Tribunal did not delve deeply into this issue due to the primary finding of the notice's invalidity, which was sufficient to quash the assessment order.

5. Recording of Satisfaction as per Section 158BD:
The Tribunal emphasized the necessity of the AO's satisfaction that undisclosed income belonged to a person other than the one searched, as per Section 158BD. The AO's satisfaction must be "discernible from the material." The Tribunal found no evidence of such satisfaction in the records, deeming the proceedings under Section 158BD invalid. The Tribunal cited the case of Vishwanath Prasad Ashok Kumar Sarraf to support this requirement and concluded that the assessment order was vitiated due to non-compliance with Section 158BD.

Conclusion:
The Tribunal quashed the assessment order on the grounds of invalid notice and lack of proper jurisdiction. The appeal of the assessee was allowed, and the assessment order dated 31st July, 1998, was set aside. The Tribunal did not proceed to decide on the merits of the case due to the preliminary issues being sufficient to invalidate the order.