Sri. GOPAL KANTANNA SHETTY, MUMBAI V. ACIT CENT. CIR. - I, THANE, MUMBAI

ITSSA 229/MUM/2006

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 0250 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 16-04-2014
• Assessment Year: misc
• Appeal Filed On: 03-08-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DH DH DH DH L
• Keywords: Document seized; Corroborative evidences; Block assessment; Documents seized
• Section: 143(3); 69; 148; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH , MUMBAI JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZZ JH JKTSUNZZ JH JKTSUNZZ JH JKTSUNZZ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER IT(SS) NO.229/MUM/2006 BLOCK PERIOD : 01.4.1990 TO 14.12.2000) SHRI GOPAL KANTANA SHETTY, 303, DEEP GANGA, GOPAL NAGAR, ROAD NO. 2 DOMBIVLI (E), MUMBAI 421 201. V S . ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-I, THANE APPELLANT RESPONDENT IT(SS) NO.237/MUM/2006 BLOCK PERIOD : 01.4.1990 TO 14.12.2000) OFFICE OF THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -1, THANE PAWAR INDL. ESTATE, EDULJI ROAD,CHARAI, THANE MUMBAI 400 601. V S. SHRI GOPAL KANTANA SHETTY, 303, DEEP GANGA, GOPAL NAGAR, ROAD NO. 2DOMBIVLI (E), MUMBAI 421 201. APPELLANT RESPONDENT ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI H.N. MOTIWALLA & SHRI PIYUSH CHHAJED REVENUE BY/ JKTLO DH VKSJ JKTLO DH VKSJ JKTLO DH VKSJ JKTLO DH VKSJ LS LSLS LS SHRI S. D. SRIVASTAVA ORDER PER VIJAY PAL RAO, JM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 10.6.2006 OF CIT(A) ARISING FROM THE BLOCK ASSESSMENT U/S 158BD FOR THE BLOCK PERIOD FROM DATE OF HEARING 06.06.2014 DATE OF PRONOUNCEMENT 20.06.2014 SHRI GOPAL KANTANA SHETTY 2 | P A G E 1.4.1990 TO 14.12.2000. THE ASSESSEE HAS RAISED FOL LOWING GROUNDS IN THIS APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE QUANTIFICATION AND ASSESSMENT OF INCOME FOR THE PER IOD 17-7-1998 TO 15-8-1999 AT RS. 6,16,9531-. (A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVAPPRECIATED THA T SMT LIA R. PATIL HAS DISCLOSED THE INCOME FROM RU NNING THE HOTEL RELAX BAR & RESTAURANT ON THE BASIS OF THE REGULAR BOOKS OF ACC OUNT MAINTAINED BY HER AT RS. 90,300/- FOR THE PREVIOUS YEAR ENDED ON 31-3 -1999, AND SHE HAS BEEN ASSESSED FOR THE SAME. (B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OU GHT TO HAVE CONSIDERED THE OBSERVATION OF THE LEARNED ASSESS ING OFFICER IN PARA 40 OF THE ASSESSMENT ORDER, THAT ACCORDING TO THE ASSESSING O FFICER THE ADDITION MAD IN THE INCOME IS MUCH MORE AND THEREFORE, NO SEPARATE ADDITION IS MAD FOR DEPOSITS BY WIFE IN BANK ACCOUNT, OF RS. 40,000/- ON 30-10-1 998 AND OUGHT TO HAVE CONSIDERED THAT THE INCOME ASSESSED BY THE ASSESSIN G OFFICER IS EXCESSIVE AND OUGHT TO HAVE ACCEPTED THE INCOME DECLARED BY THE APPELLANT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN CONFIRMING THE FOLLOWING DISALLOWANCES OF EXPENSES CLAIMED, WHILE DETERMININ G THE TOTAL INCOME FOR THE PERIOD 16-8-1999 TO 13-12-2000 AT RS. 16.23.560/- : A) DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES RS. 1,01,836/- B) DISALLOWANCE OUT OF COMMISSION TO B R MAIDS RS. 8,02,690/- I C) DISALLOWANCE ON ACCOUNT OF UTENSILS & CROKERIES RS. 1,84,870/- D) DISALLOWANCE OUT OF REPAIRS RS. 95,980/- ------------------------ TOTAL RS. 11,85,376/- ------------------------ 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT 'BARMAID' SMT. PUSHPA PATIL WAS PR ODUCED BEFORE THE ASSESSING OFFICER, TOGETHER WITH OTHER BARMAIDS AND THE STATEMENT WAS RECORDED OF PUSHPA PATIL WHO CONFIRMED THE PAYMENT OF 20% COMMISSION ON SALES TO ALL BARMAIDS AND THE ASSESSING OFFICER THEN DID NOT RECORD THE STATEMENT OF OTHER BARMAIDS WHO HAD EARLIER FILED AFFIDAVITS. SHRI GOPAL KANTANA SHETTY 3 | P A G E 5.THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN ASSESSING THE SUM OF RS. 1 ,55.800/- BEING THE AMOUNT OF INITIAL INVESTMENT IN THE HOTEL AS INCOME R BEST FROM UNDISCLOSED SOURCES FOR THE BLOCK PERIOD, U/S. 69 OF THE INCOME-TAX ACT. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING AN ADDITION OF RS. 73,034/- S INCOME FOR THE BLOCK PER IOD FOR WHICH RETURN IS FILED FOR A. Y. 2000-01, WHICH INCLUDED INCOME TAXABLE UNDER THE HEAD SALARY FROM HOTEL RELAX BAR & RESTAURANT AT RS. 40,000/- AND THE SAME WAS ALREADY INCLUDED IN THE INCOME DETERMINED UPTO 13-12-2000 . 7. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN CONFIRMING AN ADDITION OF RS. 1,30,000/- AS INCOME FOR THE BLOCK PERIOD, FOR INVESTMENT IN A FLAT MADE ON 27-6-1991, BY THE WIFE OF THE APPELLANT SMT . DAKSHIYANI G. SHETTY. 8. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN CONFIRMING AN ADDITION OF INTEREST IN THE WIFES BANK ACCOUNT AT RS. 146/- 2. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUN D VIDE LETTER DATED 26.7.2011 WHICH READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER ERRED IN ASSUMING THE JURISDICTION U/S 158B D & 158BC R.W.S 143(3) WITHOUT RECORDING OF SATISFACTION THAT ANY UNDISCLO SED INCOME BELONGED TO THE ASSESSEE AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF MANISH MAHESHWARI, 289 ITR 341. 3. SINCE THE ADDITIONAL GROUND RAISED BY THE ASSESS EE IS PURELY LEGAL IN NATURE AND GOES TO THE ROOT OF THE MATTER, THEREFORE, WE F IRST TAKE UP THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 4. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND P ERUSED THE RELEVANT MATERIAL ON RECORD ON THE POINT OF ADMISSIBILITY OF ADDITIONAL GROUND. ADDITIONAL GROUND RAISED BY THE ASSESSEE IS PURELY LEGAL IN NA TURE AND GOES TO THE ROOT OF THE MATER AND FURTHER NO NEW FACTS OR RECORD IS REQ UIRED TO BE INVESTIGATED, THEREFORE IN VIEW OF THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF SHRI GOPAL KANTANA SHETTY 4 | P A G E NATIONAL THERMAL POWER CORPORATION (229 ITR 383), W E ADMIT THE ADDITIONAL GROUND FOR ADJUDICATION. 5. A SEARCH & SEIZURE ACTION U/S 132 WAS CARRIED OU T ON 14.12.2000 IN THE CASE OF SHRI R. RAVINDRA PATIL AND HIS FAMILY MEMBE RS. THE WARRANT OF AUTHORIZATION WAS ISSUED IN THE NAME OF SMT. ILA . R. PATIL TO SEARCH THE HOTEL RELAX. THE BLOCK ASSESSMENT IN THE CASE OF SEARCHE D PERSON I.E. SMT. ILA R. PATIL WAS COMPLETED ON 31 ST DECEMBER 2002, THEREAFTER A NOTICE U/S 158BD WAS ISSUED TO THE ASSESSEE ON 10.01.2003. THE LD. AUTHO RIZED REPRESENTATIVE HAS SUBMITTED THAT THERE IS NO SATISFACTION RECORDED BY THE ASSESSING OFFICER THAT ANY INDISCLOSED INCOME BELONGING TO THE ASSESSEE WAS DE TECTED FROM THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS OR ASSET REQUISITIONED OR SEIZED DURING THE COURSE OF SEARCH. HE HAS REFERRED THE ORDER SHEET DATED 10 .01.2003, WHEREIN THE ASSESSING OFFICER HAS RECORDED THE SATISFACTION AS WELL AS COMPLETED BLOCK ASSESSMENT IN CASE OF SMT. ILA R. PATIL AND SUBMITTED THAT THE ASSESSING OFFICER WAS NOT SURE THAT UNDISCLOSED INCOME BELONGING TO T HE ASSESSEE WAS DETECTED FROM THE BOOKS OF ACCOUNTS AND OTHER SEIZED MATERIA L. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THE ASSESSING O FFICER HAS STATED IN THE SATISFACTION NOTE THAT I AM SATISFIED THAT UNDISCL OSED INCOME IS LIKELY TO BE DETECTED IN THE CASE OF THE ASSESSEE ON THE BASIS O F SEIZED BOOKS OF ACCOUNTS AND PAPERS. HE HAS FURTHER SUBMITTED THAT NO ADDIT ION HAS BEEN MADE IN THE BLOCK ASSESSMENT BY THE ASSESSING OFFICER ON THE BA SIS OF SEIZED MATERIAL, THEREFORE, IT IS APPARENT THAT THERE WAS NO UNDISCL OSED INCOME DETECTED FROM THE SEIZED BOOKS OF ACCOUNTS AND PAPERS AND CONSEQUENTL Y THE NOTICE ISSUED U/S 158BD FOR INITIATION OF BLOC ASSESSMENT IN THE CASE OF ASSESSEE IS WITHOUT JURISDICTION. IN SUPPORT OF HIS CONTENTION HE HAS R ELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS. RADHEY SHYAM BANSAL, (2011) 337 ITR 217 (DELHI) AND SUBMITTED THAT THE RECORDING OF SATISF ACTION BY THE SHRI GOPAL KANTANA SHETTY 5 | P A G E ASSESSING OFFICER OF SEARCH PERSON IS A CONDITION P RECEDENT. THE SATISFACTION MUST BE DEFINITE AND CANNOT BE A PRODUCT OF IMAGINA TION OR SPECULATION. HE HAS FURTHER CONTENDED THAT IN THE CASE OF THE ASSESSEE THE ASSESSING OFFICER WAS NOT SURE AND FULLY SATISFIED THAT A DEFINITE UNDISCLOSE D INCOME BELONGING TO THE ASSESSEE WAS DETECTED FROM THE BOOKS OF ACCOUNTS AN D OTHER SEIZED MATERIALS. HE HAS FURTHER SUBMITTED THAT THE SATISFACTION BY T HE ASSESSING OFFICER OF THE SEARCHED PERSON MUST BE RECORDED PRIOR TO THE COMPL ETION OF ASSESSMENT U/S 158BC IN CASE OF SEARCHED PERSON. IN THE CASE OF TH E ASSESSEE THERE IS NO SUCH SATISFACTION RECORDED BY THE ASSESSING OFFICER AND THE SATISFACTION NOTE FILED BY THE DEPARTMENT IS SUBSEQUENT TO THE ASSESSMENT COMP LETED IN THE CASE OF SEARCHED PERSON. IN SUPPORT OF HIS CONTENTION HE HA S RELIED UPON THE DECISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. CALCUTTA KNITTERS ( 338 ITR 239) AS WELL AS IN THE CASE OF CIT VS. PARVEEN FABRICS (P.) LTD (198 TAXMAN 463) AND SUBMITTED THAT THE PROCEEDINGS INIT IATED U/S 158BD ON THE BASIS OF THE SATISFACTION RECORDED AFTER COMPLETION OF THE BLOCK ASSESSMENT OF THE SEARCH PERSON IS INVALID AND BAD IN LAW. HE HAS ALS O RELIED UPON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. RAMESH KUMAR, PROPRIETOR AND SUBMITTED THAT THE SATISFACTION FOR TAKING ACTION U/S 158BD OF THE ACT HAS TO BE RECORDED BETWEEN INITIATION OF PROCEE DINGS U/S 158BC AND BEFORE COMPLETION OF ASSESSMENT U/S 158BC OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. CALCUTTA KNITTERS (SUPRA) WAS CONFIRMED/UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KNITWEARS (362 ITR 673). HE HAS ALSO RELIED UPON THE ORDER OF THIS TRIBUNAL IN THE CASE OF JAYANT S JAIN (HUF) VS. CIT 10 ITR (TRIB) 68 (MUMBAI). THUS THE L D. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE INITIATION OF PROCEEDINGS U/S 158BD ARE BAD IN LAW, THEREFORE, THE BLOCK ASSESSMENT IN THE CASE OF ASSESSEE BE QUASHED. SHRI GOPAL KANTANA SHETTY 6 | P A G E 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE HOTEL BUSINESS BELONGING TO THE ASSESSEE WAS SEARCHED WHICH WAS AL SO RUN BY THE ASSESSEE FROM 15.7.1998 ONWARDS, THEREFORE, THE SATISFACTION RECORDED BY THE ASSESSING OFFICER SHOULD BE READ IN CONJECTURE WITH THE ASSES SMENT ORDER OF THE SEARCHED PERSON BECAUSE, THE ASSESSING OFFICER OF THE SEARCH ED PERSON AS WELL AS THE ASSESSEE IS SAME. HE HAS REFERRED THE BLOCK ASSESSM ENT U/S 158BC IN THE CASE OF SEARCHED PERSON SMT. ILA R. PATIL AND SUBMITTED THAT IN PARA 9, THE ASSESSI NG OFFICER HAS MENTIONED THAT THE HOTEL PREMISES WAS L ET OUT BY SMT. ILA R. PATIL TO SHRI GOPAL SHETTY (ASSESSEE IN THIS CASE) FOR RUNNI NG THE HOTEL M/S HOTEL RELAX AGAINST THE ROYALTY OF RS. 15,000/- PER MONTH, THER EFORE, THE SAID PART OF THE ASSESSMENT ORDER IN THE CASE OF SEARCHED PERSON IS A SATISFACTION OF THE ASSESSING OFFICER FOR INITIATING THE PROCEEDINGS U/ S 158BD. HE HAS FURTHER SUBMITTED THAT THOUGH NO ADDITION WAS MADE IN THIS RESPECT IN THE ASSESSMENT OF THE ASSESSEE, HOWEVER, THIS WAS ONE OF THE ISSUES I N THE ASSESSMENT. THE LD. DR HAS RELIED UPON THE DECISION OF HONBLE KERALA H IGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. PANCHAJANYAM MANAGEM ENT AGENCIES AND SERVICES (333 ITR 281) AND SUBMITTED THAT THERE IS NO REQUIREMENT OF RECORDING A SEPARATE SATISFACTION BEFORE TRANSFERRING THE FILE TO ANOTHER OFFICER HAVING JURISDICTION TO ASSESS THE PERSON OTHER THAN THE PE RSON SEARCHED WHEN THE ASSESSING OFFICER IN BOTH THE IS SAME. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS CHALLENGED THE VALIDITY OF INITIATION OF PROCEEDINGS U/S 158BD MAINLY ON TWO GROUNDS. FIRSTLY THERE NO DEFIN ITE SATISFACTION OF THE ASSESSING OFFICER THAT THERE IS A UNDISCLOSED INCOM E DETECTED FROM THE BOOKS OF ACCOUNTS AND OTHER MATERIAL SEIZED DURING THE SEARC H & SEIZURE ACTION U/S 132 OF THE INCOME TAX ACT AND SECONDLY THAT THE SATISFACT ION MUST BE RECORDED BEFORE COMPLETION OF ASSESSMENT OF SEARCHED PERSON U/S 158 BC. IN SUPPORT OF HIS SHRI GOPAL KANTANA SHETTY 7 | P A G E CONTENTION, THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS RELIED UPON THE SERIES OF DECISIONS. IN THE CASE IN HAND, A SEA RCH & SEIZURE ACTION U/S 132 OF THE INCOME TAX ACT WAS CARRIED OUT ON 14.12.2000 IN THE CASE OF SHRI RAVINDRA PATIL AND HIS FAMILY MEMBERS. THE ASSESSMENT U/S 15 8BD HAS BEEN COMPLETED IN THE CASE OF SMT. ILA R. PATIL ON 31.12.2002. THERE IS NO QUARREL ON THE LEGAL PROPOSITIONS ON THE POINT THAT BEFORE INITIATING TH E PROCEEDINGS U/S 158BD OF THE ACT, THE ASSESSING OFFICER OF THE SEARCHED PERSON S HOULD BE SATISFIED THAT THERE IS AN UNDISCLOSED INCOME WHICH HAS BEEN DETECTED IN THE COURSE OF A SEARCH & SEIZURE ACTION U/S 132 WAS CARRIED OUT OR FROM THE BOOKS OF ACCOUNTS REQUISITIONED U/S 132A OF THE ACT AND SUCH UNDISCLO SED INCOME BELONGS TO THE PERSON OTHER THAN THE SEARCHED PERSON. THUS THE ASS ESSING OFFICER OF SEARCHED PERSON AFTER RECORDING SUCH SATISFACTION HAS TO TRA NSFER THE RELEVANT RECORD/SEIZED MATERIAL TO THE ASSESSING OFFICER HAVING JURISDICTI ON OVER THE OTHER PERSON FOR INITIATING THE PROCEEDINGS U/S 158BD OF THE ACT. IN THE RECENT DECISION IN THE CASE OF CIT VS. KNITWEARS (SUPRA), THE HON'BLE SUPREME C OURT WHILE CONFIRMING THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT HAS HELD IN PARA 41 AS UNDER:- 41. WE WOULD CERTAINLY SAY THAT BEFORE INITIATING PROC EEDINGS UNDER SECTION 158BD OF THE ACT, THE ASSESSING OFFICER WHO HAS INI TIATED PROCEEDINGS FOR COMPLETION OF THE ASSESSMENTS UNDER SECTION 158BC O F THE ACT SHOULD BE SATISFIED THAT THERE IS AN UNDISCLOSED INCOME WHICH HAS BEEN TRACED OUT WHEN A PERSON WAS SEARCHED UNDER SECTION 132 OR THE BOOKS OF ACCOUNTS WERE REQUISITIONED UNDER SECTION 132A OF THE ACT. THIS I S IN CONTRAST TO THE PROVISIONS OF SECTION 148 OF THE ACT WHERE RECORDING OF REASON S IN WRITING ARE A SINE QUA NON. UNDER SECTION 158BD THE EXISTENCE OF COGENT AN D DEMONSTRATIVE MATERIAL IS GERMANE TO THE ASSESSING OFFICERS' SATISFACTION IN CONCLUDING THAT THE SEIZED DOCUMENTS BELONG TO A PERSON OTHER THAN THE SEARCHE D PERSON IS NECESSARY FOR INITIATION OF ACTION UNDER SECTION 158BD. THE BARE READING OF THE PROVISION INDICATES THAT THE SATISFACTION NOTE COULD BE PREPA RED BY THE ASSESSING OFFICER EITHER AT THE TIME OF INITIATING PROCEEDINGS FOR CO MPLETION OF ASSESSMENT OF A SEARCHED PERSON UNDER SECTION 158BC OF THE ACT OR D URING THE STAGE OF THE ASSESSMENT PROCEEDINGS. IT DOES NOT MEAN THAT AFTER COMPLETION OF THE ASSESSMENT, THE ASSESSING OFFICER CANNOT PREPARE TH E SATISFACTION NOTE TO THE EFFECT THAT THERE EXISTS INCOME TAX BELONGING TO AN Y PERSON OTHER THAN THE SEARCHED PERSON IN RESPECT OF WHOM A SEARCH WAS MAD E UNDER SECTION 132 OR REQUISITION OF BOOKS OF ACCOUNTS WERE MADE UNDER SE CTION 132A OF THE ACT. THE LANGUAGE OF THE PROVISION IS CLEAR AND UNAMBIGUOUS. THE LEGISLATURE HAS NOT SHRI GOPAL KANTANA SHETTY 8 | P A G E IMPOSED ANY EMBARGO ON THE ASSESSING OFFICER IN RES PECT OF THE STAGE OF PROCEEDINGS DURING WHICH THE SATISFACTION IS TO BE REACHED AND RECORDED IN RESPECT OF THE PERSON OTHER THAN THE SEARCHED PERSO N. 8. FROM THE DECISION OF HON'BLE SUPREME COURT, IT I S CLEAR THAT THE REQUIREMENT OF SATISFACTION FOR INITIATION OF PROCE EDINGS U/S 158BD IS ESSENTIAL, HOWEVER THERE IS NO BAR ON THE ASSESSING OFFICER IN RESPECT OF THE STAGE OF THE PROCEEDINGS DURING WHICH THE SATISFACTION IS TO BE REACHED AND RECORDED IN RESPECT OF THE PERSON OTHER THAN THE SEARCHED PERS ON. THUS AS FAR AS THE CONTENTION OF THE ASSESSEE FOR CHALLENGING THE VAL IDITY OF INITIATION OF PROCEEDINGS U/S 158BD ON THE GROUND THAT THE SATISFACTION MUST BE RECORDED BEFORE COMPLETION OF ASSESSMENT U/S 158BC IS NOT SUSTAINAB LE IN VIEW OF THE LATEST DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS . KNITWEARS (SUPRA). HENCE THIS GROUND FOR CHALLENGING THE INITIATION OF PROCE EDINGS U/S 158BD IS REJECTED. AS HELD BY THE HON'BLE SUPREME, THE EXISTENCE OF COGEN T AND DEMONSTRATIVE MATERIAL IS GERMANE TO THE ASSESSING OFFICERS' SATI SFACTION IN CONCLUDING THAT THE SEIZED DOCUMENTS BELONG TO A PERSON OTHER THAN THE SEARCHED PERSON IS NECESSARY FOR INITIATION OF ACTION UNDER SECTION 15 8BD. THEREFORE, THE CARDINAL RULE FOR INITIATION OF PROCEEDINGS U/S 158BD IS TH E EXISTENCE OF COGENT MATERIAL WHICH LEAD TO DETECTION OF UNDISCLOSED INCOME OF TH E PERSON OTHER THAN THE SEARCHED PERSON. THE ASSESSING OFFICER HAS RECORDED THE SATISFACTION FOR THE PURPOSE OF INITIATION OF PROCEEDINGS U/S 158BD VIDE ORDER SHEET DATED 10.01.2003 AS UNDER:- IN THIS CASE EARLIER NOTICE U/S 158BC WAS WRONGLY INITIATED & THEN THE PROCEEDINGS ARE DROPPED AFTER GETTING APPROVAL FROM ADDL. CL'T CENTRAL RANGE THANE, HOWEVER DURING THE COURSE OF SEARCH NO . OF BOOKS & PAGES WERE SEIZED INDICATING SUPPRESSION OF INCOME IN THE CASE HOTEL RELAX RUN BY SHRI GOPAL SHETTY. & THEREFORE I AM SA TISFIED THAT UNDISCLOSED INCOME IS LIKELY TO BE DETECTED IN THE CASE OF SHRI GOPAL SHETTY ON THE BASIS OF SEIZED BOOKS OF A/C.'S & PAP ERS. THEREFORE PLEASE ISSUE NOTICE U/S 158BD FOR THE BLOCK PERIOD 1.04.1990 TO 14.12.2000. SHRI GOPAL KANTANA SHETTY 9 | P A G E 9. IT IS CLEAR FROM THE SATISFACTION RECORDED THAT THERE IS NO MENTION OF ANY PARTICULAR DOCUMENT OR MATERIAL OR ANY PARTICULAR I TEM OF UNDISCLOSED INCOME WHICH WAS DETECTED DURING THE COURSE OF SEARCH IN Q UESTION OR FROM THE BOOKS OF ACCOUNTS OR SEIZED MATERIAL. EVEN THE ASSESSING OFF ICER HAS STATED IN THE SATISFACTION NOTE THAT I AM SATISFIED THAT UNDISCLOSED INCOME IS LIKELY TO BE DETECTED IN THE CASE OF SHRI GOPAL SHETTY ON THE BA SIS OF SEIZED BOOKS OF A/C.'S & PAPERS. THE ABOVE SENTENCE OF SATISFACTION DOES NOT INDICAT E A DEFINITE UNDISCLOSED INCOME DETECTED FROM THE SEIZED BOOKS OF ACCOUNTS A ND OTHER PAPERS BUT THE ASSESSING OFFICER ONLY PREDICTED THAT UNDISCLOSED I NCOME IS LIKELY TO BE DETECTED. WHEN THIS ASPECT WAS POINTED OUT TO THE LD. CIT (DR) HE HAS STRONGLY ARGUED THAT THE SATISFACTION MUST BE CONSIDERED IN CONJUNCTION WITH THE ASSESSMENT ORDER U/S 158BC IN CASE OF SMT. ILA R. PATIL. WE FOUND SOME SUBSTANCE IN THE ARGUMENT OF THE LD. DR THAT IF THE SATISFACTION IS RECORDED OR EXPRESSED BY THE AS SESSING OFFICER IN RESPECT OF THE UNDISCLOSED INCOME BELONGING TO THE PERSON OTHER TH AN THE SEARCHED PERSON IN THE ASSESSMENT ORDER OF THE SEARCHED PERSON PASSED U/S 158BC THEN THE REQUIREMENT OF INITIATION OF PROCEEDINGS U/S 158BC WILL BE REGARDE D AS SATISFIED. TO FIND OUT WHETHER ANY SUCH SATISFACTION IS RECORDED IN THE ASSESSMENT ORDER PASSED U/S 158BC IN CASE OF THE SEARCHED PERSON, WE HAVE CAREFULLY EXAMINED THE ASSESSMENT ORDER DATED 31 ST DECEMBER 2002 IN THE CASE OF SMT. ILA R. PATIL. THE ONLY RELEVANT PARAGRAPHS WHICH COULD BE RELIED UPON BY THE REVENUE ARE PARAGRAPHS 12.1 AND 12.2 READ AS UNDER:- 12.1 1 PAGE NO. 39 OF BUNDLE NO.2 SEIZED FROM RESI DENCE OF SHRI RAVINDRA M. PATIL, ASSESSEE'S HUSBAND CONTAIN ENTRIES RELATING TO COND UCTING CHARGES RECEIVED BY THE ASSESSEE FROM RELAX HOTEL. ON PERUSAL OF THE ENTRIE S IT IS SEEN THAT THE ASSESSEE HAS BEEN RECEIVING CONDUCTING CHARGES OF RS. 40,000 P M FROM THE HOTEL FROM AUGUST, 98 TO FEBRUARY, 2000. THE CONDUCTING CHARGES OF THE HOTEL WAS INCREASED TO RS. 45,000 P M FROM MARCH 2000 AND THIS CONDUCTING CHARGES HAS BEE N RECEIVED BY THE ASSESSEE TILL NOVEMBER, 2000. ACTION U/S. 132 OF THE ACT WAS ALSO CONDUCTED AT THE PREMISES OF HOTEL RELAX SITUATED AT MANPADA RD. DOMBIVLI ON 14.12.200 0. THE SEIZED PAPERS INDICATE THAT FLAT NO.4 & 5 IN BUILDING DATTU FADKAR CHAWL WAS PU RHASED IN THE NAME OF ASSESSEE'S MOTHER-IN-LAW, SMT. ANANDIBAI PATIL AND CONVERTED I NTO HOTEL RELAX, WHICH IS A BAR CUM RESTAURANT. INVESTMENT IN THIS PROPERTY IS REFLECTE D IN THE BALANCE SHEET OF SMT. ILA R PATIL. DURING THE COURSE OF SEARCH AT THE HOTEL PRE MISES, STATEMENT OF SHRI GOPAL K..SHETTY WAS RECORDED ON J 4.12.2000. IN HIS STATE MENT, SHRI SHETTY ADMITTED THAT THE HOTEL IS ACTUALLY RUNBY SHRI GOPAL K. SHETTY FROM 1 5.7.1998 ONWARDS AT A MONTHLY RENTAL CHARGES OF RS . 15,000 P M. HOWEVER, EVIDENCE IN TH IS REGARD HAS BEEN FOUND ON THE SHRI GOPAL KANTANA SHETTY 10 | P A G E REVERSE OF PAGE NO. 38 OF NOTE NO. 2 WHICH SHOWS TH AT THE ASSESSEE IS IN RECEIPT OF CONDUCTING CHARGES FROM SHRI GOPAL SHETTY @ RS. 15, 000 PM AS ADMITTED BY HIM. 12.2 ON PERUSAL OR ASSESSEE'S INCOME TAX RECORDS, I T IS SEEN THAT THE CONDUCTING CHARGES RECEIVED FROM THE HOTEL PREMISES WAS NOT RE FLECTED IN RETURNS OR INCOME OF THE CONCERNED A Y S FILED PRIOR TO THE DATE OF SEARCH T HE ASSESSEE WAS CONFRONTED IN THIS REGARD IN HER REPLY DATED 23.12.2002, THE ASSESSEE HAS STATED THAT THE MONTHLY CONDUCTING CHARGES RECEIVED FROM SHRI GOPAL SHETTY ARE ONLY RS 15,000 M AND RS. 40,000 AS CONTEMPLATED BY THE DEPARTMENT. THE ASSES SEE HAS OFFERED THE RENTAL INCOME RECEIVED BY HER IN THE BLOCK RETURN FILED. 10. THE REFERENCE IN PARAGRAPH 12.1 IS MADE IN RESP ECT OF THE BUSINESS CONDUCTING CHARGES RECEIVED FROM SHRI GOPAL K. SHET TY AT THE RATE OF RS. 40,000 PER MONTH AND NOT RS. 15,000/- PER MONTH. OTHER THA N THE BUSINESS CONDUCTING CHARGES OR RENTAL CHARGES NOTHING MORE HAS BEEN COM MENTED IN THE SAID ASSESSMENT ORDER. WE FIND THAT THE ASSESSING OFFICE R IN THE CASE OF ASSESSEE BEFORE US HAS NOT MADE ANY ADDITION OF UNDISCLOSED INCOME ON ACCOUNT OF SUCH BUSINESS CONDUCTING CHARGE/RENTAL INCOME ON THE GRO UND THAT THE ASSESSEE HAS CLAIMED EXPENSES OF ONLY RS. 15,000/- PM. IT IS PER TINENT TO NOTE THAT WHEN THE ASSESSING OFFICER HAS CONCLUDED IN THE ASSESSMENT O RDER THAT SINCE THE ASSESSEE HAS CLAIMED ONLY RS. 15,000 PM ON ACCOUNT OF PAYMENT OF RENT AND EXCESS PAYMENT IS NOT ALLOWED, THEREFORE, OTHER THA N THE RENTAL CHARGES NEITHER THE ASSESSMENT ORDER PASSED U/S 158BC NOR THE SATIS FACTION RECORDED ON 10.01.2003 DISCLOSED ANY OTHER UNDISCLOSED INCOME D ETECTED BY THE ASSESSING OFFICER FROM THE BOOKS OF ACCOUNTS AND OTHER SEIZED PAPERS. WE FURTHER NOTE THAT ALL THE ADDITIONS WHICH ARE MADE BY THE ASSESSING O FFICER IN THE ASSESSMENT ORDER PASSED U/S 158BD ARE DISALLOWANCE OF EXPENSES AND THE REASON FOR DISALLOWANCE IS GIVEN AS THE EXPENDITURE IS NOT SUP PORTED BY EVIDENCE AND FURTHER NO EVIDENCE WAS FOUND DURING THE SEARCH TO SUPPORT THE CLAIM OF EXPENDITURE. THUS THE ASSESSING OFFICER HAS DISALLO WED THE CLAIM OF EXPENDITURE ON THE GROUND THAT DURING THE SEARCH NO EVIDENCE WA S FOUND IN SUPPORT OF THE SHRI GOPAL KANTANA SHETTY 11 | P A G E CLAIM OF EXPENDITURE. IT IS STRANGE THAT IN THE PRO CEEDINGS U/S 158BD, THE ASSESSING OFFICER IS TAKING THE SHELTER OF NON DETE CTION OF ANY MATERIAL INSTEAD OF ADDITION OF UNDISCLOSED INCOME ON THE BASIS OF BOOK S OF ACCOUNTS AND SEIZED MATERIAL IN THE COURSE OF SEARCH ACTION U/S 132 OF INCOME TAX ACT. THE DISALLOWANCE OF CLAIM OF EXPENDITURE ON THE REASON OF NON AVAILABILITY OF SUPPORTING EVIDENCE IS A MATTER OF ENQUIRY IN THE R EGULAR ASSESSMENT AND CANNOT BE THE BASIS FOR INITIATION OF PROCEEDINGS U/S 158B D OR ASSESSMENT OF UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT. THE HON BLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS RADHEY SHYAM BANSAL (SUPRA) H AS HELD IN PARA 21 AS UNDER;- THE WORD 'SATISFACTION' HAS NOT BEEN DEFINED IN THE ACT. THE 'SATISFACTION', BY ITS VERY NATURE, MUST PRECEDE BEFORE THE PAPERS/DOCUMENTS AR E SENT BY THE ASSESSING OFFICER OF THE PERSON SEARCHED TO THE ASSESSING OFF ICER OF THE THIRD PERSON. MERE USE OR MENTION OF THE WORD 'SATISFACTION' IN THE ORDER/ NOTE WILL NOT MEET THE REQUIREMENT OF CONCEPT OF SATISFACTION AS USED IN SECTION 158BD. T HE SATISFACTION HAS TO BE IN WRITING AND CAN BE GATHERED FROM THE ASSESSMENT ORD ER, IF IT IS SO MENTIONED/RECORDED, OR FROM ANY OTHER ORDER, NOTE O R RECORD MAINTAINED BY THE ASSESSING OFFICER OF THE PERSON SEARCHED. THE WORD 'SATISFACTION' REFERS TO THE STATE OF MIND OF THE ASSESSING OFFICER OF THE PERSON SEAR CHED, WHICH GETS REFLECTED IN A TANGIBLE SHAPE/FORM WHEN IT IS REDUCED INTO WRITING . IT IS THE CONCLUSION DRAWN OR THE FINDING RECORDED ON THE FOUNDATION OF THE MATERIAL AVAILABLE. THE TERM 'IS SATISFIED' MEANS THAT THE ASSESSING OFFICER IS SATISFIED WHEN HE MAKES HIS MIND OR REACHES A CLEAR CONCLUSION WHEN HE TAKES A PRIMA FACIE VIEW T HAT THE MATERIAL AVAILABLE ESTABLISHES 'UNDISCLOSED INCOME' OF A THIRD PARTY. THE ASSESSING OFFICER MUST REACH A CLEAR CONCLUSION THAT GOOD GROUND EXISTS FOR THE AS SESSING OFFICER OF THE THIRD PERSON TO INITIATE PROCEEDINGS AS MATERIAL BEFORE HIM SHOW S OR WOULD ESTABLISH 'UNDISCLOSED INCOME' OF A THIRD PERSON. AT THIS STAGE, AS THE PR OCEEDINGS ARE AT THE VERY INITIAL STATE, THE 'SATISFACTION' NEITHER IS REQUIRED TO BE FIRM NOR CONCLUSIVE. THE 'SATISFACTION' REQUIRED IS TO DECIDE WHETHER OR NOT BLOCK ASSESSME NT PROCEEDINGS ARE REQUIRED TO BE INITIATED. BUT 'SATISFACTION' HAS TO BE FOUNDED ON REASONABLENESS. IT CANNOT BE CAPRICIOUS SATISFACTION. THOUGH IT IS A SUBJECTIVE SATISFACTION, IT MUST BE CAPABLE OF BEING TESTED ON OBJECTIVE PARAMETERS. THE OPINION, THOUGH TENTATIVE, HOWEVER, CANNOT BE A PRODUCT OF IMAGINATION OR SPECULATION. IT CANNOT BE SPACIOUS OR MERCURIAL. IT SHOULD NOT BE A MERE PRETENCE AND SHO ULD BE MADE IN GOOD FAITH RATHER THAN SUSPICION. RELIABILITY, CREDIBILITY OR FOR THA T MATTER WHAT WEIGHT HAS TO BE ATTACHED TO THE MATERIAL, DEPENDS UPON THE SUBJECTI VE SATISFACTION OF THE ASSESSING OFFICER, BUT DEFINITELY IT IS SUBJECT TO SCRUTINY W HETHER THE SATISFACTION HAS A RATIONAL NEXUS OR A RELEVANT BEARING TO THE FORMATION OF SAT ISFACTION AND IS NOT EXTRANEOUS OR IRRELEVANT. THE SATISFACTION MUST REFLECT RATIONAL CONNECTION WITH OR RELEVANT BEARING BETWEEN THE MATERIAL AVAILABLE AND UNDISCLOSED INCO ME OF THE THIRD PERSON. THE RATIONAL CONNECTION POSTULATES AND REQUIRES SATISFA CTION OF THE ASSESSING OFFICER THAT SHRI GOPAL KANTANA SHETTY 12 | P A G E A THIRD PERSON HAS 'UNDISCLOSED INCOME' ON THE BASI S OF EVIDENCE OR MATERIAL BEFORE HIM. THE MATERIAL ITSELF SHOULD NOT BE VAGUE, INDEF INITE, DISTINCT OR REMOTE. IF THERE IS NO RATIONAL OR INTANGIBLE NEXUS BETWEEN THE MATERIA L AND THE SATISFACTION THAT A THIRD PERSON HAS 'UNDISCLOSED INCOME', THE CONCLUSION WOU LD NOT DESERVE ACCEPTANCE. THEN THE SATISFACTION IS VITIATED. IT IS TO THIS LI MITED EXTENT THAT THE SATISFACTION CAN BE GONE INTO AND EXAMINED. THE SATISFACTION, THOUGH SU BJECTIVE, MUST MEET THE AFORESAID CRITERIA. 11. A SIMILAR VIEW HAS BEEN TAKEN IN THE SERIES OF DECISIONS AS RELIED UPON BY THE ASSESSEE. THUS IT IS CLEAR THAT AT THE TIME OF RECORDING SATISFACTION THE ASSESSING OFFICER SHOULD REACH A CLEAR CONCLUSION T HAT PRIMA FACIE THE MATERIAL AVAILABLE ESTABLISHES UNDISCLOSED INCOME OF THIRD P ARTY. IN THE ABSENCE OF EXISTENCE OF ANY COGENT MATERIAL WHICH DEMONSTRATES THE UNDISCLOSED INCOME BELONGING TO THE PERSON OTHER THAN THE SEARCHED PER SON, THE PROCEEDINGS INITIATED U/S 158BD AND CONSEQUENT BLOCK ASSESSMENT ARE INVALID. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AS WE HAVE DISCUSSED ABOVE IT IS CLEAR THAT THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY RECORD, B OOKS OF ACCOUNTS OR SEIZED MATERIAL TO DEMONSTRATE UNDISCLOSED INCOME OF THE A SSESSEE. ACCORDINGLY WE HOLD THAT THE INITIATION OF THE PROCEEDINGS AND CON SEQUENTIAL BLOCK ASSESSMENT U/S 158BD ARE INVALID AND ARE QUASHED. SINCE THE BL OCK ASSESSMENT IS QUASHED AS INVALID, THEREFORE, THE OTHER GROUNDS RAISED IN THE APPEAL BECOME INFRUCTUOUS. 12. THE REVENUE IN IT(SS) NO 237/MUM/2006.HAS RAISE D SOLITARY GROUND AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT (A) ERRED IN DELETING THE SURCHARGE OF RS. 2,65,148/- LEVIABLE O N THE TAX ON THE UNDISCLOSED INCOEM. 13. WE HAVE QUASHED THE BLOCK ASSESSMENT U/S 158BD CONSEQUENTLY THE QUESTION OF LEVY OF SURCHARGE DOES NOT ARISE. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED AND THAT BY THE REVENUE IS DISMISSED. SHRI GOPAL KANTANA SHETTY 13 | P A G E ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 2 0-06-2014 SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 20 -06-2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI