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2020 (3) TMI 427 - AT - Income TaxBlock assessment u/s 158BD - no valid satisfaction has been recorded by the AO of the searched person before issuance of notice under section 158BD - HELD THAT:- As in the present case, satisfaction was duly recorded by the AO of the searched person in the Assessment Order passed by the AO in the case of searched person under section 158BC of the IT Act. Addition to the extent of 1/4th share of the investment made in the property at Hosur Road, Bengaluru - HELD THAT:- We find that the dispute is this in the present case that it is admitted position of fact that to the extent of ₹ 20 lakhs, the amount is explained by the assessee by way of liability payable to Mr. J. K. Malik but he AO has rejected this claim of the assessee on this basis that on the date of search, no such liability was in existence because the same was cleared on account of some property transaction. This is not the case of the AO that the property handed over to Mr. Malik to clear this liability was an unaccounted property acquired during the block period. Even if that property is unaccounted property but acquired by assessee prior to block period then also the said property cannot be added in the block period as undisclosed income. If an unaccounted property is acquired prior to block period, then no addition can be made on account of that property in block period. This is also not the finding of the AO that any money in cash was paid by the assessee to clear this liability of Mr. Malik. Hence, we hold that this amount of ₹ 20 lakhs cannot be considered for the purpose of making addition in the hands of the assessee because this is not the case of the AO that no liability was incurred by the assessee payable to Mr. Malik. This is also not the case of the AO that the liability in question payable to Malik was squared up by the assessee by way of cash payment or by way of transferring the property being undisclosed property acquired during block period. Hence, to this extent the source of investment has to be accepted and we order accordingly. Even as per the AO, the explanation of the assessee is documented and appear prima facie reasonable. The AO has rejected this explanation merely because the assessee has not produced the concerned person for examination. If the examination of that person was so much important for AO, the AO should have used his powers to summon him and ensure his examination but this is not done by the AO. Hence in our considered opinion, this explanation of the assessee cannot be rejected for this reason alone that the assessee could not produce the person, when it is found by the AO that the explanation of the assessee is documented and is prima facie reasonable. Hence, we hold that on this issue also, the explanation of the assessee should be accepted and the addition made by the AO is not justified. Addition made by the AO is not justified without giving finding that liability was cleared by making cash payment or that liability was cleared by way of property transaction settlement being unexplained property acquired during block period. For this transaction also, this is not the finding of the AO that the liability of Mr. Raju is cleared by way of cash payment or that the liability was cleared by way of a property transaction of undisclosed investment in property acquired during block period. Hence, we hold that this addition is also not justified. Penalty u/s 158BFA(2) - HELD THAT:- Penalty is almost automatic unless it is covered by the proviso. In the present case, return was not filed by these two assesses after receipt of notice u/s 158BD. Hence, the proviso is not applicable and hence, we uphold the penalty but direct the AO to recompute the same on the quantum addition of ₹ 4 Lacs only upheld by us while deciding the relevant quantum appeals.
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