TMI Blog2013 (9) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the AO of searched person was aware of this fact at the time of receipt of the materials and documents from the authorised officer itself, i.e., without examining the seized materials, the AO was aware of the fact that the impugned agreements also belonged to the assessee herein and further he is also aware of the fact that the assessee herein has also accepted the veracity of the agreements and the money transactions recorded therein. In this kind of clear situation, it may not be correct to insist that the AO should necessarily record the satisfaction contemplated u/s 158BD of the Act, as the same would mere be an empty formality, particularly in view of the fact that the assessee herein himself has accepted the incriminating materials - The satisfaction of the Assessing officer of the searched person would be mandatory, if the undisclosed income of such other person is found out by him for the first time and further the said materials were not confronted with such other person - the Assessing officer, before proceeding to assess the undisclosed income, should assume the jurisdiction over the said person in a proper and legally permitted way. There is no dispute in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. During the course of search, the copies of first pages of two agreements were found out. From the said agreements it was noticed that the assessee herein had paid money to Shri Sundaresa Pai others towards purchase of shops in a shopping complex. The first agreement was dated 30-03-2001 and it was entered by Shri Sundaresa Pai and his son Shri Visweswara Pai with the assessee herein. As per the said agreement, two shop rooms having an extent of 200 sq. ft. each, on the first floor of the shopping complex was agreed to be purchased by the assessee herein at the rate of Rs. 1550/- per sq. ft. On the back side of the first page of the agreement, the endorsement of receipt of money from the assessee was found noted down as detailed below: 30.3.2001 : Rs.1,00,000 3.4.2001 : Rs.1,00,000 3.7.2001 : Rs.1,50,000 30.8.2001 : Rs.1,00,000 18.9.2001 : Rs.1,00,000 10.10.2001 : Rs.1,00,000 16.11.2001 : Rs.1,00,000 Rs.7,50,000 The AO has estimated the value of shops at Rs.6,20,000/- (400 Sq. Ft x Rs.1,550/-). 4. The second agreement was dated 16.11.2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty as per the sale deed executed and registered with Joint Sub-Registrar, Ernakulam is only Rs.73,700/-, it was the clear intention of Shri C.M. Nigam to suppress the sale price. Since Shri Nigam Mathew did not record the said payment of Rs.12,25,000/- in his books of accounts, and since he had admitted that the said payment is made in cash and is earned out of his business, the entire sum of Rs.12,25,000/- is his unaccounted income for the Y.E. 31.3.2002. It is therefore requested that the Assessing Officer of Shri Nigam Mathew may be directed to initiate necessary action to tax the above said unaccounted income." From the observations made by Ld CIT(A), it is seen that the report of ADIT dated 28.6.2002 was forwarded by JDIT on 26.7.2002 to the Addl CIT, Range-I, Trichur. The JCIT, Range- 2, Trichur, in turn, forwarded these reports to the AO, vide his letter dated 8.8.2002 for taking necessary action. Thereafter, the assessing officer issued notice u/s 158BD r.w.s. 158BC of the Act to the assessee on 3.8.2004. The Ld CIT(A) has also noticed that the AO had initiated the proceedings u/s 143(3) for assessment year 2002-03 also by that point of time. 7. Before the AO, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 2002-03, the assessee had declared additional income of Rs.5.00 lakhs. While completing the said assessment u/s. 143(3) of the Act on 21-02-2005, the Assessing Officer assessed the above said amount of Rs. 5.00 lakhs on a protective basis as he felt that the same is assessable as "undisclosed income" of the assessee for the block period. Accordingly, the Assessing Officer treated the amount of Rs. 5.00 lakhs offered by the assessee in his regular return of income for 2002-03, as undisclosed income of the assessee and gave set off of the same against the balance amount of investment of Rs. 11,58,800/- computed by the Assessing Officer. Accordingly, the Assessing Officer determined the undisclosed income of the assessee as under: (a) Additional income declared by the assesse in assessment year2002-03 : Rs. 5,00,000/- (b) Balance amount of investment computed by /- the Assessing Officer: Rs. 6,58,800 Total : Rs.11,58,800/- 10. The assessee challenged the block assessment order passed by the AO by filing appeal before Ld CIT(A) by raising grounds on legal points as well as on merits. On the legal point, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O of the party searched. In the circumstances it did not perhaps warrant action under section 158BD but perhaps under other sections of the IT Act. In my opinion, in view of the facts as above as well as Supreme Court decision, the proceedings under section 158BD are legally not tenable in this case." 12. It is seen that the Ld CIT(A) has taken the view that:- (a) The document found during the course of search belonged to both the assessee and the searched party. Hence no conclusion about "undisclosed income" of the assessee could be drawn by the AO of the searched party. (b) No satisfaction has been recorded by the AO of the searched party. The satisfaction recorded by ADIT/JDIT/JCIT was not sufficient to invoke the provisions of sec. 158BD of the Act. (c) There is no valid explanation for the delay in initiation of proceedings u/s 158BD of the Act, i.e., the delay of 27 months from the date of search. 13. The revenue is challenging the view expressed by Ld CIT(A) on the legal issues discussed above. We shall examine these legal issues first. The Ld D.R submitted that details of undisclosed investments made by the assessee have come to the notice of department during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andatory for initiating proceedings u/s 158BD of the Act. Accordingly, he contended that the satisfaction of the ADIT/JDIT/JCIT is not contemplated u/s 158BD of the Act, even if they could be considered as assessing officers as per sec. 2(7) of the Act. He further submitted that the provisions of statute must be strictly as held by the Hon'ble Supreme Court in the case of Sneh Enterprises Vs. Commissioner of Customs (2006) 7 SCC 714, 721;(2006) 7 RC 531. He also submitted that where two views are possible, the view in favour of the assessee should be taken (Ispat Industries Ltd V Commissioner of Customs (2006) 12 JT 370; (2006) 7 RC 546). 15. We have heard the rival contentions on this issue. The provisions of sec. 158BD are relevant here and hence we extract the same below:- "158BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments etc. to the assessing officer having jurisdiction to such other person and that AO shall proceed u/s 158BC against such other person. At this stage, we feel it pertinent to extract below the observations made by the Hon'ble Kerala High Court with regard to the scope of provisions of sec.158BD of the Act in the case of CIT Vs. Dr. T.M. Kuriachan (ITA No.12 of 2011 dated March 5, 2012):- "Chapter XIV-B provides for special procedure for assessment of search case. The provision provides for assessment for block period pursuant to search made under section 132 or based on requisition of accounts or documents under section 132A of the Act. The provisions for assessment of undisclosed income of the assessee searched under section 132 or whose books of accounts and other documents are requisitioned under section 132A, are contained in Section 158BC of the Act. Unlike Section 148(2), there is no provision in Chapter XIV-B requiring the Assessing Officer to record satisfaction of undisclosed income for making assessment of the searched assessee. However, Chapter XIV-B visualises that in the course of search of an assessee there is possibility of recovery of evidence and documents p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, who has the jurisdiction over the other assessee, the materials and evidence collected in search or requisition are transferred. The satisfaction for initiation and completion of assessment under section 158BD is obviously that of the Assessing Officer to whom transfer is made by the Officer who conducted search." Having discussed so, the High Court followed the decision of the Supreme Court in Manish Maheshwari (supra), where in it was held that if satisfaction is not recorded by the Assessing Officer for transferring the file under section 158BD, the assessment made under Section 158BC is invalid. Subsequently, the revenue has filed a review petition before the High Court of Kerala in the above said case and the High Court passed the orders on the Revision petition No.658 of 2012 on Septermber 12, 2012. The High Court held that the decision rendered by the Hon'ble Supreme Court in the case of Manish Maheswari (supra) has no application if the assessments of both the assessees, one u/s 158BC and the other u/s 158BD, were completed by the same Assessing Officer. 17. A careful analysis of the scheme of the provisions and the decision rendered by the High Court / Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same for both the assessees, i.e., the person who was searched and the other person, meaning thereby, the condition of "recording of satisfaction" would depend upon the facts and circumstances surrounding the case. (e) The Assessing officer of the searched person should first satisfy himself that the undisclosed income found in the evidences does not belong to the searched person and then only, he would be in a position to record satisfaction that it belongs to some other person. (f) Section 158BD proceeds on the presumption that the AO of the searched person has found out the existence of undisclosed income of some other person for the first time. Hence, it is provided that he should satisfy himself about the existence of undisclosed income before transferring records to the AO having jurisdiction over the other person. 18. In the instant case, the evidences/materials which are relevant are the copies of two agreements found during the course of search. The said agreements were entered between the searched party and the assessee herein. Thus, the impugned materials belonged to both the parties. The said agreements revealed money transactions, which have been accepted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdictional Kerala High Court in the case of Dr. T.M. Kuriachan:- "In fact, what section 158BD says is that when the evidence collected in search of an assessee revealed undisclosed income of another assessee, who is not searched, the material or evidence so received can be the basis of making assessment under section 158BC of the assessee who is not searched." The satisfaction of the Assessing officer of the searched person, in our view, would be mandatory, if the undisclosed income of such other person is found out by him for the first time and further the said materials were not confronted with such other person. The obvious reason, in such kind of situation, could be that the block assessment proceeding is contemplated on a person who was not searched at all and also on the person who is not under the jurisdiction of the same AO. Hence, it was found necessary that the AO of the searched person should record satisfaction before handing over the materials to the AO having jurisdiction over the other person, so that the other assessing officer could have a base for initiating the block assessment proceedings against such other person. 20. However, when the other person w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our view, the assessment framed by the AO u/s 158BD r.w.s. 158BC of the Act cannot be find fault with, in view of the peculiar facts and circumstances of the instant case, which were discussed in the preceding paragraphs. Accordingly, we set aside the order of Ld CIT(A) on this issue and hold that the notice issued u/s 158BD was legally tenable. 23. The Ld. CIT(A) in para 3.3 of his order has also observed that the Assessing Officer did not given any explanation for the delay in initiation of proceedings u/s. 158BD of the Act. The Ld CIT(A) has noticed that the notice u/s 158BD has been issued after expiry of about 27 months from the date of search. The Revenue has challenged the said observation made by the Ld. CIT(A). 24. The search in the hands of M/s. Giripai Jewellery and Shri Sundaresa Pai took place on 18-04-2002. The notice u/s. 158BD r.w.s. 158BC was issued to the assessee on 03-08-2004. It is pertinent to note that the statute does not prescribe any time frame for issuing notice u/s. 158BD of the Act. The Hon'ble Jurisdictional High Court of Kerala had an occasion to consider an identical issue in the case of CIT vs. Bimbis Creams Bakes (2012) 254 CTR 633 (Ker. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue. 26. The Ld. CIT(A) has also considered the merits of addition and has held that no addition is warranted on merits for the following reasons: (a) The books of accounts maintained by the assessee were not called for by the ADIT to ascertain whether the payments recorded in the agreement were duly accounted for or not by the date of the search. (b) The assessee has shown that he has duly accounted for the payments made for purchase of shops, which were shown in the agreements. (c) The assessee has been maintaining books of accounts in the ordinary course of business and the said fact is corroborated by regular filing of sales tax returns. (d) The assessment for the assessment year 2002-03 has been completed u/s. 143(3) of the Act and the Assessing Officer did not make any addition to the income returned by the assessee. (e) The books of accounts maintained by the assessee have been subjected to audit u/s. 44AB of the Act. Following observations made by Ld CIT(A) are relevant here:- "6.1 I find that the ADIT apparently without referring to the books, has concluded that net profit for year ending 31.3.01 is Rs. 1,42,192. Further there is no evidence showing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess for making the payments as shown in the agreements and further the said withdrawals have been duly recorded in his business books. The Ld A.R invited our attention to the copies of Capital account to show that there were withdrawals. The Ld A.R submitted that the Assessing officer was not justified in rejecting the said withdrawals only for the reason that the assessee did not state in the narration that they were withdrawn for giving advance for purchase of shops. He further submitted that the assessee had offered additional income of Rs.5.00 lakhs in his regular return of income filed for the assessment year 2002-03 and another sum of Rs.2.50 lakhs was offered in the assessment made u/s 143(3) r.w.s. 147 of the Act for the very same assessment year. Accordingly he submitted that the assessee was having sufficient sources for making the payments shown in the agreements. The Ld A.R further submitted that the ADIT did not call for books of accounts and hence there was no occasion for the assessee to produce the same at the time of examination. On the contrary, the Ld D.R submitted that the assessee had offered the additional income on adhoc basis, obviously to cover up the undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id claim is very vital in order to determine the quantum of "undisclosed income" and it may not be proper to reject the said claim for the reason that the specific purpose of withdrawal was not given in the narration. Further, in our view, the veracity of claim of the assessee with regard to the withdrawals can be ascertained by examining the cash book only and not through the Capital Account. A person can withdraw money only if cash balance is available in the books of account. A cursory look of the Capital account shows that the assessee, besides making withdrawals, has also introduced like amounts into his capital account. The purpose of introduction of fresh funds in the business books and the sources thereof needs to examined in order to ascertain the purpose of withdrawals. Hence, in our view, the veracity of claim of withdrawal has to be examined along with the introduction of additional funds by verifying the cash book of the assessee. 31. The assessee has claimed that he has offered additional income of Rs.5.00 lakhs and another sum of Rs.2.50 lakhs in assessment year 2002-03. The payments made by the assessee as per the agreements also fall in the very same assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not the value of proposed investment. Hence the AO was not right in adopting the value of Rs.3,37,500/- and Rs.6,20,000/- for the shops proposed to be purchased as per the agreements. 34. In our view, following amounts shown in the agreements and that was agreed to by the assessee are relevant. (a) Purchase of shop for Rs.4,75,000/-, which was registered for a value of Rs.73,700/-. (b) The payments made as per the first agreement - Rs.7,50,000/- (c) The payments made as per the second agreement - Rs.2,50,000/-. The Ld CIT(A) has observed that there is an overlap of Rs.2,50,000/- (item (c) supra) between the amounts of Rs.7,50,000/- and Rs.4,75,000/- stated in (a) and (b) supra. However, the AO did not have an occasion to examine the said claim of the assessee and we notice that the Ld CIT(A) has accepted the said claim of the assessee without confronting the same to the AO. Accordingly, the finding given by the Ld CIT(A) also requires fresh examination at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO. 35. In the result, the appeal filed by the Revenue is treated as allowed for statistical p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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