2012 (11) TMI 62 - AT - Income Tax

Notice u/s 158BD - block assessment - addition to income - Held that - It is clear that the Assessing Officer who has seized of the mater against the raided person has to reach a satisfaction that undisclosed income belongs to such other person & recording of satisfaction is mandatory and imperative before assumption of jurisdiction under section 158BD. The additional ground as raised by the assessee against the validity of notice issued u/s. 158BD goes to very root of the initiation and legality of proceedings. After considering all the aspects of the matter, it would subserve the interest of natural justice, if this additional ground is remitted back to the file of CIT(A) to decide this issue on merit - As the additional ground of assessee s appeal is remitted back to the file of CIT(A) the remaining grounds do not call for any adjudication at this stage because the matter is already restored back - in favour of assessee for statistical purposes.

Issues Involved:
1. Legality of the notice issued under Section 158BD of the Income-tax Act.
2. Confirmation of additions by the CIT(A) regarding cash received by M/s. Raj Granites.
3. Confirmation of additions by the CIT(A) regarding amounts received by M/s. Ambica Timber Mart, M/s. Ambica Timber Depot, and M/s. Decent Sales Corporation.
4. Entitlement of the appellant firm to supervision charges.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 158BD:
The assessee challenged the legality of the notice issued under Section 158BD of the Income-tax Act, arguing that it was vague and lacked the requisite satisfaction to be recorded by the Assessing Officer (AO) of the searched party. The assessee relied on several judicial pronouncements, including the Supreme Court's decision in the case of Manish Maheshwari v. ACIT, which emphasized the necessity of recording satisfaction.

The Revenue countered that the satisfaction was indeed recorded and provided a copy of the reasons recorded by the AO. The Revenue also cited various High Court decisions that supported their stance, including those from Kerala and Punjab & Haryana High Courts, which held that the recording of satisfaction by the AO was sufficient.

The Tribunal decided to remit the additional ground back to the CIT(A) for fresh adjudication, noting that the issue went to the root of the initiation and legality of the proceedings.

2. Confirmation of Additions by the CIT(A) Regarding Cash Received by M/s. Raj Granites:
The assessee contended that the addition of Rs. 2,51,519/- was erroneous as the amount was already taxed in the hands of M/s. Raj Granites, the final recipient. The appellant firm argued that it acted merely as a conduit for passing the cash received from the society members to M/s. Raj Granites and was not the owner of the land or the superstructure.

The Tribunal did not provide a final ruling on this issue, as it was contingent on the outcome of the additional ground concerning the validity of the notice under Section 158BD.

3. Confirmation of Additions by the CIT(A) Regarding Amounts Received by M/s. Ambica Timber Mart, M/s. Ambica Timber Depot, and M/s. Decent Sales Corporation:
The assessee argued that the addition of Rs. 94,979/- was incorrect because the amounts were already taxed in the hands of the final recipients, M/s. Ambica Timber Mart, M/s. Ambica Timber Depot, and M/s. Decent Sales Corporation. Similar to the previous issue, the appellant firm claimed it acted as a conduit and was not the owner of the land or superstructure.

As with the previous issue, the Tribunal did not provide a final ruling, pending the outcome of the additional ground regarding the notice under Section 158BD.

4. Entitlement of the Appellant Firm to Supervision Charges:
The assessee argued that even if the additions were to be confirmed, they should be limited to 10% of the amounts as supervision charges, in line with the agreement between the society and the appellant firm as the developer.

The Tribunal did not adjudicate this issue separately, as the primary concern was the validity of the notice under Section 158BD, which could render the entire assessment null and void.

Conclusion:
The Tribunal remitted both the assessee's and Revenue's appeals back to the CIT(A) for fresh adjudication on the additional ground concerning the validity of the notice issued under Section 158BD. The remaining issues were not adjudicated at this stage, as the outcome of the additional ground could potentially nullify the entire assessment. Both appeals were allowed for statistical purposes.

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