Sunday, January 8, 2012

Whether when Revenue searches several persons, a combined satisfaction rec

Whether when Revenue searches several persons, a combined satisfaction recorded can be said to be legally valid for initiating action under Sec 158BD - YES, rules ITAT

NEW DELHI, JAN 06, 2012: THE issues before the Bench are - Whether ground relating to assumption of jurisdiction under section 158BD can, for the first time, be taken in the second round of litigation; whether completion of assessment proceedings in the case of searched person is sine qua non for initiating action under section 158BD; Whether for judging the correct date of notice of 158BD typographical errors should be ignored; Whether combined satisfaction, when the searched persons are more than one, can be recorded for initiating action under section 158BD and Whether undisclosed income unearthed during search can only be added under chapter- XIV-B. And the verdict partly goes in favour the assessee.

Facts of the case

Assessee, a partnership firm, is engaged in the business of civil construction assessed under section 158BD of the Act. Since certain incriminating material was found against it in a Search and seizure action under section 132 of the Act, conducted at the residence of the partners. During the course of search, several incriminating materials, along with some books of accounts pertaining to M/s. Jeet Construction Company, were seized from all the business premises. On the basis of these documents the AO made additions. Assessee challenged these additions before the CIT(A) and ITAT - ITAT restored the matter to the AO for considering afresh - In the second round of appellate proceedings before CIT(A) assessee challenged the jurisdiction of the AO under section 158BD on the ground that no satisfaction was recorded by the AO of the searched person and the alleged satisfaction was a consolidated satisfaction vis-a-vis material seized from different persons, which was not permissible. Besides assessee also challenged that action under section 158BD ought to have been taken after the culmination of assessment of searched person. Assessee also challenged the addition on merits. CIT(A) dismissed the legal contentions of the assessee and also sustains the addition on merits. Before ITAT the AR of the assessee pointed out that expenses shown by the assessee in the books and assessed under section 143(3) were more than the expenses estimated by the AO and hence no addition on estimated basis was permissible.

After hearing the parties the ITAT held that,

++ in view of decision of Gujarat High Court in the case of P V Doshi Vs CIT, it is clear that jurisdiction point being a pure question of law can be agitated in the remand proceedings as it goes to the root of the matter. In the case before us the assessing officer had not provided the copy of satisfaction note recorded by the assessing officer while initiating proceedings under section 158BD of the Act. The satisfaction note was provided on interference of the CIT (Appeals) in the second round of appellate proceedings. At this stage only the assessee came to know the reasons as to why proceedings against it were initiated under section 158BD as no search under section 132 of the Act was conducted in the case of the assessee. Therefore, in our considered opinion, the assessee is justified in taking the ground agitating the jurisdiction under section 158BD in the second round of assessment proceedings;

++ nowhere in the section it is provided that proceedings under section 158BD will be initiated only in a case where assessment under section 158BC is made. Initiation of 158BD proceedings is independent of the action taken in the case of searched person. It is the satisfaction of the assessing officer having jurisdiction over searched person to convey the books of accounts or assets to the assessing officer having jurisdiction on the person in respect of whom the books of account, other documents or assets seized or requisitioned are found in the possession of searched person. The books of accounts or documents or assets can be conveyed at any stage i.e. during the course of assessment proceedings in case of searched person or before initiation of proceedings under section 158BC of searched person or after completion of assessment in the case of searched person. Therefore, completion of assessment under section 158BC in the case of searched person is not condition precedent for recording of the satisfaction under section 158BD of the Act;

++ as per original assessment order the notice was served on the assessee on 20/09/2004. Therefore, the date written on hand at the bottom as 20/09/2004 represents the date of service. The date of issue of notice on 16/11/2003, in our considered opinion, appears to be typing mistake as the assessing officer in the assessment order has stated the date of notice under section 158BD as 16/09/2004. The date of notice mentioned in the assessment order 16/09/2004 was not challenged in the first assessment proceedings. Therefore, the date mentioned on the notice under section 158BC 16/11/2003 is a typographic mistake. The assessee had not filed any other evidence to prove that notice dated 16/11/2003 was served on the assessee in November, 2003. In the absence of any such material, we are unable to hold that the notice under section 158BD read with s. 158BC was issued on 16/11/2003. Therefore, this contention of the assessee is rejected;

++ the contention of the assessee that the combined satisfaction note recorded in respect of three different searched persons is bad in law. The assessing officer should have recorded separate satisfaction notes in the case of each searched party. As already mentioned that the assessing officer is same for all the searched persons, because of this reason, a combined satisfaction note has been prepared. When the assessing officer is the same for all the searched persons, making a satisfaction note based on material found from the premises of different persons, which was conveyed by the authorized officer to the assessing officer, preparation of combined satisfaction note will not be detrimental to the interest of the Revenue. At the best it could be treated as an irregularity and not illegality. What is to be seen is whether before issue of notice u/s 158BD satisfaction should be recorded by the assessing officer which has been done in the case of the assessee. Therefore, assessment cannot be annulled on the basis of combined satisfaction note, recorded by the same assessing officer, having jurisdiction on all the searched persons including the assessee under appeal;

++ Section 158B(b) defines term `undisclosed income' and means to include any money, bullion, jewellery or other valuable article or things or any income based on any entry in the books of accounts and other documents or transaction, where such money, bullion, jewellery, valuable article, things, entry in the books of accounts or other document or transaction represent wholly or partly income or property, which has not been or would have been disclosed for the purpose of this Act or any expense, deduction or allowance claimed under this Act, which is found to be false. From the definition of expression `undisclosed income' it is clear that income which has not been disclosed or would not have been disclosed would be undisclosed income. Section 158BB(1) provides the mode of computation of undisclosed income. The undisclosed income for the block period shall be the aggregate of total income of the previous years falling within the block period computed, in accordance with provisions of this Act, on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other material or information as are available with the assessing officer and relatable to such evidence, as reduced by the aggregate of total income or as the case may be, as increased by aggregate of losses of such previous years determined, - as specified in clause (a) to (f). Therefore, where income has been already assessed or return of income has been filed that income cannot be taken as undisclosed income;

++ no evidence during the course of search was found that the assessee had earned any undisclosed income. Similarly, there is nothing on record to suggest that the assessee had booked bogus expenditure in various assessment years. The assessing officer had also not determined the undisclosed income assessment year-wise. In fact on the basis of entries found recorded in the seized material, income cannot be determined on year to year basis. Had it been so, the earlier assessing officer would have not recorded a finding of fact that there was no clinching evidence of concealment of income. Merely because the ITAT had set aside the issue to the file of the assessing officer, the totals of all the entries whether recorded in the regular books of accounts or without any date would constitute income of the assessee that too undisclosed income. Moreover, it is a settled law that the assessee cannot be put to a more adverse situation than what he was in.

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