2007 (2) TMI 279 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assessment order under section 158BD read with section 143(3).
2. Merits of the addition of Rs. 35,00,000 and Rs. 1,01,000.
3. Presumption under section 132(4A) regarding loose papers found at a third party's premises.

Issue-Wise Detailed Analysis:

1. Validity of Assessment Order under Section 158BD Read with Section 143(3):

The assessee challenged the validity of the assessment order under section 158BD read with section 143(3), arguing that the Assessing Officer (AO) did not satisfy the basic conditions of section 158BD. The AO initiated proceedings based on the direction from the CIT(A), despite originally accepting the assessee's contentions. The appellant argued that the AO did not record his own satisfaction, which is a prerequisite under section 158BD. The Tribunal noted that the AO must be satisfied that any undisclosed income belongs to a person other than the one searched, and this satisfaction must be recorded before initiating proceedings under section 158BD.

The Tribunal observed that the AO issued the notice under section 158BD based on the CIT(A)'s direction, which is not permissible. The Tribunal emphasized that the AO in possession of the seized material must record his satisfaction and then hand over the documents to the AO having jurisdiction over the other person. Since this procedure was not followed, the Tribunal held that the assessment order was void ab initio.

2. Merits of the Addition of Rs. 35,00,000 and Rs. 1,01,000:

The Tribunal did not delve into the merits of the addition of Rs. 35,00,000 and Rs. 1,01,000, as the primary ground regarding the validity of the assessment order under section 158BD was decided in favor of the assessee. The Tribunal noted that the merits would only be adjudicated if the assessee failed on the primary ground, which was not the case here.

3. Presumption under Section 132(4A) Regarding Loose Papers Found at a Third Party's Premises:

The assessee contended that the loose papers indicating payments in cash were found at the premises of Shri Purandare and not at the assessee's premises. Therefore, the presumption under section 132(4A) could not be used against the assessee. The Tribunal noted that the AO relied on the statement of Shri Purandare, who confirmed the payment of Rs. 35,00,000 in cash to the assessee. However, the Tribunal did not need to adjudicate this issue separately as the primary ground regarding the validity of the assessment order was decided in favor of the assessee.

Conclusion:

The Tribunal concluded that the assessment order under section 158BD was void ab initio due to the failure of the AO to record his satisfaction as required by law. Consequently, the Tribunal quashed the impugned judgment, allowing the appeal of the assessee.