2013 (9) TMI 86 - AT - Income Tax

Undisclosed income - Block assessment - Search and seizure - other party - Section 158BD - Held that - evidences/materials which are relevant are the copies of two agreements found during the course of search. The said agreements were entered between the searched party and the assessee herein. Thus, the impugned materials belonged to both the parties. The said agreements revealed money transactions, which have been accepted by the assessee herein. Hence, it may not be correct to say that the AO of the searched party could not draw conclusions about the undisclosed income of the assessee herein, as observed by Ld CIT(A). On the date of search itself, the ADIT examined the assessee herein u/s 131 of the Act by administering Oath and the assessee herein has confirmed the veracity of the agreements and also the money transactions noted therein - assessee, being the person other than the searched person, has himself has admitted and accepted the materials found during the course of search, that too, on the date of search itself. In this kind of situation, the AO of searched person was aware of this fact at the time of receipt of the materials and documents from the authorised officer itself, i.e., without examining the seized materials, the AO was aware of the fact that the impugned agreements also belonged to the assessee herein and further he is also aware of the fact that the assessee herein has also accepted the veracity of the agreements and the money transactions recorded therein. In this kind of clear situation, it may not be correct to insist that the AO should necessarily record the satisfaction contemplated u/s 158BD of the Act, as the same would mere be an empty formality, particularly in view of the fact that the assessee herein himself has accepted the incriminating materials - The satisfaction of the Assessing officer of the searched person would be mandatory, if the undisclosed income of such other person is found out by him for the first time and further the said materials were not confronted with such other person - the Assessing officer, before proceeding to assess the undisclosed income, should assume the jurisdiction over the said person in a proper and legally permitted way. There is no dispute in the instant case that the assessing officer of the assessee herein has assumed jurisdiction in a proper manner by issuing notice u/s 158B r.w.s. 158BC of the Act. Accordingly, in our view, the assessment framed by the AO u/s 158BD r.w.s. 158BC of the Act cannot be find fault with, in view of the peculiar facts and circumstances of the instant case - notice issued u/s 158BD was legally tenable - Decided in favour of Revenue.

Issues Involved:
1. Legality of the assessment under section 158BD.
2. Notice issuance under section 158BD and its time frame.
3. Determination of undisclosed income and its accounting in the books.
4. Examination of the sources of funds used for property purchases.

Issue-Wise Detailed Analysis:

1. Legality of the Assessment under Section 158BD:
The Revenue challenged the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision that the assessment under section 158BD was illegal. The CIT(A) had held that the satisfaction required under section 158BD was not recorded by the Assessing Officer (AO) of the searched party, which is a mandatory requirement as per the Supreme Court's decision in Manish Maheshwari. The CIT(A) also noted that the documents found during the search belonged to both the assessee and the searched party, and no conclusion about the assessee's undisclosed income could be drawn by the AO of the searched party. The Tribunal, however, disagreed, stating that the satisfaction of the ADIT/JDIT/JCIT, who are also considered AOs as per section 2(7), was sufficient. The Tribunal emphasized that the assessee had admitted to the transactions noted in the agreements during the search itself, making the formal recording of satisfaction an empty formality under these circumstances.

2. Notice Issuance under Section 158BD and Its Time Frame:
The CIT(A) observed that the AO did not provide an explanation for the delay of 27 months in issuing the notice under section 158BD. The Tribunal noted that the statute does not prescribe a specific time frame for issuing such notice. Citing the Kerala High Court's decision in CIT vs. Bimbis Creams & Bakes, the Tribunal highlighted that a reasonable time frame for issuing the notice could be considered, but in the absence of the date of completion of assessments under section 158BC in the hands of the searched persons, the CIT(A)'s observation was without basis. Therefore, the Tribunal set aside the CIT(A)'s observations on this issue.

3. Determination of Undisclosed Income and Its Accounting in the Books:
The CIT(A) held that the assessee had duly accounted for the payments made for the purchase of shops in his books of accounts. However, the Tribunal found that the AO's rejection of the assessee's claim of withdrawals from business books was not justified merely because the purpose of withdrawal was not stated in the narration. The Tribunal emphasized the need to examine the cash book to verify the claim of withdrawals and the introduction of fresh funds into the business books. The Tribunal also noted that the additional income offered by the assessee in the regular return of income for the assessment year 2002-03 needed to be verified to determine if it was meant to cover the payments shown in the agreements. The Tribunal set aside the CIT(A)'s observations and restored the issue to the AO for proper examination.

4. Examination of the Sources of Funds Used for Property Purchases:
The AO determined the total investment in the purchase of shops at Rs. 14,32,500/- and the undisclosed income at Rs. 11,58,800/-. The CIT(A) reduced the quantum of investment to Rs. 12.25 lakhs, stating that the proposed purchase consideration adopted by the AO could not be considered as undisclosed income. The Tribunal agreed with the CIT(A) that the actual amount spent should be considered, not the proposed investment value. However, the Tribunal noted that the AO did not examine the overlap of Rs. 2,50,000/- between the amounts stated in the agreements and the actual payments made. The Tribunal set aside the CIT(A)'s findings and restored the issue to the AO for fresh examination.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the CIT(A)'s order on the issues of legality of the assessment under section 158BD, the time frame for notice issuance, the determination of undisclosed income, and the examination of the sources of funds used for property purchases. The Tribunal directed the AO to re-examine these issues and make a fresh determination based on the proper examination of the relevant materials and records.

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