In Manish Maheshwari v. Assistant Commissioner

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI WEDNESDAY,THE 20TH DAY OF MARCH 2019 / 29TH PHALGUNA, 1940 ITA.No. 65 of 2014 AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHINBENCH, DATED 30-08-2013 IN IT(SS) A NO.09/Coch/2009 FOR THEASSESSMENT YEARS1996-97 TO 2001-02, BLOCK PERIOD 01.04.1996 TO18.04.2002 APPELLANT/RESPONDENT/ASSESSEE: SHRI.NIGAM MATHEWPROPRIETOR C.K.MATHEW & SONS, CHERUVATHUR HOUSE, MISSION QUARTERS, THRISSUR - 680 001.BY ADVS.SRI.T.M.SREEDHARAN (SR.)SMT.BOBY M.SEKHARSMT.DIVYA RAVINDRANSRI.V.P.NARAYANAN RESPONDENT/APPELLANT/REVENUE: THE COMMISSIONER OF INCOME TAXAAYAKAR BHAVAN, SAKTHAN THAMPURAM NAGAR, THRISSUR - 680 001. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: SC,INCOME TAX- SRI. JOSE JOSEPH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15.03.2019,THE COURT ON 20.03.2019 DELIVERED THE FOLLOWING: C.K.ABDUL REHIM & R.NARAYANA PISHARADI, JJ. ************************** I.T.Appeal No.65 of 2014 ---------------------------------------------- Dated this the 20[th] day of March, 2019 J U D G M E N T R.Narayana Pisharadi, J Is it mandatory for the Assessing Officer who proceeds under Section 158BD of the Income Tax Act, 1961 (hereinafterreferred to as 'the Act') to record his satisfaction thatundisclosed income belongs to any person, other than theperson with respect to whom search was made under Section132 of the Act? This is the substantial question of law thatneeds to be answered in this appeal filed by the assessee. 2.The authorities under the Act conducted a search on18.04.2002 in a jewellery at Ernakulam. During the search,copies of the first pages of two agreements executed by theappellant regarding purchase of shop rooms were seized. Onthe reverse side of the agreements, there were endorsementsmade regarding payment of money by the appellant. The statement of the appellant was recorded on 18.04.2002 itselfby the Additional Director of Income Tax. The statementrevealed that the appellant had paid a total amount ofRs.12,25,000/- for purchase of shop rooms. The AdditionalDirector made recommendation to initiate necessary actionagainst the appellant and forwarded a report to the JointDirector. The report ultimately reached the Assessing Officerof the appellant. The Assessing Officer issued notice to theappellant under Section 158BD read with 158BC of the Act.Assessment under Section 158BD of the Act was completed on30.08.2006 on a total income of Rs.11,58,800/- for the blockperiod from 01.04.1996 to 18.04.2002. 3. Aggrieved by the assessment order, the appellant filed appeal before the Commissioner of Income Tax (Appeals).By order dated 26.05.2009, the Commissioner of Income Tax(Appeals) allowed the appeal. The revenue filed appealagainst that order before the Income Tax Appellate Tribunal(hereinafter referred to as 'the Tribunal'). As per theimpugned order dated 30.08.2013, the Tribunal allowed theappeal filed by the revenue. The assessee has now come up inappeal against the order of the Tribunal. 4.We have heard learned counsel for the parties. 5.Learned counsel for the appellant contended that before the Assessing Officer having jurisdiction over theperson with respect to whom the search was made, handedover the documents seized during the search, to the AssessingOfficer having jurisdiction over the other person, it ismandatory that he shall prepare a satisfaction note. Learnedcounsel would contend that no such satisfaction note wasprepared in the instant case and since the Assessing Officerdid not record his satisfaction regarding the undisclosedincome of the appellant, the entire proceedings initiatedagainst the appellant are vitiated. 4.We have heard learned counsel for the parties. 5.Learned counsel for the appellant contended that before the Assessing Officer having jurisdiction over theperson with respect to whom the search was made, handedover the documents seized during the search, to the AssessingOfficer having jurisdiction over the other person, it ismandatory that he shall prepare a satisfaction note. Learnedcounsel would contend that no such satisfaction note wasprepared in the instant case and since the Assessing Officerdid not record his satisfaction regarding the undisclosedincome of the appellant, the entire proceedings initiatedagainst the appellant are vitiated. 6.Section 158BD of the Act reads as follows:“Where the Assessing Officer is satisfiedthat any undisclosed income belongs toany person, other than the person withrespect to whom search was made underSection 132 or whose books of account orother documents or any assets wererequisitioned under Section 132A, then,the books of account, other documents orassets seized or requisitioned shall behanded over to the Assessing Officerhaving jurisdiction over such other person and that Assessing Officer shallproceed under Section 158 BC againstsuch other person and the provisions ofthis Chapter shall apply accordingly." 7. In Manish Maheshwari v. Assistant Commissioner of Income Tax : AIR 2007 SC 1696, the Apex Court hasnoticed the conditions precedent for invoking a blockassessment under Section 158BD of the Act. The Apex Courthas held as follows: “Section 158BD, however, provides fortaking recourse to a block assessment interms of Section 158BC in respect of anyother person, the conditions precedentswherefor are : (i) satisfaction must berecorded by the Assessing Officer thatany undisclosed income belongs to anyperson, other than the person withrespect to whom search was made underSection 132 of the Act; (ii) the books ofaccount or other documents or assetsseized or requisitioned had been handedover to the Assessing Officer havingjurisdiction over such other person; and(iii) the Assessing Officer has proceededunder Section 158BC against such otherperson.” 8. In Commissioner of Income Tax v. Calcutta Knitwears: AIR 2014 SC 2970, the Hon'ble Supreme Courthas reiterated the law as follows: “In the result, we hold that for thepurpose of Section 158 BD of the Act asatisfaction note is sine qua non andmust be prepared by the assessingofficer before he transmits the records tothe other assessing officer who hasjurisdiction over such other person. Thesatisfaction note could be prepared ateither of the following stages: (a) at thetime of or along with the initiation ofproceedings against the searched personunder Section 158BC of the Act; (b)along with the assessment proceedingsunder Section 158BC of the Act; and (c)immediately after the assessmentproceedings are completed under Section158BC of the Act of the searchedperson”. (emphasis supplied). 9.The decisions of the Apex Court referred to above categorically lay down that preparation of a satisfaction noteby the Assessing Officer regarding the undisclosed income ofthe person other than the person in respect of whom thesearch was conducted is sine qua non before proceeding against such other person. It is necessary that the AssessingOfficer shall not merely reach a satisfaction about theundisclosed income of the other person but he has to recordhis satisfaction in that regard. 10.In the instant case, admittedly, the AssessingOfficer had not recorded his satisfaction about the undisclosedincome of the appellant. The result is that the entireproceedings initiated against the appellant stand vitiated. In the instant case, admittedly, the Assessing 9.The decisions of the Apex Court referred to above categorically lay down that preparation of a satisfaction noteby the Assessing Officer regarding the undisclosed income ofthe person other than the person in respect of whom thesearch was conducted is sine qua non before proceeding against such other person. It is necessary that the AssessingOfficer shall not merely reach a satisfaction about theundisclosed income of the other person but he has to recordhis satisfaction in that regard. 10.In the instant case, admittedly, the AssessingOfficer had not recorded his satisfaction about the undisclosedincome of the appellant. The result is that the entireproceedings initiated against the appellant stand vitiated. In the instant case, admittedly, the Assessing 11.The Tribunal has found that only a prima faciesatisfaction of the undisclosed income of the person, otherthan the person with respect to whom the search was made, issufficient. The Tribunal has found that the entries in thedocuments seized during the search and the statement of theappellant recorded on the same day revealed that theappellant had undisclosed income and such a prima faciesatisfaction by the authority concerned was sufficient. The Tribunal has found that only a prima facie 12.True, what is required is only a prima faciesatisfaction of the Assessing Officer of the undisclosed incomeof the person other than the person with respect to whom thesearch was conducted. But, the crucial aspect is recording ofsuch satisfaction by the Assessing Officer. The Tribunal has True, what is required is only a prima facie stated in paragraphs 18 and 20 of its order that when theappellant himself had admitted that the incriminating materialbelonged to him, recording of satisfaction of the undisclosedincome of the assessee by the Assessing Officer was an emptyformality and the requirements under Section 158BD of theAct shall be deemed to have been fulfilled. The Tribunal alsofound that under the peculiar facts of the case, the satisfactionprescribed under Section 158BD of the Act is deemed to havebeen established. These findings made by the Tribunal arecontrary to the law laid down by the Hon'ble Supreme Court inthe decisions referred to above. 13.On the basis of the discussion above, we hold that itis mandatory for the Assessing Officer under Section 158BD ofthe Act to record his satisfaction about the undisclosed incomeof the person other than the person with respect to whom thesearch was conducted. Preparation of satisfaction note by theAssessing Officer is sine qua non before transmission ofrecords by him to the other Assessing Officer who hasjurisdiction over such other person. The substantial questionof law is answered in favour of the assessee and against therevenue. 14. In the light of the findings above, it is not necessary to examine the other factual and legal issues involved in thecase. 15.Consequently, the appeal is allowed. Theassessment order dated 30.08.2006 (Annexure B) passedagainst the appellant and the impugned order dated30.08.2013 (Annexure D) passed by the Income Tax AppellateTribunal are set aside. No costs. (sd/-) C.K.ABDUL REHIM, JUDGE jsr (sd/-) R.NARAYANA PISHARADI, JUDGE I.T.APPEAL NO.65 OF 2014 APPENDIX ANNEXURES OF APPELLANT -ANNEXUREA– TRUE COPY OF ASSESSMENT ORDER DATED21.02.2005 ISSUED BY THE ASSISTANT COMMISSIONEROF INCOME TAX, CIRLCE-2(1), RANGE-2, THRISSUR. ANNEXURE-B – TRUE COPY OF THE ASSESSMENT ORDERDATED 30.08.2006 ISSUED BY THE ASSISTANTCOMMISSIONER OF INCOME TAX, CIRCLE-2(1), RANGE-2,THRISSUR. -ANNEXURE-CTRUE COPY OF THE APPELLATE ORDERNO.I.T.A.NO.20/R-II/TCR/(CIR(A)/V/06-07DATED26.05.2009 ISSUED BY THE COMMISSIONER OF INCOMETAX (APPEALS)-V, KOCHI. ANNEXURE-D – TRUE COPY OF THE ORDER NO.IT(SS) ANO.09/Coch/2009 DATED 30.08.2013 OF ITAT COCHINBENCH, COCHIN. RESPONDENT'S ANNEXURES NIL TRUE COPY PS TO JUDGE