Sudhir Sehgal, Adv. for the Assessee. G.S. Phani Kishore, CIT-DR for the Revenue.

Both the present appealshave been preferred by the assessee against the order dated 28.03.2016 &31.03.2016 of the Commissioner of Income Tax (Appeals)-2, Ludhiana (in short referred to as CIT(A)) u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) , against order passed in quantum proceedingsu/s 158BC read with 158BD of the Act &penalty proceedings u/s 158BFA of the Act.

2. The facts of the case arethat there was a search u/s 132 at the business premises Sh. Sanjeev Gupta group, which included M/s S.G. Global Exports Ltd., M/s S.G. Capital Services Ltd. and its brokerage concern M/s S.G. & Co., Ludhiana. From the documents seized during such action it was found by the Investigation Wing and subsequently by the Central Circle Ludhiana that Sh. Sanjeev Gupta director of aforesaid companies alongwith its brokerage concern M/s S.G. & Co., in collusion with some of the brokers of the Ludhiana Stock Exchange such as M/s Pee Kay Khanna& Co., M/s PawanPuri& Co and M/s Singhania& had indulged in money laundering and in giving entries of capital gains tovarious persons. Based on the aforesaid information notice u/s 158 BC was issued to the assessee ,in response to which he filed a return declaring undisclosed income of Rs. Nil. From the perusal of assessment records of the assessee, the AO noted thatthe assessee had shown capital gains during the AY 1998-99 on account ofpurchase/sale transactions of shares of M/s S.G. Global Exports Ltd. The AO further noted that the assessee had shown purchase of 62500 shares for Rs. 97000at the rate of Rs. 1.50-1.55 per share on 11.11.97 and sold off shares on 27.03.98for Rs. 10,93,350/- @ Rs. 17.50 per share. And the capital gains of Rs. 9,97,500/-thus had been shown which has been used to set off against the loss on account ofsale of jewellery declared under the VDIS. Further from the perusal of assessment records, the AO observed as under :

a) The purchase of shares has been made through M/s S.G. & Co. on11.11.1997 but the payment in respect of such shares has been made only in March 1998.

b) The sale of shares has been made through the same broker 27.03.1998 to persons whose identity and whose whereabouts are not known; The sale consideration shown to have been realized by the broker M/s S.G. & Co. which is handled by Sh. Sanjeev Gupta who is the director of M/s S.G. GlobalExports Ltd. (in collusion) in cash and subsequently passed to the assessee through cheque.

c) Thus it was seen that the broker allowed credit to the assessee of as much as four months without any charges, (between purchase and payment). Whereas the payment should be made within four days as per norms and prevailing practice.

d) The rates of company were not quoted in any of the Stock Exchanges and in any cases did not swell uptoRs. 17-18/-. The price rise from Rs. 1-3 to Rs. 17-18 within a span of 4 months was abnormal especially keeping in view the credential of the company M/s S. G. Global Export Ltd.

2.2 Keeping in view the above facts, the AO was of view that the assessee was required to explain and establish the genuineness of transaction. In responsethereof the assessee submitted that the Department had not provided the assessee's information available with the Department. In light of numerousopportunity afforded to the assessee the objections raised by the assessee was ignored by the AO.The AO observed that the sale transaction did not take place and the whole arrangement was merely a paper transaction in order to take capital gain ent ry and to introduce one's own undisclosed money by the appellant.

Therefore, the AO made addition of Rs. 9,97,500/- on account of income from undisclosed sources.Subsequently, the AO observed that the appellant had paid commission @2% to Sh. SanjeevGupta for obtaining these entries. Accordingly addition of Rs. 19,950/-(@2% of Rs. 9,97,500/-) was also made on account of commission paid by the appellant to Sh. Sanjeev Gupta from his undisclosed sources.Thus, total addition of undisclosed income Rs.10,17,450/-was accordingly made in order passed u/s 158BD r.w.s 158BC of the Act.

3. The matter was carried in appeal before the ld. CIT(A) where the assessee challenged the order passed raising both legal grounds challenging the assumption of jurisdiction by the AO u/s 158BD of the Act and also on the merits of the case. The ld. CIT(A) dismissed all the grounds raised by the assessee and upheld the order of the AO ,dismissing the appeal filed by the assessee. Aggrieved by the same, the assessee has come up in appeal before us raising the following grounds :

1. That the learned CIT(A) has erred in confirming the action of the Assessing Officer in opening the case U/s 158BD of the Income Tax Act, 1961.

2. That the learned CIT(A) has erred in not considering that the action of the Assessing Officer in opening the case U/s 158BD was bad in law as conditions precedent for invoking the provisions of Section 158BD were not satisfied.

3. That the learned CIT(A) has erred in not considering that proceedings U/s 158BD has been initiated without any proper satisfaction and without having any material which is mandatory to be transferred from the Assessing Officer who has the jurisdiction over the searched person.

4. Further, it is submitted that the learned CIT(A) has erred in not considering that the Assessee had disclosed transactions in respect of sale and purchase of shares in his regular return of income. As such, the same transactions cannot be treated for the purpose of Clause (b) of Section 158BD of the Act.

5. Further, it is submitted that the learned CIT(A) has erred in not considering that the Assessee had already sold the shares and had also already realized the sale proceeds of shares much before the search on the party concerned and, thus, the findings of the CIT (A) against such back ground are not proper.

6. That in view of legal and factual position, the learned CIT(A) has erred in confirming the addition of Rs.10,17,450/- made by the Assessing Officer by initiating proceedings U/s 158BC r.w. Section 158BD and 143(3) of the Income Tax Act, 1961.

7. That the detailed submissions filed along with citation of various case laws, during the course of hearing before learned CIT(A) and also during the course of assessment proceedings has not been considered properly.

8. That the Appellant craves leave to add or amend the grounds of appealbefore the appeal is finally heard or disposed off.

4. Ground Nos. 1 and 9 are general in nature and need no adjudication.

5. Ground Nos. 2 & 3 are legal grounds challenging the validity of the assessment framed u/s 158BD of the Act. The primary contention of the ld. counsel for the assessee raised in these grounds is that for the purpose of assuming jurisdiction to frame assessment u/s 158BD of the Act, the necessary pre- requisites as per law are the satisfaction of the AO of the person searched to the effect that there is undisclosed income belonging to any other person and handing over of the incriminating material belonging to AO of such third person so as to proceed against such person. The ld. counsel for the assessee has contended that there was never any material in the possession of the AO of the searched person relating to the assessee and in the absence of the same, therefore, there could not have been any satisfaction by the AO of the searched person vis-à-vis any undisclosed income of the assessee unearthed during search and no incriminating material was passed to the AO of the assessee and therefore, the assessment framed by the AO in the present case was without any valid jurisdiction. The ld. counsel for the assessee pointed out that even the CIT(A) had admitted to the fact of absence of any incriminating material relating to the assessee either with the AO of the searched person or with the AO of the assessee. He further drew our attention to the copy of letter dated 31.05.2001 from the AO of the searched person i.e. DCIT, Central Circle, Ludhiana placed at Paper Book page No. 1 & 2 before us, pointing out therefrom that it contained only information and opinion of the AO of the searched person and there was no mention of any incriminating material relating to the assessee in the same so as to be satisfied that undisclosed income relating to the assessee had been found during search. He further drew our attention to the copy of the satisfaction note recorded by the AO of the assessee dated 28.06.2001 placed at Paper Book page No. 3 pointing out therefrom that the AO of the assessee had recorded satisfaction for assuming jurisdiction to frame assessment u/s 158BD of the Act solely on the basis of information passed on to him by the AO of the searched person and satisfaction note finds mention of no incriminating material in the possession of the AO to arrive at such satisfaction of but rest as argument. The ld. counsel for the assessee drew our attention to a letter written by the AO of the assessee to the AO of the searched person i.e. DCIT, Central Circle, Ludhiana dated 10.04.2003 i.e. much after recording satisfaction for assuming jurisdiction u/s 158BD i.e. on 28.06.2001, asking for supply of copies of seized material.

The ld. counsel for the assessee, therefore, contended that undisputedly there was no incriminating material passed on by the AO of the searched person to the AO of the assessee and therefore, the assumption of jurisdiction u/s 158BD of the Act by the AO of the assessee was not as per law. He further contended that even the assessment was framed without any incriminating material with the AO. The ld. counsel for the assessee relied onvarious case laws for the proposition that satisfaction and handing over of seized material by the AO of the searched person of the AO of the third person is mandatory. Reference was made to the decision of the Apex Court in the case of Manish Maheshwari as reported in 289 ITR 341 (S.C) in this regard. Further, the ld. counsel for the assessee relied on following case laws for the proposition that the AO of the third person has to record his independent satisfaction based on material handed over to him by the AO of the searched person in assuming jurisdiction to frame assessment u/s 158BD of the Act :

i) CIT VsMechmen in ITA 44/45/50/53/54/56 of 2011 (Madhya Pradesh H.C.) order dated 10.07.2015.

ii) M/s Parshwa Corporation Jaldhara Apartments Vs DCIT ITSS68 to 73/Ahd/2012 dated 11.09.2015.

6. The ld. DR on the other hand heavily relied on the findings of ld. CIT(A) in this regard. He drew our attention to para 2.13 to 2.17 of the order as under :

“2.13 I have carefully considered the appellant's submissions. I have also gone rough the assessment record. It is apparent from the reason recorded by the AO that the information received by the AO from DIT, Investigation Delhi was specific information.

The information referred to the fact of accommodation entry through bank cheque. The bank account number and the name of the person from whom the amount was received was also specifically mentioned in the information. As such the information was not ambiguous or general, communication received by an Assessing Officer for discharge of his official duties is valid information for provisions of section 158BD of the Act. Reliance in this regard is placed on the following case laws, although some are related to proceeding u/s 148 of the Act but the issues are relevant here also in the context of issue of satisfaction of AO:-

Rajat Export Import India Pvt. Ltd. v. ITO (2012) 341 ITR 135 / 206 Taxman 50/75 DTR 108/252 CTR 307 (Delhi)(High Court) Accommodation entries - Reopening held valid. (S. 148) The Court dismissed the writ petition challenging the reopening on the ground that in thereasons recorded the Assessing Officer had referred to the investigation madethe Director of Income-tax (Investigation), who was in charge of the investment into groups that operated as entry operators, in the various branches of banks to introduce unaccounted money in the guise of gifts, loans share application money, etc. After referring to the broad and general modus operandi adopted by the entry providers, the Assessing Officer specifically noticed from the list of entries given to him by the investigation wing that assessee had taken accommodation entry from S in the amount of Rs. 3 lakhs. The reasons to believe recorded in writing b y the Assessing Officer were detailed and showed application of mind .At the stage when reasons are recorded for reopening the assessment, the Assessing Officer is not required to build a fool proof case for making addition to the assessee's income; all that is required to do at that stage is to form a prima facie opinion or belief that income has escaped assessment. On the facts the Court up held the reopening of assessment and dismissed the writ petition. (A. Y. 2004-05).(ii) ACIT v. Kisco Casting P. Ltd. (2013) 152 TTJ 629 (Chd.) (Trib.) Where the information is factual and not false one and the same has merely been communicated to the Assessing Officer, he would be within his statutory right to invoke the provisions of section 147 r.w.s. 148.The Tribunal held that information from the investigation wing being factually correct and the assessee failed to refuse the same in any proceedings under the Act, then the Assessing Officer has jurisdiction under section 147 r.w.s. 148 of theAct and there is no infirmity and illegality in issuance of notice under section 148 of the Act by Assessing Officer. (A. Y 2006-07)

(Mi) SrinivasaKhandasariUdyogVs. ITO (ITAT, Bang) 56 ITD 146

(iv) ITO Vs. PurushotamDasBangur&Anr. (SC) 224 ITR 362

(v) Elphinstone Picture Palace Vs. Union of India &Anr (Pat) 74 ITR 115

(vi) H.A. Nanji&Co.Vs. ITO (Cal) 120 ITR 593

(vii) SohanSingh Vs. CIT (Del) 158 ITR 174

(viii) Rattan Gupta Vs. CIT (P&H) 234 ITR 220

Similarly, information received from other agencies like CIB, Enforcement Directorate or from other Assessing Officers constitute material for reopening of assessment and notice issued u/s 148 in these circumstances is also valid Reliance in this regard is placed on the following decisions:-

i) CGT Vs. SusheelaShanmugasundaram (Mad) 242 ITR 176

ii) ITO Vs. GurinderKuar (ITAT, Del) 102 ITD 189

iii)Sterlite Industries (India) Ltd. Vs. ACIT (Mad) 302 ITR 275

2.14 Further reliance is placed on the decision of jurisdictional high court in the case of Commissioner of Income-tax vs. Mukta Metal Works IT APPEAL NO. 22 OF 2008 f FEBRUARY 28, 2011 [2012] 20 taxmann.com 774 (Punj. &Har.)in which it considered and held Assessing Officer considering case of searched persons, found prima facie material to proceed against assessee it was sufficient satisfaction for purpose of section 158BD. The facts of the case are that;

A search was carried out at the residence of one 'A', who was deriving income from commission from the money lending business - During search a diary (bahi) was seized which contained some entries - In a statement recorded by department, 'A' admitted that while doing business of broker in money lending, the lenders/borrowers contacted him as he would arrange meetings between them - If transaction matured, he would get his commission and if he got commission, he made entries in diary The entries in the diary seized represented commission received in transactions between parties mentioned in the diary in code form which could be identified. In his case, block assessment was completed on 21-5-2001 and on the said date, an office note was appended to the assessment order to the effect that undisclosed income of persons other than searched persons was disclosed. Accordingly, proceedings under section 158BD, readwith section 158BC wereinitiated against the assesseswho was identified as having lent money from undisclosed sources. The assessee filed its return of income on 30-12-2002 declaring undisclosed income at nil. However,the Assessing Officer assessed the undisclosed income at Rs. 3 lacs relying upon the statement of 'A' and the entries in the diary found during search. On appeal, the Commissioner (Appeals) set aside the addition on the ground that except the diary and the statement of 'A'. There was no other corroborative evidence and the lenders/borrowers mentioned in the diary denied the transactions recorded in the diary. On appeal, the Tribunal held that (I) the office note dated 21-5-2001 which was appended to section 158BC order did not constitute a satisfaction note within the parameter of section 158BD (ll) the Asstt. Commissioner Circle, Yamuna Nagar ought to have handed over the seized material and satisfaction note in ITO, Ward-1, Yamuna Nagar and it does not have jurisdiction to proceed in case of assessee. (iii) it did not take into cognizance additional evidence, i.e., an examination report/opinion of laboratory of the government examiner of questioned documents, regarding the diary of broker and affidavit of broker.

In the instant case, the office note clearly indicated that there were entries, which might show undisclosed income of persons other than searched persons who were identifiable from the diary. Accordingly, due cognizance was being taken thereof for initiating proceedings for block assessment in those cases. The same meets the requirement for proceeding under section 158BD. It is clear from the language of section 158BD that if while considering the case of the searched persons, the material indicate undisclosed income at the hands of any other person, further action could be taken as stipulated therein. In the instant case, the Assessing Officer considering the case of the searched persons, found prima facie material to proceed against persons other than the searched persons and initiated proceedings. There is no compulsion to read any further requirement than what is mentioned as necessary for action under section 158BD. It was not possible to hold that any further investigation was required to be conducted at that stage. [Para 91

It was not disputed that the Assistant Commissioner had been conferred jurisdiction to make assessment in the case of the assessee on 31-12-2001 prior to passing of the order of assessment and before recording the note dated 15-3-2002. The said note obviously was in continuation of earlier note dated 21-5-2001. Notice issued by the said authority could not be treated as invalid.[Para 10]

In view of above, the finding of the Tribunal had to be set aside and matter was remanded to it for fresh decision The question was answered accordingly in favourof the revenue. [Para 14]

Accordingly, this appeal was allowed, the impugned order of the Tribunal was quashed and the matter was remanded to the Tribunal for fresh decision in accordance with law. [Para 16]

In this case hon'ble jurisdictional High Court has also considered Manish Maheshwariv. Asstt. CIT [2007] 289 ITR 341 / 159 Taxman 258 (SC) and other decisions and thereafter has distinguished and held that the the Assessing Officer considering the case of the searched persons, found prima facie material to proceed against persons other than the searched persons and initiated proceedings. There is no compulsion to read any further reguirement than what is mentioned as necessary for action under section 158BD. It was not possible to hold that any further investigation was required to be conducted at that stage.

The hon'blecourt has also taken cognizenceof judgment of Gujarat High Court in Rishul Industries Ltd. v. Harsh Prakash [2001] 251 ITR 608/[2002] 120 Taxman 67(Guj.) to the effect that satisfaction referred to under Section 158 BD of the Act is required to be prima facie satisfaction to show that there was undisclosed income of a personother than the searched person. Reliability of the material found was not required to be gone into at that stage. The said judgment was followed in Priya Blue Industries (P.) Ltd. v. Jt CIT [2001] 251 ITR 615/12002] 120 Taxman 696 (Guj.)

2.15 Recently in a landmark decision Hon’ble apex court in the case of CIT vs. Calcutta Knitwears (Supreme Court) dated April 1, 2014 has decided this issue that u/s 158BC/ 158BD, Law on how & when "satisfaction" has to be recorded by AO to attain jurisdiction over non-searched person explained. The facts of the case are;

A search u/s 132 was carried out in the premises of the Bhatia Group on 05.02.2003 and certain incriminating documents pertaining to the assessee firm were found. The assessment on the Bhatia group was completed on 30.03.2005. Thereafter, on 15.07.2005, the AO recorded his "satisfaction" that the seized papers revealedthe undisclosed income of the assessee and the said papers were passed on to the AO of the assessee for making an assessment u/s 158BC read with sec.158BD. The assessee argued that the proceedings initiated again him were invalid as the said "satisfaction note" was prepared after the proceedings in the case of the searched party were completed. The AO and CIT(A) rejected the assessee's claim though the Tribunal and the High Court upheld it. The Tribunal &High Court held that as the recording of satisfaction by the AO as contemplated u/s 158BD was on a date subsequent to the framing ofassessment u/s 158BC in case of the searched person, that is, beyond the period prescribed u/s 158BE(1)(b), the notice issued u/s 158BD was belated and consequently the assumption ofjurisdiction by the AO in the block assessment was invalid. On appeal by the department to the Supreme Court HELD by the Supreme Court allowing the appeal:

" (i) While it is true that before initiating proceedings u/s 158BD. the AO who has initiated proceedings for completion o f the assessments u/s 158BC should be satisfied, on the basis of cogent and demonstrative material, that the seized documents belong to a person other than the searched person, the said satisfaction note could be prepared by the AO either at the time of initiating proceedings for completion of assessment of a searched person u/s 158BC or during the stage of the assessment proceedings. It does not mean that after completion o f the assessment, the AO cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the AO in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. Further, s. 158BE(2)(b) only provides for the period of limitation for completion of block assessment u/s 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after 01.01.1997. The said section does neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation the satisfaction note u/s 158BD and consequent issuance of notice to the other person;

(ii) The result is that for the purpose ofs. 158BD a satisfaction note is sine qua non and must be prepared by the AO before he transmits the records to the other AO 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 u/s 158BC of the Act: (b) along with the assessment proceedings u/s 158BC of the Act: and (c) immediately after the assessment proceedings are completed u/s 158BC of the Act of the searched person."

2.16 Further, it is seen from the reason recorded by the AO that the AO applied his mind to this Information by verifying the assessment record. Merely because the AO has taken the action u/s 158 BD after receiving the Information from Investigation wing where in them odusoperendi of accommodation entries has been discussed in detail, it does not Imply that there was no application of mind by the AO. The facts remains that already the assessing officer when he passed on the information to the assessing officer concerned in the case of appellant dated 3M05/2001, had recorded all the relevant information in detail clearly bringing out the modusoperendi of the person where the search had taken placeand its relevance in the case of appellant. Therefore the satisfaction of AO is based on proper and relevant facts.

The fact remains that the appellant had received a share application from above mentioned companies. The fact also remains that the AO has received concrete information from investigation wing w.r.t to accommodation entries received in cheques by appellant in lieu of cash. In these circumstances, the AO was fully justified in initiation the proceedings u/s 158 BD of the Act.

2.17 I have carefully perused the assessment order. It is evident from the assessment order that the satisfaction required u/s 158BD was communicated to the AO by the DCIT, Central Circle-I, Ludhiana. Therefore non receipt of seized material can't be construed as sufficient reason to hold that satisfaction of AO was improper or there was no application of mind. Accordingly, in my considered view and relying on the decisions of jurisdictional High Court and Apex Court, there is no lacuna on the part of the AO in invoking the provisions of Section 158BD. These grounds of appeal are therefore dismissed.”

7. Referring to the same ld. DR contended that the AO of the searched person had passed specific information mentioning the bank account number and the name of the person from whom the amount was received and this specific information was valid for the provisions of Section 158BD of the Act. He further pointed out that the reasons recorded by the AO of the assessee show that he had applied his mind to the information passed on to him and therefore, the satisfaction recorded by him was based on proper and relevant facts. The ld. DR, therefore, contended that non receipt of seized material in these circumstances cannot be construed as sufficient reason to hold that satisfaction of the AO was improper or there was no application of mind.

8. We have heard the rival contentions and gone through the orders of the authorities below. We have also carefully gone through the arguments referred to before us as also the case laws.

The issue to be adjudicated is whether the jurisdiction assumed by the AO in the present case u/s 158BD of the Act to frame assessment of undisclosed income of the block period as per section 158BC of the Act, wasas per law. It is relevant to point out that the provisions referred to relate to the assessment of undisclosed income of block period, in the case of search proceedings conducted, andwhile section 158BC of the Act relates to the manner in which undisclosed income of block period is to be assessed in case of persons searched, Section 158BD gives power to assess the undisclosed income of the block period relating to a person who has not been searched but relating to whom incriminating material in relation to his undisclosed income is found during search proceedings conducted on other person. Briefly put, the provisions of section 158BD of the Act give power to the AOs to assess undisclosed income of the block period of persons not subjected to search proceedings in the like manner as those who are subjected to search proceedings. In the present case jurisdiction has been assumed by the AO u/s 158BD of the Act.The contention of the Ld.Counsel for the assessee is that the conditions outlined in section 158BD of the Act for assuming jurisdiction to frame assessment on a person other than searched person have not been fulfilled in the present case, more particularly, the conditions of the incriminating material relating to the third person being handed over to his AO by the AO of the searched person. The contention of the Ld. Counsel for the assessee that this condition which is clearly spelt out in section 158BD of the Act for the purpose of the AO assuming jurisdiction has not been fulfilled in the present case since the seized material relating to the assessee was never handed over to the AO of the assessee by the AO of the searched person. In this regard, the Ld.Counsel for the assessee has referred to the communication of the AO of the searched person, DCIT, Central Circle, Ludhiana,addressed to the DCIT-V, Ludhiana, passing information obtained during search at the premises of S.S.Globaland asking him to take necessary action, the satisfaction recorded by the AO of the assessee for assuming jurisdiction u/s 158BD of the Act on the basis of the aforesaid information and the letter written by the AO of the assessee during penalty proceedings asking for the seized material relating to the assesseefor the purpose of framing the assessment u/s 158BC read with section 158BD of the Act. The Ld.Counsel for the assessee also hasdrawn our attention to the finding of the Ld.CIT(A) also in this regard to the fact the no seized material relating to the assessee was passed on by the AO of the assessee.

9. The Ld. DR, on the other hand, has relied upon the order of the AO stating that since specific information relating to the assessee had been passed on to the AO, it was sufficient compliance with the condition outlined in section 158BD for the purpose the AO assuming jurisdiction to frame assessment u/s 158BD of the Act.

10. Having heard both the parties we hold that the jurisdiction assumed in the present case u/s 158BD of the Act was not as per Law in the absence of fulfillment of the necessary condition of handing over of incriminating material relating to the assessee by the AO of the searched person to the AO of the assessee.

The provisions of section 158BD of the Act are very clear and are as under:

“Section 158BD in The Income- Tax Act, 1995 158BD. Undisclosed income of any other person Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or Whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly.”

11. A bare reading of the provisions of the Act clearly bring out that for the assumption of jurisdiction u/s 158BD of the Act it is a necessary prerequisite for the incriminating material relating to the third person being handed over to his AO by the AO of the searched person,. The section clearly states the handing over of all material relating to the third person to his AO and only thereafter the AO can proceed to frame assessment of undisclosed income relating to the block period on such third person. The Hon’ble Apex Court has interpreted the provisions of section u/s 158BD of the Act in the case of Manish Maheshwari (supra) as under:

“ 7. Condition precedent for invoking a block assessment is that a search has been conducted under s. 132, or documents or assets have been requisitioned under s. 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under s. 132A or documents or assets have been requisitioned under s. 132A. Sec. 158BD, however, provides for taking recourse to a block assessment in terms of s. 158BC in respect of any other person, the conditions precedent wherefor are : (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 of the Act; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 158BC against such other person.

The conditions precedent for invoking the provisions of s. 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A of the Act.

8. A taxing statute, as is well-known, must be construed strictly. In Sneh Enterprises vs. Commr.of Customs (2006) 7 SCC 714, it was held :

"While dealing with a taxing provision, the principle of 'strict interpretation’ should be applied. The Court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person. It would never be done by invoking the provisions of another Act, which are not attracted. It is also trite that while two interpretations are possible, the Court ordinarily would interpret the provisions in favour of a taxpayer and against the Revenue."

9. Yet again in J. SrinivasaRao vs. Govt. of A.P. &Anr. 2006 (13) SCALE 27, it was held :

"In a case of doubt or dispute, it is well-settled, construction has to be made in favour of the taxpayer and against the Revenue."

10. InIspat Industries Ltd. vs. Commr. of Customs JT 2006 (12) SC 379 : 2006 (9) SCALE 652, this Court opined :

"In our opinion if there are two possible interpretations of a rule, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act."

11. Law in this regard is clear and explicit. The only question which arises for our consideration is as to whether the notice dt. 6th Feb., 1996 satisfies the requirements of s. 158BD of the Act. The said notice does not record any satisfaction on the part of the AO. Documents and other assets recovered during search had not been handed over to the AO having jurisdiction in the matter.

12. No proceeding under s. 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November, 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened.

13. A large number of decisions of various High Courts have been cited at the Bar. We would, at the outset, refer to a decision of the Gujarat High Court in KhandubhaiVasanji Desai & Ors. vs. Dy. CIT &Anr. (1998) 150 CTR (Guj) 577 : (1999) 236 ITR 73 (Guj). Therein, it was clearly held :

"This provision indicates that where the AO who is seized of the matter and has jurisdiction over the person other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, he shall proceed against such other person as per the provisions of Chapter XIV-B which would mean that on such satisfaction being reached that any undisclosed income belongs to such other person, he must proceed to serve a notice to such other person as per the provisions of s. 158BC of the Act. If the AO who is seized of the matter against the raided person reaches such satisfaction that any undisclosed income belongs to such other person over whom he has no jurisdiction, then, in that event, he has to transmit the material to the AO having jurisdiction over such other person and in such cases the AO who has jurisdiction will proceed against such other person by issuing the requisite notice contemplated by s. 158BC of the Act."

14. Similar view has been taken by the Gujarat High Court in Rushil Industries Ltd. vs. Harsh Prakash (2001) 166 CTR (Guj) 300 : (2001) 251 ITR 608 (Guj), Priya Blue Industries (P) Ltd. vs. Jt. CIT (2001) 166 CTR (Guj) 306 : (2001) 251 ITR 615 (Guj), Premjibhai& Sons vs. Jt. CIT (2001) 166 CTR (Guj) 316 : (2001) 251 ITR 625 (Guj), and by Kerala High Court in CIT vs. Deep Arts (2005) 194 CTR (Ker) 181 : (2005) 274 ITR 571 (Ker), CIT vs. Don Bosco Card Centre (2006) 205 CTR (Ker) 500 and by Madhya Pradesh High Court in CIT vs. Smt. Maya Chotrani (2007) 288 ITR 175 (MP).

15. We may, however, notice that Mr. A.K. Chitale, relied upon a decision of the Delhi High Court in CIT vs. Pushpa Rani (2005) 193 CTR (Del) 256, wherein a Division Bench of the said Court held :

".......The Tribunal on the material placed before it, arrived at a conclusion that there were no search warrants in the name of the assessees and hence it accepted the contention of the learned counsel that the proceedings initiated under s. 158BC in the cases of the assesses were ab initio void and without jurisdiction. The learned counsel for the Department was unable to furnish any clarification and stated before the Tribunal that the facts stated by the assesses regarding non-issuance of the search warrants in the case of the two ladies were correct. It is in view of this that the Tribunal has held that unless a search warrant is issued, the AO cannot invoke the provisions of s. 158BC for initiation of block assessment proceedings under Chapter XIV-B. However, so far as the bank locker is concerned, it is submitted that the officer was armed with the search warrant and, therefore, whatever the property was found, namely, jewellery, money and bonds, etc., the assesses ought to have assessed and the Tribunal ought not to have interfered with the order made by the CIT(A)."

We are of the opinion that the said decision has no application in the instant case.

16. As the AO has not recorded its satisfaction, which is mandatory; nor has it transferred the case to the AO having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly. The appeals are allowed. However, in the facts and circumstances of the case, there shall be no order as to costs.

12. It is therefore settled law that for the purpose of assuming jurisdiction u/s 158BD of the Act all incriminating material relating to the undisclosed income of the third person has to be handed to his AO by the AO of the searched person.

In the present case all material on record establish that the incriminating material relating to the assessee was never handed to his AO. The communication of the AO of the searched person, DCIT(Central), Ludhiana, dated 31.5.2001, addressed to the ACIT, Ludhiana, we find, only contains information collected during search conducted on M/s S.G. Global Exports Limited, mentioning the fact of search having been conducted and certain documents, diaries, share certificates and Books of Accounts having been found from which it was concluded that the person searched was indulging in the activity of providing ‘hawala entries’ of Long Term Capital Gains. The communication outlines the modus operandi of providing the entry and subsequently lists the person under the jurisdiction of the ACIT who had also benefited or also availed these ‘hawala entries’ from the assessee. Thus the entire communication from the DCIT, Central Circle, Ludhiana i.e. the AO of the searched person to the ACIT, Ludhiana contains only general information relating to the information collected during search and opinion of the AO of the searched person based on that information. There is no mention of any seized material, relating to the persons listed in the communication having allegedly availed ‘hawala entries” of Long Term Capital Gains, being handed over alongwith the said communication.

The satisfaction recorded by the AO of the assessee for assuming jurisdiction u/s 158BD of the Act, dated 28.6.2001, placed at Paper Book page No.3 also reveals that the satisfaction of undisclosed income of the assessee was recorded merely on the basis of information “supplied by the AO of the searched person as referred to above”. This satisfaction note also does not refer to any incriminating material forming the basis of the satisfaction of the AO but on the contrary categorically mentions the satisfaction being arrived on the basis of information supplied by the DCIT, Central Circle, Ludhiana i.e. the AO of the searched person.

Further the communication of the AO of the searched person dated 10.4.2003 asking for the seized material relating to the assessee establishes the fact that even after recording of satisfaction by the AO of the assessee on 28-06-2001 and even during assessment proceedings right upto 10.4.2003 the AO was not in the possession of seized material relating to the assessee. The assessment was subsequently framed on 27.6.2003 i.e. almost after two months from the date of this letter but the Ld. DR despite various opportunities provided during the course of hearing before us has been unable to demonstrate that the seized material relating to the assessee was handed over to the AO of the assessee by the AO of the searched person. The Ld. DR in response to the direction of the Bench to produce the assessments record relating to the assessee for establishing the aforesaid fact submitted a letter before us stating that the records are no longer traceable. Even the Ld.CIT(A) has ,we find,states that the supply of specific information relating to the assessee was sufficient for assuming jurisdiction u/s 158 BD of the Act even in the absence of seized material relating to the assessee being passed on.

Thus it is an uncontroverted fact that seized material relating to the asessee was never handed over to the AO as categorically required by section 158BD of the Act.

The contention of the Revenue that specific information relating to the accommodation entry taken by the assessee as unraveled during search conducted on m/s S G Global Exports would suffice compliance with the condition of handing over seized material, we hold ,is not acceptable. The specific information referred to by the Ld.CIT(A) at para 2.13 of her order reproduced above is regarding the fact of accommodation entry through cheque,the bank account number and name of the person from whom the amount was received.Firstly the fact of accommodation entry through cheque is not a specific information but a conclusion of the AO of the searched person on the basis of certain documents etc found during search proceedings.It is these documents etc relating to the assessee which ought to have been handed over to his AO by the AO of the searched person ,as per section 158BD of the Act, so as to enable him to assess the undisclosed income of the assessee.

In the absence of the basic documents evidencing accommodation entry being provided to the assessee, the bank account number or the person from whom entry received can be of no assistance to the AO of the assessee for assessing the undisclosed income of the assessee. Therefore in the present case even specific information was not passed to the AO of the assessee as contended by the Revenue and therefore the contention that passing on of specific information constituted or was equivalent to handing over seized material ,merits no consideration and is rejected.

13. In the light of the aforesaid fact and considering the mandate of section 158BD of the Act as interpreted by the Hon'ble Supreme Court in the case of Manish Maheshwari (supra), the assumption of jurisdiction by the AO in the present case u/s 158BD of the Act we hold was not as per law. The assessment framed as a consequence thereof is void and accordingly is quashed.Ground of appeal Nos.1, 2 and 3 are accordingly allowed.

14. Ground of appeal Nos.4 to 6 relate to the merits of the case, on the addition made relating to Long Term Capital Gains holding the same to be bogus and merely a ‘hawala entry”. Since we have held the assessment framed in the above case to be without jurisdiction and void, the ground relating to the merits of the case are infructuous and, therefore, are not being adjudicated by us.

15. Ground of appeal Nos.7 and 8 are general in nature and need no adjudication.

16. In effect the appeal of the assessee is allowed in the above terms.

17. The appeal filed by the assessee in ITSS/3/2016 is against the penalty levied u/s 158BFA of the Act on the undisclosed income of the block period assessed u/s 158BD read with section 158BC of the Act.

18. Since we have held the order passed in quantum proceedings in the case of the assessee to be without jurisdiction and quashed the same, the penalty levied also does not survive.

19. The appeal of the assessee, therefore, stands allowed.

20. In the result, both the appeals of the assessees are allowed.

These appeals could not be decided earlier due to non-functioning of the Bench on account of curfew / lockdown in the wake of Covid-19 Pandemic.

Order pronounced on 06/08/2020.

Sd/- Sd/-

(SANJAY GARG) (ANNAPURNA GUPTA)

Judicial Member

Accountant Member “Poonam”/Rati