CIT vs. Calcutta Knitwears
(2014) 362 ITR 673 (SC)
A search operation u/s. 132 of the Act was carried out in two premises of the Bhatia Group, namely, M/s. Swastik Trading Company and M/s. Kavita International Company on 05-02-2003 and certain incriminating documents pertaining to the respondent assessee firm engaged in manufacturing hosiery goods in the name and style of M/s. Calcutta Knitwears were traced in the said search.
After completion of the investigation by the investigating agency and handing over of the documents to the assessing authority, the assessing authority had completed the block assessments in the case of Bhatia Group. Since certain other documents did not pertain to the person searched u/s. 132 of the Act, the assessing authority thought it fit to transmit those documents, which according to him, pertain to the “undisclosed income” on account of investment element and profit element of the assessee firm and require to be assessed u/s. 158BC read with section 158BD of the Act to another assessing authority in whose jurisdiction the assessments could be completed. In doing so, the assessing authority had recorded his satisfaction note dated 15-07-2005.
The jurisdictional assessing authority for the respondentassessee had issued the show cause notice u/s. 158BD for the block period 01-04-1996 to 05-02-2003, dated 10- 02-2006 to the assessee inter alia directing the assessee to show cause as to why should the proceedings u/s. 158BC not be completed. After receipt of the said notice, the assessee firm had filed its return u/s. 158BD for the said block period declaring its total income as Nil and further filed its reply to the said notice challenging the validity of the said notice u/s. 158BD, dated 08-03-2006. The assessee had taken the stand that the notice issued to the assessee is (a) in violation of the provisions of section 158BD as the conditions precedent have not been complied with by the assessing officer and (b) beyond the period of limitation as provided for u/s. 158BE read with section 158BD and therefore, no action could be initiated against the assessee and accordingly, requested the assessing officer to drop the proceedings.
The assessing authority, after due consideration of the reply filed to the show cause notice, had rejected the aforesaid stand of the assessee and assessed the undisclosed income as Rs. 21,76,916/- (Rs.16,05,744/- (unexplained investment) and Rs. 5,71,172/- (profit element)) by order dated 08-02-2008. The assessing officer was of the view that section 158BE of the Act did not provide for any limitation for issuance of notice and completion of the assessment proceedings u/s.158BD of the Act and therefore a notice could be issued even after completion of the proceedings of the searched person u/s. 158BC of the Act.
Disturbed by the orders passed by the assessing officer, the assessee firm had carried the matter in appeal before the Commissioner of Income-tax (Appeal- II) (for short ‘the CIT(A)’. The CIT(A), while rejecting the stand of the assessee in respect of validity of notice issued u/s. 158BD, had partly allowed the appeal filed by the assessee firm and deleted the additions made by the assessing officer in its assessments, by his order dated 27-08-2008.
The Revenue had carried the matter further by filing appeal before the Income-tax Appellate Tribunal (for short ‘the Tribunal’) and the assessee has filed cross objections therein. The Tribunal, after hearing the parties to the lis, had rejected the appeal of the Revenue and observed that recording of satisfaction by the assessing officer as contemplated u/s. 158BD was on a date subsequent to the framing of assessment u/s. 158BC in case of the searched person, that is, beyond the period prescribed u/s. 158BE(1)(b) and thereby the notice issued u/s. 158BD was belated and consequently the assumption of jurisdiction by the assessing authority in the impugned block assessment would be invalid.
Aggrieved by the order so passed by the Tribunal, the Revenue had carried the matter in appeal u/s. 260A of the Act before the High Court. The High Court, by its impugned judgment and order dated 20-07-2010, had rejected the Revenue’s appeal and confirmed the order passed by the Tribunal.
On appeal, the Supreme Court observed that section 158BD of the Act is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person u/s. 132 or 132A of the Act. U/s. 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person u/s. 132 or 132A of the Act, after recording such satisfaction, may transmit the records/ documents/chits/papers etc., to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments u/s. 158BD of the Act, the other provisions of XIV-B shall apply.
The opening words of section 158BD of the Act are that the assessing officer must be satisfied that “undisclosed income” belongs to any other person other than the person with respect to whom a search was made u/s.132 of the Act or a requisition of books were made u/s. 132A of the Act and thereafter, transmit the records for assessment of such other person. Therefore, according to the Supreme Court the short question that fell for its consideration and decision was at what stage of the proceedings should the satisfaction note be prepared by the assessing officer: Whether at the time of initiating proceedings u/s. 158BC for the completion of the assessments of the searched person u/s. 132 and 132A of the Act or during the course of the assessment proceedings u/s. 158BC of the Act or after completion of the proceedings u/s. 158BC of the Act.
The Supreme Court noted that the Tribunal and the High Court were of the opinion that it could only be prepared by the assessing officer during the course of the assessment proceedings u/s. 158BC of the Act and not after the completion of the said proceedings. The Courts below had relied upon the limitation period provided in section 158BE(2)(b) of the Act in respect of the assessment proceedings initiated u/s. 158BD, i.e., two years from the end of the month in which the notice under Chapter XIV-B was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after 01-01-1997.
The Supreme Court held that before initiating proceedings u/s. 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments u/s. 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched u/s. 132 or the books of accounts were requisitioned u/s. 132A of the Act. U/s. 158BD the existence of cogent and demonstrative 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 u/s. 158BD. The bare reading of the provision indicated 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 u/s. 158BC of the Act or during the stage of the assessment proceedings. According to the Supreme Court, it did not mean that after completion of the assessment, the assessing officer could not prepare the satisfaction note to the effect that there exists income belonging to any person other than the searched person in respect of whom a search was made u/s. 132 or requisition of books of accounts were made u/s. 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.
Further, section 158BE(2)(b) only provides for the period of limitation for completion of block assessment u/s. 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after 01-01-1997. According to the Supreme Court, the said section does neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation of the satisfaction note u/s. 158BD and consequent issuance of notice to the other person.
In the result, the Supreme Court held 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 of proceedings against the searched person u/s. 158BC of the Act; (b) along with the assessment proceedings u/s. 158BC of the Act; and (c) immediately after the assessment proceedings are completed u/s. 158BC of the Act of the searched person.
