2025 (3) TMI 644 - AT - Income Tax

Block assessment - Assumption of jurisdiction by AO by issuing notice u/s 158BD - pendency of the proceedings by issue of initial notice u/s 158BC in case of the assessee on account of lack of proper satisfaction recorded by the AO before assumption of jurisdiction u/s 158BD on account of delayed timing of the satisfaction so recorded (matter remitted back by the Hon ble High Court) and on account of the fact that no order under section 127 is available on record for the transferring the jurisdiction of the case to the AO who has passed the impugned order. As during the pendency of the proceedings u/s 158BC the fresh proceedings u/s 158BD had been initiated for the same block period - HELD THAT - For the purpose of determining the limitation period of completion of proceedings and passing of the assessment order under section 158BC if we consider the aforesaid day on which last of the search warrant was executed the proceedings get time barred on 31/08/1996 as per the provisions of Section 158BE wherein it has been provided that the order under section 158BC can be passed within one year from the end of the month in which the last of the authorization for search u/s 132 was executed. Subsequently the satisfaction u/s 158BD was recorded by the AO on 10/09/1996 and thereafter notice u/s 158BC rw.s 158BD was issued on 13/09/1996. Therefore as on the date of recording of satisfaction u/s 158BD of the Act and subsequent issuance of notice under section 158BC r/w 158BD the earlier proceedings u/s 158BC were not pending and stands barred by limitation. In view of the same even though no formal order has been passed dropping the proceedings u/s 158BC it cannot be held that the proceedings so initiated by issuance of notice u/s 158BC continue to remain alive and pending before issuance of notice u/s 158BD as so contended by the ld AR. The various authorities relied upon by the AR thus stand distinguishable and doesn t support the case of the assessee and the contention so advanced by the AR therefore cannot be accepted. Since there was no order u/s 127 either available on record or supplied to the assessee for transferring the jurisdiction to the AO who has passed the impugned order the order so passed by the AO is without jurisdiction and therefore deserves to be set aside - All the assessee had asked was to ascertain the correct jurisdiction by the AO as he was not the person searched and in response the AO has stated that even though the assessee was not the person searched he continues to hold the jurisdiction over the case as necessary order has been passed u/s 127 of the Act. Therefore it is not a case where the AO has acquired the jurisdiction without passing of order u/s 127 of the Act. The order u/s 127 has clearly been passed by the Commissioner of Income-tax Patiala and the factum thereof cannot be denied. At this stage given the afflux of time and the matter almost three decades old the Revenue has not be able to retrieve the order so passed u/s 127 of the Act however the same cannot be basis to challenge the jurisdiction of the AO at this stage and the contention so advanced by the Ld. AR cannot be accepted. Assumption of jurisdiction by AO by issuing notice u/s 158BD is vitiated in law for the reason that the purported satisfaction u/s 158BD has been recorded after the completion of assessment in the case of person who were put to search u/s 132(1) - In the instant case admittedly the first two stages are not relevant and it is at the third stage after the assessment proceedings are completed u/s 158BC of the Act of the person against whom search was conducted the satisfaction has been recorded and the question that arise for consideration is whether the satisfaction so recorded is immediately after the assessment proceedings are completed under Section 158BC of the person against whom search was conducted and how to interpret the phrase immediately after and apply the same in the facts of the present case. In the instant case the assessment u/s 158BC in hands of the searched persons namely Shri Sunil Gupta was completed on 30/07/1996 and the satisfaction for initiating of proceedings u/s 158BD in hands of the assessee was recorded by the AO on 10/09/1996 and thereafter the notice u/s 158BD was issued to the assessee on 13/09/1996. We therefore find that the satisfaction has been recorded by the AO within a period of one month and 10 days of completion of assessment in case of searched persons and the said period cannot be held as unreasonable involving substantial delay taking into consideration the fact that the AO was holding the charge as ACIT Investigation having jurisdiction over various search cases involving complex issues where the search was carried out which involves enormous work responsibility which were undertaken along with handling the case of the assessee. In the instant case as well we find that as soon the AO has recorded the satisfaction u/s 158BD on 10/09/1996 the notice has been issued to the assessee on 13/09/1996 and thereafter the assessment proceedings have been completed on 28/10/1996 and therefore there is as such no delay on part of the AO in carrying out subsequent action in terms of issue of notice and completion of assessment proceedings which has been done in real quick time soon after recording of the satisfaction. In light of the aforesaid discussions we are unable to accede to the contention so advanced by the ld AR and on this count as well the order so passed by the AO cannot held to be vitiated. Assumption of jurisdiction by the AO - It is for the AO to disclose and open his mind through the satisfaction so recorded by him and he has to speak through the same and the same has to be read as so recorded by the AO and the same cannot be supplemented by subsequent conduct/action of the AO including issue of notice dated 04/10/1996 which is evidently subsequent to recording of satisfaction on 10/09/1996. As held by the Courts the proceedings under Section 158BD have financial implications for the assessee and therefore such satisfaction must reveal the mental and the dispassionate thought process of the AO in arriving at a conclusion and satisfaction so recorded must contain reasons which should be the basis of initiating the proceedings u/s 158BD and should not be based merely on causal reference to the seized documents which apparently has happened in the instant case. We agree with the contentions of the AR in this regard and are of the considered view that the mandate of the statute for acquiring jurisdiction u/s 158BD has not been satisfied in the instant case and in absence of requisite satisfaction so recorded by the AO the issue of notice u/s 158BC r/w 158BD dated 13/09/1996 cannot be sustained in the eyes of law and the notice so issued and subsequent assessment order dated 28/10/1996 is hereby set-aside. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the assumption of jurisdiction by the Assessing Officer (AO) under section 158BD of the Income Tax Act was valid, given the pending proceedings under section 158BC.
• Whether the satisfaction recorded by the AO for initiating proceedings under section 158BD was valid and in accordance with legal precedents.
• Whether the timing of the satisfaction note recorded by the AO complied with the guidelines laid down by the Supreme Court in the case of CIT Vs. Calcutta Knitwears.
• Whether the absence of an order under section 127 for transferring jurisdiction affected the validity of the assessment order.
• Whether the assessment order based on loose papers and diaries was justified under the provisions of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Assumption of Jurisdiction under Section 158BD:

• Relevant Legal Framework and Precedents: The assumption of jurisdiction under section 158BD requires satisfaction that undisclosed income belongs to a person other than the one searched. The Supreme Court in CIT Vs. Calcutta Knitwears outlined that satisfaction must be recorded before transmitting records to the AO of another person.
• Court's Interpretation and Reasoning: The Tribunal found that the AO did not record valid satisfaction as required by law. The satisfaction note lacked specific details about the contents of the diaries and loose papers, failing to demonstrate undisclosed income belonging to the assessee.
• Key Evidence and Findings: The satisfaction note merely mentioned the presence of diaries and loose papers in the handwriting of the assessee without specifying the nature of undisclosed income.
• Application of Law to Facts: The AO's satisfaction was deemed insufficient as it did not meet the legal standards set by precedents, particularly lacking a detailed examination of the seized documents.
• Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the AO had recorded satisfaction, but found it lacking in substance and detail.
• Conclusions: The Tribunal concluded that the assumption of jurisdiction under section 158BD was invalid due to inadequate satisfaction.

Timing of Satisfaction Note:

• Relevant Legal Framework and Precedents: The Supreme Court in Calcutta Knitwears allowed satisfaction notes to be recorded at various stages, including immediately after the assessment of the searched person.
• Court's Interpretation and Reasoning: The Tribunal noted that the satisfaction was recorded 40 days after the assessment of the searched person, which was not considered "immediately" as per the Supreme Court's guidance.
• Key Evidence and Findings: The satisfaction note was recorded on 10/09/1996, following the completion of the searched person's assessment on 30/07/1996.
• Application of Law to Facts: The Tribunal found that the timing did not comply with the requirement of immediacy, as interpreted in relevant case law.
• Treatment of Competing Arguments: The Revenue argued for a pragmatic interpretation of "immediately," but the Tribunal emphasized adherence to judicial standards.
• Conclusions: The Tribunal held that the timing of the satisfaction note was not in compliance with legal precedents.

Absence of Order under Section 127:

• Relevant Legal Framework and Precedents: Section 127 deals with the transfer of jurisdiction, requiring a formal order for such transfers.
• Court's Interpretation and Reasoning: The Tribunal found that the absence of a recorded order under section 127 did not invalidate the jurisdiction, as the AO had indicated a transfer of jurisdiction.
• Key Evidence and Findings: The AO communicated the transfer of jurisdiction to the assessee, but no formal order was presented.
• Application of Law to Facts: The Tribunal accepted the AO's assertion of jurisdiction despite the missing formal order.
• Treatment of Competing Arguments: The Tribunal acknowledged the assessee's challenge but found the AO's actions sufficient to establish jurisdiction.
• Conclusions: The Tribunal did not find the absence of a section 127 order to invalidate the assessment.

Assessment Based on Loose Papers and Diaries:

• Relevant Legal Framework and Precedents: Section 158B(b) defines "undisclosed income," and the courts have emphasized the need for concrete evidence linking documents to undisclosed income.
• Court's Interpretation and Reasoning: The Tribunal found that the AO failed to establish a clear link between the loose papers and undisclosed income belonging to the assessee.
• Key Evidence and Findings: The AO's satisfaction note lacked details on how the documents indicated undisclosed income.
• Application of Law to Facts: The Tribunal determined that the AO's reliance on loose papers was insufficient to justify the assessment.
• Treatment of Competing Arguments: The Tribunal considered the Revenue's position but found it unsupported by detailed evidence.
• Conclusions: The Tribunal held that the assessment based on loose papers and diaries was unjustified.

3. SIGNIFICANT HOLDINGS

• The Tribunal emphasized the necessity of a detailed and specific satisfaction note for assuming jurisdiction under section 158BD, aligning with the principles established by the Supreme Court.
• The Tribunal highlighted that the timing of the satisfaction note must comply with the immediacy requirement as interpreted by higher courts.
• The Tribunal ruled that the absence of a formal section 127 order did not invalidate the jurisdiction, provided there was communication of jurisdiction transfer.
• The Tribunal found that assessments based on loose papers and diaries require concrete evidence linking them to undisclosed income, which was lacking in this case.
• The Tribunal set aside the assessment order due to the invalid assumption of jurisdiction and insufficient evidence of undisclosed income.