2012 (9) TMI 657 - HC - Income Tax

Block assessment order u/s 158BD r.w.s. 143 (3) - undisclosed net profit - search - addition was made in the hands of the assessee firm on protective basis - CIT(A) deleted the addition - Held that - The order of the AO is need to be set aside as before initiating proceedings under Section 158BD, he was required to record a satisfaction note to be served along with the notice to the assessee - CIT(A) did not agree with the AO that the reasons were duly recorded but the same was not readily traceable due to transfer of records. The CIT (A) also considered the explanation of the AO, that the sentence written in the third para of the assessment order i.e. considering the nature of seized diaries, therefore, a notice u/s 158BC r.w.s. 158BD was issued to the assessee indicate that reasons were recorded, was not very convincing because it was not clear as to what nature of the seized diaries were examined by the AO and how he satisfied himself that these diaries belong to the appellant firm. As in the absence of satisfaction recorded by the AO, he did not have jurisdiction to proceed against the assessee under Section 158BC read with Section 158BD additions made on protective basis need to deleted - in favour of assessee.

Summary

Issues:
Validity of block assessment under Section 158BD of the Income Tax Act, 1961.

Analysis:
1. Background: The case involved a block assessment under Section 158BD arising from a search conducted at the business premises of a firm and the residential premises of its partners. The Assessing Officer (AO) estimated undisclosed net profit and initiated proceedings against the assessee firm.

2. Legal Provisions: The Supreme Court judgment in Manish Maheshwari v. ACIT clarified the conditions precedent for invoking a block assessment under Section 158BD. It emphasized the requirement of recording satisfaction by the AO that undisclosed income belongs to a person other than the one searched, and the handing over of seized documents to the relevant AO.

3. Judicial Precedent: In Vishwanath Prasad v. ACIT, the Court stressed the importance of the initial AO's satisfaction before proceeding under Section 158BD. It highlighted the need for the AO to be satisfied that undisclosed income belongs to a person other than the one searched under Section 132.

4. Appellate Arguments: The appellant's counsel raised substantial questions of law regarding the recording of satisfaction by the AO, the application of Section 292B of the Act, and the differentiation in facts between the present case and the Manish Maheshwari case.

5. Tribunal's Decision: The Tribunal examined the AO's order and noted the reliance on seized diaries for issuing notices under Section 158BC and 158BD. However, the CIT (A) found that the satisfaction note was not traceable and disagreed with the AO's contention that it was recorded but not readily available due to record transfer.

6. Court's Ruling: The High Court upheld the Tribunal's decision, emphasizing that in the absence of satisfaction recorded by the AO, the jurisdiction to proceed under Section 158BD was lacking. The Court concluded that the questions of law raised were covered by the Supreme Court's decision in Manish Maheshwari v. ACIT, and thus dismissed the Income Tax Appeal.

This detailed analysis of the judgment highlights the legal intricacies surrounding block assessments under Section 158BD of the Income Tax Act, emphasizing the necessity of satisfying statutory requirements before initiating proceedings against an assessee.