Thursday, April 25, 2013

153C : certain conditions precedent are to be followed and they are mandatory

Commissioner of Income Tax v Classic Enterprises Cantt Road Lucknow,
Revenue; Search and seizure — Search conducted on other person — Assessment in respect of third person in respect of whom search has not been conducted — Permissibility — Assessee was registered firm consisting of two partners — Search was conducted in business premises of assessee and its partner — Books were handed over to AO and AO passed notice under s 153C — CIT(A) quashed assessment order — Tribunal also dismissed Revenue's appeal — Held, in order to initiate block assessment proceedings against third person in respect of whom search has not been conducted, certain conditions precedent are to be followed and they are mandatory — Satisfaction by its very nature must precede before papers are sent by AO of person searched to AO of third person — Mere use or mention of word satisfaction in order would not meet requirement of concept of satisfaction as used in s 158BD — Satisfaction has to be in writing and can be gathered from assessment order, if it is so mentioned, or from any other order, note or record maintained by AO of person searched — It refers to state of mind of AO of person searched, which is reflected in tangible form when it is reduced to writing — AO is satisfied when he makes up his mind or reaches clear conclusion when he takes prima facie view that material available establishes "undisclosed income" of third party — At this stage, as proceedings are at very initial state, "satisfaction" is neither required to be firm or conclusive — "Satisfaction" required is to decide whether or not block assessment proceedings are required to be initiated — But "satisfaction" has to be founded on reasonableness — Satisfaction must reflect rational connection with or relevant bearing between material available and undisclosed income of third person — F urther, it was held that there was no necessity for transferring file from one officer to another, in case where person searched was partner and based on materials gathered during search assessment was made by same officer on assessee-firm, wherein searched assessee was partner — So much so, issuance of notice under s 158BD read with s 158BC was sufficient for initiation of assessment — In light of above discussion and considering totality of facts and circumstances of case, no reason was found to sustain order passed by Tribunal — Order passed by Tribunal set aside — Matter remanded back to Tribunal, directing to decide all appeals strictly on merits expeditiously.

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