Proceedings under s 158BD are void if referral AO fails to record his satisfaction — as held by DelHC in CIT v Radhey Shyam Bansal and Others — In favour of: The Assessee ; ITA Nos. 582, 398, 578, 583/2008 and 53, 102, 287, 355, 402, 477, 483, 611, 670, 711, 822, 857, 996, 1064, 1075, 1098, 1119, 1163, 1279, 1318, 1329, 1373/2009, 149, 196, 154, 655, 748, 279, 1145, 1420, 1421, 550, 554, 1313, 1326, 777, 75, 198, 237, 374/2010, 212/2011
Decided on: 30 May 2011
Pursuant to the search conducted at the premises of M on 30 August 2000, several materials were seized on the basis of which a block assessment was completed under s 158BC against M on 29 August 2002. The AO of M sent a letter on 15 July 2003 to the assessee’s AO that the said assessee was acting as a mediator in transactions involving substantial tax evasion by giving bogus accommodation entries to various persons. On 22 March 2004, a notice under s 158B was sent to the assessee and thereafter an assessment order was passed. In an appeal, the assessee submitted that the notice under s 158B was barred by limitation; that the AO assessing the searched person (Manoj Aggarwal) had not recorded any satisfaction under s 158BD; that no opportunity to cross-examine the person on the basis of whose statement allegations were made against him; that no opportunity was afforded to him to rebut the material collected and utilised against him; and that the rate of commission adopted by the AO was totally exaggerated and not based on any material evidence on record. The CIT(A) however rejected the contentions of the assessee and upheld the order passed by the AO, holding that the communication dated 15 July 2003 amounted to the satisfaction of the AO assessing the searched person as required by s 158BD. The findings of the CIT(A) were set aside by the Tribunal holding that no satisfaction had been recorded by the AO assessing M, as there is no reflection of satisfaction in the order of assessment, and further the notice dated 22 March 2004 issued under s 158BC read with s158BD did not refer to any satisfaction of the AO of M and the AO had become functus officio on passing the assessment order and hence, could not have recorded any satisfaction. The block assessment of M was completed on 29 August 2002 but the notice to the respondent-assessee under s 158BD was issued only on 22 March 2004, ie after 19 months later which was well beyond a reasonable period. Being aggrieved, the revenue has filed the present appeal.
The issue is whether the recording of satisfaction by the AO of the searched person that any undisclosed income belongs to any person other than the person searched is a condition precedent and it is only thereafter that the AO of the third person can proceed against his assessee under s 158BC.
The recording of satisfaction by the AO of the searched person that any undisclosed income belongs to any person other than the person searched is a condition precedent and it is only thereafter that the AO of the third person can proceed against his assessee under s 158BC.
The “satisfaction” by its very nature must precede before the papers/documents are sent by the AO of the person searched to the AO of the third person. The mere use or mention of the word “satisfaction” in the order/note will not meet the requirement of concept of satisfaction as used in s 158BD. The satisfaction has to be in writing and can be gathered from the assessment order, if it is so mentioned/recorded, or from any other order, note or record maintained by the AO of the person searched. The satisfaction must reflect rational connection with or relevant bearing between the material available and the undisclosed income of the third person. If there is no rational or intangible nexus between the material and the satisfaction that a third person has “undisclosed income”, the conclusion would not deserve acceptation. Then the satisfaction is vitiated.
In the instant case, the AO of M has not recorded satisfaction that any undisclosed income belongs to the assessee. In the letter/communication dated 15 July 2003 by the AO of M to the AO of the assessee, there is no allegation that the assessee was provided with accommodation book entries or the amounts belong to the respondent-assessee. Book entries were provided to third parties. Though the AO of M wrote a letter to the assessee’s AO informing him that the assessee was providing bogus accommodation book entries and the quantum of transactions was given as per the Annexures, the Annexures were missing from the file. Thus, the appellant-revenue has not discharged the onus that there was valid satisfaction as required under s 158 BD. Therefore, the irresistible conclusion is the prerequisite of “satisfaction” as engrafted under s 158B for the purpose of the initiation of the block assessment proceeding is non-existent or absent.
The note dated 29 August 2002 cannot be relied upon to come to a conclusion that there was a recording of satisfaction. The said note stands discredited in the case of SMC Share Brokers Ltd. The said finding is a finding of fact. This court cannot, therefore, for the first time take the said note into consideration.
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