Revenue's delayed notice under Section 158BD (of Income Tax Act, 1961) deemed invalid by High Court.

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Case Name:

Commissioner of Income Tax vs. Alka Bhandari (High Court of Delhi)

ITA 996/2009

Key Takeaways

- The court emphasized that a satisfaction note must be recorded immediately or contemporaneously with the completion of the assessment of the searched person.

- The permissible extended period for issuing a notice under Section 158BD (of Income Tax Act, 1961) is considered to be six months.

- In this case, the satisfaction note was recorded more than six months after the assessment, making the notice invalid.

- The court's decision aligns with the Supreme Court's interpretation in CIT vs. Calcutta Knitwears and CIT vs. Manish Maheshwari.

Issue

Was the notice issued under Section 158BD (of Income Tax Act, 1961) within the permissible timeframe of being "immediate" or contemporaneous to the completion of the assessment of the searched person?

Facts

- A search was conducted on Manoj Aggarwal on 03.08.2000.

- The assessment of Manoj Aggarwal was completed on 29.08.2002.

- The satisfaction note was recorded on 06.03.2003, more than six months after the assessment.

- The notice under Section 158BD (of Income Tax Act, 1961) was issued on 18.06.2003.

- The ITAT and CIT had previously ruled in favor of the assessee, Alka Bhandari, stating that the satisfaction note was delayed.

Arguments

- Revenue's Argument:

The Revenue argued that the notice was issued within a reasonable timeframe and should be considered valid.

- Assessee's Argument:

The assessee contended that the satisfaction note and subsequent notice were not issued immediately or contemporaneously with the assessment, thus violating the requirements of Section 158BD (of Income Tax Act, 1961).

Key Legal Precedents

- CIT vs. Calcutta Knitwears, Ludhina (362 ITR 673 SC):

The Supreme Court held that a satisfaction note is essential and must be prepared by the assessing officer before transmitting records to another assessing officer. The note should be prepared at the time of or along with the initiation of proceedings, during the assessment, or immediately after the assessment of the searched person.

- CIT vs. Manish Maheshwari (2007) 289 ITR 341 (SC):

The Supreme Court emphasized the importance of recording a satisfaction note in accordance with Section 158BD (of Income Tax Act, 1961).

Judgement

The High Court dismissed the appeals, ruling that the notices were unduly delayed and did not comply with the Supreme Court's declaration of law. The court held that the satisfaction note was not recorded immediately after the completion of the assessment proceedings, making the notice invalid.

FAQs

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

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

Q2: Why was the notice deemed invalid?

A2: The notice was deemed invalid because it was issued more than six months after the completion of the assessment of the searched person, which did not meet the requirement of being "immediate" or contemporaneous.

Q3: What is a satisfaction note?

A3: A satisfaction note is a document prepared by the assessing officer indicating that there is sufficient evidence to assess undisclosed income of a person other than the searched person.

Q4: What was the outcome of the case?

A4: The High Court dismissed the appeals, ruling in favor of the assessee, Alka Bhandari, and invalidating the notice issued under Section 158BD (of Income Tax Act, 1961).

Q5: How does this case impact future assessments under Section 158BD (of Income Tax Act, 1961)?

A5: This case reinforces the requirement that satisfaction notes must be recorded immediately or contemporaneously with the assessment of the searched person, ensuring timely and fair assessments.

1. The present appeals have to be decided pursuant to a remittal and

directions of the Supreme Court in its judgment reported as CIT vs. Calcutta Knitwears, Ludhina 362 ITR 673 (SC). The Court in its judgment had directed as follows:

“44. In the result, we hold that for the purpose of Section 158BD (of Income Tax Act, 1961)

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)

of the Act; (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 Act 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 Income Tax Act, 1961)

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).”

2. In the present case, the ITAT originally had accepted the contentions

of the assessee that the satisfaction note recorded, in their case was delayed and also had, inter alia, recorded that the satisfaction note did not accord with the requirements of Section 158 (of Income Tax Act, 1961) BD as per the judgment of Supreme Court reported as CIT vs. Manish Maheshwari (2007) 289 ITR 341 (SC). In both the cases the facts are common and are discussed hereinafter.

3. The search of one Sh. Manoj Aggarwal was conducted on 03.08.2000,

thereafter notice was issued to him. His Assessing Officer considering the block returns submitted by the searched person and the material supplied and forthcoming during the search proceedings completed the assessment by an order dated 29.08.2000. Based upon the materials obtained, the Assessing Officer of the searched person recorded a satisfaction note on 06.03.2003 in the case of both assessees in the present appeals, taking the view that additional income had escaped assessment on the basis of this satisfaction note, which was forwarded to the Assessing Officer of the present assesses. The latter issued notice on 18.06.2003 to the respondent/assessee. After considering their submissions the A.O. completed assessment on 27.06.2005 in both the cases. In the case of assessee in ITA No. 996/2009 an addition of ₹ 36,38,119/- and a further addition of ₹72762/- was made and in the case of assessee in ITA No.1163/2009 an addition of ₹34,73,000/- and further sum of ₹73727/- and further addition of ₹69535/- was ordered. Both these were subject matter of appeals to the CIT which held in favour of the assessee. The revenue appeals before ITAT were dismissed. The present appeals were originally disposed of in the common judgment and order of this Court, reported as CIT vs. Radhey Shyam Bansal 2011 337 ITR 217 (DLI). That judgment was apparently set aside to the extent that the Supreme Court wants examination of the limited question as to whether the notices were issued within the period mentioned in para 44 of Calcutta Knitwears (supra). It is evident from the narration of the facts discussed above that the satisfaction note was recorded more than six months after the assessment of searched person; the

assessment was completed on 29.08.2002 and the satisfaction note was

recorded 06.03.2003. This Court recollects that the extended period within which the Revenue has been permitted to issue notice under Section 158BD (of Income Tax Act, 1961) in such cases is subject to condition of it being “immediate” or contemporaneous to the time when assessment of the searched persons is completed.

4. Since the limitation period for completion of block assessment, or in

the case of searched persons as well as the third party who is issued notice is two years, it is reasonable to assume that the revenue can be given latitude of six months which can be considered as “immediate” or immediately proximate in point of time. In the present case, the six month period expired on 28.02.2003; the satisfaction note was recorded on 06.03.2003 and the notice was issued more than 3 1⁄2 months after lapse of the date i.e.18.06.2003.

5. In these circumstances this Court holds that the notices did not accord with the Supreme Court’s declaration of law and was unduly delayed. They cannot be considered as having been recorded immediately after the completion of assessment proceedings under Section 158BC (of Income Tax Act, 1961). The appeals are accordingly dismissed.

S. RAVINDRA BHAT

(JUDGE)

R.K.GAUBA

(JUDGE)

JANUARY 08, 2015