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TMI Blog2004 (7) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... the purview of the scheme. As already, satisfaction in the very nature precedes the issue of notice and it would not be correct to equate satisfaction of the ITO with the actual issuance of notice. To put it in other words, issuance of notice by itself is not the display or record of satisfaction which is the basic requirement u/s 158BD of the Act. As already held by the Apex Court in the case of G.M. Mittal Stainless Steel (P.) Ltd.[ 2002 (12) TMI 13 - SUPREME COURT] satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the Assessing Officer. Although in that case, the Apex Curt was concerned with the assumption of jurisdiction u/s 263, the Apex Court observed that the Commissioner has not recorded any reasons whatsoever for coming to the conclusion that the Assessing Officer was in error in deciding that the power subsidy was capital receipt. In fact, in that case, the Apex Court noticed that the decision of the MP High Court which was in favour of the assessee got subsequently reversed by the Supreme Court. The satisfaction of the authority was based on no material either legal or factual, which would have given him the jurisdiction to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t other person. To put it straight, existence of material is a sine qua non for taking action u/s 158BD of the Act. Thus, requirement is fulfilled in a given case, then omission to record satisfaction may not in the facts and circumstances of the case vitiate the proceedings. Thus, in the present cases, the examination of the records does not show the existence of any material for the satisfaction and consequently issuance of notice u/s 158BD is not justified. In the result, all the appeals are allowed. - HON'BLE VIMAL GANDHI, PRESIDENT, G.E. VEERABHADRAPPA, ACCOUNTANT MEMBER AND P. MOHANARAJAN, JUDICIAL MEMBER For the Appellant : S. Venkatesan, Adv. For the Respondent : E.R. Indra Kumar, B. Dutta and Y. Rajendra, Advs. ORDER G.E. Veerabhadrappa, A.M. 1. These are appeals by different assessees. The facts of the cases and disputes therein are almost identical. 2. The Commissioners of Income-tax, Bangalore, wrote to the Hon'ble President, Income-tax Appellate Tribunal, that there were divergent views expressed by the Bangalore Benches of the Tribunal while disposing of the appeals arising out of block assessment completed under Chapter XIV-B the Income-tax Act, 1961 (herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the assessee pointed out that in the absence of such source search material, the addition make requires to be deleted. Reliance was placed on to the principle laid down by the Hon'ble Supreme Court in the case of ITO v. Seth Bros. [1969] 74 ITR 836 and Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505. The learned counsel for the assessee pleaded that the search action may unearth materials, which are relevant for the assessment of person searched or for the assessment of other person. In the case of the latter, there should exist collateral material suggesting undisclosed income in the hands of that other person. It was pointed out to us that if this principle is not properly followed, it might result in an anomalous situation, which is not warranted by the intention of the Legislature. He explained it by way of example that in the case of a bank, when it is subjected to search, may be having accounts of 3000 customers and as a result thereof bank itself will be subject to assessment under section 158BC and 3000 customers of that bank will be subject to assessment under section 158BD merely because they did not file their returns within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar v. Asstt. CIT [2001] 76 ITD 107 (Chd.) (iv) L. Saroja v. Asstt. CIT [2001] 76 ITD 344 (Mad.) and (v) Suman Dhanji Zalte v. Asstt. CIT [2000] 72 ITD 132 (Pune) 4.4 The learned counsel for assessees pointed out that in the Ajit Jain v. Union of India [2000] 242 ITR 302 the Delhi High Court held that Chapter XIV-B, which was inserted by the Finance Act, 1995 suggests that these are special provisions for assessment of search cases and, therefore, search under section 132 is pre-requisite for invoking the provisions of that chapter. It held that it is axiomatic that the search under section 132 as contemplated in the chapter has to be a valid search. An illegal search is no search and as a necessary corollary, in such a case Chapter XIV-B would have no application. The intimation simpliciter by the CBI that cash was found in the possession of the individual, without some thing more did not constitute information within the meaning of section 132 of the Act and the search based on such information and the block assessments were held to be not valid. The learned counsel for assessee pointed out that this decision of the Delhi High Court has been affirmed by the Supreme Court in Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is a conscious departure in Chapter XIV-B of the Act when compared to normal assessment proceedings under section 148 of the Act. The provisions of section 147 require the live-link of the income escaping assessment with the reasons to be recorded in writing, where as under section 158BD the Department is left with no other choice in the matter. 5.2 Placing reliance on to the decision of the Allahabad High Court in the case of Digvijay Chemicals Ltd. v. Asstt. CIT [2001] 248 ITR 381, learned Standing Counsel for the Department pointed out that materials could be taken into account while framing assessment under section 158BD and that the provisions of section 158BD do not require giving of an opportunity before an authority records satisfaction that material could be handed over. Therefore, the very fact of issue of notice evidences that the Assessing Officer was satisfied with the undisclosed income mentioned in the seized document pertaining to other person. The provisions of section 158BD are not to the benefit of the assessee but are enacted in the interest of the Revenue wherein normal procedures of assessment are given go-bye and the procedure of block assessment reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Privy Council in the case of CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 contended that in interpreting a provisions of a taxing Act which deals merely with the machinery of assessment and does not impose charge on the subject, consideration should be preferred which makes the machinery workable. As to the difference between reasons to believe and satisfaction , our attention was specifically drawn to the discussions at pages 447 and 448 of the said decision. 5.7 Our attention was drawn to the decision of the Gujarat High Court in the case of Premjibhai Sons v. Joint CIT [2001] 251 ITR 625 wherein it is observed that initiation of proceedings is not separate and independent proceeding for which a separate jurisdictional fact has to be established. The proceedings under section 158BD against a person other than the person searched are part of the proceedings which commence with search under section 132 and culminate in proceedings under Chapter XIV-B of the Act. Accordingly, the absence of an averment as to the satisfaction arrived at by the officer of the person raided, would not vitiate the notice under section 158BD of the Act. The learned Standing Counsel for the Department f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, it is open to the Tribunal to annul the assessment. 6.1 Our attention was drawn to the principle laid down by the Supreme Court in the case of Union of India v. Rai Singh Deb Singh Bist [1973] 88 ITR 200 and the observations of the Supreme Court at page 203 of the judgment. The learned counsel for assessees has relied on the following decisions: 6.2 Our attention was further drawn to the principles laid down in the following decisions: (i) By the Supreme Court in C.B. Gautam v. Union of India [1993] 199 ITR 530, (ii) By the Supreme Court in Institute of Chartered Accountants of India v. L.K. Ratna [1987] 164 ITR 1, and (iii) By the ITAT, Allahabad Bench 'B' (Third Member) Dr. A.K. Bansal v. Asstt. CIT [2000] 73 ITD 49. 7. We have carefully gone through the facts of the case, records and the case laws to which our attention was drawn at the time of hearing. 7.1 A new chapter viz., XIV-B was brought into statute by the Finance Act, 1995 providing for a special procedure for assessment of cases in which search was initiated under section 132 or whose books of account, other documents or any assets were requisitioned under section 132A of the Act on or after 1st July, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this chapter shall apply accordingly. The essential ingredients of the section are: (i) the Assessing Officer of a person searched should be satisfied, (ii) that undisclosed income belongs to person other than the person in respect of whom search was conducted, (iii) the books of account or other documents or assets seized shall be handed over to the Assessing Officer having jurisdiction over that other person, (iv) the Assessing Officer shall proceed against such other person under the provisions of this chapter. On the basis of the search material in the possession of the Assessing Officer of a person who is searched must come to a prima facie view that undisclosed income belongs to such other person. Now, the question is whether such satisfaction should be expressed or recorded or should be left t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction and he had not given any reasons to show that the order of the Assessing Officer was erroneous in the light of the jurisdictional High Court in the case of Dusad Industries. The MP High Court upheld the order of the ITAT. In appeal before the Supreme Court, it was contended on behalf of the revenue that the decision in Dusad Industries' case was subsequently set aside by the Apex Court in the case of Sahney Steel Press Works Ltd. CIT [1997] 228 ITR 253 and the Apex Court clearly came to the conclusion that the power subsidy was not in the nature of capital receipt but a revenue receipt. It was contended that the decision of MP High Court in Dusad Industries' case had been held to be erroneous by the Apex Court. It was contended by the Revenue that the CIT was correct in revising the decision of the Assessing Officer in coining to the conclusion that the Assessing Officer had erroneously treated the power subsidy as a capital receipt. The Revenue also submitted that the declaration of law by the Apex Court in Sahney Steel Press Works Ltd.'s case can be deemed to have been the law which was at all times operative. The Revenue contended that at least so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original authority. If the ITO is to proceed on a purely subjective satisfaction, there is little scope for interference regarding the quantum of the penalty or even in regard to the question whether penalty should be imposed at all, in penalty proceedings. The scheme of the Act does not give such immunity to the order of the ITO. It has been held that the powers of the appellate authorities are very wide and the appellate authority could substitute the order of the ITO by one of its own. It is open to the appellate authority to consider the material available in the case and come to an independent conclusion whether any penalty should be imposed and if so the quantum of penalty. It was held that the provisions of section 271(1)(a) conferring the power to impose penalty on the ITO is subject to strict control by the Appellate Assistant Commissioner and the Appellate Tribunal. The fact that the ITO did not advert to the relevant material or ignored the relevant evidence or misread the evidence does not make the appellate authorities helpless in deciding the question themselves by adverting to the relevant evidence or material or by reviewing the evidence in a proper manner. A penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of mind. When it was found that the order rejecting application of extension of lime did not disclose reasons or there were nor was there any indication of application of mind as to the facts pleaded by the assessee, the order of the Assessing Officer was held liable to be quashed. 8.7 Similarly, the Patna High Court was concerned with the provisions of section 271(1)(c) of the Act in the case of Dewan Kunj Lal Kunhaiya Lal wherein the said provisions required the Assessing Officer to have been satisfied in the course of assessment proceedings regarding matters mentioned in the clauses of that sub-section. It was held that it was not essential that the notice to the person proceeded against should have also been issued during the course of assessment proceedings. The satisfaction, in the very nature of things, precedes issue of notice and it would not be correct to equate satisfaction of the ITO with the actual issue of notice. 9. In the light of the above discussions, we are of the view that satisfaction of the Assessing Officer that undisclosed income belongs to other person is justiciable and when called in question, the authorities cannot escape to demonstrate the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief to come to a conclusion that undisclosed income belongs to such other person. Under section 263, powers of the Commissioner are similar to the powers of the Assessing Officer under section 158BD of the Act. There also the law never requires any satisfaction to be recorded in writing. The only requirement under section 263 was that upon examination of the records of any proceedings under the Act if the Commissioner considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, he might revise the assessment. 10. On the facts and circumstances and in the light of the foregoing discussions, we are of the view that issuance of notice under section 158BD of the Act is not justified. It is not justified merely on the ground that there was no material at all indicating any undisclosed income. The learned Standing Counsel who appeared on behalf of the Revenue has fairly agreed that there is no material found as a result of search which could pinpoint the existence of undisclosed income of a person who is not subject to search. The basic ingredient of section 158BD is the existence of some material. If there is no mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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