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COMMISSIONER OF INCOME TAX Vs. RAGHUBIR SINGH GARG
September, 16th 2014
$~5.
*       IN THE HIGH COURT OF DELHI AT NEW DELHI


+                   INCOME TAX APPEAL NO. 1420/2010


                                           Date of decision: 27th August, 2014


        COMMISSIONER OF INCOME TAX
                                                                  ..... Appellant
                              Through Ms. Suruchi Aggarwal, Sr. Standing
                              Counsel.

                              versus

        RAGHUBIR SINGH GARG
                                                                ..... Respondent
                              Through Mr. Rishabh Kapoor, Advocate.


        CORAM:
        HON'BLE MR. JUSTICE SANJIV KHANNA
        HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J. (ORAL):

        The following substantial question of law is framed:-


                      "Whether Income Tax Appellate Tribunal was
                      right in holding that the block assessment
                      proceedings under Section 158BD of the Income
                      Tax     Act,      1961   were   invalid     as
                      reasons/satisfaction note was recorded, after
                      passing of the block assessment order under
                      Section 158BC, by the Assessing Officer of the
                      "person searched"


ITA No. 1420/2010                                                       Page 1 of 7
2.       Block assessment order for the period 1st April, 1990 to 20th

August, 2000 was passed on 30th August, 2005. Income Tax Appellate

Tribunal (Tribunal, for short) has held that the block assessment order is

invalid and void.

3.      One Mr. Manoj Aggarwal and a company M/s Friends Portfolio

Private Limited were subjected to search and seizure operation under

Section 132 of the Income Tax Act, 1961(Act, for short) on 3rd August,

2000. Subsequently, block assessment under Section 158BC of the Act

was completed in the case of M/s Friends Portfolio Private Limited on 29 th

August, 2002. Similarly, block assessment proceedings were completed

in the case of Manoj Aggarwal vide order dated 30th August, 2005.




4.      On 16th January, 2003, the Deputy Commissioner of Income Tax,

Central Circle-3, New Delhi, who had passed the block assessment order

in the case of M/s Friends Portfolio Private Limited, on the basis of seized

material recorded the following satisfaction note:-

                "Your assessee Shri Raghubir Singh Garg, Room
                No. 6, 1st Floor, 2897, Kishan Mkt., Hauz Quazi,
                Delhi-6 has received a total amount of
                Rs.21,17,191/- (cheques Nos.) (1) Rs.4,00,000/- vide
                cheques No. 958609, (2) Rs.3,00,000/- vide cheques
                No. 940946, (3) Rs.2,56,922/- vide cheques
                No.945544, (4) Rs.3,80,000/- vide cheques No.
                964193, (5) Rs.5,00,000/- vide cheque No. 940657
                & (6) Rs.2,80,268/- vide cheque No.965567 drawn
                on a/c No. 1224, Vijaya Bank, Vigyan Vihar, New
                Delhi from M/s Friends Portfolio Pvt. Ltd. This
                amount is a cheque received in lieu of unaccounted
ITA No. 1420/2010                                                      Page 2 of 7
                money paid. This is the prima-facie transaction of
                accommodation entry as evident from the seized
                material and inquiries done from the bank accounts
                of M/s Friends Portfolio Pvt. Ltd. These may be
                other transactions of accommodation entries received
                by your assessee from M/s Friends Portfolio Pvt.
                Ltd. These may also be examined at your end and
                the full quantum of undisclosed income may be
                determined. The ownership of the shares claimed to
                have been sold through M/s Friends Portfolio Pvt.
                Ltd. may also be examined since it is clear that the
                shares would not even be belonging to your assessee.

                The papers seized during the course of search and
                inquires conducted during assessment proceedings
                thus clearly establish that undisclosed income
                belonging to Shri Raghubir Singh Garg has been
                found during the course of search of Sh. Manoj
                Aggarwal. This information is beiong(sic) passed on
                to you for initiating proceedings u/s 158BC read
                with Section 158BD since the jurisdiction over
                Raghubir Singh Garg is with you. This amount has
                been added in the case of M/s Friends Portfolio Pvt.
                Ltd. on protective basis. The outcome of the
                investigation may be intimated to the undersigned
                for taking necessary action in the case of M/s Friends
                Portfolio Pvt. Ltd."


5.      Thereafter, block assessment proceedings under Section 158BD

read with Section 158BC were initiated against the respondent-assessee by

issue of notice dated 5th August, 2003.

6.      In the impugned order passed by the tribunal dated 30th September,

2009, it has been held that the block assessment proceedings were not

validly initiated as the satisfaction note was recorded by Deputy

Commissioner of Income Tax, Central Circle-3, New Delhi on 16th
ITA No. 1420/2010                                                        Page 3 of 7
January, 2003, which is after the passing of the block assessment order

under Section 158BC in the case of "searched person", i.e. M/s Friends

Portfolio Private Limited, on 29th August, 2002.              The Deputy

Commissioner of Income Tax, Central Circle-3, New Delhi had thus

become functus officio and could not have recorded the satisfaction note

once he had passed the block assessment order in the case of M/s Friends

Portfolio Private Limited on 29th August, 2002.

7.      The aforesaid reasoning and ratio of the tribunal is contrary to the

law subsequently expounded by the Supreme Court in Commissioner of

Income Tax-III versus Calcutta Knitwears, Ludhiana (2014) 6 SCC 444

wherein the relevant provisions of Chapter XIV-B of the Act were

considered and it has been held that Section 158BD was a machinery

provision inserted in the statute for the purpose of carrying out assessment

of persons other than the searched persons. A satisfaction note regarding

undisclosed income belonging to another person must be recorded, but the

satisfaction note need not be recorded before the block assessment order

was passed in the case of the person searched. There was nothing in the

language of the provisions, which suggested that the satisfaction note

cannot be recorded upon completion of the proceedings under Section

158BC of the Act against the "searched person". Section 158BE(2)(b)

only prescribed limitation period for completion of proceedings initiated


ITA No. 1420/2010                                                    Page 4 of 7
under Section 158BD. The exact observations of the Supreme Court in

this regard read as under:-

                "38. We would certainly say that before initiating
                proceedings under Section 158BD of the Act,
                assessing officer who has initiated proceedings for
                completion of the assessments under Section 158BC
                of 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 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 158BD
                the existence of cogent and demonstrative material is
                germane to the assessing officers' satisfaction in
                concluding that the seized documents belong to a
                person other than the searched person is necessary
                for initiation of action under Section 158BD. 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
                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.

                39. Further, Section 158BE(2)(b) only provides for
                the period of limitation for completion of block
                assessment under section 158BD in case of the
ITA No. 1420/2010                                                          Page 5 of 7
                person other than the searched person as two years
                from the end of the month in which the notice under
                this Chapter was served on such other person in
                respect of search carried on after 01.01.1997. The
                said section does neither provides for nor imposes
                any restrictions or conditions on the period of
                limitation for preparation the satisfaction note under
                Section 158BD and consequent issuance of notice to
                the other person.

                40.   XXXXX

                41. 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) immediately after the assessment proceedings are
                completed under Section 158BC of the Act of the
                searched person."

8.      In light of the aforesaid ratio decidendi, the question of law has to

be answered in favour of the appellant-Revenue and against the

respondent-assessee. The Tribunal was not correct in holding that the

block assessment proceedings were barred and invalid because the

satisfaction note was not recorded by the Assessing Officer before he had

passed the block assessment order under Section 158BC in the case of the

person searched.





ITA No. 1420/2010                                                        Page 6 of 7
9.      Learned counsel for the respondent-assessee states that the matter

may be remanded for examination of the addition on merits. We accept

the said prayer as the Tribunal has not decided the appeal, which was

preferred by the respondent-assessee on merits, i.e., whether on the facts

and evidence on record the addition on merits is justified. To cut short

delay, parties are directed to appear before the Tribunal on 13th October,

2014, when a date of hearing will be fixed. The appeal is disposed of.

        DASTI.



                                      SANJIV KHANNA, J.



                                      V. KAMESWAR RAO, J.
        AUGUST 27, 2014
        VKR




ITA No. 1420/2010                                                   Page 7 of 7

 
 
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