DCIT, New Delhi V. M/s International Commenter Ltd., New Delhi

ITSSA 22/DEL/2011

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7676 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-02-2012
• Assessment Year: misc
• Appeal Filed On: 02-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S GILL
• Keywords: Block assessment
• Section: 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI A.N. PAHUJA IT(SS)A NO. 22/DEL/2011 BLOCK PERIOD: 1-4-90 TO 21-11-2000 DCIT, CIR. 11(1), VS. M/S INTERNATIONAL COMMENT ER LTD., NEW DELHI. 302, AKASH DEEP BUILDING , 26-A, BARAKHAMBA ROAD, NEW DELHI. PAN/GIR NO. AAACI0085Q C.O. NO. 378/DEL/11 ( IN IT(SS)A NO. 22/DEL/2011) BLOCK PERIOD: 1-4-90 TO 2-11-2000 M/S INTERNATIONAL COMMENTER LTD., VS. DCIT, CIR. 11(1), 302, AKASH DEEP BUILDING , NEW DELHI. 26-A, BARAKHAMBA ROAD, NEW DELHI. (APPELLANT) ( RESPONDENT ) DEPARTMENT BY : SHRI R.S. GILL CIT(DR) ASSESSEE BY : SHRI K. SAMPATH ADV. O R D E R PER R.P. TOLANI, J.M : THE REVENUE IS IN APPEAL AND THE ASSESSEE HAS FILE D CROSS-OBJECTIONS AGAINST CIT(A)S ORDER 28-2-2011 RELATING TO BLOCK ASSESSMENT PERIOD 1-4- 1990 TO 2-11-2000. RESPECTIVE GROUNDS RAISED ARE AS UNDER: REVENUES APPEAL (IT(SS) NO. 22/DEL/11) : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6, 20,75,000/- ON ACCOUNT OF LOAN RECEIVED FROM FOUR COMPANIES. IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 2 ASSESSEES CROSS-OBJECTION (CO NO. 378/DEL/11) : ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT QUASHING THE ASSESSMEN T ORDER WHICH WAS FRAMED IN CONTRAVENTION OF THE SEVERAL CONDITIONALITIES OF SECTION 158BD OF THE INCOME-TAX ACT, 1961. APPROPRIATE RELIEF MAY BE DIRECTED FOR QUASHING THE ASSESSMENT. 2. THE CROSS-OBJECTION FILED IS DELAYED BY 162 DAYS , ASSESSEES COUNSEL RELIED ON THE APPLICATION FOR CONDONATION OF DELAY, WHICH IS SUPPORTED BY AN AFFIDAVIT. IT IS PLEADED THAT THE DELAY WAS CAUSED BY AN INADVERTENT IMPRESSION, AS THE ASSESSEE WAS NOT AWARE ABOUT THE PROCEDURE OF FILING OF CROSS-OBJECTION. THE RIGHT OF CROSS-OBJECTION CAME TO THE ASSESSEES KNOWLEDGE ON 16-11-2011 WHEN THE DEPARTMENTAL APPEA L WAS FIXED FOR HEARING. THE ISSUE BEING RAISED IS PURELY LEGAL IN NATURE AND REVENUE HAS CHALLENGED THE OTHER LEGAL ASPECTS OF THE CIT(A)S ORDER. IT IS PLEADED THAT THE DELAY MAY BE CONDONED IN THE INTEREST OF JUSTIC E, AS ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE. 2.1. AFTER HEARING THE PARTIES, WE ARE OF THE VIEW THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE, THEREFORE, IN THE IN TEREST OF SUBSTANTIAL JUSTICE, WE CONDONE THE DELAY IN FILING OF THE CROSS-OBJECTI ONS. 3. BRIEF FACTS ARE: ASSESSEE IS A PART OF GROUP OF COMPANIES; SEARCH & SEIZURE OPERATIONS WERE CARRIED ON 21-11-2000 IN ON E OF THE OTHER GROUP CONCERN M/S SUNAIR HOTELS LTD. THEREAFTER, DURING T HE COURSE OF ITS BLOCK ASSESSMENT, IT WAS FOUND FROM THE BOOKS OF ACCOUNTS THAT THE ASSESSEE HAD PURCHASED SHARES OF M/S SUNAIR HOTELS LTD. BLOCK A SSESSMENT OF M/S SUNAIR HOTELS LTD. U/S 158BC WAS FRAMED ON 29-11-2002. AO, HOWEVER, RECORDED A SATISFACTION IN RESPECT OF THE ASSESSEE ON 12-5-200 3 U/S 158BD. ON HIS IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 3 SATISFACTION, THEREAFTER, ASSESSEES AO ISSUED A NO TICE U/S 158BD OF THE I.T. ACT ON 13-5-2003, CALLING ON THE ASSESSEE TO FILE I TS BLOCK RETURN U/S 158BD. 3.1. IT WILL BE DESIRABLE TO NARRATE THE FACTS ABOU T THE IMPUGNED TRANSACTIONS. ASSESSEE DURING F.Y. 1998-99 ACQUIRED FOLLOWING LOANS: M/S KMP ENTERPRISES RS. 2.23 CRORES M/S KM CONSULTANCY PVT. LTD. RS. 1.99 CRORES M/S HOLYFAITH VININAY PVT. LTD. RS. 41.75 LACS M/S SULTANIA COMMERCIAL PVT. LTD. RS. 1.57 CRORES. 3.2. ASSESSEE FILED REQUISITE DETAILS IN THE FORM O F CONFIRMATIONS, ACCOUNTING STATEMENTS, BANK STATEMENTS AND INCOME-T AX RETURNS OF THESE PARTIES ALONG WITH THE REGULAR RETURN FOR A.Y. 1999 -2000. THESE COMPANIES WERE SUBSEQUENTLY MERGED INTO ANOTHER COMPANY I.E. M/S STARLITE CREDIT LTD. BY VIRTUE OF AMALGAMATION ORDER DATED 15-7-1999 PAS SED BY HONBLE CALCUTTA HIGH COURT. THE ASSESSEE UTILIZED THESE LO ANS TO ACQUIRE SHARES IN GROUP COMPANY M/S SUNAIR HOTELS LTD. THEREAFTER M/S SUNAIR HOTELS LTD. GAVE THESE AMOUNTS TO ONE M/S ISHA METALS P. LTD. A ND ACCORDING TO AO, FINALLY THIS MONEY REACHED THE ASSESSEE. AFTER THE COMPLETION OF BLOCK ASSESSMENT IN THE CASE OF M/S SUNAIR HOTELS LTD., I TS BLOCK ASSESSMENT OFFICER, AS MENTIONED ABOVE, RECORDED A SATISFACTIO N U/S 158BD ON 12-5- 2003. IN ASSESSEES BLOCK ASSESSMENT PROCEEDINGS U/ S 158BD, AO MADE THESE ADDITIONS HOLDING THAT THE ASSESSEE HAD FAILE D TO DISCHARGE ITS ONUS IN PROVING THESE LOANS U/S 68. 3.3. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL AGAI NST ASSESSMENT U/S 158BD, WHERE CIT(A) DELETED THE ADDITIONS BY ORDER DATED 14-9-2005 HOLDING AS UNDER: 9. IN THIS PARTICULAR CASE THE ASSESSING OFFICER H AS NO JURISDICTION TO VERIFY THE CREDITWORTHINESS OF THES E FOUR IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 4 COMPANIES WHOSE PAID UP CAPITALS AND LOANS IF ANY S HOWN BY THEM EXCEED THE AMOUNT OF LOAN GIVEN TO THE ASSESSE E. SUCH TYPE OF VERIFICATIONS REQUIRE COORDINATED ACTION EN COMPASSING NOT ONLY THE GROUPS OF ASSESSEE BELONGING TO M/S SU NAIR HOTELS LTD. BUT TO ALL THESE COMPANIES AND EVEN THEIR SHAR E HOLDERS. THESE COMPANIES MIGHT HAVE BUILT UP THEIR CAPITAL I N A CONSERTED AND SYSTEMATIC MANNER FOR THE PURPOSE OF ULTIMATELY PROVIDING LOANS TO M/S SUNAIR HOTELS LTD. BUT THE I NQUIRIES, INVESTIGATIONS AND ULTIMATELY FINDINGS OF THE INCOM E TAX AUTHORITIES HAVE TO BE IN ACCORDANCE WITH THE SAID PROVISIONS OF LAW. INCOME TAX DEPARTMENT HAS FIRST ASSESSED THESE FOUR COMPANIES IN CALCUTTA AND THEREBY ACCEPTED THE SHAR E HOLDERS EXISTENCE AND THEIR CAPACITY TO CONTRIBUTE SHARE CA PITAL TO THE COMPANY. HAVING BEEN ASSESSED BY THE DEPARTMENT, TH EIR SHARE CAPITAL MONEY IS AVAILABLE FOR BUSINESS PURPOSES. T HIS IS WHAT HAS BEEN DONE IN THIS CASE. THE LOAN FROM THESE FOU R COMPANIES HAVE BEEN SHOWN WHICH HAVE BEEN DULY CONFIRMED BY T HE COMPANY IN WHICH THESE FOUR COMPANIES HAVE MERGED. AS MENTIONED IN THE ASSESSMENT ORDER, LOAN TAKEN BY TH E ASSESSEE WAS UTILIZED FOR PURCHASING SHARES OF M/S SUNAIR HO TELS LTD. FURTHER MENTION OF ANOTHER AMOUNT OF RS. 5.65 CRORE HAVING BEEN PAID BY M/S SUNAIR HOTELS LTD. TO M/S ISHA MET ALS PVT. LTD. WHICH IN TURN TRANSFERRED RS. 5 CRORE TO THE A SSESSEE AND THE ASSESSEE ULTIMATELY PLOUGHING BACK THIS AMOUNT INTO M/S SUNAIR HOTELS LTD. IN THE FORM OF SHARE APPLICATION MONEY DO CREATE STRONG SUSPICION OF THE GENUINENESS OF TRANSACTION. THIS ENTIRE EVIDENCE COULD HAVE BEEN USED TO LAUNCH COORDINATED INVESTIGATION BEFORE FRAMING ASSESSMENT ORDER. IN T HE ABSENCE OF SUCH COORDINATED ACTION, THE ADDITION CANNOT BE MADE DISREGARDING PROCEDURES AND FOLLOWING RULES AS MENT IONED IN THE TWO JUDGMENT OF THE HONBLE HIGH COURT. 10. I AM THEREFORE LEFT WITH NO ALTERNATIVE EXCEPT TO DELETE THE ADDITION. THE APPEAL OF THE ASSESSEE IS ALLOWED. 3.4. AGGRIEVED, REVENUE PREFERRED APPEAL BEFORE ITA T WHICH BY ITS ORDER DATED 28-3-08 SET ASIDE THE ISSUE BACK TO THE FILE OF AO TO CARRY OUT CO- ORDINATE INVESTIGATIONS BY FOLLOWING OBSERVATIONS: IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 5 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE PAPER BOOK FILED BEFORE US. IT IS A CASE OF ASSESSING OFFICER THAT THE ASSE SSEE IS UNABLE TO PROVE AS TO HOW THE ASSESSEE GOT THE LOAN CREDIT S FROM COMPANIES WHO DO NOT HAVE THE CREDITWORTHINESS AS T HEIR SHARE CAPITAL IS VERY SMALL. WE HAVE ALSO FOUND THE CIT(A ) GIVEN A FINDING THAT HE HAS DELETED THE ADDITION IN THE CIR CUMSTANCES, WHEN HE IS LEFT WITH NO ALTERNATIVE. IN THIS REGARD , THE LATER PARTS OF PARA 9 OF ORDER OF THE CIT(A) WHICH READS THIS ENTIRE EVIDENCE COULD HAVE BEEN USED TO LAUNCH COORDINATED INVESTIGATION BEFORE FRAMING ASSESSMENT ORDER. IN T HE ABSENCE OF SUCH COORDINATED ACTION, THE ADDITION CANNOT BE MADE DISREGARDING PROCEDURES AND FOLLOWING RULES AS MENT IONED IN THE TWO JUDGMENT OF THE HONBLE HIGH COURT. WE FIN D THAT THE CIT(A) REFERENCE TO THE COORDINATED INVESTIGATION WOULD UNEARTH THE REAL NATURE OF THESE TRANSACTIONS INVOL VING RS. 6,20,75,000/-. THEREFORE, IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF TH E JUSTICE, WE FEEL THAT THE ABOVE ISSUES NEED RE-EXAMINATION AT T HE LEVEL OF THE ASSESSING OFFICER, THEREFORE, THE ASSESSMENT IS SET ASIDE WITH THE DIRECTION TO THE AO TO RE DO THE ASSESSMENT DE NOVO AFTER GIVING NECESSARY OPPORTUNITY TO THE ASSESSEE. ACCOR DINGLY, GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSE. 3.5. CONSEQUENT TO ITAT DIRECTIONS, IN THE FRESH BL OCK ASSESSMENT PROCEEDINGS, ASSESSEE MADE VARIOUS CONTENTIONS WHIC H CAN BE SUMMARIZED AS UNDER: (I) AO HAS NO JURISDICTION TO FRAME ASSESSMENT U/S 158 BD. (II) THE ENTRIES IN QUESTION WERE ALREADY RECORDED IN TH E A/C BOOKS OF THE ASSESSEE, BASED ON WHICH RETURN FOR A.Y. 1999-2 000 WAS FILED. THEREFORE, THE LOANS DO NOT AMOUNT TO UNDISCLOSED I NCOME OF THE ASSESSEE AND CANNOT BE BROUGHT TO TAX UNDER CHAPTER XIV-B. (III) THE ASSESSEE HAS ESTABLISHED THE INGREDIENTS OF GEN UINENESS OF THE TRANSACTION; IDENTITY OF CREDITORS; AND CREDITWORTH INESS OF THE LENDERS BY SUBMITTING ALL THE RELEVANT DOCUMENTS I. E. CONFIRMATIONS, IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 6 BALANCE-SHEET WITH SCHEDULES; BANK STATEMENTS, ACKN OWLEDGEMENT OF THE RETURNS FILED BY THE CREDITORS. THEREFORE, T HE ASSESSEE HAD DISCHARGED ITS BURDEN U/S 68. (IV) THE ADDITIONS CANNOT BE MADE ON SUSPICION, SURMISES AND CONJECTURES. 3.6. AO, HOWEVER, CONFIRMED THE ADDITIONS WITHOUT C ARRYING OUT ANY COORDINATE INVESTIGATIONS, AS OBSERVED BY ITAT. 3.7. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL AGA INST THIS ORDER REFRAMED U/S 158BD. ASSESSEE RAISED FOLLOWING GROUNDS BEFORE CIT(A): 1. THE SATISFACTION TO ISSUE NOTICE U/S 158BD TO T HE ASSESSEE WAS RECORDED IN THE CASE OF M/S SUNAIR HOTELS LTD. WHOSE ASSESSMENT WAS COMPLETED ON 29-11-02 AND THUS THE N OTICE U/S 158BD COULD BE ISSUED TO THE ASSESSEE LATEST BY THE SAID DATE FOLLOWING THE DECISION IN THE CASE OF MANOJ AGARWAL , BISHAN CHAND MUKESH KUMAR AND OTHERS VS. DCIT (2008) 123 I TD 377 (FB) (DEL). THUS THE NOTICE U/S 158BD ISSUED TO THE ASSESSEE ON 13-5-2003 AND THE ASSESSMENT ORDER PASS ED ON 31- 3-2005 IS BARRED BY LIMITATION AND SHOULD BE ANNULL ED. 2. THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING THE ADDITIONS OF THE LOAN AMOUNT OF RS. 6,20,75,000 /- U/S 158BD THOUGH THE TRANSACTIONS REGARDING THE SAID LO ANS WERE DULY RECORDED IN THE REGULAR BOOKS OF ACCOUNT OF TH E ASSESSEE PRIOR TO THE DATE OF SEARCH IGNORING THE FACT THAT NO ADDITION FOR THE TRANSACTIONS DULY RECORDED IN THE REGULAR BOOKS CAN BE MADE IN THE BLOCK ASSESSMENT PERIOD. THUS THE ADDITION S O MADE SHOULD BE DELETED. 3. THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING THE ADDITIONS OF THE LOAN AMOUNT THOUGH NO INCRIM INATING MATERIAL OR EVIDENCE OF ANY MANNER WAS FOUND DURING THE COURSE OF SEARCH IN THE CASE OF M/S SUNAIR HOTELS L TD. REGARDING THE SAID LOANS IGNORING THE FACT THAT ADDITION IN T HE BLOCK ASSESSMENT PERIOD CAN ONLY BE MADE ON THE BASIS OF SEIZED IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 7 MATERIAL OR INFORMATION RELATABLE TO SEIZED MATERIA L. THUS THE ADDITION SO MADE SHOULD BE DELETED. 4. THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITIONS OF RS. 6,20,75,000/- FOR THE LOANS TAK EN FROM FOUR COMPANIES IGNORING THE EVIDENCES PLACED ON RECORD R EGARDING THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF T HE TRANSACTIONS. THUS THE ADDITION SO MADE SHOULD BE D ELETED. 5. THE ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN CHARGING THE INTEREST U/S 220(2) W.E.F. THE DATE OF THE ORIGINAL ORDER THOUGH THE HONBLE ITAT DIRECTED THE ASSESSIN G OFFICER TO PASS DE NOVO ORDER. THE FRESH ASSESSMENT WAS COMPLE TED IN DECEMBER 2009 AND THEREFORE INTEREST U/S 220(2) CAN BE CHARGED AFTER 30 DAYS FROM THE DATE OF DEMAND NOTICE SERVED ON THE ASSESSEE. THUS THE CHARGING OF INTEREST OF RS. 2,27 ,26,899/- SHOULD BE DELETED. 3.8. ASSESSEES FIRST GROUND WAS DISMISSED BY CIT(A ) BY FOLLOWING OBSERVATIONS: 2.6. NOW COMING TO THE DECISION OF THE SPECIAL BEN CH OF THE DELHI TRIBUNAL IT IS TO BE NOTICED THAT THE TRIBUNA L WAS OF THE OPINION THAT THERE HAD TO BE A SATISFACTION NOTE AS TO THE UNDISCLOSED INCOME DETECTED DURING THE SEARCH OF AN Y OTHER PERSON. RECORDING OF SATISFACTION HAS BEEN HELD TO BE MANDATORY AND THE ASSUMPTION OF THE JURISDICTION IS CONSEQUEN TIAL TO IT. FURTHER IT IS NECESSARY THAT IN THE SATISFACTION NO TE AS DRAWN BY THE ASSESSING OFFICER THE POSITIVE MATERIAL ON THE BASIS OF WHICH THE FACTUM OF UNDISCLOSED INCOME FOUND AS A R ESULT ON THE EXAMINATION OF THE SEIZED MATERIAL OF THE OTHER PERSON MUST BE IDENTIFIED. IT IS FURTHER STATED IN THE SAID ORD ER OF THE TRIBUNAL THAT THE TIME LIMIT SET OUT IN SECTION 158BE OF THE ACT FOR MAKING AN ASSESSMENT UNDER SECTION 158BC AUTOMATICA LLY APPLIES TO ASSESSMENT FRAMED U/S 158BD AS WELL. 2.7. IN THIS CONTEXT IT WILL BE PERTINENT TO NOTE T HAT IN THE SATISFACTION NOTE THE ASSESSING OFFICER HAS PIN POI NTED THE POSITIVE IN THE SHAPE OF THE FOUR LOANS TO INDICATE THE FACTUM OF UNDISCLOSED INCOME. IT IS ALSO CLEAR THAT THE ASSES SMENT U/S IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 8 158BD OF THE ACT HAS BEEN COMPLETED ON 31 ST MAY 2005 WHICH IS WITHIN THE PERIOD OF TWO YEARS FROM THE END OF T HE FINANCIAL YEAR IN WHICH THE NOTICE U/S 158BD OF THE ACT WAS F IRST ISSUED. THAT BEING THE CASE NO FAULT CAN BE FOUND WITH THE ACTION OF THE ASSESSING OFFICER IN THE CONTEXT OF THE PARAMETERS AS DEFINED IN THE CASE OF MANOJ AGARWAL. THE CONTENTIONS AS RAISE D BY THE ASSESSEE BEING ERRONEOUS ON BOTH COUNTS ARE TO BE H EREBY REJECTED AND THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD IS CONFIRMED. THIS GROUND STANDS DISMISSED. 3.9. APROPOS GROUND NOS. 2,3 & 4 CIT(A) DELETED THE ADDITIONS BY FOLLOWING OBSERVATIONS: 3.5. I HAVE CONSIDERED THE MATERIAL ON RECORD AND OBSERVATIONS OF THE ASSESSING OFFICER AND ALSO THE CONTENTION AS ADVANCED ON BEHALF OF THE APPELLANT. THE TRANSACTIONS REGARDING THE LOANS OF THE FOUR PARTIES AS CITED IN THE ASSESSMENT ORDER A RE IN SUBSTANTIAL SUMS OF MONEY. THESE WERE STATED TO HAV E BEEN DISCLOSED IN THE INCOME TAX RETURN ON THE BASIS OF ENTRIES IN THE AUDITED BOOKS OF ACCOUNTS OF THE APPELLANT EVEN BEF ORE THE DATE OF SEARCH IN THE CASE OF SUNAIR HOTELS LTD. THE AMO UNTS AS STATED TO HAVE BEEN RECEIVED IN 1998 WHICH IS BEFOR E THE SEARCH ON 21 ST NOVEMBER 2000. THERE WAS NO EVIDENCE FRETTED OUT DURING THE COURSE OF SEARCH OF SUNAIR HOTELS LTD. T O INDICATE THAT THE LOAN CREDITORS WERE FICTITIOUS OR NON EXIS TENT. THE ISSUES AS STATED ADMITTEDLY AROSE IN THE POST SEARCH ENQUI RIES OF THE SUNAIR HOTELS LTD. THE MATERIAL RECOVERED DURING TH E SEARCH OF SUNAIR HOTELS LTD. WAS NON-INCRIMINATING VIS--VIS THESE LOANS. OBVIOUSLY IN SUCH CIRCUMSTANCES THE LOANS COULD NOT BE SAID TO BE SUCH AS WERE UNDISCLOSED. THAT BEING THE CASE TH E AMOUNTS IN QUESTION COULD NOT COME UNDER THE PURVIEW OF CLAUSE (B) OF SECTION 158B OF THE ACT AS RIGHTLY CONTENDED ON BEH ALF OF THE APPELLANT. THUS IT WAS ERRONEOUS TO BRING THE SAID SUM FOR CONSIDERATION UNDER THE BLOCK ASSESSMENT SCHEME BY TAKING RECOURSE TO SECTION 158BD. THE JURISDICTIONAL HIGH COURT IN 250 ITR 51 IN THE CASE OF RAVI KANT JAIN HAS HELD T HAT A BLOCK ASSESSMENT IS REQUIRED TO BE FRAMED ONLY ON THE BAS IS OF MATERIAL RECOVERED DURING SEARCH. SUCH MATERIAL IN TERMS OF THE DEFINITION IN SECTION 158B(B) OF THE ACT MUST BE UN DISCLOSED MATERIAL. THE APEX COURT IN THE CASE OF MANISH MAHE SHWARI IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 9 SUPRA HAS OBSERVED THAT THE PROVISIONS OF CHAPTER X IV-B RELATING TO BLOCK ASSESSMENT ARE AMENABLE ONLY TO A STRICT CONSTRUCTION. IN THIS WAY THE MATERIAL RELIED UPON BY THE ASSESSING OFFICER FOR MAKING THE BLOCK ASSESSMENT W AS NOT PERMISSIBLE MATERIAL IN THE CONTEMPLATION LAW WHICH COULD BE USED FOR BLOCK ASSESSMENT PURPOSES. THAT NOTWITHSTA NDING THE APPELLANT HAS LED EVIDENCE BEFORE THE ASSESSING OFF ICER TO SHOW THAT EACH OF THE FOUR COMPANIES WAS AN EXISTING INC OME TAX ASSESSEE AND EACH OF THEM HAD FILED ITS RETURN OF I NCOME FOR THE ASSESSMENT YEAR 1999-2000. EACH ONE OF THEM TENDERE D A CONFIRMATORY LETTER AS TO THE GENUINENESS OF THE LO AN. THE RELEVANT BALANCE SHEETS AND THE BANK STATEMENTS OF EACH OF THE FOUR PARTIES HAD ALSO BEEN FILED WHICH CLEARLY INDI CATED THE NAME OF THE APPELLANT AS A LOAN DEBTOR. IN SUCH CIR CUMSTANCES IT WAS ERRONEOUS ON THE PART OF THE ASSESSING OFFICER TO CONSTRUE THE SUMS AS UNEXPLAINED SO AS TO ADD THEM U/S 68 OF THE INCOME TAX ACT. I HOLD THAT THE SAID AMOUNTS COULD NOT HAV E BEEN IN THE FIRST PLACE TAKEN UP FOR CONSIDERATION U/S 158BD OF THE ACT IN TERMS OF THE DEFINITION OF UNDISCLOSED INCOME AS DE FINED IN SECTION 158BD(B) OF THE ACT. THE AMOUNTS HAVING BEE N PRIMA FACIE EXPLAINED AND FURTHER HAVING BEEN CONFIRMED B Y THE RELEVANT PARTIES COULD NOT HAVE BEEN ADDED UNDER SE CTION 68 OF THE ACT. THESE ADDITIONS AS MADE BY THE ASSESSING O FFICER ARE HEREBY DELETED. THE GROUNDS OF APPEAL IN THIS REGAR D ARE ALLOWED. THE ADDITION AS MADE BY THE ASSESSING OFFI CER IS HEREBY DELETED. 3.10. AGGRIEVED, BOTH THE PARTIES ARE BEFORE US ON THEIR RESPECTIVE GRIEVANCES. 4. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE F OLLOWING FACTS ARE NOT IN DISPUTE: I. ORIGINALLY THE SEARCH WAS CONDUCTED U/S 132 IN THE PREMISES OF M/S SUNAIR HOTELS LTD. AND NOT THE ASSESSEE ON 21-11-20 00. II. THE ASSESSMENT IN THE CASE OF M/S SUNAIR HOTELS LTD . WAS FAMED U/S 158BC ON 29-11-2002. IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 10 III. THE SATISFACTION ABOUT SEIZED MATERIAL INDICATING U NDISCLOSED INCOME OF THE ASSESSEE WAS RECORDED BY AO OF M/S SU NAIR HOTELS LTD. ON 12-5-2003 I.E. AFTER 158BC ASSESSMENT. IV. ASSESSEES AO ISSUED NOTICE U/S 158BD ON 13-5-200 3. V. ASSESSMENT ORDER U/S 158BD WAS PASSED BY AO IN THE CASE OF ASSESSEE ON 31-3-2005. VI. ALL THESE ENTRIES WERE DISCLOSED IN THE ACCOUNT BOO KS AND REGULAR RETURN FILED BY THE ASSESSEE FOR A.Y. 1999-2000. 4.1. APROPOS ASSESSEES CROSS-OBJECTION, LD. COUNSE L RELIES ON THE JUDGMENT OF ITAT, DELHI, SPECIAL BENCH IN THE CASE OF MANOJ AGARWAL VS. DCIT (2008) 113 ITD 377 (DEL.) (SB) AND DREW OUR AT TENTION TO PARA 115 OF THE REPORT, REPRODUCED BELOW: 113. SECTION 158BD COMMENCES WITH THE WORDS WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY UNDISCLOSE D INCOME BELONGS TO ANY PERSON, OTHER THAN THE PERSON WITH R ESPECT TO WHOM SEARCH WAS MADE AND THUS IT IS CLEAR THAT THE SATISFACTION OF THE ASSESSING OFFICER ASSESSING THE PERSON SEARC HED IS THE FIRST AND FOREMOST REQUIREMENT. THE ASSESSING OFFIC ER CAN ARRIVE AT THIS SATISFACTION ONLY AFTER ASCERTAINING WHETHER THERE IS ANY UNDISCLOSED INCOME AT ALL AND THIS FINDING CAN BE ARRIVED AT BY HIM ONLY IN THE COURSE OF THE SECTION 158BC ASSE SSMENT PROCEEDINGS. THEREFORE, HE HAS TO ARRIVE AT A FINDI NG AS TO THE PERSON TO WHOM SUCH INCOME BELONGS. THIS FINDING AL SO CAN BE ARRIVED AT ONLY IN THE COURSE OF THE SECTION 158BC PROCEEDING IN THE CASE OF THE PERSON SEARCHED. HE MAY FIND THAT P ART OF THE SAID UNDISCLOSED INCOME BELONGS TO THE PERSON SEARC HED AND THE REST BELONGS TO OTHER PERSON OR PERSONS. AT THIS ST AGE, HE HAS TO GIVE A FINDING IN THIS BEHALF AS TO WHICH OF THE UN DISCLOSED INCOME BELONGS TO THE PERSON SEARCHED AND THE OTHER PERSON TO WHOM THE REST OF THE INCOME BELONGS. THIS FINDING T OO HAS TO BE ARRIVED AT IN THE COURSE OF THE SECTION 158BC PROCE EDING. AFTER ARRIVING AT THIS FINDING, HE MAKES AN ASSESSMENT OF THE UNDISCLOSED INCOME RELATING TO THE PERSON SEARCHED IN HIS HANDS AND HANDS OVER THE MATERIAL RELATING TO THE UNDISCL OSED INCOME IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 11 BELONGING TO THE OTHER PERSON OR PERSONS TO THE RES PECTIVE ASSESSING OFFICERS. AS SECTION 158BC PROCEEDING IS SPECIFICALLY INTENDED FOR DETERMINING THE UNDISCLOS ED INCOME, THE MATERIAL UNEARTHED HAS TO BE EXAMINED IN THE CO URSE OF THE SAID PROCEEDING AND IF SUCH EXAMINATION SHOWS THAT THE UNDISCLOSED INCOME BELONGS TO SOME OTHER PERSONS A FINDING IN THIS BEHALF HAS TO BE RECORDED IN THE COURSE OF THE SECTION 158BC PROCEEDING AS SUCH FINDING HAS TO FORM AN INT EGRAL PART OF THE SAID PROCEEDING AND IN CONFORMITY WITH THE I NTENTION BEHIND THE SAID PROVISION. SO, IT IS ESSENTIAL THA T SUCH FINDING HAS TO FORM PART OF THE SECTION 158BC. THE ASSESSIN G OFFICER ASSESSING THE PERSON SEARCHED HAS TO GIVE A FINDING ON EACH AND EVERY MATERIAL AND EVIDENCE UNEARTHED AFTER A CAREF UL AND JUDICIOUS EVALUATION AND SUCH EXERCISE INVOLVES A F INDING THAT THE UNDISCLOSED INCOME BELONGS TO A SPECIFIED PERSO NAS FOUND BY HIM ON SUCH EVALUATION. IT IS THIS FINDING THAT IS THE PIVOT AROUND WHICH THE SECTION 158BD PROCEEDING REVOLVES. IF, THEREFORE, IN THE COURSE OF SECTION 158BC PROCEEDIN GS THE ASSESSING OFFICER ASSESSING THE PERSON SEARCHED DOE S NOT GIVE A FINDING THAT ANY PART OF THE UNDISCLOSED INCOME UNE ARTHED BELONGS TO A PERSON OTHER THAN THE PERSON SEARCHED, SECTION 158BD CAN NEVER BE INVOKED. IT IS THING FINDING THA T IS AN INTEGRAL PART OF BOTH THE PROCEEDINGS WHETHER UNDER SECTION 158BC OR 158BD. FOR, SUCH FINDING DETERMINES IN WHO SE HANDS THE UNDISCLOSED INCOME UNEARTHED HAS TO BE TAXED. I F THE UNDISCLOSED INCOME BELONGS TO THE PERSON SEARCHED, HE IS SUBJECTED TO BLOCK ASSESSMENT ON SUCH INCOME UNDER SECTION 158BC BUT IF SUCH INCOME OR PART OF SUCH INCOME BEL ONGS TO A PERSON NOT SEARCHED, SECTION 158BD TAKES OVER. THIS IS THE ESSENCE OF THE ENTIRE ENACTMENT RELATING TO SEARCH. 114. .. . 115. SECTION 158BD AS SAID EARLIER BEGINS WITH THE EXPRESSION WHERE THE ASSESSING OFFICER IS SATISFIED AND SO T HE VERY SECTION IMPLIES A RECORDING OF SATISFACTION. THE SA TISFACTION CONTEMPLATED IS A JUDICIOUS SATISFACTION AND NOT A SUBJECTIVE SATISFACTION AND UNLESS THE SAME IS RECORDED IT IS NOT POSSIBLE FOR ANY PERSON TO DISCERN WHETHER THE SATISFACTION MEET S THE REQUIREMENTS OF LAW AT ALL. THE SATISFACTION CAN B E FOUND IN IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 12 ORDER PASSED UNDER SECTION 158BC AND IF NO SUCH ORD ER IS PASSED THEN IT WILL HAVE TO BE FOUND IN THE NOTE H ANDING OVER THE MATERIAL SEIZED TO THE ASSESSING OFFICER ASSESS ING THE OTHER PERSON. IN ANY EVENT, IT HAS TO BE IN WRITING AND I N VIEW OF SECTION 158BE, THE SAID RECORDING HAS TO BE MADE BE FORE THE TIME SET IN SECTION 158BE EXPIRES. AFTER THE SAID D ATE, IT IS NOT POSSIBLE TO INVOKE SECTION 158BD AT ALL. 4.2. IT IS PLEADED THAT SPECIAL BENCH OF THE ITAT D ELHI HAS CLEARLY HELD THAT PROCEEDINGS U/S 158BD CANNOT BE INITIATED AGAI NST ASSESSEE UNLESS A SATISFACTION TO THIS EFFECT IS RECORDED BY THE AO O F THE SEARCHED PERSON BEFORE THE COMPLETION OF ASSESSMENT U/S 158BC. 4.3. HONBLE SUPREME COURT IN THE CASE OF MANISH MA HESHWARI VS. ACIT & ANOTHER (2007) 289 ITR 341 HAS DECLARED THE MANDA TORY NATURE OF CONDITIONS PRECEDENT TO BE SATISFIED BEFORE ASSUMIN G JURISDICTION U/S 158BD BY FOLLOWING OBSERVATIONS: THE CONDITIONS PRECEDENT FOR INVOKING THE PROVISIO NS OF SECTION 158BD, THUS, ARE REQUIRED TO BE SATISFIED B EFORE THE PROVISIONS OF THE SAID CHAPTER ARE APPLIED IN RELAT ION TO ANY PERSON OTHER THAN THE PERSON WHOSE PREMISES HAD BEE N SEARCHED OR WHOSE DOCUMENTS AND OTHER ASSETS HAD BEEN REQUIS ITIONED UNDER SECTION 132A OF THE ACT. 4.4. LD. COUNSEL CONTENDS THAT LD. CIT(A) HAS ERRED IN HOLDING THAT SPECIAL BENCH DECIDED THAT THERE MUST BE A SATISFACTION REC ORDED BY THE AO OF THE PERSON SEARCHED, WHICH IS RECORDED IN THIS CASE. CI T(A) GLOSSED OVER THE OTHER MANDATORY CONDITIONS THAT THE SATISFACTION MU ST BE RECORDED BY AO OF THE SEARCHED PERSON PRIOR TO COMPLETION OF THE BLOC K ASSESSMENT U/S 158BC IN THE CASE OF SEARCHED PERSON. CIT(A) THOUGH NEVER DISPUTED THESE DATES, HAS FAILED TO APPRECIATE THIS MANDATORY CONDITIONS PRESCRIBED BY THE SPECIAL BENCH. THEREFORE, THE ACTION OF CIT(A) IN UPHOLDING THE SATISFACTION NOTE, IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 13 RECORDED SUNAIR HOTELS AO ON 12-5-2003 AS AGAINST 29-11-2002 I.E. DATE OF BLOCK ASSESSMENT OF M/S SUNAIR HOTELS LTD. U/S 158B C, WHICH IS CONTRARY TO LAW. IN THESE CIRCUMSTANCES, THE SATISFACTION NOTE RECORDED AFTER COMPLETION OF BLOCK ASSESSMENTS U/S 158BC IS NON-EST IN THE EY ES OF LAW AND PROCEEDINGS U/S 158BD CARRIED OUT AGAINST THE ASSES SEE ON THE BASIS OF THIS NON-EST SATISFACTION NOTE, ARE CONTRARY TO THE STAT UTE. THEREFORE, 158BD ASSESSMENT PROCEEDINGS FRAMED ON ASSESSEE DESERVE T O BE QUASHED. 5. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER O F AO. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. IN OUR VIEW THE ITAT SPECIAL B ENCH IN THE CASE OF MANOJ AGARWAL (SUPRA) HAS CLEARLY LAID DOWN THAT T HE SATISFACTION NOTE IN RESPECT OF ANOTHER PERSON IS TO BE RECORDED BY THE AO OF THE SEARCHED PERSON BEFORE THE COMPLETION OF BLOCK ASSESSMENT U/S 158BC . IN THE PRESENT CASE THE ASSESSMENT U/S 158BC IN THE HANDS OF M/S SUNAIR HOTELS LTD. I.E. SEARCHED PERSON, HAD UNDISPUTEDLY BEEN FRAMED ON 29 -11-2002. THE SATISFACTION NOTE U/S 158BD AGAINST ASSESSEE HAS BEEN RECORDED BY THE AO ON 13-5-2003 WHICH IS AFTER SIX MONTHS OF THE PRESC RIBED DATE LAID DOWN BY THE SPECIAL BENCH. IN VIEW OF THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PROCEEDINGS U/S 158BD INITIATED AGAINST ASSESSE E ARE UNTENABLE AND LIABLE BE QUASHED. RESPECTFULLY FOLLOWING THE SPECIAL BENC H ORDER IN THE CASE OF MANOJ AGARWAL (SUPRA), WE REVERSE THE ORDER OF CIT( A) ON THIS ISSUE AND HOLD THAT THE PROCEEDINGS ARE TO BE QUASHED. 6.1. APROPOS REVENUES APPEAL, IT EMERGES FROM RECO RD THAT THE SUBSCRIPTION OF SHARES BY THE ASSESSEE IN M/S SUNAI R HOTELS LTD. WAS DISCLOSED IN THE BOOKS OF M/S SUNAIR HOTELS LTD. AS WELL AS ASSESSEE WHICH IS EVIDENCED BY THE BALANCE-SHEETS AND ACCOUNTING STAT EMENTS OF M/S SUNAIR HOTELS LTD. AND ASSESSEE, BESIDES ITS REGULAR RETU RN OF INCOME FOR A.Y. 1999- IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 14 2000. THE ABOVE AMOUNTS WERE RECEIVED IN THE YEAR 1 998 AND WERE INCORPORATED IN THE BOOKS OF ACCOUNTS OF THE ASSESS EE, WHICH WERE AUDITED. THE SEARCH TOOK PLACE AS LATE AS 21-11-2000 IN THE CASE OF M/S SUNAIR HOTELS LTD. SINCE THE LOANS AND SHARE PURCHASE TRANSACTION S WERE ALREADY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE LOANS CANNOT ALSO BE HELD TO BE UNDISCLOSED AMOUNTS. THE ISSUE ABOUT INGREDIENTS OF SEC. 68 COULD HAVE BEEN TAKEN UP IN THE HANDS OF THE ASSESSEE IN REGULAR AS SESSMENT PROCEEDINGS AND NOT U/S 158BD. ON THIS COUNT ALSO IT IS TO BE HELD THAT THE ADDITIONS COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE U/S 158BD AS THEY WERE DISCLOSED IN THE BOOKS OF THE ASSESSEE. CONSEQUENTLY, WE UPHOLD THE ORDER OF CIT(A) DELETING THE ADDITION. 6.2. IN VIEW THEREOF, THE BLOCK ASSESSMENT PROCEEDI NGS ARE TO BE QUASHED ON BOTH THE COUNTS. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED AN D THE ASSESSEES CROSS OBJECTION IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21-03-2012. SD/- SD/- ( A.N. PAHUJA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21-03-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT. IT(SS)22 & CO 378/DEL/11 INTERNATIONAL COMMENTER LTD. 15