2014 (3) TMI 432 - HC - Income Tax

Requirement of recording satisfaction u/s 158BD of the Act - Search u/s 158BC of the Act Block Assessment conducted - Whether the assessing officer is bound to record satisfaction within the meaning of section 158BD of the Act during the process of assessment of the person searched under section 158BC of the Act Held that - The decision in CIT v. UmeshChandra Gupta 2014 (2) TMI 521 - DELHI HIGH COURT followed - the jurisdiction to issue the notice under section 158BD and the consequent time period prescribed under section 158BE in respect of third parties gets defined within the two years time period given to the assessing officer of the searched person under section 158BE (1) of the Act - the terminal date as per the decision of Division Bench of this Court would be the end of the two-year period prescribed in section 158BE (1) of the Act. The assessing officer is bound to record the satisfaction within the meaning of section 158BD of the Income-tax Act, 1961 within the two-year time period stipulated in section 158BE(1) of the said Act - since the satisfaction was recorded beyond that period, the assessment proceedings are without jurisdiction the order passed by the Income Tax Appellate Tribunal the assessment proceedings are set aside Decided in favour of Assessee.

Issues:
1. Interpretation of section 158BD of the Income-tax Act, 1961 regarding the assessing officer's obligation to record satisfaction during the assessment process of a person searched under section 158BC.

Analysis:
The judgment addresses the appeal under section 260A of the Income-tax Act, 1961, concerning the obligation of the assessing officer to record satisfaction under section 158BD during the assessment of a person searched under section 158BC. The key question of law revolves around whether the assessing officer is bound to record satisfaction within the stipulated time frame. The case involved a search conducted in 2000, with the block assessment concluded in 2002. The assessing officer recorded satisfaction in 2003, beyond the stipulated time for completing the block assessment of the searched person. The appellant contended that action under section 158BD should have been initiated during the block assessment proceedings of the searched person, as per a decision of the Punjab & Haryana High Court. The Delhi High Court also considered a similar issue in a separate case, emphasizing the importance of recording satisfaction within the two-year period stipulated in section 158BE(1).

The judgment extensively cites the decisions of the Punjab & Haryana High Court and a Division Bench of the Delhi High Court to support its analysis. The Punjab & Haryana High Court's decision highlighted the necessity of initiating action under section 158BD during the block assessment proceedings of the searched person to avoid anomalies and ensure a reasonable interpretation of the statute. The Division Bench of the Delhi High Court echoed this sentiment, emphasizing that the jurisdiction to issue notices under section 158BD and the time period prescribed under section 158BE for third parties should be defined within the two-year period given to the assessing officer of the searched person. The court rejected the Revenue's arguments, emphasizing the need to place reasonable limitations on the assessing officer's discretion and uphold the intention of the Parliament.

Ultimately, the Delhi High Court ruled in favor of the assessee, holding that the assessing officer must record satisfaction within the two-year period specified in section 158BE(1). Since the satisfaction was recorded beyond that period in the present case, the assessment proceedings were deemed without jurisdiction. Consequently, the impugned order passed by the Income Tax Appellate Tribunal was quashed, and the assessment proceedings were set aside. The court clarified that it did not examine the merits of the matter due to the view taken on the question of law. The appeal was allowed with no order as to costs.

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