TMI Blog2010 (7) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., the AO of the person put to search under section 132 or requisition under section 132A .Therefore, the proceeding initiated by issuing the notice under section 158BD in the case of the assessee was not valid proceeding. As such the block assessment framed in the hands of the assessee was bad in law. See Manish Maheshwari v. Asstt. CIT (2007 - TMI - 40384 - Supreme Court). Decided in favor of the assessee. - ITA NO. 223 (LUCK.) OF 2010 - - - Dated:- 14-7-2010 - SHRI H.L. KARWA, AND SHRI N.K. SAINI, Appearances by: Shri S.K. Garg and Amit Shukla for the Appellant. Shri Vivek Mishra for the Respondent. ORDER N.K. Saini, Accountant Member - This is an appeal filed by the assessee against the order dt. 26th March, 2010 of CIT(A)-I, Kanpur relevant to block period ending on 30th March, 2002. In this appeal the assessee has raised the following grounds : "1. Because the CIT(A) has erred in law and on facts in holding that 'I find that the objections of the appellant are not sustainable as per law. It can be seen that the jurisdiction, the relevant material and the issue of notice for the proceedings of assessment under section 158BD section 158BC are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid sum aggregating Rs. 64,15,851 in the case of the appellant, has missed to note and failed to appreciate that : (a) 'Jain Group never pleaded that payments in question had been made to the appellant; (b) independent of that also, there did not exist any material on record which could go to establish that the entries (showing payment aggregating Rs. 64,15,481) pertained to the appellant; and (c) consequently, no such addition was called for in the block assessment of the appellant, either on facts or in law. 7. Because the 'appellant' at its own, had placed on record plethora of material and information which went on to prove payments in question, as found recorded in the diaries seized in 'Jain Group', cannot be said to be related to the appellant and view to the contrary as has been taken by the CIT(A) is wholly vitiated, by the reason of non-consideration of the same in the right perspective. 8. Because various case laws as have been referred to and relied upon by the CIT(A), so as to hold that the entries appearing in the diaries seized in Jain Group pertained to the appellant itself and to no one else, are not applicable on the facts of the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no application in this case and has no bearing to the proceedings. 3. In this case, the notice was issued and served on 25th Jan., 2005 but no return of undisclosed income has been filed till date. It has been requested vide your letter dt. 1st Feb., 2005 to supply copies of relevant seized material. The same has been supplied along with the notice issued under Section 142(1) of the IT Act 1961 on 19th July, 2005. Even alter supply of the copies of the seized material no return of undisclosed income has been filed. Your objections are summarized as under : Sl.No. Objections raised by assessee Facts of the case 1. There should be search and seizure operation under s. 132(1) or requisition under s. 132A in the case of assessee. The assessee's case is covered under Section 158BD r/w s. 158BC of the IT Act, 1961. Search and seizure operations were conducted in the group cases of M/s Vijay Kumar Vinay Kumar (P) Ltd. on 3rd April, 2002. It has been gathered from the seized records of the group cases of M/s Vijay Kumar Vinay Kumar (P) Ltd. that substantial undisclosed income relating to M/s Krishna Sugar Corporation which has lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. 5. Notice under s. 158BD was issued on 25th Jan., 2005, by that date the AO was not even aware of the particulars of income as disclosed by the assessee year after year, this is evident from the fact alone that on 12th Jan., 2005, the AO called for copies of returns of income of asst. yrs. 1997-98 to 2003-04, a fact that clearly goes to show that there was no occasion for entertaining any satisfaction to the fact that some entries (alleged to be found recorded in the diaries etc. seized from M/s Vijay Kumar Vinay Kumar Group) are referable to undisclosed income in the hands of assessee under Chapter XIV-B. Notice under s. 158BD was issued on 25th Jan., 2005, by that date the AO was not even aware of the particulars of income as disclosed by the assessee year after year, this is evident from the fact alone that on 12th Jan., 2005, the AO called for copies of returns of income of asst. yrs. 1997 98 to 2003-04, a fact that clearly goes to show that there was no occasion for entertaining any satisfaction to the fact that some entries (alleged to be found recorded in the diaries etc. seized from M/s Vijay Kumar Vinay Kumar Group) are referable to undisclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission agent of sugar. (iii) The assessee has entered into various transactions with Vijay Kumar Vinay Kumar Group regularly. (iv) In these copies, the details of amount and dates are clearly mentioned. In case the payment is made to any party out of Kanpur, the name of city is written and the name of city i.e., Kanpur was not written. (v) The assessee is acting as commission agent of a sugar mill at Biswa. As per Annex. A55 (p. 54), an amount of Rs. 20,640 was paid by Vijay Kumar Vinay Kumar Group to the assessee in respect of Biswa account. It indicates that assessee was engaged in undisclosed transactions with the Vijay Kumar Vinay Kumar Group. (vi) Assessee did not file any supporting evidence to its contention that the transactions do not pertain to it. It also failed to file details of any, other party by the same name i.e., M/s Krishna Sugar Corporation. (vii) Local inquiries have revealed that there is only one Krishna Sugar Corporation that is the instant assessee in the jurisdiction of Kanpur. Even the telephone directory does not talk of any other Krishna Sugar Corporation in Kanpur except the assessee. In view of these facts, it is apparent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 64,15,851 . 4. The assessee carried the matter to learned CIT(A) and submitted as under : "Firstly, the block assessment proceeding by issue of notice under Section 158BC Section 158BD dt. 25th Jan., 2005 itself was not valid for a number of reasons; Secondly, the payments appearing in the seized material of Jain Group, in the name of Krishna Sugar Corporation could not have been treated to have been made to the appellant firm, as neither there was any corroboration by way of receipt issued by the appellant, nor there existed any material from which such a receipt could be inferred; Thirdly, there existed no nexus between such payments; and the appellant firm. Fourthly, as stated above, the appellant had been working as a selling agent and in the course of such activities, it has itself been making payments by way of brokerage to the business entities of Jain Group and there was no occasion for the appellant to receive any payment from the said brokers; and Fifthly, last but not least, neither the initiation of proceedings under Section 158BC Section 158BD, nor the learned AO having jurisdiction in the cases of Jain Group was obliged to forward the seized material ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Kindly refer to your letter F. No. CIT-Departmental Representative- II/Tribunal/223/2009-10/27 dt. 15th April, 2010 on the above-cited subject. As desired, I am submitting my report on the factual and legal issues raised by the assessee in his grounds of appeal. Ongoing through the various grounds of appeals raised by the assessee and after going through the order of learned CIT(A)-I, Kanpur against which this appeal has been preferred, it is apparent that the assessee has relied upon the ratio of Apex Court judgment in the case of Manish Maheshwari v. Asstt. CIT [2007] 208 CTR (SC) 97 [2007] 289 ITR 341 (SC). Ratio laid down by the Apex Court in this case is regarding two procedural aspects. One that satisfaction for initiation of proceedings under s. 158BD of IT Act, 1961 should be recorded by the AO in the file of the person subjected to search or in other words satisfaction should be recorded in the case of the assessee whose name was appearing in the warrant and consequently a search was conducted on him. Second aspect of the ratio of apex Court is that the satisfaction that seized incriminating assets/documents found during the course of search belong to the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... searched. Therefore, the AO had rightly initiated the assessment proceedings under s. 158BD after recording the satisfaction in the file of other person. Further, it is pertinent to mention here that during the assessment proceeding also the assessee had raised objections regarding jurisdiction of the AO and legality of initiation of proceeding under s. 158BD which was dealt with and rebutted in great detail point-wise on page Nos. 8, 9 and 10 of the assessment order. Without prejudice to the comments offered as above, the grounds of appeal-wise comments are as under: 1. The learned CIT(A) was justified in law in upholding the validity of notice under Section 158BC Section 158BD dt. 25th Jan., 2005 as the grounds taken by the assessee to challenge jurisdiction and initiation of proceedings under Section 158BD were found not applicable in the instant case as discussed in preceding paras of this report. 2. The learned CIT(A) has gone through the reason recorded by the AO for initiation of proceeding under s. 158BD and after satisfying himself that the undisclosed income found recorded in incrimination papers seized belonged to the person other than the person searched, uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a correct view in right perspective after considering all the material and information made available by AO as well as appellant. 8. The instant case is squarely covered in the facts and circumstances with the case law as relied upon by the learned CIT(A). 9. All the facts/arguments put forth by the appellant right from the assessment proceedings before the AO or learned CIT(A) or as before the Tribunal are factually incorrect and the appellant has always failed to substantiate these very averments with documentary evidence. Principle of natural justice has been meticulously followed at every stage, as appellant has failed to mention any specific instance where the principal of natural justice was not followed. Submitted for kind perusal and necessary action. Yours faithfully Sd/- (Sanjeev Kaushal) Dy. CIT, Central Circle-I, Kanpur" 5.1 The learned counsel for the assessee rebutted the contents of the report of the AO which was furnished by the learned CIT-Departmental Representative during the course of hearing by stating that the assessee had been raising the objection to the validity of the initiation of block assessment proceedings on this ground also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litate despatches of the goods to the intending dealers/parties spread over throughout India mainly in the States of Uttar Pradesh, Bihar. West Bengal, Punjab, Delhi and other States. Although costs of such services were being borne by the dealers themselves provisions thereof from the end of the brokers i.e., the group were necessary to maintain good relations with the dealers and agents engaged in sugar business. 10. That for the aforesaid purpose, payments were being collected from the parties and the 'group' has been reimbursing itself out of such collections. Whereas precise details with regard to such collections and payments could be in the exclusive knowledge of Shri Satya Narain Jain only, the seized records contain only lump sum figures of such payments.'" 5.3 The learned counsel for the assessee pointed out that the said affidavit is listed at serial No. 21 of the paper book. However, due to an inadvertence the same could not be placed in the said paper book, and the same has been placed in the supplementary compilation filed on 19th April, 2010. 5.4 The copy of the aforesaid affidavit was furnished by the learned counsel for the assessee. It was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regular assessment proceedings but were acquired before the commencement of the block assessment and, therefore, the credit for the amounts so available has to be given while computing the business income of the applicant-group for the block period. 10. We have given careful consideration to the rival submissions and have heard the case in detail. Firstly, it needs to be verified whether the investment of Rs. 46,50,000 shown by the group at para 21 of the affidavit dt. 24th July, 2004 of Shri Vijay Kumar Jain was available with the group on the basis of the seized records and claimed to be pertaining to the period prior to the commencement of the block. It also needs to be verified as to for what purposes the money was sent either by cash or by bank drafts to various sites. The version of the applicants is that the money was sent for providing certain services to their clients. At the time of hearing, Shri Srivastava, CIT-Departmental Representative has shown that certain big amounts were paid at close intervals to various sites and those amounts could not have been meant for incurring expenditure in providing services to the clients such as handling, loading or unloading of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout prejudice to its contention to the effect that no satisfaction had been recorded in the Jain Group which was the only forum available to the IT Department for initiation of proceedings under s. 158BD in the case of the assessee, even on merits, such proceedings could not have been initiated. The reliance was placed on the following case law : (i) Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341 (SC). (ii) Tribunal, Lucknow 'A' Bench, Lucknow order dt. 12th Sept., 2008 in the case of Kamal Raheja v. Asstt. CIT IT Appeal No. 1302 (Luck) of 2006. 6. In his rival submissions the learned CIT-Departmental Representative strongly supported the impugned order of learned CIT(A) and further submitted that the persons searched are Jain Group of cases, who have moved the ITSC under section 245C of the IT Act, 1961 and their cases have been finalized as per the order of the ITSC dt. 3rd Aug., 2004. However, the AO in the Jain Group of cases and the assessee is the same, therefore, the AO of the assessee proceeded to record his satisfaction and issued notices under section 158BD read with section 158BC of the Act, so there was no question of transfer of books of account/documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Manish Maheshwari (supra). It was contended that the situation in the assessee's case is entirely different because after 3rd Aug., 2004 the ITSC acquired exclusive jurisdiction in the case of the person subjected to search and it alone was competent to act as IT authority in Jain Group of cases, therefore, it cannot be said that the AO in both the cases i.e., 'person subjected to search' and 'other persons' i.e., the assessee are the same. 8. We have considered the rival submissions and carefully gone through the material available on the record. In the present case it is not in dispute that the person searched belongs to Jain Group of cases and the AO, who was having the jurisdiction over those cases, has not recorded any satisfaction while taking the action under s. 158BC of the Act. Even the AO in his report dt. 4th June, 2010 which was submitted by the learned CIT-Departmental Representative categorically stated that there was no occasion to record the satisfaction in the case of person searched which is M/s Vijay Kumar Vinay Kumar (P) Ltd. and that the said person filed application for settlement before the ITSC on 21st July-2003 and consequently the jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and only after that the AO shall hand over the seized documents or assets seized or requisitioned to the AO having jurisdiction over such other person but primary requirement is the recording of satisfaction, however, in the present case no satisfaction has been recorded by the AO having the jurisdiction over the case of Shri Jaswant Singh in whose case search was conducted. In our opinion, the AO has all the powers given by the statute upto the date he had the jurisdiction over the case. It is also not the intention of legislature to give unlimited power to the officers for unlimited period that is why different provisions have been made in different sections of the IT Act. In the instant case, Department has miserably failed to substantiate that the satisfaction was recorded by the AO during the block assessment proceedings under section 158BC in the case of person searched that any undisclosed income belonged to the assessee being the person other than the person searched i.e., Jaswant Singh. Therefore, the proceeding initiated by issuing the notice under section 158BD in the case of the assessee was not valid proceeding. As such the block assessment framed in the hands of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and purpose of Chapter XIV-B inserted by the legislature. Be that as it may, the specific issue that is required to be addressed by us is in the context of the time period for recording of satisfaction anterior to issuance of notice under section 158BD of the Act. If we address the question as to what is the time-limit for recording of satisfaction, in our view the answer to the said question would also result in an answer to the question as to what is the time-limit for issuance of notice under section 158BD of the Act. The issue being intertwind, we address the same together. As we have observed earlier, for making an assessment under Chapter XIV-B a search under section 132 or a requisition under section 132A of the Act is a sine qua non. Consequent to a search under section 132 or a requisition under section 132A, an AO proceeds to frame the assessment of undisclosed income of such person under section 158BC of the Act. The definition of 'undisclosed income' in clause. (b) of section 158B read with section 158BB enables an inference that the AO on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial, attains finality with the completion of assessment under section 158BC of the person with respect to whom search is made under section 132 or a requisition is made under section 132A of the Act. Thus, the AO at this point of time is expected to reach at the satisfaction contemplated under section 158BD to the effect that the search material contains an undisclosed income belonging to the person other than the person put to search under section 132 or put to requisition under section 132A. 28. Now the next aspect that is required to be considered is as to what is the nature of satisfaction that is contemplated under section 158BD of the Act. A bare reading of the s. 158BD clearly shows that the such provisions can be invoked only in a situation where the AO is satisfied that any undisclosed income belongs to a person other than the person with respect to whom search under section 132 or a requisition under section 132A has been made. The satisfaction so contemplated, as the bare provision itself shows, has to be formed on the basis of the books of account or other documents or any assets which have been subject to requisition under section 132A of the Act or material seize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the powers of the AO under section 158BD cannot be invoked in a light-hearted cursory manner. The recording of satisfaction is not an empty formality but is to be viewed as a legal compulsion based on the material available till such date. It should be a positive satisfaction to the effect that the material before the AO reveals an undisclosed income of the person other than the person put to search under section 132(1) or requisition under section 132A. It is, therefore, of utmost importance that the validity and the authenticity of the seized material must be ensured by the AO before deducing therefrom that it depicts undisclosed income belonging to such other person. The objectivity of such proceedings, to be carried out by the AO, cannot be over emphasized inasmuch as the same is justifiable in the Courts. Needless to say the action of the AO is open to challenge by the assessee in the Court of law and therefore unless the satisfaction is arrived at by the AO, on the basis of material before him, such satisfaction cannot be assumed. Any violation or infirmity in the recording of satisfaction or non-adhering to the prerequisites contained in section 158BD is an illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for the block period under Chapter XIV-B in the case of the person put to search or requisition, as the case may be. Secondly, insofar as the issuance of notice under section 158BD is concerned, the same is to be issued by the AO of the person, other than the person put to search under section 132 or requisition under section 132A. That too, after transmission of the relevant material from the first-mentioned AO, i.e., the AO of the person put to search under section 132 or requisition under section 132A." 9. Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of Kamal Raheja (supra), as in the present case also there was no satisfaction recorded by the AO having the jurisdiction over the person searched i.e., the Jain Group of cases, before finalization of the assessment of undisclosed income for the block period under Chapter XIV-B in the case of person put to search i.e., the Jain Group of cases that any undisclosed income belonged to the assessee, so, respectfully following the aforesaid referred to order dt. 12th Sept. 2008 in ITA No. 1302/Luck/2006 in the case of Kamal Raheja (supra), we hold that the proceedings initi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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