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Smt. Sulochana L. Punjabi Vs. Assistant Commissioner of Income - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2007)111TTJ(Mum.)402
AppellantSmt. Sulochana L. Punjabi
RespondentAssistant Commissioner of Income
Excerpt:
.....shobha m. ahuja. the ao of mrs. shobha ahuja has made the addition in her hands on the basis of seized material, which was later on deleted by the cit(a) with certain observations. the ao referred the matter along with the assessment order and the cit(a)'s order to the ao of the assessee for necessary action.4. the learned departmental representative could not produce the original satisfaction recorded by the ao. he however admitted that on the basis of seized papers, the addition was initially made in the hands of the assessee. but it was referred to the ao of the assessee on receipt of the order of the cit(a).5. the learned counsel for the assessee has contended that for invoking provisions of section 158bd, satisfaction of the ao, having jurisdiction over the assessee, upon whom.....
Judgment:
1. This appeal by the assessee is preferred against the order of the CIT(A) on various grounds which are as under: 1. The learned CIT(A) erred in confirming the assessment made by the AO under Section 158BD and consequently confirming addition of Rs. 1,68,75,500.

2. The learned CIT(A) erred in holding that a block assessment under Section 158BD can be made on the legal heirs of the deceased person.

The learned CIT(A) failed to consider that on the date of search, Mr. L.T. Punjabi was not alive and legal heirs were not aware and responsible for any undisclosed income of deceased.

3.(a) The learned CIT(A) erred in not producing before the appellant the satisfaction note, if any, recorded by the AO to make an assessment under Section 158BD. (b) The learned CIT(A) erred in holding that satisfaction is not necessary to be recorded in writing.

(c) Without prejudice to the above, the learned CIT(A) erred in not considering that satisfaction note, if any, pertained only of an amount of Rs. 25,00,000 and not the entire amount which has been assessed and confirmed by the CIT(A).

(d) The learned CIT(A) erred in holding that the provisions of Section 158BD and Section 147 are analogous and once an assessment is reopened, the AO can make any addition in block assessment despite there being no material to justify the same.

(e) The learned CIT(A) failed to consider that under a block assessment, addition can be made only on the basis of material found and the AO has to satisfy that there was material to meet such an addition.

(4) The learned CIT(A) erred in confirming the addition on account of loose papers found during the course of search from the premises of Dr. Sheila Ahuja and thus confirming addition of Rs. 1,68,75,500.

The learned CIT(A) failed to consider that the loose papers were not in the handwriting of the deceased nor his legal heirs nor any of his employees.

(5) Without prejudice to the above, the learned CIT(A) erred in not considering that the entries pertaining to Inder Arora were recorded in the books of account and the moneys reflected in the loose papers were aggregating to the amount which were received from Inder Arora, and the same was also confirmed by the AO in his assessment order by not making a part of the addition.

(6) The learned CIT(A) erred in not applying the peak theory and treated amounts of Babu Shroff and Inder Arora of Rs. 60,00,000 as independent, while on examination of dates, it would be found that moneys of Babu Shroff were rotated to Inder Arora.

2. During the course of hearing, the learned Counsel for the assessee has challenged the validity of the block assessment framed under Section 143(3) r/w Section 158BD of the IT Act at the threshold, for the reasons the provisions of Section 158BD were not invoked in accordance with law. Before invoking the provisions of Section 158BD, no satisfaction was recorded by the AO of the assessee upon whom the search was conducted. The learned Counsel for the assessee empathetically argued that satisfaction should have been recorded by the AO before handing over the material to the AO having jurisdiction of the assessee. He has also invited our attention to the various letters written by the assessee in this regard. During the course of assessment proceedings a specific request to furnish the copy of satisfaction if recorded by the AO of Mrs. Shobha Ahuja before invoking the provisions of Section 158BD was made but the satisfaction was never confronted to the assessee.

3. Keeping in view the repeated request of the assessee and the seriousness of the allegation made by the assessee, we directed the learned Departmental Representative to produce the satisfaction recorded by the AO of Mrs. Shobha Ahuja, upon whom the search was conducted but the learned Departmental Representative could not place any satisfaction recorded by the AO of Mrs. Shobha Ahuja. The learned Departmental Representative however placed office letter dt. 29th Jan., 2003 of Asstt. CIT-11(3) addressed to the AO of the assessee along with the assessment order passed in the case of Dr. Mrs. Shobha M. Ahuja. In this letter he has narrated the observation made by the CIT(A) while deciding the appeal filed by Dr. Shobha M. Ahuja. The AO of Mrs. Shobha Ahuja has made the addition in her hands on the basis of seized material, which was later on deleted by the CIT(A) with certain observations. The AO referred the matter along with the assessment order and the CIT(A)'s order to the AO of the assessee for necessary action.

4. The learned Departmental Representative could not produce the original satisfaction recorded by the AO. He however admitted that on the basis of seized papers, the addition was initially made in the hands of the assessee. But it was referred to the AO of the assessee on receipt of the order of the CIT(A).

5. The learned Counsel for the assessee has contended that for invoking provisions of Section 158BD, satisfaction of the AO, having jurisdiction over the assessee, upon whom search was conducted, is required on the basis of seized materials that it pertains to some other person. In that eventuality after recording a satisfaction, the AO shall forward the seized material to the AO of that assessee to whom the seized material relates. But in the instant case, AO has initially assessed the income on the basis of seized material in the hands of Mrs. Shobha Ahuja upon whom the search was conducted and later on when the addition on the seized material was deleted in her hands and CIT(A) made certain observations, the AO of Mrs. Shobha Ahuja has referred the matter to the AO of the assessee. This action of the AO is not in accordance with law and as such provisions of Section 158BD was not properly invoked. Since the AO of the assessee has not assumed jurisdiction in accordance with law, the assessment framed consequent thereto is not valid and deserves to be quashed. In support of his contention, the learned Counsel for the assessee has placed reliance upon the judgment of the apex Court and other judgments which are as under:Manish Maheshwari v. Asstt. CIT and Anr.

(ii) Y. Subbaraju & Co. v. Asstt. CIT (2004) 85 TTJ (Bang)(SB) 670 : (2004) 91 ITD 118 (Bang)(SB); (iii) Sakun International v. Jt. CIT (2005) 96 TTJ (Del) 496 : (2005) 94 ITD 138 (Del); (iv) Janki Exports International Through S.P. Gupta v. Union of India (2005) 193 CTR (Del) 730 : (2005) 145 Taxman 82 (Del).

6. The learned Departmental Representative on the other hand has submitted that the AO of Mrs. Shobha Ahuja has handed over the seized material along with the assessment order with a request for taking necessary action in the case of legal heir of L.T. Punjabi. The AO has written a letter in this regard to the AO of the assessee. All these letters amount to satisfaction of the AO before invoking the provisions of Section 158BD of the IT Act. It is not necessary that the AO of such person is required to record satisfaction in black and white. The action can be viewed from circumstantial evidence whether he was satisfied with the seized materials that it relates to some other person. Since the AO of Mrs. Shobha Ahuja has written various letters in this regard, it amounts to proper satisfaction before invoking the provisions of Section 158BD of the Act.

7. We have heard the rival submissions and carefully perused the orders of the lower authorities and the documents placed before us.

8. Undisputedly, the search was conducted upon Mrs. Shobha Ahuja and some seized materials were found. The AO of Mrs. Shobha Ahuja framed the block assessment under Section 158BC of the IT Act and made certain additions on the basis of the seized materials. At the time of framing of the block assessment under Section 158BC, the AO was satisfied with the seized materials that it related to Mrs. Shobha Ahuja and made addition in her hands but when the matter travelled to the CIT(A), the CIT(A) observed that the particular seized materials does not belong to Mrs. Shobha Ahuja and it belongs to late Shri L.T. Punjabi, the present assessee. On receipt of the order of the CIT(A) the AO has referred the seized material along with assessment order passed in the case of Mrs.

Shobha Ahuja and the CIT(A)'s order with a request to take necessary action in the hands of Shri L.T. Punjabi, the assessee. On the basis of this information, the AO has framed the assessment in the hands of the assessee under Section 158BD of the IT Act. This action of the AO was challenged by the learned Counsel for the assessee with the submissions that a reference of the seized materials along with the assessment order and the CIT(A)'s order by the AO of Mrs. Shobha Ahuja does not amount to a valid satisfaction recorded before invoking provisions of Section 158BD of the Act.

9. Before dwelling upon the issue, we would like to examine the provisions of Section 158BD and circumstances under which it can be invoked. For the sake of reference we extract the provisions of Section 158BD as under: Where the AO 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 AO having jurisdiction over such other person and that AO shall proceed (under Section 158BC) against such other person and the provisions of this chapter shall apply accordingly.

10. From the plain reading of this section only one inference is drawn that it can only be invoked, when AO of the such searched persons 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 accounts or the documents or any assets were requisitioned under Section 132A, then the books of accounts, other documents or any assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person as per the provisions of this Chapter XIV-B. Meaning thereby before handing over the seized material or the other documents to the person other than the searched person, the AO of the searched person must be satisfied that the seized material or the documents do not relate to searched person but to some other person. This satisfaction may be recorded either during the assessment proceedings of the searched person or at the time of its conclusion. But it cannot be said to have been recorded after the disposal of the appeal against the assessment orders passed in the case of searched person.

10.1 We have also examined the judgment of the apex Court in the case of Manish Maheshwari v. Asstt. CIT (supra). Their Lordships of the apex Court have categorically held before the provisions of Section 158BD of the IT Act, 1961 are invoked against the person other than the person whose premises have been searched under Section 132 or documents and other (assets) have been requisitioned under Section 132A, the conditions precedent have to be satisfied. Accordingly, where the premises of a director of a company and his wife were searched under Section 132 of the IT Act, 1961, and a block assessment had to be done in relation to the company, the AO had to (i) record his satisfaction that any undisclosed income belonged to the company, and (ii) hand over the books of account and other documents and assets seized to the AO having jurisdiction against the company. The similar view was also expressed by the Special Bench of the Tribunal in the case of Y.Subbaraju & Co. v. Asstt. CIT (supra). In the case of Janki International v. Union of India (supra), their Lordships of Delhi High Court have held that under Section 158BD, the AO has to be satisfied that there is undisclosed income. Upon such satisfaction, the AO is required to forward the relevant documents, papers, etc. to the other AO who has jurisdiction over the assessee. Once this is done, the assessee who is to be proceeded with under Section 158BD and then Section 158BC must be informed about the satisfaction of the AO which has been recorded and must be given a reasonable opportunity to object to the. same. Satisfaction can be arrived at on some material. That material would provide a reasonable satisfaction.

11. From the careful perusal of the various judgments referred to by the assessee, we are of the view that before handing over the seized material and the documents to the AO of the other person to whom this seized material or documents relate, the AO of the searched person is required to record a satisfaction in this regard, If he fails to do so, there would not be assumption of jurisdiction under Section 158BD by the AO over the assessee to whom the alleged documents relate.

12. In the light of this proposition, if the facts of the case are examined, we would find that during the course of assessment proceedings in the case of Mrs. Shobha Ahuja upon whom the search was conducted, the AO did not record any satisfaction with respect of impugned seized materials that it relates to the assessee in question.

The AO however proceeded to frame the assessment under Section 158BC on the seized documents in the hands of Smt. Shobha Ahuja and made the addition. But when the matter travelled to the CIT(A) and the CIT(A) knocked down the addition made on the basis of seized material and observed that this material pertains to the assessee in question, the AO of Mrs. Shobha Ahuja has referred the material along with the assessment order and the CIT(A)'s order to the AO of the assessee for necessary action. Even at this stage the AO of Mrs. Shobha Ahuja did not record any satisfaction that the seized material pertains to the assessee. Whatever observations are recorded with regard to the seized material that it relates to the assessee, it was of the CIT(A) and not the AO whereas according to the provisions of Section 158BD satisfaction of the AO of the searched person is required with regard to the seized material that it relates to some other person. Since the provisions of Section 158BD was not invoked in accordance with law, the AO of the assessee did not assume valid jurisdiction and the assessment framed consequent thereto is not a valid assessment and deserves to be quashed. We accordingly quash the entire assessment, as the AO did not assume a proper jurisdiction to frame the assessment under Section 143 r/w Section 158BD upon assessee. Since we have knocked down the entire assessment, the issues on merit do not require any adjudication.


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