ITAT, BANGALORE BENCH ‘B’ Prerequisites for assumption of jurisdiction under section 158BD of IT Act, 1961

Prerequisites for assumption of jurisdiction under section 158BD of IT Act, 1961

If satisfaction can be inferred from the order of Assessing Officer passed under section 158BC, then it will be sufficient compliance to assume jurisdiction under section 158BD.



ITAT, BANGALORE BENCH ‘B’

Subhan Javeed

v.

ACIT

IT (SS) A. NO. 59/Bang/07

January 16, 2009



RELEVANT EXTRACTS:

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2.16 The Hon’ble Apex Court in the case of Manish Mahewari (supra) held that the proceedings u/s 158BD is not valid. While holding so, the Hon’ble Apex Court has taken into consideration that the notice does not record any satisfaction on the part of the Assessing Officer. Documents and other assets recovered during the search had not been handed over to the Assessing Officer. The Hon’ble Apex Court observed that no proceedings u/s 158BC have been initiated. There was a patent non-application of mind. The Hon'ble Apex Court in that case has referred to the decision of the Gujarat High Court in the case of Khandubhai Vasanji Desai v DCIT 236 ITR 73. The following para has been mentioned by the Hon'ble Apex Court :-

"This provision indicates that where the Assessing Officer who is seized of the matter and has jurisdiction over the person other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, he shall proceed against such other person as per the provisions of Chapter XIV-B which would mean that on such satisfaction being reached that any undisclosed income belongs to such other person, he must proceed to serve a notice to such other person as per the provisions of section 158BC of the Act. If the Assessing Officer who is Seized of the matter against the raided person reaches such satisfaction that any undisclosed income belongs to such other person over whom he has no jurisdiction, then, in that event, he has to transmit the material to the Assessing Officer having jurisdiction over such other person and in such cases the Assessing Officer who has jurisdiction will proceed against such other person by-issuing the requisite notice contemplated by section 158BC of the Act".

2.17 From the above referred decision of the Gujarat High Court, it is clear that the Assessing Officer who is seized of the matter against the raided person has to reach a satisfaction that undisclosed income belongs to such other person. In the case before the Apex Court, it was finally held that the Assessing Officer has not recorded his satisfaction and has not transferred the case to the Assessing Officer having jurisdiction over the matter. In the instant case, the Assessing Officer is the same, who is having the jurisdiction over the raided person as well as over the assessee. Thus, there was no necessity of handing over the case to another Assessing Officer.

2.18 The learned Special Bench in the case of Manoj Aggarwal (supra) has made the following observation in respect of satisfaction:-

"115. Section 158BD as said eariier begins with the expression "where the Assessing Officer is satisfied" and so the very section implies a recording of satisfaction. The satisfaction contemplated is a judicious satisfaction and not a subjective satisfaction and unless the same is recorded it is not possible for any person to discern whether the satisfaction meets the requirements of law at all. The satisfaction can be found in the order passed under section 158BC and if no such order is passed then it will have to be found in the note handing over the material seized to the Assessing Officer assessing the other person. In any event it has to be in writing and in view of section 158BE, the said recording has to be made before the time set in section 158BEexpires. After the said date, it is not possible to invoke section 158Bb at all".

2.19 Thus, the Special Bench has held that satisfaction can be found in the order passed u/s 158BC. In the instant case, order u/s 158BC has been passed on 31st January, 2003 while notice u/s 158BD has been issued on 10th February, 2003. . We have already .reproduced para 3.2 and para 3.4.3 from the assessment order passed u/s 158BC in the case of M/s H E Distilleries Pvt. Ltd. Perusal of these two paras clearly indicate that the Assessing Officer who passed order u/s 158BC was satisfied that income arising from the transportation of unaccounted production of liquor belongs to the assessee. There was also a letter from the assessee addressed to DDIT, investigation in which he admitted that the undisclosed income on account of transportation of unaccounted production of liquor belongs to him.

2.21 The word 'satisfaction' as per the book Advance Law Lexicon by P Ramanadha Iyer (2005 Edition) has mentioned that the phrase 'satisfaction' occurring in many taxing statutes means simply 'makes up its mind’ 1977 Tax L R 1921 (DB Delhi). The phrase 'is satisfied’ means, simply 'makes up its mind'. Whenever legislation used the word 'satisfied' it must mean 'reasonably satisfied".

2.22 Now, the Hon'ble Apex Court in the case of Manish Maheshwari has used the word 'recorded the satisfaction'. The Act does not say that the satisfaction should be recorded in writing. The expression 'recorded' in writing will include writing by one's own hand and also writing by other means (State of T.N. v Srinivasan (1997) 1 SC 682). If satisfaction can be inferred from the order of Assessing Officer passed u/s 158BC of the Act, then it will be sufficient compliance to assume jurisdiction u/s 158BD of the I. T. Act.

2.23 One has to ascertain the satisfaction from the record of the person whose premises has been searched and in whose case order u/s 158BC has been passed. In the instant case, the record of M/s. H E Distilleries Pvt. Ltd. along with assessment order show the requisite satisfaction.

2.26 The Hon'ble Apex Court in the case. of CIT v GM Mittal Stainless Steel P. Ltd. 263 ITR 255 observed that section 263 of the IT Act requires that the Commissioner can call for and examine the record of any proceeding under the Income-tax Act and on the basis of his being satisfied, (1) that the Assessing Officer was erroneous In passing the assessment orders, and (2) that the decision of the Assessing Officer was prejudicial to the interest of revenue. The Hon'ble Apex Court observed that needless to say the satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the Commissioner.

2.27 From the above discussion, it is clear that the assessee admitted at the time of search that he is having unaccounted income from the transportation of unaccounted production of liquor. In a letter addressed to the revenue, he admitted such income and stated that he will declare such income. While making assessment in the case of the H E Distilleries Pvt. Ltd. u/s 158BC, the person managing the affairs of M/s H E Distilleries Pvt. Ltd. admitted that transportation is done by the assessee. Thus, it is clear that the assessee was in receipt of an amount which consists of income liable to tax though such income was not declared in the return of income filed after the search. A device was adopted to show the income u/s 44AE of the IT Act. Such device cannot be accepted in view of the decision of Hon'ble Apex Court in the case of McDowell & Co. v CIT154ITR 148.

2.28 Considering the facts on record and the position of law as discussed above, we feel that requisite satisfaction has been recorded by the Assessing Officer who was having jurisdiction over the person, who was raided and such satisfaction can be clearly inferred from the record which includes the assessment order u/s 158BC and other relevant documents. Hence, the order passed by the Assessing Officer is in accordance with section 158BD.

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