TMI Blog2014 (7) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of Accounts or seized material – there is merit in the contention of the revenue that if the satisfaction is recorded or expressed by the AO in respect of the undisclosed income belonging to the person other than the searched person in the assessment order of the searched person passed u/s 158BC then the requirement of initiation of proceedings u/s 158BC will be regarded as satisfied - the AO has not made any addition of undisclosed income on account of such business conducting charge/rental income on the ground that the assessee has claimed expenses of only ₹ 15,000/- PM - when the AO has concluded in the assessment order that since the assessee has claimed only ₹ 15,000 PM on account of payment of rent and excess payment is not allowed - other than the rental charges neither the assessment order passed u/s 158BC nor the satisfaction recorded on 10.01.2003 disclosed any other undisclosed income detected by the AO from the Books of Accounts and other seized papers. At the time of recording satisfaction the AO should reach a clear conclusion that prima facie the material available establishes undisclosed income of third party - In the absence of existence of any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to b r maids ₹ 8,02,690/- c) Disallowance on account of Utensils Crokeries ₹ 1,84,870/- d) Disallowance out of Repairs ₹ 95,980/- Total ₹ 11,85,376/- 4. The learned Commissioner of Income-tax (Appeals) ought to have appreciated that 'Barmaid' Smt. Pushpa Patil was produced before the Assessing Officer, together with other Barmaids and the statement was recorded of Pushpa Patil who confirmed the payment of 20% commission on sales to all Barmaids and the Assessing Officer then did not record the statement of other Barmaids who had earlier filed affidavits. 5.The learned Commissioner of Income-tax (Appeals) erred in assessing the sum of ₹ 1 ,55.800/- being the amount of initial investment in the Hotel as income r best from undisclosed sources for the block period, u/s. 69 of the Income-tax Act. 6. The learned Commissioner of Income-tax (Appeals) erred in confirming an addition of ₹ 73,034/- s income for the block period for which return is filed for A. Y. 2000-01, which Included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sheet dated 10.01.2003, wherein the Assessing Officer has recorded the satisfaction as well as completed block assessment in case of Smt. Ila R. Patil and submitted that the Assessing Officer was not sure that undisclosed income belonging to the assessee was detected from the Books of Accounts and other seized material. The Ld. Authorized Representative has pointed out that the Assessing Officer has stated in the satisfaction note that I am satisfied that undisclosed income is likely to be detected in the case of the assessee on the basis of seized Books of Accounts and papers . He has further submitted that no addition has been made in the block assessment by the Assessing Officer on the basis of seized material, therefore, it is apparent that there was no undisclosed income detected from the seized Books of Accounts and papers and consequently the notice issued u/s 158BD for initiation of bloc assessment in the case of assessee is without jurisdiction. In support of his contention he has relied upon the decision of Hon ble Delhi High Court in the case of C.I.T. Vs. Radhey Shyam Bansal, (2011) 337 ITR 217 (Delhi) and submitted that the recording of satisfaction by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson because, the Assessing Officer of the searched person as well as the assessee is same. He has referred the block assessment u/s 158BC in the case of searched person Smt. Ila R. Patil and submitted that in para 9, the Assessing Officer has mentioned that the hotel premises was let out by Smt. Ila R. Patil to Shri Gopal Shetty (assessee in this case) for running the hotel M/s Hotel Relax against the royalty of ₹ 15,000/- per month, therefore, the said part of the assessment order in the case of searched person is a satisfaction of the Assessing Officer for initiating the proceedings u/s 158BD. He has further submitted that though no addition was made in this respect in the assessment of the assessee, however, this was one of the issues in the assessment. The Ld. DR has relied upon the decision of Hon ble Kerala High Court in the case of Commissioner of Income-tax Vs. Panchajanyam Management Agencies and Services (333 ITR 281) and submitted that there is no requirement of recording a separate satisfaction before transferring the file to another officer having jurisdiction to assess the person other than the person searched when the Assessing Officer in both the is same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. 8. From the decision of Hon'ble Supreme Court, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s papers . The above sentence of satisfaction does not indicate a definite undisclosed income detected from the seized Books of Accounts and other papers but the Assessing Officer only predicted that undisclosed income is likely to be detected. When this aspect was pointed out to the Ld. CIT (DR) he has strongly argued that the satisfaction must be considered in conjunction with the assessment order u/s 158BC in case of Smt. Ila R. Patil. We found some substance in the argument of the Ld. DR that if the satisfaction is recorded or expressed by the Assessing Officer in respect of the undisclosed income belonging to the person other than the searched person in the assessment order of the searched person passed u/s 158BC then the requirement of initiation of proceedings u/s 158BC will be regarded as satisfied. To find out whether any such satisfaction is recorded in the assessment order passed u/s 158BC in case of the searched person, we have carefully examined the assessment order dated 31st December 2002 in the case of Smt. Ila R. Patil. The only relevant paragraphs which could be relied upon by the revenue are paragraphs 12.1 and 12.2 read as under:- 12.1 1 Page No. 39 of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny addition of undisclosed income on account of such business conducting charge/rental income on the ground that the assessee has claimed expenses of only ₹ 15,000/- PM. It is pertinent to note that when the Assessing Officer has concluded in the assessment order that since the assessee has claimed only ₹ 15,000 PM on account of payment of rent and excess payment is not allowed, therefore, other than the rental charges neither the assessment order passed u/s 158BC nor the satisfaction recorded on 10.01.2003 disclosed any other undisclosed income detected by the Assessing Officer from the Books of Accounts and other seized papers. We further note that all the additions which are made by the Assessing Officer in the assessment order passed u/s 158BD are disallowance of expenses and the reason for disallowance is given as the expenditure is not supported by evidence and further no evidence was found during the search to support the claim of expenditure. Thus the Assessing Officer has disallowed the claim of expenditure on the ground that during the search no evidence was found in support of the claim of expenditure. It is strange that in the proceedings u/s 158BD, the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jective satisfaction, it must be capable of being tested on objective parameters. The opinion, though tentative, however, cannot be a product of imagination or speculation. It cannot be spacious or mercurial. It should not be a mere pretence and should be made in good faith rather than suspicion. Reliability, credibility or for that matter what weight has to be attached to the material, depends upon the subjective satisfaction of the Assessing Officer, but definitely it is subject to scrutiny whether the satisfaction has a rational nexus or a relevant bearing to the formation of satisfaction and is not extraneous or irrelevant. The satisfaction must reflect rational connection with or relevant bearing between the material available and undisclosed income of the third person. The rational connection postulates and requires satisfaction of the Assessing Officer that a third person has 'undisclosed income' on the basis of evidence or material before him. The material itself should not be vague, indefinite, distinct or remote. If there is no rational or intangible nexus between the material and the satisfaction that a third person has 'undisclosed income', the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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