Whether delay of more than 19 months in issuance of notice after completion of assessment order in case of person searched and satisfaction required u/s.158BD not recorded by AO of person searched, proceedings are vitiated and null and void — Held, Yes.

29 Bharat Bhushan Jain v. ACIT

ITAT ‘A’ Bench, New Delhi

A.Ys. : 1991-92 to 2001-02. Decided on : 7-11-2008

Counsel for assessee/revenue : Rano Jain/

B. Koteshwara Rao

On 30th August 2002 a search u/s.132 of the Act was conducted
at the business premises of M/s. Friends Portfolios (P) Ltd. and the residential
premises of its director Shri Manoj Aggarwal. Assessment u/s. 158BC of the Act,
in the case of Manoj Aggarwal was completed on 29th August 2002. On 15th July
2003, the DCIT, Central Circle 3, New Delhi, who assessed Shri Manoj Aggarwal
informed the AO of the assessee that during the course of search on Shri Manoj
Aggarwal, documentary evidence was found indicating the fact that Shri Manoj
Aggarwal was giving bogus accommodation entries to various persons. He also
informed that the present assessee is one of the mediators who has played a
crucial role in providing accommodation entries to various entities and
individuals from Shri Manoj Aggarwal and therefore he needs to be assessed
u/s.158BD of the Act. Accordingly, the AO of the present assessee issued a
notice u/s.158BD of the Act on 31-3-2004. In response to this notice, the
assessee filed return of income for the block period on 27-5-2004 declaring nil
income. The AO assessed undisclosed income of the assessee at Rs.3,52,25,105.
The CIT(A) observed that only commission income earned by the assessee in
helping Shri Manoj Aggarwal needs to be assessed in the hands of the assessee
and accordingly the commission income on the total transaction was computed at
Rs.5,20,568 which was confirmed by the CIT(A). Aggrieved, the assessee preferred
an appeal to the Tribunal challenging the proceedings on the ground that there
was a huge delay of 19 months in issue of notice from the time of
completion of block assessment u/s.158BC in the case of Shri Manoj Aggarwal and
also on the ground that no satisfaction was recorded by the AO who passed
assessment order u/s.158BC of the Act in the case of the person searched. The
satisfaction note was supplied to the assessee by the DCIT, Central Circle 37
under the signature of Shri Jatender Kumar, the AO of the present assessee.
Relying on the decision of the Supreme Court in the case of Mahinsh Maheshwar
(289 ITR 341) it was contended that in the absence of satisfaction recording
that incriminating material was found indicating the fact that the assessee has
undisclosed income, no proceedings u/s.158BD of the Act could be initiated.

The Tribunal found that the issue of delay in issuance of
notice u/s.158BD has been considered by the co-ordinate Bench of ITAT in the
case of Shri Radhey Shyam Bansal to which Accountant Member was a party. The
Tribunal after extracting lucid enunciation of the law from the decision in the
case of Radhey Shyam Bansal came to the conclusion that the Tribunal has in the
case of Radhey Shyam Bansal considered the fact that the provisions of S. 158BD
of the Act do not provide for a time limit for issue of a notice. The Tribunal
in that case came to the conclusion that the notice needs to be issued within a
reasonable time. The Tribunal noted that the principle of consistency demanded
it to follow the decision of the co-ordinate Bench in the case of Radhey Shyam
Bansal. As regards the second contention, the Tribunal went through the alleged
satisfaction and found it to be an office note, which very office note was
considered by the Tribunal in the case of Radhey Shyam Bansal, which did not
even have reference of any seized material relatable to the assessee. This
alleged satisfaction note spoke of the general modus operandi of various
persons in carrying out giving bogus accommodation entries. The Tribunal after
considering the facts and circumstances of the case, allowed the appeal of the
assessee and quashed the assessment order.