2004 (7) TMI 279 - AT - Income Tax

Block Assessment in search case - Requirement of Recording Satisfaction u/s 158BD - Judicial Review of Orders u/s 158BD - Existence of Material for Satisfaction u/s 158BD - Whether satisfaction of the Assessing Officer needs to be recorded u/s 158BD of the Act to assume jurisdiction and absence of such recording will result in the order of the assessment becoming bad in law and requires to be annulled? -HELD THAT - In these cases absolutely there is no iota of material from the proceedings of search that there was undisclosed income. When such is the case the satisfaction that undisclosed income belongs to such other person is wanting. When that is the case the entire proceedings framed with the issuance of notice u/s 158BD will have to go. In other words if the basis for notice is not there the notice itself is wrongly issued making further assessment on such other person is wholly outside the purview of the scheme. As already satisfaction in the very nature precedes the issue of notice and it would not be correct to equate satisfaction of the ITO with the actual issuance of notice. To put it in other words issuance of notice by itself is not the display or record of satisfaction which is the basic requirement u/s 158BD of the Act. As already held by the Apex Court in the case of G.M. Mittal Stainless Steel (P.) Ltd. 2002 (12) TMI 13 - SUPREME COURT satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the Assessing Officer. Although in that case the Apex Curt was concerned with the assumption of jurisdiction u/s 263 the Apex Court observed that the Commissioner has not recorded any reasons whatsoever for coming to the conclusion that the Assessing Officer was in error in deciding that the power subsidy was capital receipt. In fact in that case the Apex Court noticed that the decision of the MP High Court which was in favour of the assessee got subsequently reversed by the Supreme Court. The satisfaction of the authority was based on no material either legal or factual which would have given him the jurisdiction to take action u/s 263 of the Act. Even in this case there is no iota of material which can lead to any reasonable belief to come to a conclusion that undisclosed income belongs to such other person. Under section 263 powers of the Commissioner are similar to the powers of the Assessing Officer u/s 158BD of the Act. There also the law never requires any satisfaction to be recorded in writing. The only requirement u/s 263 was that upon examination of the records of any proceedings under the Act if the Commissioner considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue he might revise the assessment. Thus we are of the view that issuance of notice u/s 158BD of the Act is not justified. It is not justified merely on the ground that there was no material at all indicating any undisclosed income. The learned Standing Counsel who appeared on behalf of the Revenue has fairly agreed that there is no material found as a result of search which could pinpoint the existence of undisclosed income of a person who is not subject to search. The basic ingredient of section 158BD is the existence of some material. If there is no material the question of Assessing Officer s satisfaction does not simply arise. If there is a material then of course it would be better if the Assessing Officer demonstrates that he is satisfied about there being some undisclosed income belonging to a person who was not searched. In all these cases the assessments are not based on a search action or supported by any material found during the course of search but were the result of re-appraisal of facts that are already within the knowledge of the department. The main thing to be kept in mind is that proceedings u/s 158BD cannot be a fancy or ipse dixit of the Assessing Officer but it should be based upon some material evidence-found in the course of search. It must be appreciated that by invoking the provisions of section 158BD a stranger to the search proceedings is being implicated for a liability higher than normal rates of tax. Therefore it would be in the fitness of things that the Assessing Officer demonstrates in some way his satisfaction about there being undisclosed income-hidden in the search material which as per the provision has to be handed over to the Assessing Officer having jurisdiction over that other person. To put it straight existence of material is a sine qua non for taking action u/s 158BD of the Act. Thus requirement is fulfilled in a given case then omission to record satisfaction may not in the facts and circumstances of the case vitiate the proceedings. Thus in the present cases the examination of the records does not show the existence of any material for the satisfaction and consequently issuance of notice u/s 158BD is not justified. In the result all the appeals are allowed.

Summary

Issues Involved:
1. Whether satisfaction of the Assessing Officer needs to be recorded u/s 158BD of the Act to assume jurisdiction.
2. Whether the absence of such recording will result in the order of the assessment becoming bad in law and requires to be annulled.

Summary:

Issue 1: Whether satisfaction of the Assessing Officer needs to be recorded u/s 158BD of the Act to assume jurisdiction.

The main controversy in these appeals centers around the requirement of recording satisfaction by the Assessing Officer u/s 158BD of the Income-tax Act, 1961. The learned counsel for the assessee argued that the satisfaction must be reached by the Assessing Officer on the basis of materials disclosing undisclosed income of another person and such satisfaction has to be suitably recorded. The absence of such recording renders the proceedings illegal and fatal to the assessment. The Department, on the other hand, contended that u/s 158BD, no reasons are required to be recorded for issuing notice and the provisions do not necessitate recording of satisfaction.

Issue 2: Whether the absence of such recording will result in the order of the assessment becoming bad in law and requires to be annulled.

The Tribunal held that satisfaction of the Assessing Officer that undisclosed income belongs to another person is justiciable. If called into question, the authorities must demonstrate the material that led to such satisfaction. In these cases, there was no material from the search indicating undisclosed income, and thus, the satisfaction was wanting. The Tribunal concluded that the issuance of notice u/s 158BD without any material indicating undisclosed income is not justified and renders the assessment proceedings invalid. The satisfaction must be based on cogent and demonstrative evidence, and the absence of such material vitiates the proceedings.

Conclusion:

The Tribunal concluded that the absence of material indicating undisclosed income in the possession of the Department renders the proceedings u/s 158BD invalid. Consequently, the assessments in these cases were vacated, and the appeals were allowed.