TMI Blog2012 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... the action taken in the case of searched person - completion of assessment under section 158BC in the case of searched person is not condition precedent for recording of the satisfaction under section 158BD of the Act – Decided against assessee Whether typing errors should be ignored - satisfaction note has not been recorded before issue of notice u/s 158BD of the Act - satisfaction note is dated 16/09/2004 whereas on top of notice u/s 158BD, the typed date is 16/11/2003 - notice under section 158BD was served on the assessee on 20/09/2004 – Held that:- date of issue of notice on 16/11/2003, appears to be typing mistake - date mentioned on the notice under section 158BC 16/11/2003 is a typographic mistake - contention of the assessee is rejected Whether combined satisfaction note recorded in respect of three different searched persons is bad in law – Held that:- assessing officer is same for all the searched persons, because of this reason, a combined satisfaction note has been prepared. When the assessing officer is the same for all the searched persons, making a satisfaction note based on material found from the premises of different persons, which was conveyed by the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for block assessment years 1997-98 to 2003-04 arise out of the order of the ld. CIT (Appeals), Meerut. These appeals were heard together and are being disposed, for the sake of convenience, by this common order. 2. The grounds of appeal raised by the assessee are as follows:- "1. That on the facts and circumstances of the case and in law, the ld. CIT (Appeals) has erred in confirming the action of the AO in initiating the proceedings u/s. 158-BD of the Income Tax Act, 1961 and completing the assessment at an income of Rs.4,85,04,776/-; 2. That on the facts and circumstances of the case and in law, the ld. CIT (Appeals) has erred in confirming the action of the AO in passing order u/s. 158-BD of the Act in total disregard to the specific directions of the Hon'ble ITAT; 3. That on the facts and circumstances of the case and in law, the ld. CIT (Appeals) has erred in confirming the action of the AO, to the undisclosed income on account of alleged undisclosed expenditure for the block period at Rs.3,82,66,276/-. Observations made, inferences drawn and finding recorded in this regard, are uncalled for, and without any basis besides being illegal; 4. That on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer issued notice dated 16/09/2004 under section 158BD of the Act which was served on the assessee on 20/09/2004. During the course of search and seizure operation, the following books of accounts and papers related to the assessee from the following premises were found and seized: "(1) From 314, Arvindpuri, Meerut Cantt., residence of partner Shri Baljeet Singh Bakshi, annexures A-1 to A-25 were seized, most of which were loose papers related to M/s. Jeet Construction Co. including one register seized as Annexure A-19; (2) 209, West End Road, residence of Shri Baldev Singh, Partner, following annexure were seized: (i) Annexure A-1 to A-4 - Registers related to M/s. Jeet Construction Co.; (ii) Annexure LP-1 - Loose papers related to M/s. Jeet Construction Co. (3) 187-A, Abu Lane, Meerut, business premise of M/s. Jeet Construction Co. following annexures were seized" 5. The assessing officer in respect of entries recorded in the seized document observed as below: "(i) Annexure A-1: It is the cash book from 1/04/2001 to 31/03/2002. The cash books is not fully written. The opening balance as on 1/04/2001 opening cash balance is not mentioned. Some ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily. The assessing officer noted that the assessee had not made any special attempt by filing FIR etc. to procure books of accounts. Therefore, the contention of the assessee for nonproduction of books of accounts and vouchers was rejected by the assessing officer. The assessing officer came to the conclusion that the expenses debited by the assessee in the trading and profit and loss account for various years of the block period could not be verified. He, therefore, rejected the book results. The assessing officer in the absence of any clinching evidence relating to expenses or cash-flow, he applied rate of 8 per cent in order to ascertain the income for the block period and estimated the income at Rs.51,44,968/-. The assessing officer made the addition of Rs.51,44,968/- without giving credit to the income already returned/assessed. 7. The assessee preferred appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) vide his order dated 13/08/2007 in Appeal No. 360/2006-07 deleted the addition of Rs.51,44,968/- on the ground that provisions of section 44AD were not applicable to the facts of the assessee's case. Mere non-verification of expenses because of non-availability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, that the ld. CIT (A) held that the source of the expenditure being not explainable, it had to be considered as an undisclosed income, being an expenditure incurred out of the undisclosed sources and that section 158-B(b) did not help the assessee, however, no finding was given by the ld. CIT (A) as to whether the income in question was earned before or after the incurrence of the expenditure under consideration. If it was earned before incurring the expenditure, there is no question of undisclosed income. On the other hand, if it was earned thereafter, then set off has to be given to the assessee. Accordingly, we set aside this issue to the file of the assessing officer to be reexamined and re-decided in the light of this observation." 10. From the decision of the ITAT it is clear that the issue has been set aside to the file of the assessing officer with the directions to compute the income under section 158BD (1) and decide the issue of un-explained expenditure of Rs.5,88,500/- with the specific directions. Here we may like to mention that before the ITAT in the first round of proceedings, the assessee had not taken any ground relating to assumption of jurisdiction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the assessee since the initiation of proceedings had been pleading in vain for making available to it the basis with the reasons as invoked by the AO to initiate proceedings under section 158BD of the Act. The assessing officer in the first round of proceedings successfully resisted the request made by the assessee. The reasons for initiating of 15-BD proceedings were made available for the first time by the assessing officer in response to the pressing inquisitions of the ld. CIT (Appeals) only in the second round of the appellate proceedings, being a jurisdictional issue on the facts. The ld. CIT (Appeals) confronted the assessee with the reasons as forwarded by the AO and after considering the remand report on that behalf from the assessing officer, decided the issue upholding the assessment made u/s 158BD of the Act. 12.3 The ld. AR of the assessee has further submitted that notice under section 158BD is dated 16/11/2003. This notice also contains date written in hand at its bottom as 20/9/04. It was also pointed out that the first written date was 20/11/2003 which has been altered to 20/09/2004 through over-writing. The document itself had not been made availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw provides a notice under section 158-BD of the Act as sequel to the recording of satisfaction. The satisfaction is crucial to the initiation of proceedings. A satisfaction can be either way viz. 'to do' or 'not to do'. Satisfaction 'to do' is bed-rock of any proceedings under section 158BD of the Act. Mere notice under section 158BD cannot subsist without a valid satisfaction backing it. There can be no valid initiation of proceedings without the foundation of pre-existing satisfaction. A notice de-hors the satisfaction is non-est and void in law. The subsequent attempt to fortify section 158BD notice by recording satisfaction note would be a make-up and make-belief which would not nullify the original defect, deficiency and delinquency of having a notice under section 158-BD without a satisfaction note. He placed reliance on the decision of Hon'ble Supreme Court in the case of Manish Maheshwari vs. ACIT 289 ITR 341 (SC). Ld. A.R. of the assessee further submitted that the ld. CIT (A) had also erred in holding that since proceedings had been initiated in pursuant of a warrant of authorization under section 132 of the Act in the name of Shri Baljeet Singh Bakshi, the proceedings i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redicted with any reasonable precision. Such being a case the whole note must be considered as vitiated, irrelevant and legally useless. In this way the entire satisfaction note as recorded is incapable of use as legal evidence against the assessee. 15. He has further submitted that the ld. CIT (Appeals) has omitted to consider and deal with the provisions of section 158BD, which requires that satisfaction should be recorded in the case of a person in whose case pertinent document had been seized in the course of search even before transferring the search document from the seized records from the person searched to the record of person to whom they relate and it is with such transfer of document that proceedings under section 158BD gets initiated. However, the impugned satisfaction has not been recorded prior to such transfer of documents, but has been recorded in the case of assessee after transfer of documents, as is evident from the contents of the satisfaction note itself which has reference to various documents seized in the course of search on several persons at different places. Thus the impugned satisfaction as alleged to be recorded by the ld. AO is not in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dity of assessment proceedings on the ground that there was mere change of opinion. The AAC found that no reasons were recorded by the ITO before issuing notice for reassessment and, therefore, held that ITO had no jurisdiction to reopen assessment. On appeal to ITAT, the Tribunal held that in restoring case to the file of ITO by earlier order, only point left open was in respect of addition on merits and that legal or jurisdiction aspect whether reassessment proceedings were legally initiated were not kept open. On reference, it was held by the Hon'ble Gujarat High Court that the point relating to reassessment proceedings went to root of the jurisdiction and was pure question of law. Hon'ble High Court held that the Tribunal's view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that the point of jurisdiction finally got settled, which could not be agitated unless the assessee had come in the reference to the Hon'ble High Court at that stage. Tribunal's view was also incorrect that in restoring the case to the file of the Income Tax Officer by the earlier order the only point left open was in respect of addition on merits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -BD will be initiated only in a case where assessment under section 158BC is made. Initiation of 158BD proceedings is independent of the action taken in the case of searched person. It is the satisfaction of the assessing officer having jurisdiction over searched person to convey the books of accounts or assets to the assessing officer having jurisdiction on the person in respect of whom the books of account, other documents or assets seized or requisitioned are found in the possession of searched person. The books of accounts or documents or assets can be conveyed at any stage i.e. during the course of assessment proceedings in case of searched person or before initiation of proceedings under section 158BC of searched person or after completion of assessment in the case of searched person. Therefore, completion of assessment under section 158BC in the case of searched person is not condition precedent for recording of the satisfaction under section 158BD of the Act. In view of the above discussion, we are of the considered opinion that the ground taken by the assessee that since no assessment under section 158BC has been made in the case of searched person and, therefore, proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l found from the premises of Shri pankaj Narang, Shri Baljeet Singh Bakshi and Shri Baldev Singh. The contention of the assessee that the combined satisfaction note recorded in respect of three different searched persons is bad in law. The assessing officer should have recorded separate satisfaction notes in the case of each searched party. As already mentioned that the assessing officer is same for all the searched persons, because of this reason, a combined satisfaction note has been prepared. When the assessing officer is the same for all the searched persons, making a satisfaction note based on material found from the premises of different persons, which was conveyed by the authorized officer to the assessing officer, preparation of combined satisfaction note will not be detrimental to the interest of the Revenue. At the best it could be treated as an irregularity and not illegality. What is to be seen is whether before issue of notice u/d 158BD satisfaction should be recorded by the assessing officer which has been done in the case of the assessee. Therefore, assessment cannot be annulled on the basis of combined satisfaction note, recorded by the same assessing officer, havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October, November and December, 2002. Annexure - B-2 gives the details of expenses for the month of January, April, May, September, October, November and December, 2002. The total of the expenses as per annexure B-1 and B-2 are of Rs.22,74,635/-. Annexure B-5 contains the details of expenses without indicating any dates. The total of such expenses is at Rs.1,32,08,686/-. Annexure B-6 is in respect of contractor's bills, LIC payments, Escotel Bills, deposit slips and bills for payment of cements etc. Annexure- 16 contains the details of balance due and date. For majority of the items, there is no narration. Annexure-19 contains also the details of payment, date of payment, balance amount and date and narration. Annexure-19 is in respect of year 1997-98. Annexures 20, 22, 24 contains the details of the payments and balance due. The assessing officer on the basis of amounts recorded on the loose sheets, ledger and cash book totaled up to Rs.5,98,44,202 detailed as below:- "1. Annexures A-1 to A-4 seized from Shri Baldev Singh Rs.6,56,305/-; 2. Annexures A-1 to A-4 seized from premises of Jeet Construction Co. Rs.2,14,68,030/-; 3. Annexures B-1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO, therefore, held that provisions of section 69C were applicable. The AO further noted that out of Rs.5,98,44,202/- an expenditure of Rs.2,15,77,726/- pertaining to annexures A-1, A-2, A-3 and A-4 were seized from the premises of the assessee. These annexures were in shape of cash book though no explanation was offered about the entries contained in these books, yet taking a reasonable view these transactions might be taken to be in respect of assessee's business for which returns were filed in the past. Regarding the other transactions recorded in the various other documents and as summarized as above there was no evidence whatsoever to show that such transactions were already disclosed. The AO, therefore, out of Rs.5,98,44,202/- deducted the amount of Rs.2,15,77,726/- and added the balance amount of Rs.3,82,66,276/-. 25. The assessing officer further noted that from the premises of Shri Baljeet Singh Bakshi, a bunch of loose papers [annexure 1 - page Nos. 65 to 67] relating to M/s. Jeet Construction Co. was seized. These papers are an account of Lakhotia, Ghanta Ghar and Pearey Lal Hospital. On page 67 total amounts worked out is at Rs.5,45,138/-. In its commission at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. The assessing officer on the basis of entries recorded on above-mentioned annexures held that the amount shown above had accrued to assessee as his income in relevant assessment years. Since the assessee had not produced books of accounts for verification of entries and had not produced any other evidence to substantiate its claim that the receipts have been duly reflected in trading and profit and loss account of the assessee, the assessing officer treated amount of Rs.3,54,67,771/-. She further noted that profits of the assessee's business were as high as 55 per cent as discussed in the assessment order in paragraph 16. She concluded that these facts were indicative of concealment of true profits. Since the assessee had chosen not to give any explanation as to how these receipts had been accounted for and as per provisions of section 158BB(3) the burden was on the assessee to prove that any undisclosed income had already been disclosed in the return of income and that onus had not been discharged by the assessee. Therefore, the AO concluded that the amount of Rs.3,54,67,771/- would not have been recorded for the purpose of paying the taxes. However, she made addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eized books of accounts to the extent available even on test check basis. As long as the expenses as per seized papers are less than the expenses recorded in the books of accounts, as per audited profit and loss account, the logical and reasonable presumption is that these expenses represent the expenses recorded in the books of accounts and not otherwise. As regards applicability of section 69C is concerned that the provisions are applicable after the amendment with effect from 1/04/1999 whereas the assessee's block period covers from 1/4/1996. Therefore, the very application of section 69C is in dispute. Section 69C is applicable only when expenditure has been found to have been incurred outside the books of accounts whereas in assessee's case there was no positive material to establish that the impugned expenses which were deductible as business expenses have been incurred outside the books of accounts of undisclosed income. The assessee, therefore, requested to delete the addition. 28.2 As regards the addition of Rs. One crore, the ld. AR of the assessee submitted that the AO has alleged that the assessee has received an amount of Rs.3,54,67,771/-. The ld. AR of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The AO still giving due consideration to the receipts had made addition of Rs.One crore only since the assessee had not discharged its onus to co-relate the income. The ld. CIT (A) upheld the addition of Rs. One crore. The ld. CIT (A) also rejected the contention of assessee that self-serving audit reports loose their meaning in assessment under section 158-BD. The onus was on the assessee to co-relate the facts emanating from seized papers to the audited statement which has not been done. The ld. CIT (A) accordingly upheld the addition. 30. Before us the ld. AR of the assessee has submitted that two directions were given by the ITAT. The assessment under section 158-BD is to be made in respect of undisclosed income as defined under section 158-B(b) of the Act read with section 158-BB(1) of the Act. The ld. AR of the assessee has further submitted that the cash book, ledger and other seized material contain the details of expenditure already accounted for in the profit and loss account. Therefore, no addition can be made to the extent of the expenditure or lower than the expenditure recorded in the books of accounts. There are many expenses recorded on the loose papers where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disclosed or would not have been disclosed would be undisclosed income. Section 158BB(1) provides the mode of computation of undisclosed income. The undisclosed income for the block period shall be the aggregate of total income of the previous years falling within the block period computed, in accordance with provisions of this Act, on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other material or information as are available with the assessing officer and relatable to such evidence, as reduced by the aggregate of total income or as the case may be, as increased by aggregate of losses of such previous years determined, - as specified in clause (a) to (f). Therefore, where income has been already assessed or return of income has been filed that income cannot be taken as undisclosed income. We have also gone through the contents of annexures. In respect of annexures A-1 to A-4 seized from Shri Baldev Singh, the partner totaling to Rs.6,56,305/- no dates have been mentioned. Therefore, it is difficult to co-relate the expenses of Rs.6,56,305/- to the block period. The assessing officer has reduced the total expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure shown by the assessee. It is not the case of the assessing officer that the assessee had claimed bogus expenses to the extent of Rs.3,82,66,276/-. If this contention of the assessing officer is accepted, it would result in total expenses of Rs.10,14,41,409/- [Rs.3,82,66,276 + Rs.6,31,75,133/-]. Even if we assume for a moment that the assessee had received undisclosed contract receipts to the extent of Rs.3,54,67,771/- out of which Rs. One crore has been sustained. The total receipts would be Rs.9,97,79,912/- (6,43,12,141+3,54,67,771) as against the expenditure of Rs.10,14,41,409/-. This would result into loss. Let us assume that the assessee was indulging in business out side the books of account. The assessing officer had worked out undisclosed receipts of Rs. 3,54,67,771/- and unaccounted expenditure of Rs. 3,78,66,276/- In this situation also net result is loss. Hence no addition can be made. The assessee in the course of original assessment proceedings as well as in the course of remand assessment proceedings had explained the entries recorded in various annexures. The assessing officer preferred to reject the explanation and had arrived at findings that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of Rs. One crore and also Rs.3,82,66,276/-. 33. As regards illegal addition of Rs.6,38,500/-, the addition was made by the AO on the ground that payments were illegal and were not allowable. It was submitted by the assessee that addition has been made totally arbitrarily. The entries bear the narration of commission and commission expenses per say do not bear any illegality and constitute deductible expenses. There was no material to support the AO's finding that the impugned notings in the seized papers constitute expenses actually incurred by the assessee outside the books of accounts. Proviso to section 69C has come into operation only since 1/04/1999 and the AO has not confronted any material to support that the impugned items relate to period after 1/4/1999. The ld. AR of the assessee further submitted that addition has been made on the basis of narrations recorded as commission in some of assessee's documents. Hon'ble ITAT has set aside the issue to be decided by the AO in the light of its directions to see whether income in question was earned before or after the expenditure was incurred. If it was earned before incurring the expenditure, there was no questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent reasons. 34. The next issue for consideration relates to charging of interest under section 220(2) of the Act. As regards charging of interest under section 220(2) the ld. AR of the assessee submitted that interest under section 220(2) is chargeable in relation to post assessment period only. In the case of assessee interest of Rs.1,19,17,624/- had been charged under section 220(2) vide demand notice which formed part and parcel of block assessment. Therefore, charging of interest was patently erroneous. The ld. CIT (A) however, relying on the decision of Hon'ble Kerala High Court in the case of Indra Rani vs. CIT 237 ITR 20 held that interest was chargeable from the date of original order of the AO if the assessment was set aside partly. The ld. CIT (A), therefore, upheld the charging of interest under section 220(2) of the Act. Since we have deleted the addition, interest under section 220(2) will not be leviable. However, the interest will be leviable in respect of additions sustained by the ITAT, in the first round of appellate proceedings. 35. In the result, the assessee's grounds are allowed on merits and since the legal ground is dismissed, the appeal is to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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