THE COMMISSIONER OF INCOME TAX V. M/S. SRINIVASA & BROTHERS

ITA/817/2009

AI Insights

The case revolves around an appeal by the Commissioner of Income-tax and the Assistant Commissioner of Income-tax against M/s. Srinivasa & Brothers, concerning the validity of a notice issued under Section 158BD of the Income Tax Act, 1961. The notice was part of a block assessment period from April 1, 1990, to March 23, 2001. The core issue was whether the satisfaction note, necessary for issuing a notice under Section 158BD, was validly prepared. The Tribunal had earlier dismissed the revenue's appeal, leading to this appeal in the High Court. The High Court, referencing a Supreme Court decision, affirmed the Tribunal's decision, noting that the satisfaction note was improperly prepared in the case of the assessee rather than the searched person, thus invalidating the notice.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728919 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-12-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income tax Vs. Calcutta Knitwears
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: K V ARAVIND
• Keywords: Block assessment; Income Tax; Satisfaction note; Search and seizure; Undisclosed income
• Section: 158BC; 158BD; 158BE; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 2ND DAY OF DECEMBER 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE B. MANOHAR ITA NO.817 OF 2009 BETWEEN; 1. The Commissioner of Income-tax C.R.Building, Queens Road Bangalore 2. The Asst. Commissioner of Income-tax Central Circle- 2(2) C.R.Building, Queens Road Bangalore ...APPELLANTS (By Sri.K.V.Aravind, Advocate) AND: M/s. Srinivasa & Brothers No.155/A, 9th Main RMV Extension Bangalore ...RESPONDENT (By Sri.A.Shankar and Sri.M.Lava, Advocates) -0-0-0-0-0- 2 This appeal is filed under Section 260-A of Income Tax Act 1961, arising out of order dated 24.07.2010 passed in IT(SS)A No. 67/BNG/2008, for the Block Assessment Period 01.04.1990 to 23.03.2001, praying to 1) formulate the substantial questions of law stated therein and 2) to allow the appeal and set aside the order passed by the ITAT, Bangalore, in ITA No.67/BNG/2008, dated 24.07.2010 confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Central Circle-2(2), Bangalore, in the interest of justice and equity. This appeal coming on for Hearing this day, N.KUMAR, J. delivered the following:- JUDGMENT The revenue has preferred this appeal challenging the order passed by the Tribunal dismissing the appeal preferred by the revenue. 2. The appeal was admitted to consider the following substantial questions of law:- 1. “Whether the Tribunal was correct in holding that the notice issued under Section 158BD does not satisfy the requirements of law on the ground that Assessing Officer has recorded 3 satisfaction after completion of the block assessment under Section 158BC in the case of the person search? 2. Whether the Tribunal was correct in holding that satisfaction under Section 158BD should be recorded before completion of the block assessment under Section 158BC in the case of the person search in order to initiate proceedings under Section 158BD against the person other than, searched without noticing that Section 158BD has not stipulated any limitation and pendency of block assessment proceedings for recording satisfaction?” 3. We have heard the learned counsel for the parties. 4. The tribunal has held that the satisfaction note has been recorded after the expiry of time limit under Section 158 BE in the case of the search person and therefore the notice issued under Section 158 BD is not validly issued. 5. In fact, the question whether when exactly the satisfaction note could be prepared is dealt with by the Apex 4 Court in the case of Commissioner of Income tax Vs. Calcutta Knitwears reported in 362 ITR 76 wherein at para Nos. 41 and 44 it has held as under: Para 41: We would certainly say that before initiating proceedings under Section 158 BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158 BC of the Act should be satisfied that there is no undisclosed income which has been traced out when a person was searched under Section 132 of the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158 BD the existence of cogent and demonstrative material is germane to the assessing officers’ satisfaction in concluding the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158 BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the 5 assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous,. The legislature has not imposed any embargo on the assessing officer 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. Para 44: In the result, we hold that for the purpose of Section 158BD 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 the Act: (b) along with the assessment proceedings under section 158BC of the Act; and (c) 6 immediately after the assessment proceedings under Section 158BC of the Act of the searched person.” 6. In the instant case, the assessment year in the case of search as was made on 28.03.2003. The notice under Section 158BD is issued on 09.07.2003. The satisfaction note is prior to the date of issue of notice. But certainly, not either on the day the assessment order was passed in the case of searched person or before 31.03.2003. As held by the Apex Court in the aforesaid judgment the satisfaction note has to be prepared immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person. Therefore on the ground that such a note was not prepared either at the time when the order was issued under Section 158BD or before 31.03.2003, the proceedings initiated under Section 158BD cannot be held valid. 7. Therefore, what remains is the question of word “immediately” used in the aforesaid provision. However in the instant case we do not propose to go into the said 7 question because the order passed by the tribunal has to be sustained on the ground that satisfaction has not been recorded in the case of the searched person. 8. Admittedly, in this case the satisfaction note is prepared in the case of the assessee itself. It ought to have been prepared in the case of the person searched. Therefore the entire initiation of proceedings under Section 158BD is vitiated. In that view of the matter the order passed by the tribunal confirming the order of the appellate authority cannot be found fault with. In the circumstances, without answering the substantial questions of law raised in this appeal, the appeal stands dismissed. Sd/- JUDGE. Sd/- JUDGE. Bsv "