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TMI Blog2025 (3) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 132, certain diaries and loose papers and undisclosed income belongs to the assessee Shri Prem Chand Aggarwal (since deceased) was stated by the AO as found during the search. Notice under section 158BC r.w.s 158 BD was thereafter issued and duly served on the assessee. In response, the assessee submitted that return originally filed may be treated as the return in compliance to the notice issued under section 158BC r.w.s 158BD of the Act. Thereafter, notice under section 143(2) and 142(1) alongwith questionnaire were issued and served on the assessee and thereafter, the AO passed the impugned assessment order under section 158BC/158BD r.w.s 144 dt. 28/10/1996 determining undisclosed income of the assessee for the block period 01/04/1985 to 17/07/1995 at Rs. 1,39,96,007/- 3. The assessee thereafter carried the matter in appeal before the Tribunal on various grounds both on law and on facts. The Coordinate Bench vide its order dt. 27/11/2007 in ITA No. 1227/Chd/1996 adverting to a solitary ground of appeal relating to validity of assumption of jurisdiction by the AO to make the impugned assessment order by issuing of notice under section 158BD dt. 13/09/1996 disposed off the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a demand of tax of Rs. 83,97,604/- which is wholly arbitrary, imaginary and based on conjectures and surmises without there being any basis for the same. 4. That the Ld. Assessing Officer has erred in making an addition of Rs. 16,06,021/- on a/c of the alleged unexplained household expenses incurred during the period 1.10.1987 to 9/94 allegedly recorded in the pocket diaries which is arbitrary and unjustified. The Ld. AO has not takes into consideration the incoming amounts from the books while he has admitted in his order that the withdrawals from the bank accounts are less compared to the household expenses incurred. But no adjustment has been allowed on account of withdrawals from the banks and other sources. Section 69 is not applicable in such circumstances. 5. That the Ld. Assessing Officer has erred in law as well as on facts in making an addition of Rs. 20,000/- on a/c of the alleged investment in NSCs for the assessment year 1987-88 in the name of Smt. Shakuntla Devi wife of the appellant which is arbitrary and unjustified. The addition is wholly unsustainable as made under section 69 of the Acct and that too, in the hands of the assessee, in the absence of any proof o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act which is arbitrary and unjustified. 13. That the Ld. Assessing Officer has grossly erred in making the addition of Rs. 54,795/- allegedly for application money Rs. 12,61,146/- allegedly for registration money and Rs. 26,910/- allegedly spent as Misc. amount in respect of a plot of Smt. Renu Gupta, daughter of the assessee which is arbitrary and unjustified in as much as Rs. 54,795/- is the application No. and not the application money Rs. 12,61,146/- is the registration NO. and not the registration money and Rs. 26,910/- is an amount refunded to her as the plot could not be allotted to her which is not the miscellaneous amount spent as taken by the Ld. AO. The entire addition is based on misappreciation of the fact properly. In any case, no addition is warranted in the hands of the appellant in respect of the plot applied for allotment by the daughter of the assessee Smt. Renu Gupta, thus, the entire amount being misconceived is liable to be deleted. 14. That the Ld. Assessing Officer has further erred in making an addition of Rs. 14,01,000/- for the alleged purchase of plots worth Rs. 4 lacs as per page 98 of item A-22, for the alleged purchase of plots, one worth Rs. 6 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary earned by the assessee and being below the taxable limit, no returns were filed and as such, the same cannot be treated as unexplained income for the purposes of assessment under section 158BC of the Income tax Act, 1961. 20. That the Ld. Assessing Officer has erred in determining the total undisclosed income of the appellant for the block years of assessment at Rs. 1,39,96,007/- which is wholly unsustainable, in as much as Section 69 has been wrongly applied for the purposes of making additions in the hands of the assessee. The onus of proof under section 69 lies on the Ld. A.O which has not been discharged and in the absence thereof the assessment is liable to be cancelled. 21. That the entire assessment being illegal, incompetent, erroneous, opposed to law and facts of the case is unsustainable and liable to be quashed." 7. Further, during the course of hearing, the Ld. AR submitted that the assessee wishes to take following additional ground of appeal and has moved a prayer in this regard: "A1. That the notice issued u/s 158 BD dated 13.09.1996 to the appellant by the Assessing officer during the pendency of the proceeding initiated by way of notices u/s 158BC dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional grounds of appeal. 10. After hearing both the parties and considering the facts of the case, we are of the view that additional grounds so raised are purely legal in nature and goes to the root of the matter, which does not require any investigation of facts and is borne out from the order and material on record. Therefore, the same is hereby admitted for adjudication on merits. 11. During the course of hearing, the Ld. AR has broadly raised the contentions challenging the assumption of jurisdiction by the AO under section 158BD of the Act on account of pendency of the proceedings by issue of initial notice under section 158BC in case of the assessee, on account of lack of proper satisfaction recorded by the Assessing officer before assumption of jurisdiction under section 158BD of the Act, on account of delayed timing of the satisfaction so recorded (matter remitted back by the Hon'ble High Court) and on account of the fact that no order under section 127 is available on record for the transferring the jurisdiction of the case to the AO who has passed the impugned order. Besides that, the arguments were also advanced by the ld AR challenging the various additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of various notices under section 158BC were alive when fresh proceeding under the provisions of Section 158BD were initiated against the assessee by issuance of notice dt. 13/09/1996 which was issued by the same officer who issued the initial notice dt. 07/06/1996 under section 158BC of the Act. It was submitted that it is thus an admitted fact that the notice under section 158BC was initially issued to the assessee, a fact which has not been disputed by the Revenue and in such a situation, it is a settled law that where proceedings for a particular year(s) are pending by virtue of issue of notice, then no second notice initiating proceedings against the assessee for the same year can be issued and therefore, the notice issued under section 158BD dt. 13/09/1996 during the pendency of the proceedings initiated by way of notice under section 158BC dt. 28/02/1996, 26/04/1996 and 07/06/1996 for the same block period is against the law laid down by Hon'ble Supreme Court in case of Mr. S. B Jain, ITO Nagpur Vs. Mahandera 83 ITR 104, Hon'ble Delhi High Court in case of CIT Vs. Sanjay Kumar Garg (2015) TMI 390, Hon'ble Kerala High Court in case of Nilafer Hameed Vs. ITO(1999) 235 ITR 161 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these documents relates to undisclosed income of Shri Prem Chand Aggarwal so notice under section 158BC r.w.s 158BD was issued to the assessee. 18. Referring to the definition of "undisclosed income" as so defined in Section 158B(b) wherein the undisclosed income has been defined to include any money, bullion, jewellery or other valuable article or things or any income based on any entry in the books of account or other documents or transactions where such money, bullion, jewellery valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the Act or any expense deduction or allowance claimed under this Act which is found to be false, it was submitted that in the instant case as apparent from the satisfaction so recorded by the AO, what has been seized are certain diaries, loose papers which cannot be read as the books of account maintained by the assessee. The assessee was not required to maintain any books of account and his only source of income is from salary and certain income from other sources and he was not carrying out any busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. It was further submitted that the assessment proceedings in case of Shri Sunil Gupta being one of the persons searched was completed under section 158BC r.w.s 144(3)(iii) on 30/07/1996 and thereafter the satisfaction was recorded by the AO on 10/09/1996 after a period of 40 days for the purposes of assumption of jurisdiction under section 158BD of the Act. It was submitted that the satisfaction so recorded cannot be held to be recorded immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person and therefore, even on this count, the order so passed by the AO deserves to be set aside 20. In her submissions, the Ld. CIT/DR has stated that though there is no dispute that the AO had initially issued notice to the assessee under section 158BC of the Act. However, the same was issued under the wrong impression that the assessee was one of the persons being searched. However, later on, when the Assessing Officer realized that the assessee was not the one of the persons who was searched and on whom search warrant was executed and considering the fact that the certain diaries and loose papers have been seized during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious diaries and the loose papers which have been found and seized during the course of search and which have been written in the handwriting of the assessee and therefore on perusal of the same, it can be safely inferred that the AO has correctly recorded the satisfaction and assumed the jurisdiction under section 158BD of the Act. In this regard, our reference was drawn to the subsequent notice issued by the AO dt. 04/10/1996 where the AO has clearly highlighted the specific entries in the seized documents which belongs to the assessee and it was accordingly submitted that the AO has correctly recorded the satisfaction and assumed the jurisdiction by issuance of notice under section 158BD of the Act. 24. Regarding timing of the recording of the satisfaction, it was submitted that it is an admitted fact that the Hon'ble Supreme Court in case of Calcutta Knitwears (supra) has clearly stated that the satisfaction note could be prepared at either of the following stages, namely at the time of or alongwith of initiation of proceedings against the searched person under section 158BC of the Act or alongwith assessment proceedings under section 158BC of the Act or immediately after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BC can be passed within one year from the end of the month in which the last of the authorization for search under section 132 was executed. Subsequently, the satisfaction u/s 158BD was recorded by the AO on 10/09/1996 and thereafter, notice under section 158BC rw.s 158BD was issued on 13/09/1996. Therefore, as on the date of recording of satisfaction u/s 158BD of the Act and subsequent issuance of notice under section 158BC r/w 158BD, the earlier proceedings u/s 158BC were not pending and stands barred by limitation. In view of the same, even though no formal order has been passed dropping the proceedings u/s 158BC, it cannot be held that the proceedings so initiated by issuance of notice u/s 158BC continue to remain alive and pending before issuance of notice u/s 158BD as so contended by the ld AR. The various authorities relied upon by the ld AR thus stand distinguishable and doesn't support the case of the assessee and the contention so advanced by the ld AR therefore cannot be accepted. 26. Now, coming to the second contention advanced by the ld AR wherein it has been contended that since there was no order under section 127 either available on record or supplied to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry order has been passed u/s 127 of the Act. Therefore, it is not a case where the AO has acquired the jurisdiction without passing of order u/s 127 of the Act. The order u/s 127 has clearly been passed by the Commissioner of Income-tax, Patiala and the factum thereof cannot be denied. At this stage, given the afflux of time and the matter almost three decades old, the Revenue has not be able to retrieve the order so passed u/s 127 of the Act, however, the same cannot be basis to challenge the jurisdiction of the AO at this stage and the contention so advanced by the Ld. AR cannot be accepted. 27. Now, coming to the third contention advanced by the ld AR wherein it has been contended that the assessment proceedings in case of Shri Sunil Gupta, being one of the persons searched was completed under section 158BC r.w.s 144(3)(iii) on 30/07/1996 and thereafter the satisfaction under section 158BD was recorded by the AO in the instant case on 10/09/1996 after a period of 40 days and the same cannot be said to be recorded immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person in compliance with the directions/guidelines so laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo stages are not relevant and it is at the third stage, after the assessment proceedings are completed under Section 158BC of the Act of the person against whom search was conducted, the satisfaction has been recorded and the question that arise for consideration is whether the satisfaction so recorded is "immediately after" the assessment proceedings are completed under Section 158BC of the Act of the person against whom search was conducted and how to interpret the phrase "immediately after" and apply the same in the facts of the present case. 31. In this regard, we find that on remand by the Hon'ble Supreme Court in case of Calcutta Knitwears (supra) and other similar matters, the matter again came up for consideration before the Hon'ble Punjab and Haryana High Court in batch of cases and the lead case being that of Mridula, Prop. M/s Dhruv Fabrics, Ludhiana (Supra) wherein, following the judgment of the Hon'ble Supreme Court in Calcutta Knitwears Limited's case (supra), it was held as under: "10. Mr. Mittal and Mr. Jain, learned counsel appearing on behalf of the respondents in these appeals rightly agreed that in view of the judgment of the Supreme Court the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income Tax, Faridabad v. M/s Om Parkash and sons. The Division Bench held as under:- "17. .........................As regards delay in issuing notice to the assessee, we find merit in the contention that it was a case which involved a huge fraud of tax evasion where business of searched person was to give accommodation entries resulting in tax evasion to the extent of Rs. 132 Crores in total, spread over the cases of various assesses in all over India. The coordination by the assessing officer of the searched person was time consuming affair. In these circumstances, delay cannot be held to be unreasonable and cannot be held to vitiate the assessment. No doubt once satisfaction is formed during block assessment of searched person, action must be promptly taken as submitted on behalf of the assessee and as held by the Gujarat High Court in Khandubhai Vasanji Desai and others Vs. DCIT and another (1999) 236 ITR 73. Whether or not action was prompt depends upon circumstances of each case." 14. In the present case, the notices were issued to about 70 persons on the documents seized from the Bhatia Group. The Assessing Officer, therefore, had to take action against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility which were undertaken along with handling the case of the assessee. 34. Similarly, in case of CIT vs Om Prakash and Sons (Supra), the facts of the case were that the assessment under Section 158BC in hands of the searched person was completed on 29/08/2002 and the satisfaction for proceedings u/s 158BD was recorded on 29/03/2004. The ld CIT(A) held that the satisfaction was not recorded properly and validly as it was not recorded during the course of assessment of the searched person, on further appeal, the Tribunal held that the notice u/s 158BD should be issued within 15 days of completion of block assessment in case of searched person and at any rate not later than 60 days and that once the AO has reached the requisite satisfaction, he is bound to act swiftly to proceed against the other person and upheld the findings of the ld CIT(A). On further appeal by the Revenue, the Hon'ble Punjab and Haryana High held that both ld CIT(A) and Tribunal were not justified in holding that no requisite satisfaction has been recorded by the AO and the delay in issuing notice cannot be held to be unreasonable in the facts of the said case and the relevant findings read as under: "16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores in total, spread over the cases of various assesses in all over India. The coordination by the assessing officer of the searched person was time consuming affair. In these circumstances, delay cannot be held to be unreasonable and cannot be held to vitiate the assessment. No doubt once satisfaction is formed during block assessment of searched person, action must be promptly taken as submitted on behalf of the assessee and as held by the Gujarat High Court in Khandubhai Vasanji Desai and others Vs. DCIT and another (1999) 236 ITR 73. Whether or not action was prompt depends upon circumstances of each case. 18. The CIT(A) as well as the Tribunal are not justified in holding that no requisite satisfaction was recorded and that block assessment proceedings are vitiated. The questions have to be answered in favour of the revenue accordingly. On reaching this conclusion, even though we would have quashed the impugned orders and restored the order of the assessment officer, by way of abundant caution, we consider it appropriate to give further opportunity to the assessee and for this purpose, we remand the matter to the CIT(A) for fresh decision in accordance with law. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold expenses should be considered in the case of the assessee cannot be a basis for holding that certain undisclosed income belonging to the assessee has been found. It was further submitted that the various other documents so referred by the AO relates to other family members and how the same has been considered as representing the undisclosed income of the assessee has not been spelt out in the satisfaction so recorded by the AO. It was accordingly submitted that the satisfaction so recorded for exercise of jurisdiction under section 158BD does not satisfy the test so laid down by the Courts from time to time and therefore on this ground, the order so passed by the AO deserves to be set aside. 37. In her rebuttal, the ld CIT/DR submitted that at the time of the recording of satisfaction, the AO has to record his prima facie findings that any undisclosed income belongs to the assessee, being a person other than the searched person and in the instant case, the AO has clearly stated in the satisfaction note that there are various diaries and the loose papers which have been found and seized during the course of search and which have been written in the handwriting of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta Knitwears (Supra) wherein the Hon'ble Supreme Court has held that before initiating the proceedings under section 158BD, the AO of the searched person should be satisfied that there is an undisclosed income which has been traced out when a person was searched under section 132 and existence of cogent and demonstrative material is germane to the AO's satisfaction and the satisfaction note is sine qua non and must be prepared by the AO before he transmits the records to the other AO having jurisdiction over such other person and the relevant findings read as under: "38. Having said that, let us revert to discussion of Section 158BD of the Act. The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under Sections 132 or 132A of the Act. Under Section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc. to the assessing officer having jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person." 41. Further, reference can be drawn to the another decision of Hon'ble Supreme Court in case of Tapan Kumar Dutta Vs. CIT (Supra) wherein the Hon'ble Supreme Court has held that the very object of Section 158BD is to give jurisdiction to the AO to proceed against any person other than the person against whom the search warrant is issued. It was held in the said case that a perusal of Section 158BD of the Act makes it clear that the Assessing Officer needs to satisfy himself that the undisclosed income belongs to any person other than the person with respect to whom the search was made under Section 132 or whose books of accounts or other documents or assets were requisitioned under Section 132A and a mere disclosure made by the assessee before the authority cannot be the basis for reaching a satisfaction that any undisclosed income belongs to him unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other than the person against whom a search warrant is issued. Although Section 158BD does not speak of 'recording of reasons' as postulated in Section 148, but since proceedings under Section 158BD may have monetary implications, such satisfaction must reveal mental and dispassionate thought process of the Assessing Officer in arriving at a conclusion and must contain reasons which should be the basis of initiating the proceedings under Section 158BD." 42. Further, reference can be drawn to the decision of Hon'ble Calcutta High Court in case of Subhas Chandra Bhaniranka vs ACIT (Supra) wherein the Hon'ble High Court has held that though Section 158BD contains the word "satisfy" and does not contain the words "record his reasons" as postulated in Section 148, however, before proceeding, the AO has to record his reasons for being "satisfied" and satisfaction so recorded has to be independent and subjective and not a casual reference of the seized documents even though the same have been owned up by the person, other than the person searched. It was further held by the Hon'ble High Court that since proceedings under Section 158BD may have financial implications, such satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded has to be independent and subjective and not a casual reference of the seized documents. Since proceedings under s. 158BD may have financial implications, such satisfaction must reveal the mental and the dispassionate thought process of the AO in arriving at a conclusion. Naturally conclusion, that is, satisfaction however, brief it may be, must contain reasons which should be the basis of initiating the proceedings under s. 158BD. Therefore, though s. 158BD contains the word "satisfy" and does not contain the words "record his reasons" as postulated in s. 148, however, before proceeding, the AO has to record his reasons for being "satisfied", which in the instant case is absent. In this case as there is nothing on record to show that there was subjective and independent satisfaction, the answer to the second issue has to be in the negative." 43. Applying the aforesaid legal preposition so laid down by the Hon'ble Courts in the instant case, it is relevant to examine the satisfaction so recorded by the AO. The contents of the satisfaction note which is available as part the Revenue's paper book at page 2 read as under: "Reasons for issue of notice u/s 158BC read with se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diaries so seized are in knowledge of his father, the assessee and should be considered in his case is not sufficient more so where the assessee was admittedly staying in the joint family and household expenses cannot be held to belong solely to the assessee but to the joint family. As we have noted supra, the Courts have held that a mere disclosure made by the assessee before the authorities and even where the assessee has owned up the documents, the same cannot a basis for reaching a satisfaction that any undisclosed income belongs to him unless the seized books of accounts or other documents or assets are perused, examined and verified by the AO and basis such verification/examination, he records his satisfaction that there is an undisclosed income belonging to the assessee which has been found and the same needs to be brought to tax. The existence of cogent and demonstrative material is germane to the AO's arriving at the satisfaction that undisclosed income belonging to the assessee has been found. 45. We find that the mandate of the statue is clear that the AO should be satisfied that any undisclosed income belongs to any other person (other than the person in respect to who ..... X X X X Extracts X X X X X X X X Extracts X X X X
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