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TMI Blog1999 (8) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of these operations various books of account and documents were found and seized. The Assessing Officer issued notice under section 158BC to the assessee on 23-4-1997, which was served on 28-4-1997. The Assessing Officer required the assessee to file the return for the block period 1986-87 to 1996-97 within 16 days from the service of notice. The notice under section 142(1) along with query letter dated 21-7-1997 was also issued and served upon the assessee on 24-7-1997. The assessee ultimately filed the return for block period on 8-12-1997 and thereafter the assessment was completed on 26-2-1998. 5. The ld. counsel submitted that in the case of the assessee only survey under section 133A was made in the premises of the assessee and few papers were found during survey. He submitted that no papers were seized as the same could not be seized under section 133A. He further submitted that thereafter summons under section 131 may have been issued and that no search warrant were issued in the case of the assessee and in any case this could only be confirmed by the ld. DR. He further submitted that no panchnama was prepared in the case of the assessee. He further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the person searched and the assessee or the Assessing Officer is common in the case of both persons i.e. person searched or the person to whom undisclosed income belongs. 7. The ld. DR intervened at this stage and sought permission to refer to Page 2 of the paper book where a copy of letter dated 21-7-1997 written by the Assessing Officer to the assessee is placed. He referred to point No. 3 of the said letter wherein it is mentioned that "on perusal of the various books of account/documents found during the course of search, it is observed that material was being weighed at Kishan Dharam Kanta, weighment slips of Kishan Dharam Kanta were obtained and were verified with the sale bills. There is a difference as per these weighment slips and trucks dispatched as per sale bills. The details of such trucks are enclosed as per Annexure VI. Please get the sale of material verified from the regular books of accounts". The ld. DR submitted that though satisfaction of the Assessing Officer, is required under section 158BD and the Assessing Officer was satisfied in the present case, but the satisfaction has not been recorded in writing. He submitted that where Assessing Officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and that the Assessing Officer was within his powers to issue notice under section 158BC to the assessee-firm on the basis of material found during search of partners. He further submitted that the provisions of section 158BD were procedural and procedural irregularity cannot make the assessment proceedings a nullity. He submitted that in case of irregularity the assessment order could be restored to the file of the Assessing Officer. 10. The ld. counsel continued with his arguments and submitted that there was no illegality about survey and that the assessee is not in challenge against survey made under section 133A. He stressed that in the present case search was made at the premises of the partners and the Assessing Officer did not mention as to on which material he relied before reaching the satisfaction that the said material disclosed an undisclosed income of the assessee-firm. He submitted that such material has not been mentioned in the order sheet/file of the department. He again stressed that the satisfaction of the Assessing Officer has to be recorded, as it may be required to be proved before the Courts. In this connection he submitted that Assessing Officer is quas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the liability of 60% tax for income for 10 assessment years falling within the block period. He again emphasised that return of income under section 158BC is for undisclosed income, which has to be on the basis of material found during search of another person. With reference to plea of the ld. DR that the assessment could be restored to the file of the Assessing Officer to regularise the irregularity in following the procedure, the ld. counsel submitted that the Courts cannot allow the department to regularise the irregularity, if it is taken as a case of irregularity. In this connection he submitted that it would mean as if search warrant, which was not issued earlier, can be issued subsequently and the proceedings regularised. He, therefore, pleaded that the assessment made in the present case is bad in law and ought to be held as a nullity. 11. The ld. DR referred to the notice issued under section 158BC and submitted that if the words "read with section 158BD" are added to that notice, it would be a valid notice. He submitted that the omission of the said words in the notice would not make the notice issued under section 158BC as invalid. In this connection he referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identified on file by the Assessing Officer, (iii) whether in the circumstances mentioned in section 158BD, Assessing Officer can straightaway issue notice to 'B' under section 158BC on the basis of mental satisfaction alone which is neither recorded nor linked to the material seized in a raid against 'A'. It would be observed from above that search under section 132 in case of 'A' is the first essential step and location of undisclosed income from out of the material seized during search is the next logical step. Further on the basis of the said material some undisclosed income belonging to another person, i.e., other than the person in whose case search was conducted, is then required to be found and the Assessing Officer has to reach satisfaction that such undisclosed income belongs to other person i.e. 'B'. Thereafter the provisions of section 158BD require that after reaching such satisfaction the Assessing Officer will hand, over the material in question to the other Assessing Officer having jurisdiction over 'B' and the other Assessing Officer shall proceed against 'B' and provisions of Chapter XIV-B shall apply accordingly. The provisions of section 158BD are, however, si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the absence of any positive satisfaction by the Assessing Officer of undisclosed income of assessee and in the absence of any reference to section 158BD in the notice issued, the impugned notice was invalid. We may also refer here to the decision of the Hon'ble Gujarat High Court in the case of Khandubhai Vasanji Desai v. Dy. CIT [1999] 103 Taxman 181, wherein the constitutionality of the provisions of section 158BD was examined with reference to articles 14, 19(1)(g) and 21 of the Constitution. In the said case the question relating to discrimination was examined in the context of satisfaction which was to be reached by the Assessing Officer in the case of "other person" while in the case of raided person satisfaction was to be reached by higher authorities like D.G. or Director, Chief Commissioner or the Commissioner etc. It was held that the provisions of section 158BD were not violative of article 14. In this connection the Hon'ble High Court observed that "other person" is not known when authorisation for search or requisition is issued and that starting point of limitation in relation to any person in whose case warrant of authorisation is issued and that in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re under section 132(1)" The Hon'ble High Court further observed that "it is only when the Assessing Officer is satisfied that any undisclosed income belongs to any other person that the occasion to proceed against such other person for the block assessment of the undisclosed income belonging to him can arise. Necessarily, therefore, a different starting point of commencement of limitation for making the assessment of the block period in case of such other person was required to be fixed and the obvious starting point was the serving of notice to such other person after the requisite satisfaction was reached by the Assessing Officer that any undisclosed income belonged to such other person". In view of the foregoing it is clear that satisfaction of the Assessing Officer has to be evidenced by recording or by proving on the file, with reference to the material and facts, that undisclosed income in consequence of any search belongs to the assessee. The "other person" mentioned in section 158BD comes into the picture only by virtue of such satisfaction of the Assessing Officer on the basis of material showing undisclosed income of such other person and it is only after such satisfacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessing Officer under section 158BD on the basis of materials disclosing undisclosed income of the assessee and has to be suitably recorded since such action of Assessing Officer is justiciable by Courts. We may refer here to the recent decision of the Hon'ble Kerala High Court in the case of T.S. Sujatha v. Union of India [1999] 238 ITR 599, wherein notice issued by the Assessing Officer under section 158BD to be assessee has been held valid. Thus the procedure of issuing notice under section 158BD before the issue of notice under section 158BC stands approved by the Hon'ble High Court, though impliedly. Since the Assessing Officer has failed to follow the provisions of section 158BD in the manner discussed above, we hold that the notice issued by him straightaway to the assessee-firm under section 158BC is void ab initio. We feel that the said provisions have been incorporated in the Act for being followed in the spirit in which they have been enacted and any violation thereof by the Assessing Officer leads to illegality which is fatal to the assessment proceedings and this illegality cannot be remedied by restoring the matter to the file of the Assessing Officer. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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