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Haryana Paneer Bhandar Versus Commissioner of Income-Tax

Validity of notice under Section 158-BD - Whether recording of satisfaction by the Assessing Officer of the person searched is a necessary ingredient to validate block assessment proceedings under Section 158-BD? - Held that:- In the present case, as already noticed, the Revenue has been unable to produce the satisfaction note of the AO of the searched person, to the effect that there was "cogent and demonstrative" material to conclude that the seized documents showed undisclosed income belongin .....

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e block assessment proceedings are held to be bad in law.

In the circumstances of the present case, the notice under Section 158-BD issued to the Assessee is held to be bad in law. - Decided in favour of assessee. - ITA 537/2015 - Dated:- 5-11-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr S. Krishnan, Advocate For the Respondent : Ms Suruchi Aggarwal, Senior Standing Counsel, Ms Lakshmi Gurung, Junior Standing Counsel, Mr Abhishek Sharma and Ms Radhika Gupta, Advoc .....

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es of the present case, the notice under Section 158-BD is bad in law? (b) Whether recording of satisfaction by the Assessing Officer of the person searched is a necessary ingredient to validate block assessment proceedings under Section 158-BD? 4. The brief facts are that the Assessee is a partnership firm engaged in the business of manufacture and sale of paneer and snack items at Fateh Puri, Delhi. A search and seizure operation under Section 132 of the Act was conducted on 15th December, 199 .....

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148 of the Act on 29th January, 2001. 5. A re-assessment order was passed by the AO on 28th March, 2002 making an addition of a sum of ₹ 65 lakhs to the income of the Assessee under Section 69D of the Act. In the appeal filed against the said order by the Assessee, the Commissioner of Income Tax (Appeals) by the order dated 12th December, 2002 held that the proceedings in the assessment could only be resorted to under Section 158 BA (1) of the Act and, therefore, the proceedings under Sec .....

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e ITAT by an order dated 10th March 2006. 7. In the meanwhile, on 25th September, 2006, a notice was issued to the Assessee under Section 158BD of the Act for the block period i.e. 1988-89 to 1998 to 1999. The Assessee filed its return for the said block period on 10th November, 2008 and asked for a copy of the satisfaction note in terms of Section 158 BD of the Act. No copy of such satisfaction note was provided to the Assessee. The AO nevertheless proceeded to complete the block assessment by .....

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ptember, 2008. 9. The CIT(A) on 25th March, 2010 upheld the order of the AO. The Assessee then preferred an appeal before the ITAT. While the Accountant Member (AM) of the ITAT by an order dated Nil March 2013 agreed with the Assessee that no satisfaction was recorded by the AO and, therefore, the proceedings under Section 158 BD were bad in law, the Judicial Member (JM) disagreed and held in favour of the Revenue. The matter was then referred to the Third Member of the ITAT. Although there were .....

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f the Act stood satisfied. Thereafter the Division Bench of the ITAT passed a confirmatory order on 8th December 2014 dismissing the Assessee's appeal. 10. At the hearing of this appeal on 24th September 2015, Ms. Suruchi Aggarwal, learned Senior Standing counsel for the Revenue, sought some time to seek instruction on the aspect of the satisfaction note as well as on the question of limitation. At the hearing today she stated that pursuant to the order passed by this Court on the previous d .....

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09.2008 informed the ACIT Circle-29(1), New Delhi that no satisfaction note, regarding intimation of proceedings u/s 158-BD in the case of M/S Haryana Paneer Bhandar, of the then AO of Central Circle 14, New Delhi is readily available in the block assessment of Sri Kamal Chand Jain. In view of the above this office is unable to provide copy of satisfaction note in the case of M/s Haryana Paneer Bhandar. 11. The fact of the matter is that the Revenue is unable to produce before this Court the sat .....

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de 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 jurisdiction over such other person and that Assessing Officer shall proceed under section 158 BC against such other person and the provisions of this Chapter shall apply accordingly. XXXXX Section 158BE Time limit for completion of block assessment .....

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is cogent and demonstrated material to conclude that the seized documents show that some undisclosed income belongs to a person other than the searched person. Explaining the mandatory nature of this requirement, the Supreme Court in Commissioner of Income-Tax v. Calcutta Knitwears (2014) 362 ITR 673 (SC) observed as under: 41. We would certainly say that before initiating proceedings under section 158BD of the Act, the Assessing Officer who has initiated proceedings for completion of the assess .....

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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 Office .....

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rded in respect of the person other than the searched person. 14. It was further held in paragraph 44 as under: 44. In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation .....

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ndisclosed income belonging to the assessees." in the absence of there being any recording of the satisfaction of the AO while forwarding the case to the AO of the 'other person', the block assessment proceedings were held to have been rightly invalidated. In Commissioner of Income Tax v. Feather Breweries & Market (2008) 166 Taxman 271 (Del) the Court noted that the Revenue "is unable to produce the satisfaction recorded by the Assessing Officer in terms of Section 158 BD .....

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fied that any undisclosed income belongs to a third person. This is the statutory mandate and a jurisdictional prerequisite before proceedings under Section 158 BD are initiated. Violation of the said requisite and mandatory requirement would result in annulment of the assessment under Section 158 BD read with Section 158 BC." 17. In the present case, as already noticed, the Revenue has been unable to produce the satisfaction note of the AO of the searched person, to the effect that there w .....

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ned by the Supreme Court in Commissioner of Income-Tax v. Calcutta Knitwears (supra), the entire block assessment proceedings are held to be bad in law. Question (b) is accordingly answered in the affirmative and in favour of the Assessee and against the Revenue. 18. In view of the answer to question (b), the answer to question (a) has also to be in the affirmative i.e. the in the circumstances of the present case, the notice under Section 158-BD issued to the Assessee is held to be bad in law. .....

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