2018 (7) TMI 1088 - AT - Income Tax

Validity of the proceeding initiated u/s 158BD - main grievance of the assessee company is that sec. 158BD proceeding could not have been initiated against the assessee company because the shares seized from the premises of UIC Group did not belong to it, when the search was conducted on 07.05.2002 - Held that - From the facts emerging as noted by us the assessee company though had purchased the shares of certain UIC Group companies in October, November, 1999 and February, 2000, it had been sold to the four persons named above before the date of search on 07.05.2002 and the assessee company has received the amount of ₹ 1,21,65,000/- through account payee cheque and has deposited it in bank account and have duly recorded in the books of account and incorporated the above details in the Income Tax Return. The jurisdictional fact for assumption of jurisdiction is absent and, therefore, the AO could not have invoked jurisdiction u/s. 158BD of the Act against the assessee company. Therefore, the AO erred in invoking sec. 158BD proceedings against the assessee company and, therefore, the order of AO passed after invoking section 158BD is Null in the eyes of law and so has to be quashed. The jurisdictional fact which is the condition precedent for invoking jurisdiction u/s. 158BD is absent, the very invocation and framing of assessment u/s. 158BD is ab initio void and consequently is null in the eyes of law and is quashed. Since the facts of the other four appeals are identical and orders have been passed without satisfying the jurisdictional fact for invoking jurisdiction u/s. 158BD AO lacks jurisdiction to initiate and pass orders in consequence to sec. 158BD of the Act, therefore, the impugned orders passed by the AO are null in the eyes of law and are, therefore, quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 158BD of the Income Tax Act, 1961.
2. Addition of ?1,21,65,000 under Section 68 of the Income Tax Act, 1961.
3. Opportunity to cross-examine witnesses.
4. Validity of the assessment order passed under Section 158BD/144 of the Act.

Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 158BD of the Income Tax Act, 1961:
The assessee contested the validity of the proceedings initiated under Section 158BD, arguing that no incriminating materials against the appellant company were found during the search at the premises of the UIC Group. The Tribunal noted that for Section 158BD to be invoked, the Assessing Officer (AO) must be satisfied that any undisclosed income belongs to a person other than the one searched. This satisfaction must be based on material found during the search and should be recorded. The Tribunal found that the shares seized during the search on 07.05.2002 did not belong to the assessee on the date of the search, as they had been sold before the search date. Consequently, the Tribunal held that the jurisdictional fact for invoking Section 158BD was absent, rendering the AO's action null and void.

2. Addition of ?1,21,65,000 Under Section 68 of the Income Tax Act, 1961:
The AO had added ?1,21,65,000 to the assessee's income under Section 68, considering the receipt as unexplained. The AO's conclusion was based on the fact that the funds were transferred from four bank accounts after depositing cash one or two days prior. The Tribunal noted that the assessee had received the sale consideration through account payee cheques, which were duly recorded in the books of accounts and reflected in the income tax returns. Given that the jurisdictional fact for invoking Section 158BD was absent, the Tribunal quashed the addition as well.

3. Opportunity to Cross-examine Witnesses:
The assessee argued that the AO did not provide an opportunity to cross-examine the depositions of four witnesses, which were relied upon for making the addition. The Tribunal did not specifically address this issue in detail, focusing instead on the jurisdictional validity of the proceedings under Section 158BD.

4. Validity of the Assessment Order Passed Under Section 158BD/144 of the Act:
The assessee also raised an additional ground, arguing that the assessment order passed under Section 158BD/144 was void ab initio as no satisfaction under Section 158BC was recorded by the AO of the searched person about any undisclosed income of the 'other person.' The Tribunal agreed, stating that the jurisdictional fact for invoking Section 158BD was absent, making the assessment order null and void.

Conclusion:
The Tribunal quashed the proceedings initiated under Section 158BD and the subsequent assessment orders, declaring them null and void due to the absence of jurisdictional facts. Consequently, the appeals of the assessee companies were allowed on the legal issue of jurisdiction, and the merits were not adjudicated as they became academic.