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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 1420/2010
Date of decision: 27th August, 2014
COMMISSIONER OF INCOME TAX
..... Appellant
Through Ms. Suruchi Aggarwal, Sr. Standing
Counsel.
versus
RAGHUBIR SINGH GARG
..... Respondent
Through Mr. Rishabh Kapoor, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
SANJIV KHANNA, J. (ORAL):
The following substantial question of law is framed:-
"Whether Income Tax Appellate Tribunal was
right in holding that the block assessment
proceedings under Section 158BD of the Income
Tax Act, 1961 were invalid as
reasons/satisfaction note was recorded, after
passing of the block assessment order under
Section 158BC, by the Assessing Officer of the
"person searched"
ITA No. 1420/2010 Page 1 of 7
2. Block assessment order for the period 1st April, 1990 to 20th
August, 2000 was passed on 30th August, 2005. Income Tax Appellate
Tribunal (Tribunal, for short) has held that the block assessment order is
invalid and void.
3. One Mr. Manoj Aggarwal and a company M/s Friends Portfolio
Private Limited were subjected to search and seizure operation under
Section 132 of the Income Tax Act, 1961(Act, for short) on 3rd August,
2000. Subsequently, block assessment under Section 158BC of the Act
was completed in the case of M/s Friends Portfolio Private Limited on 29 th
August, 2002. Similarly, block assessment proceedings were completed
in the case of Manoj Aggarwal vide order dated 30th August, 2005.
4. On 16th January, 2003, the Deputy Commissioner of Income Tax,
Central Circle-3, New Delhi, who had passed the block assessment order
in the case of M/s Friends Portfolio Private Limited, on the basis of seized
material recorded the following satisfaction note:-
"Your assessee Shri Raghubir Singh Garg, Room
No. 6, 1st Floor, 2897, Kishan Mkt., Hauz Quazi,
Delhi-6 has received a total amount of
Rs.21,17,191/- (cheques Nos.) (1) Rs.4,00,000/- vide
cheques No. 958609, (2) Rs.3,00,000/- vide cheques
No. 940946, (3) Rs.2,56,922/- vide cheques
No.945544, (4) Rs.3,80,000/- vide cheques No.
964193, (5) Rs.5,00,000/- vide cheque No. 940657
& (6) Rs.2,80,268/- vide cheque No.965567 drawn
on a/c No. 1224, Vijaya Bank, Vigyan Vihar, New
Delhi from M/s Friends Portfolio Pvt. Ltd. This
amount is a cheque received in lieu of unaccounted
ITA No. 1420/2010 Page 2 of 7
money paid. This is the prima-facie transaction of
accommodation entry as evident from the seized
material and inquiries done from the bank accounts
of M/s Friends Portfolio Pvt. Ltd. These may be
other transactions of accommodation entries received
by your assessee from M/s Friends Portfolio Pvt.
Ltd. These may also be examined at your end and
the full quantum of undisclosed income may be
determined. The ownership of the shares claimed to
have been sold through M/s Friends Portfolio Pvt.
Ltd. may also be examined since it is clear that the
shares would not even be belonging to your assessee.
The papers seized during the course of search and
inquires conducted during assessment proceedings
thus clearly establish that undisclosed income
belonging to Shri Raghubir Singh Garg has been
found during the course of search of Sh. Manoj
Aggarwal. This information is beiong(sic) passed on
to you for initiating proceedings u/s 158BC read
with Section 158BD since the jurisdiction over
Raghubir Singh Garg is with you. This amount has
been added in the case of M/s Friends Portfolio Pvt.
Ltd. on protective basis. The outcome of the
investigation may be intimated to the undersigned
for taking necessary action in the case of M/s Friends
Portfolio Pvt. Ltd."
5. Thereafter, block assessment proceedings under Section 158BD
read with Section 158BC were initiated against the respondent-assessee by
issue of notice dated 5th August, 2003.
6. In the impugned order passed by the tribunal dated 30th September,
2009, it has been held that the block assessment proceedings were not
validly initiated as the satisfaction note was recorded by Deputy
Commissioner of Income Tax, Central Circle-3, New Delhi on 16th
ITA No. 1420/2010 Page 3 of 7
January, 2003, which is after the passing of the block assessment order
under Section 158BC in the case of "searched person", i.e. M/s Friends
Portfolio Private Limited, on 29th August, 2002. The Deputy
Commissioner of Income Tax, Central Circle-3, New Delhi had thus
become functus officio and could not have recorded the satisfaction note
once he had passed the block assessment order in the case of M/s Friends
Portfolio Private Limited on 29th August, 2002.
7. The aforesaid reasoning and ratio of the tribunal is contrary to the
law subsequently expounded by the Supreme Court in Commissioner of
Income Tax-III versus Calcutta Knitwears, Ludhiana (2014) 6 SCC 444
wherein the relevant provisions of Chapter XIV-B of the Act were
considered and it has been held that Section 158BD was a machinery
provision inserted in the statute for the purpose of carrying out assessment
of persons other than the searched persons. A satisfaction note regarding
undisclosed income belonging to another person must be recorded, but the
satisfaction note need not be recorded before the block assessment order
was passed in the case of the person searched. There was nothing in the
language of the provisions, which suggested that the satisfaction note
cannot be recorded upon completion of the proceedings under Section
158BC of the Act against the "searched person". Section 158BE(2)(b)
only prescribed limitation period for completion of proceedings initiated
ITA No. 1420/2010 Page 4 of 7
under Section 158BD. The exact observations of the Supreme Court in
this regard read as under:-
"38. We would certainly say that before initiating
proceedings under Section 158BD of the Act,
assessing officer who has initiated proceedings for
completion of the assessments under Section 158BC
of the Act should be satisfied that there is an
undisclosed income which has been traced out when
a person was searched under Section 132 or the
books of accounts were requisitioned under Section
132A of the Act. This is in contrast to the provisions
of Section 148 of the Act where recording of reasons
in writing are a sine qua non. Under Section 158BD
the existence of cogent and demonstrative material is
germane to the assessing officers' satisfaction in
concluding that the seized documents belong to a
person other than the searched person is necessary
for initiation of action under Section 158BD. The
bare reading of the provision indicates that the
satisfaction note could be prepared by the assessing
officer either at the time of initiating proceedings for
completion of assessment of a searched person under
Section 158BC of the Act or during the stage of the
assessment proceedings. It does not mean that after
completion of the assessment, the assessing officer
cannot prepare the satisfaction note to the effect that
there exists income tax belonging to any person other
than the searched person in respect of whom a search
was made under Section 132 or requisition of books
of accounts were made under Section 132A of the
Act. The language of the provision is clear and
unambiguous. The legislature has not imposed any
embargo on the assessing officer in respect of the
stage of proceedings during which the satisfaction is
to be reached and recorded in respect of the person
other than the searched person.
39. Further, Section 158BE(2)(b) only provides for
the period of limitation for completion of block
assessment under section 158BD in case of the
ITA No. 1420/2010 Page 5 of 7
person other than the searched person as two years
from the end of the month in which the notice under
this Chapter was served on such other person in
respect of search carried on after 01.01.1997. The
said section does neither provides for nor imposes
any restrictions or conditions on the period of
limitation for preparation the satisfaction note under
Section 158BD and consequent issuance of notice to
the other person.
40. XXXXX
41. In the result, we hold that for the purpose of
Section 158BD of the Act a satisfaction note is sine
qua non and must be prepared by the assessing
officer before he transmits the records to the other
assessing officer who has jurisdiction over such
other person. The satisfaction note could be prepared
at either of the following 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."
8. In light of the aforesaid ratio decidendi, the question of law has to
be answered in favour of the appellant-Revenue and against the
respondent-assessee. The Tribunal was not correct in holding that the
block assessment proceedings were barred and invalid because the
satisfaction note was not recorded by the Assessing Officer before he had
passed the block assessment order under Section 158BC in the case of the
person searched.
ITA No. 1420/2010 Page 6 of 7
9. Learned counsel for the respondent-assessee states that the matter
may be remanded for examination of the addition on merits. We accept
the said prayer as the Tribunal has not decided the appeal, which was
preferred by the respondent-assessee on merits, i.e., whether on the facts
and evidence on record the addition on merits is justified. To cut short
delay, parties are directed to appear before the Tribunal on 13th October,
2014, when a date of hearing will be fixed. The appeal is disposed of.
DASTI.
SANJIV KHANNA, J.
V. KAMESWAR RAO, J.
AUGUST 27, 2014
VKR
ITA No. 1420/2010 Page 7 of 7
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