* IN HIGH COURT OF DELHI AT NEW DELHI Date of decision: November 26, 2014 + ITA No. 339/2002 COMMISSIONER OF INCOME TAX, NEW DELHI ..... Appellant Through: Mr.Akash Vajpai , Advocate Versus M/S. MANJU FINANCE CORPORATION, NEW DELHI ..... Respondent Through: CORAM: HON BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V.KAMESWAR RAO SANJIV KHANNA, J. (Oral) 1. This appeal by revenue under Section 260-A of Income Tax Act, 1961 ( Act , in short) impugns order dated 15.04.2002 passed by Income Tax Appellate Tribunal (Tribunal, in short) annulling and setting aside block assessment proceedings under Section 158BD of Act. block assessment period involved is 01.04.1986 to 29.08.1996. 2. By order dated 01.02.2005, following substantial question of law was framed: Whether in facts and circumstances of case, non-issuance of notice under Section 158BD of Income Tax Act, 1961 would vitiate proceedings initiated under Section 158BC of Act? ITA No.339/2002 Page 1 of 8 3. respondent assessee is firm originally constituted on 01.03.1990 and had been filing their returns of income from address X-49, Loha Mandi, Naraina Phase-2, New Delhi. On 29.08.1996 search and seizure operations under Section 132(1) of Act were conducted at E-49, Naraina Vihar, New Delhi at residence of Nem Chand Gupta, individual. During course of search, books of accounts namely journal, cash book and ledger belonging to respondent assessee were found and seized. At this stage, we may record that grounds of appeal wrongly record and state that search and seizure operations were carried out at premises of assessee. This fact does not borne and is contrary to assertion made in assessment order. Subsequently, jurisdiction of respondent assessee was transferred to DCIT, Special Range 13 in exercise of power and order under Section 127 of Act. said order is dated 20.02.1997. Thereupon, Deputy Commissioner of Income Tax Special Range 13, New Delhi, issued notice under Section 158BC of Act dated 06.03.1997 which was duly served on respondent assessee and return of income for block period was filed in Form No. 2B on 17.04.1997. Block assessment order was passed on 29.08.1997 assessing undisclosed income for block period at Rs.67,95,370/-. 4. block assessment order was made subject matter of challenge ITA No.339/2002 Page 2 of 8 before Income Tax Appellate Tribunal and as noted above block assessment order stands annulled. reasons given by Tribunal for annulling block assessment are to be substantially found in paragraph No.11 of impugned order, which for sake of convenience is reproduced below:- 11. Regarding jurisdiction, this is undisputed fact that no search was conducted on assessee, neither any warrant of search was issued in name of assessee nor any Panchnama was prepared in name of assessee. Therefore, no proceedings can be taken against assessee u/s 158BC. search was conducted on one Shri Nem Chand Gupta on 29.8.1996 and proceedings u/s 158BC were taken against that assessee. Some papers related to assessee were found during course of search made on Shri Nem Chand Gupta. Those books of accounts had papers were seized and notice u/s 158BC was issued to assessee and assessee was asked to file return for block period. notices u/s 143(2) and 142(2) along with questionair were issued to assessee. specific query was raised during course of hearing by Bench to learned DR that whether any notice u/s 158BD was issued or not, it was fairly admitted that no notice u/s 158BD was issued. However, it was categorically stated that there is no material difference between notice u/s 158BD and notice u/s 158BC. As we have already stated that assessee deserved to succeed on ITA No.339/2002 Page 3 of 8 this issue because provisions of sections 158BC and 158BD are separate and distinct. proceedings u/s 158BC can be initiated only on assessee on whom search was conducted and proceedings u/s 158BD are to be initiated where concerned AO has received information or intimation from Assessing Officer of person on whom search was conducted. No such material was brought on record that whether any intimation or information were received by AO from Assessing Officer of Shri Nem Chand Gupta, on whom search was conducted. Therefore, it cannot be stated that there is no material difference between section 158BD and section 158BC. defect also cannot be cured by section 292B, as both sections are separate and distinct because proceedings under both sections are entirely different. (emphasis supplied) 4. We have reservations on findings with regard to issue of notice issued under Section 158BC instead of Section 158BD of Act. Possibly, question of prejudice due to mention of wrong provision etc. may arise. facts were noted in assessment order which specifically records that search was not conducted in case of respondent assessee but books of accounts i.e. journal, cash book and ledger of respondent assessee were found in search. Thus reference was to Section 158BD of Act. However, respondent ITA No.339/2002 Page 4 of 8 assessee is entitled to succeed in view of specific finding given by Tribunal in aforesaid paragraph that no material was brought on record whether any intimation or information was received by Assessing Officer of respondent assessee from Assessing Officer of Nem Chand Gupta i.e. person on whom search was conducted. Accordingly, finding of Tribunal was that Assessing Officer of Nem Chand Gupta had not given any intimation or information to Assessing Officer of respondent assessee. On said aspect, Section 158BD of Act is clear and stipulates as pre-condition that Assessing Officer of person searched must record his satisfaction that any undisclosed income belongs to third person i.e. person other than person who was searched or whose documents, account books or assets were requisitioned. Thereafter he should handover said documents to Assessing Officer of third person. We would assume in present case that Assessing Officer of person searched and Assessing Officer of respondent assessee were same as there is order under Section 127 of Act. However, this would not mean that Assessing Officer of person searched should not have recorded satisfaction before notice was issued under Section 158BD read with Section 158BC of Act. requirement of Section 158BD is that Assessing Officer of person searched or against ITA No.339/2002 Page 5 of 8 whom order under Section 132A of Act has been passed, should be satisfied that any undisclosed income belongs to third person. This is statutory mandate and jurisdictional prerequisite before proceedings under Section 158BD of Act are initiated. Violation of said requisite and mandatory requirement would result in annulment of assessment under Section 158BD read with Section 158BC of Act. aforesaid dictum and ratio stands commandingly and conclusively affirmed by Supreme Court in Commissioner of Income Tax vs. Calcutta Knitwears, Ludhiana [2014] 362 ITR 673 (SC), in following words:- 39. opening words of Section 158BD of Act are that assessing officer must be satisfied that undisclosed income belongs to any other person other than person with respect to whom search was made under Section 132 of Act or requisition of books were made under Section 132A of Act and thereafter, transmit records for assessment of such other person. Therefore, short question that falls for our consideration and decision is at what stage of proceedings should satisfaction note be prepared by assessing officer: whether at time of initiating proceedings under Section 158BC for completion of assessments of searched person under Section 132 and 132A of Act or during course of assessment proceedings under Section 158BC of Act or after completion of proceedings under Section 158BC of Act. XXXX 41. We would certainly say that before initiating proceedings under Section 158BD of Act, assessing ITA No.339/2002 Page 6 of 8 officer who has initiated proceedings for completion of assessments under Section 158BC of Act should be satisfied that there is undisclosed income which has been traced out when person was searched under Section 132 or books of accounts were requisitioned under Section 132A of Act. This is in contrast to provisions of Section 148 of Act where recording of reasons in writing are sine qua non. Under Section 158BD existence of cogent and demonstrative material is germane to assessing officers satisfaction in concluding that seized documents belong to person other than searched person is necessary for initiation of action under Section 158BD. bare reading of provision indicates that satisfaction note could be prepared by assessing officer either at time of initiating proceedings for completion of assessment of searched person under Section 158BC of Act or during stage of assessment proceedings. It does not mean that after completion of assessment, assessing officer cannot prepare satisfaction note to effect that there exists income tax belonging to any person other than searched person in respect of whom search was made under Section 132 or requisition of books of accounts were made under Section 132A of Act. language of provision is clear and unambiguous. legislature has not imposed any embargo on assessing officer in respect of stage of proceedings during which satisfaction is to be reached and recorded in respect of person other than searched person. (emphasis supplied) 5. In order to be absolutely sure as to factual position, we had called upon counsel for Revenue to examine original records and ascertain whether satisfaction note of Assessing Officer of person searched is available. appeal was accordingly adjourned. Learned counsel for Revenue states that he has examined original records ITA No.339/2002 Page 7 of 8 and no satisfaction note recorded by Assessing Officer of person searched is available. In these circumstances and in view of authoritative pronouncement of Supreme Court in Calcutta Knitwears (supra), we have to hold that block assessment proceedings initiated under Section 158BD read with Section 158BC of Act were bad and contrary to law. question of law is accordingly answered in favour of respondent assessee and against appellant Revenue. appeal is disposed of. There will be no order as to costs. (SANJIV KHANNA) JUDGE (V.KAMESWAR RAO) JUDGE NOVEMBER 26, 2014 km ITA No.339/2002 Page 8 of 8 Commissioner of Income Tax, New Delhi v. M/s. Manju Finance Corporation