Revenue's delay in issuing notices under Section 158BD (of Income Tax Act, 1961) leads to dismissal of appeals.

Get the full picture - access the original judgement of the court order here.

Case Name:

Commissioner of Income Tax vs. Bharat Bhushan Jain. (High Court of Delhi)

ITA 648/2009

Key Takeaways

- The court emphasized the need for the Revenue to be vigilant and issue notices to third parties under Section 158BD (of Income Tax Act, 1961) immediately after the completion of the assessment of the searched person.

- Delays ranging from 10 months to over a year in recording the satisfaction note and issuing notices were deemed not contemporaneous with the assessment proceedings.

- The court dismissed the appeals of the Revenue, holding that the notices were not issued in conformity with the requirements of Section 158BD (of Income Tax Act, 1961).

Issue

Did the Revenue issue notices to third parties under Section 158BD (of Income Tax Act, 1961) in a timely manner, in accordance with the requirements of the Income Tax Act

Facts

- The search proceedings were conducted on 03.08.2000.

- The assessment proceedings were completed on 29.08.2002.

- Notices to third parties under Section 158BD (of Income Tax Act, 1961) were issued much later, with delays ranging from 10 months to over a year.

- The satisfaction notes were recorded well after the completion of the assessment of the searched person, which was not in line with the requirements of Section 158BD (of Income Tax Act, 1961).

Arguments

- Revenue's Argument:

The Revenue argued that the notices were valid and issued in accordance with the law.

- Respondents' Argument:

The respondents contended that the notices were issued with undue delay and did not meet the requirements of Section 158BD (of Income Tax Act, 1961).

Key Legal Precedents

- CIT vs. Radhey Shyam Bansal:

This case established that the satisfaction note must be recorded contemporaneously with the assessment proceedings of the searched person.

- CIT vs. Manish Maheshwari:

This case was cited to emphasize the importance of recording a satisfaction note as required under Section 158BD (of Income Tax Act, 1961).

- CIT vs. Calcutta Knitwears, Ludhina:

The Supreme Court in this case held that the satisfaction note is a sine qua non and must be prepared by the assessing officer before transmitting the records to another assessing officer.

Judgement

The court dismissed the appeals of the Revenue, holding that the notices were not issued in conformity with the requirements of Section 158BD (of Income Tax Act, 1961) due to undue delays. The court emphasized that the Revenue must be vigilant and issue notices immediately after the completion of the assessment of the searched person.

FAQs

Q1: What is Section 158BD (of Income Tax Act, 1961)?

A1: Section 158BD (of Income Tax Act, 1961) deals with the procedure for assessing undisclosed income of any person other than the searched person based on evidence found during a search.

Q2: Why were the notices considered invalid?

A2: The notices were considered invalid because they were issued with undue delays, ranging from 10 months to over a year, which was not in line with the requirements of Section 158BD (of Income Tax Act, 1961).

Q3: What did the court emphasize regarding the issuance of notices?

A3: The court emphasized that the Revenue must be vigilant and issue notices to third parties immediately after the completion of the assessment of the searched person.

Q4: What was the outcome of the case?

A4: The court dismissed the appeals of the Revenue, holding that the notices were not issued in conformity with the requirements of Section 158BD (of Income Tax Act, 1961).

1. These appeals are directed against the impugned order of ITAT.

Since they involved common questions of law, a common order is being

made in the present cases.

2. In all these cases, assessee/respondents were third parties, who were

issued notice under Section 158BD (of Income Tax Act, 1961) pursuant to search proceedings in

respect of other persons. In all these cases, the search proceedings were conducted on 03.08.2000. Thereafter notice was issued to them for block assessment for filing of relevant returns for previous years. The assessment proceedings were completed on 29.08.2002. Thereafter, the present assesses-third parties were issued notices under Section 158BD (of Income Tax Act, 1961) . The relevant dates of recording of the satisfaction note by the A.O., issue of notices to the present assesses and completion of assessments are recorded in tabular statement in the following manner:-

ITA No. Date of Search on Manoj Aggarwal group

Date of

assessment of

searched

person under

Section 158 (of Income Tax Act, 1961)

BC

Date of

Satisfaction

Note for other

person

Date of notice

u/S 158BD (of Income Tax Act, 1961)

Date of

completion of

assessment u/s

158BD

648/2009 03.08.2000 29.08.2002 15.07.2003 31.03.2004 31.03.2006

669/2009 03.08.2000 29.08.2002 15.07.2003 31.03.2004 31.03.2006

670/2009 03.08.2000 29.08.2002 15.07.2003 31.03.2004 31.03.2006

771/2009 03.08.2000 29.08.2002 21.07.2003 31.03.2004 31.08.2006

1075/2009 03.08.2000 29.08.2002 15.07.2003 17.08.2004 31.03.2006

1318/2009 03.08.2000 29.08.2002 15.07.2003 31.03.2004 31.03.2006

196/2010 03.08.2000 29.08.2002 13.01.2004 09.02.2004 30.12.2005

198/2010 03.08.2000 29.08.2002 14.01.2004 05.02.2004 17.02.2006

279/2010 03.08.2000 29.08.2002 26.08.2003 27.08.2003 30.08.2005

777/2010 03.08.2000 29.08.2002 13.01.2004 09.02.2004 15.02.2006

1145/2010 03.08.2000 29.08.2002 14.01.2004 06.05.2005 29.05.2007

1313/2010 03.08.2000 29.08.2002 04.06.2003 18.06.2003 27.06.2005

1326/2010 03.08.2000 29.08.2002 04.06.2003 18.06.2003 27.06.2005

3. These appeals were originally disposed of by common judgment of

this Court reported as CIT vs. Radhey Shyam Bansal 2011 337 ITR 217

(DLI). In that judgment it was held that the satisfaction note in all the cases was recorded and notices were issued beyond the period of limitation. It was held, inter alia, that the satisfaction note recorded in these cases did not accord with the requirements of Section 158BD (of Income Tax Act, 1961), applying the decision in CIT vs. Manish Maheshwari (2007) 289 ITR 341 (SC). In this batch of judgments, along with another batch of cases, appeal was preferred before the Supreme Court, which decided in its judgment reported as CIT vs.Calcutta Knitwears, Ludhina 362 ITR 673 (SC), inter alia, that:

“44. In the result, we hold 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 under

Section 158BC (of Income Tax Act, 1961); (b) along with the assessment

proceedings under Section 158BC (of Income Tax Act, 1961); and (c)

immediately after the assessment proceedings are completed

under Section 158BC (of Income Tax Act, 1961) of the searched person

45. We are informed by Shri Santosh Krishan, who is

appearing in seven of the appeals that the assessing officer had

not recorded the satisfaction note as required under Section

158BD of the Act, therefore, the Tribunal and the High Court

were justified in setting aside the orders of assessment and the

orders passed by the first appellate authority. We do not intend

to examine the aforesaid contention canvassed by the learned

counsel since we are remanding the matters to the High Court

for consideration of the individual cases herein in light of the

observations made by us on the scope and possible

interpretation of Section 158BD (of Income Tax Act, 1961).”

4. So far as the determination whether the satisfaction recorded was in

conformity with the Section 158BD (of Income Tax Act, 1961) is concerned, there is no controversy in view of the concurrent findings. Having regard to the order of this Court in CIT vs. Radhey Shyam Bansal (supra) the bone of contention is whether the period when the satisfaction note was recorded, was contemporaneous with the period in which assessment proceedings of the searched person were carried out, as held by the judgment of the Supreme Court in CIT vs.Calcutta Knitwears (supra). In each of the cases it is evident that the satisfaction note was recorded almost or just short of or more than a year after the completion of assessment of the searched person. In ITA No. 279/2010, the satisfaction note was recorded on 26.08.2003 i.e. four days short of a year after completion of assessment of the searched person; in ITA No. 1145/2010 it is recorded on 14.01.2004 i.e. about one year and four months after the searched person’s assessment is completed. In ITA No. 1313/2010 and 1326/2010, satisfaction notes were recorded on 04.06.2003 i.e. about nearly 10 months after the completion of the assessment of the searched person.

5. Additionally, we may note in ITA No.1318/2009 that the main

judgment of this Court in Radhey Shyam Bansal (supra) itself recorded that letter/communication note of 12.07.2003 did not accord with Section

158BD. The findings in the said judgment are as follows:

“17. In view of the above, it is clear that on or before

29th Aug., 2002, the AO of M/s Friends Portfolio (P)

Limited and that of Shri Manoj Aggarwal did not

record any satisfaction. The note dt. 29th Aug., 2002 is,

therefore, not to be taken for recording satisfaction

required under Section 158BC (of Income Tax Act, 1961)/158BD.

23. In view of the aforesaid legal position we can now

examine the letterdated 15th July, 2003 which was

communicated by the Assessing Officer of the searched

assessee to the assessing officer of the respondent. The

question is whether the aforesaid letter can be regarded

as ―satisfaction‖ as required under Section 158BD (of Income Tax Act, 1961), i.e.

satisfaction of the Assessing Officer of Manoj Aggarwal

that there is material that the respondent assessee had

ITA 582/2008 with connected matters undisclosed

income. The first paragraph of the aforesaid letter

states that the diary seized from the possession of

Manoj Aggarwal establishes that the respondent

assessee had acted as a mediator for providing

accommodation book entries by Manoj Aggarwal. The

second sentence in the first paragraph states that the

quantum of transactions as shown in the documents

were enclosed as Annexure-A and the photocopies of

the papers were enclosed as Annexure-B. The second

paragraph states that there was evidence that cash was

received by Manoj Aggarwal from the respondent and

the summary of the amounts received as per the seized

documents was given in Annexure C and the

photocopies of the documents were annexed as

Annexure-D. It is accepted that Annexures A, B, C & D,

referred to in this letter were not filed before the

tribunal and have not been produced before us. It is

conceded by the learned counsel for the revenue that

they are also not available on the file of the Assessing

Officer of the respondent. There is no explanation

forthcoming with regard to the aforesaid annexures. It

is well nigh impossible to know their content. The first

paragraph of the letter dated 15th July, 2003 states that

the respondent-assessee had acted as a mediator i.e.

they had introduced Manoj Aggarwal with other

persons toITA 582/2008 with connected matters whom

accommodation book entries were provided by Manoj

Aggarwal. There is no allegation in the first paragraph

that the respondent assessee was provided with

accommodation book entries or the amounts belong to

the respondent assessee. Book entries were provided to

third parties. It is not stated in this „satisfaction note„

that Manoj Aggarwal or third parties had paid any

amount towards commission for acting as a mediator.

There is no such allegation or statement in the

„satisfaction note„. The second paragraph does create

some doubt but what is relevant and important is the

fact that in the first paragraph, it is accepted by the

Assessing Officer of Manoj Aggarwal that the

respondent assessee was merely acting as a mediator

and nothing more. The second paragraph of the letter

states that there was evidence that cash was received by

Manoj Aggarwal from the respondent assessees. What

was the evidence and material was not brought on

record before the tribunal or even before us. The said

material is not mentioned in the assessment order. It

cannot be „ipse dixit„ without material or evidence to

satisfy the concept of requirement as engrafted under

Section 158BD (of Income Tax Act, 1961). What was the material was neither

highlighted before the tribunal nor before us. Thus, the

appellant-revenue has not discharged the onus that

there was ITA 582/2008 with connected matters valid

satisfaction as required under Section 158 (of Income Tax Act, 1961) BD.

Therefore, the irresistible conclusion is the pre-

requisite of „satisfaction‖ as engrafted under Section

158B for the purpose of initiation of block assessment

proceeding is non-existent or absent.”

6. Having regard to the intent of the Supreme Court in Para 44 of the

Calcutta Knitwears (supra), where it was indicated that the Revenue has to be vigilant in issuing notice to the third party under Section 158 (of Income Tax Act, 1961) BD,immediately after the completion of assessment of the searched person, this Court is of the opinion that a delay ranging between 10 months of 1 1⁄2 years cannot be considered contemporaneous to assessment proceedings. We are of the opinion that notices were not issued in conformity with the requirements of Section 158BD (of Income Tax Act, 1961), and were unduly delayed. The appeals of the Revenue accordingly fail and are dismissed.

S. RAVINDRA BHAT

(JUDGE)

R.K.GAUBA

(JUDGE)

JANUARY 08, 2015