TMI Blog2007 (3) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 29,23,000 Besides those, some papers were also found during the course of search. During the course of assessee's statement under s. 132(4), he agreed to surrender ₹ 24,00,000 as his income from money-lending and goldsmithy business, investment, unexplained investment in house amounting to ₹ 3,73,000 and unaccounted marriage expenses amounting to ₹ 1,50,000. In all ₹ 29,23,000 were surrendered as his income from money-lending and goldsmithy which is represented through aforesaid assets found during the search. As a result of search, order under s. 132(5) was passed by Asstt. CIT, Ward-I, Jodhpur, with previous approval of Dy. CIT, Jodhpur, for the purpose of retaining the assets seized during the course of search by estimated assessment of the tax liability which may arise as a result of material discovered during the aforesaid search. In the case of assessee, he assessed the tax liability for three asst. yrs. 1986-87, 1987-88 and 1989-90 to the tune of ₹ 18,11,000. 3. After the order under s. 132(5) on 10th March, 1987, notices under s. 148 were issued for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent has to be established and the reasons recorded before issuance of notice gives a peep into the mind of the officer, who assumed jurisdiction to initiate proceeding under s. 147/148 of the IT Act, 1961. Therefore, recording of reasons before issuing notice is an essential pre-requisite and failure to do so results in vitiating the proceedings. 7. Since from record of 1986-87 and 1987-88, this discrepancy is not visible from the record produced before us, we may not follow our conclusion in relation to year 1988-89. However, one factor which is common in the recorded reasons in all three years is that it refers to order under s. 132(5) framed by the Asstt. CIT, to which we have referred to above. The amount of escaped income filled in the form provided for submitting to the CIT for seeking his approval before issuing notice tallies with assessment made by the Asstt. CIT in order under s. 132(5) at verbatim and does not refer to any material or the contents of material from which he has drawn his own conclusion or has satisfied himself about the conclusion drawn by the authority making an order under s. 132(5) for the purpose of retaining the seized assets against the possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table reasons, appears to have not been acted upon and another format with the same reasons in the same form as earlier was issued on 13th Nov., 1991 because the AO has received a communication dt. 29th Oct., 1991 inquiring about the fact whether the proposed action is required to be taken under s. 147(a) as existed prior to amendment of s. 147 w.e.f. 1st April, 1989 or the amended provision of s. 147. However, there is no change or additional reasons which have come to be recorded prior to seeking approval vide letter dt. 13th Nov., 1991. 10. Learned counsel for the appellant has urged that the order passed under s. 132(5) was relevant material for the purpose of forming necessary belief about the escapement of income from assessment to tax or underassessment by the AO and since there is relevant material having nexus with the formation of the belief, further enquiry in the adequacy and sufficiency of the material for holding such belief, as if the belief has to be formed objectively is not permissible. 11. On the other hand, learned counsel for the respondent has urged that the order passed under s. 132(5) may be a relevant material, but the reasons recorded by the AO mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in the heap of documents to find a supportive material which the officer himself may or may not have seen. It need to be kept in mind that for issuance of notice under s. 147 for each assessment year the material on the basis of which the AO could found his belief must relate to concerned period and must have relevant nexus to formation of belief about escapement of tax relevant for assessment year for which reassessment proceedings are initiated. Therefore, the order passed under s. 132(5) for retaining seized assets may or may not have any relevance to income of any particular assessment year in the absence of which no valid foundation for initiating proceedings under s. 148 can be laid. Permitting otherwise would be taking away the only limited safeguard provided to the assessee, against enormous powers conferred on the AO for opening a completed assessment time and again. A vague reference of 'material found during search' on the basis of which subjective satisfaction has been arrived at, in the present case so much so during the long course of hearing not a single document could be referred having relevance to escapement of income from tax for period in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as a result of search and to retain assets worth that value for the purpose of discharge of such liability as and when it crystallises into a demand on completion of regular assessment proceedings. It is not directed to find income from undisclosed sources for each assessment year. 17. We have already noticed the bifurcation of income surrendered by the assessee. The assessment order under s. 132(5) refers to gold and silver ornaments found during search and seizure and investment made in immovable properties and about unspecified documents. 18. The discussion in respect of loose papers found during the search shows that officer passing order under s. 132(5) had not really made any inquiry thereto. He records that assessee has said that unless specific query with reference to specific seized document is raised, it is impossible to submit an explanation . He further says that he would certainly like to get explanation about each paper and not a few ones . He also records that assessee is willing to furnish fullest and correct explanation with reference to any seized documents as may be required and he goes on to say that he will be getting fullest opportunity at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which we have referred to above i.e. to say on the basis of loose papers and estimated income of business on the basis of accounts of making charges examined by the concerned officer had entries for the period 1st Aug., 1988 to 13th Nov., 1988 only. Thus, estimated income from undisclosed sources for asst. yr. 1986-87 under order under s. 132(5) was not founded on any specific material referable to asst. yr. 1986-87 could not provide any nexus and basis for formation of necessary belief about escapement of income for asst. yr. 1986-87 by the AO before issuing notice under s. 148. 21. There is yet another aspect of the matter, the assessee during the course of his examination under s. 132(4) had surrendered income of ₹ 29,23,000, as aforesaid, and has clearly stated that same is represented through assets found during search. Question of initiating proceedings for reassessment in respect of surrendered income on the basis of value of assets found during the course of search would not arise as the same can be taken outrightly as income from undisclosed sources, in the assessment of assessment year during previous year during which search was conducted and such disclosure h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial which has been placed before us which has been gone into consideration as per AO himself. 25. Before parting with this discussion, we may refer to contention of Revenue that since he has referred to the seized documents and the order under s. 132(5), the Court must look to all the material which was in possession of the AO and details given in the order under s. 132(5). We do not find any substance in this contention. 26. The subjective satisfaction is state of mind which could be judged through reason recorded by the AO before initiating proceedings under s. 148. The statute requires recording of such reasons prior to issuance of notice under s. 148 with an object to keep a check on unruly horse of subjective satisfaction and if there is challenge to assumption of jurisdiction, the foundation of action can be tested on the basis of state of mind revealed in expression of reasons. 27. The limited ground on which the subjective satisfaction of the AO could be judged is to be found in those reasons through which the AO discloses his mind. To travel beyond the territory of reasons recorded and material specified therein would be to substitute the satisfaction of Court for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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