Section 158BD — Satisfaction recorded u/s.158BD before initiation of block assessment proceedings of the person searched does not satisfy the requirement of law — Further, so-called satisfaction recorded by the Assessing Officer in the order sheet without even stating that undisclosed income pertaining to the assessees has been detected from the seized record of the persons searched was not in accordance with the provisions of section 158BD —Therefore, the block assessments of the assessees u/s.158BD are not valid.
During the search and seizure operations at the premises of SGL Ltd. and its director A, certain incriminating documents were found. Investigations revealed that SGL Ltd. had received large amount in the form of share capital from sister concerns through bogus shareholders and from agricultural income. Since assessee-trusts also made investment in SGL Ltd., the Assessing Officer framed block assessment u/s.158BD r.w.s 158BC. So-called satisfaction in the order sheet dated 4th September 2003 was recorded before the commencement of block assessment proceedings of the persons searched on 5th September 2003.
The assessees challenged the block assessment orders u/s.158BD before the learned CIT(A). The learned CIT(A) accepted the contention of the assessee and quashed the proceedings u/s.158BD because such notices were issued without any basis. The CIT(A) held that there is no satisfaction recorded objectively and that the same is without application of mind and, accordingly, annulled the block assessment orders u/s.158BD.
There was a difference of opinion between the members of the Tribunal. The Third Member, relying on the decisions in the following cases, upheld the CIT(A)’s order in favour of the assessee:
(a) Manish Maheshwari v. ACIT & Anr., (2007) 208 CTR 97 (SC)/(2007) 289 ITR 341 (SC)
(b) Manoj Aggarwal v. Dy. CIT, (2008) 117 TTJ 145 (Del.) (SB)/(2008) 11 DTR 1 (Del.) (SB) (Trib.)/ (2008) 113 ITD 377 (Del.) (SB).
The Tribunal noted as under:
(1) The so-called satisfaction in the order sheet dated 4th September 2003 has been recorded before the commencement of the block assessment proceedings of the persons searched on 5th September 2003. This satisfaction is not in accordance with the provisions of section 158BD. The satisfaction recorded u/s.158BD on 4th September 2003 i.e., before the initiation of block assessment proceedings of the person searched does not satisfy the requirement of law. The observation that the Assessing Officer has taken simultaneous action in the case of persons searched and in the cases of these assessee-trusts is factually incorrect, because in the cases of assessee-trusts the satisfaction was recorded on 4th September 2003, whereas the block assessment proceedings of the person searched were started subsequently on 5th September 2003.
(2) Similarly, the observation of the AM that it is immaterial whether the satisfaction was recorded in the file of the persons searched or in the case of assessee-trusts is legally incorrect and is not according to the provision of law. Similarly, the reason given by the AM that the Assessing Officer in the case of assessee-trusts and the persons searched is the same and, hence, it is immaterial whether the reasons recorded were in the file of the persons searched or in the case of assesseetrusts is incorrect and is contrary to law.
(3) Satisfaction should be recorded by the Assessing Officer of person searched as per the provisions of section 158BD. It is well-settled law that satisfaction recorded has to be objective/ judicious satisfaction and the order sheet dated 4th September 2003, in the cases of the present assessees, does not fulfil this condition, because the block assessment proceedings of the persons searched were started by issuing notice u/s.158BC on 5th September 2003 and hearing of the case of the persons searched was started on 13th October 2003.
(4) Hence, in no case, the Assessing Officer of the persons searched can examine the seized record on 4th September 2003 and ask the assessees’ explanation in respect of seized record of the persons searched.
(5) The so-called satisfaction recorded on 4th September 2003 by the Assessing Officer is based on assumption and presumption and is not based on seized record and is not a judicious satisfaction and, hence, the order sheet dated 4th September 2003 does not fulfil the requirement of section 158BD.
