THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN I.T.T.A.No.499 OF 2010 01.10.2010 Between: Commissioner of Income Tax-VI …Appellant AND Pindi Kamalamma …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN Income Tax Tribunal Appeal No.499 OF 2010 JUDGMENT (Per Hon’ble Sri Justice V.V.S.Rao): This appeal by the revenue through the Commissioner of Income Tax-VI, Hyderabad, is against the order, dated 25.05.2007, of the Income Tax Appellate Tribunal (ITAT) in Appeal I.T.(S.S.) A.No.71/Hyd/2005. The appeal is in relation to block assessment proceedings under Section 158BD of the Income Tax Act, 1961 (the Act, for brevity) for the period 1986-1987 to 1996-1997 in respect of the respondent assessee. The brief fact of the matter is as follows. The officials of Income Tax Department carried out search and seizure operation under Section 132 of the Act in the premises of Mr.Aditya Builders, Hyderabad. It was found that assessee along with fifteen others executed General Power of Attorney in favour of Sri C.Subhan Reddy in respect of land admeasuring Acs.15.20 guntas in survey Nos.25 and 58. The purchaser admitted that he paid an amount of Rs.81 lakhs as consideration for the land over and above consideration mentioned in registered document. As the lands were owned by sixteen persons, each individual has one-sixteenth share i.e., Rs.5,32,895/-. As the assessee did not file any return for 1995-1996, the year of transaction, proceedings were initiated under Section 158BD and notice dated 13.05.1997 was issued thereunder. The assessee did not respond. Therefore, the Deputy Commissioner of Income Tax, Circle-9(1) completed assessment under Section 144 of the Act determining the undisclosed income of Rs.3,83,225/-. Aggrieved by the same, assessee filed appeal before learned Tribunal. By order, dated 18.06.2003, made in I.T.A.Nos.32, 33 and 34/Hyderabad/2002, the appeal was allowed, the matter was set aside and remanded to AO for de novo assessment. Thereafter, the matter was taken up from time to time. The assessee appeared along with representative and opposed the assessment for the block period inter alia on the ground that the proceedings under Section 158BD of the Act cannot be initiated based on the information gathered from Sri C.Subhan Reddy obtained during search and seizure operations. Rejecting the same, by order dated 31.03.2005, the Deputy Commissioner completed the assessment determining the tax and interest payable thereon proposing to take up penalty proceedings separately. The same was assailed before the learned Tribunal. Before the learned Tribunal, it was inter alia contended that proper satisfaction was not recorded during the course of search operations, that the assessee evaded payment of tax, and therefore, the proceedings are unsustainable. Accepting the same, the learned Tribunal allowed the appeal and set aside the addition towards undisclosed income, observing as follows. The question that arises for consideration is whether there can be any undisclosed income in the hands of the present assessees. Admittedly, the search was carried out on 5-8- 1996 in the business premises of M/s.Aditya Builders. The AO found that 16 persons including the present assessees executed General Power of Attorney in favour of Sri C.Subhan Reddy for sale of land consisting of 15 Ac.20 guntas. It appears, Sri Subhan Reddy admitted that he paid an amount of Rs.81 lakhs for acquiring the above said land. The above said consideration was also recorded in the registered document. The claim of the assessees before the lower authorities was that they received Rs.1,00,000/- each towards sale consideration in respect of their share of the land. However, the statement recorded from Sri Subhan Reddy shows that they received Rs.5,00,000/- in total. It is not in dispute that no seized material was referred to in the orders of the lower authorities. For the purpose of completing block assessment, the lower authorities are bound to record a finding how the undisclosed income is relatable to material seized during the course of search operation or information collected subsequently which is relatable to the seized material. The AO proceeded on the basis of the statement recorded during the re-assessment proceedings on 23-3- 2005. We find that the apex Court, in the case of Manish Maheswari v ACIT and another, 289 ITR 311, found that for the purpose of making an assessment under Section 158BD, the officer who is in charge of search operation has to record a satisfaction that the material found during the course of search is relatable to the person and thereafter transfer the material to the concerned Assessing Officer for the purpose of proceeding under Section 158BD of the Income Tax Act. In the absence of any such satisfaction, which is mandatory, the apex Court held that the entire proceedings would be invalid. Learned senior standing counsel for IT Department does not dispute the ratio laid down in Manish Maheshwari v Assistant Commissioner of Income Tax[1]. The said case deals with interpretation of Section 158BC. After referring to various provisions of the Act, Supreme Court observed as under (para 11 of SCC). Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132-A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132 or documents or assets have been requisitioned under Section 132-A. Section 158-BD, however, provides for taking recourse to a block assessment in terms of Section 158-BC in respect of any other person, the conditions precedents wherefor are: (i) satisfaction must be recorded by the assessing officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) the books of accounts or other documents or assets seized or requisitioned had been handed over to the assessing officer having jurisdiction over such other person; and (iii) the assessing officer has proceeded under Section 158-BC against such other person. While dealing with the condition precedent for invoking the provisions of Section 158BD, their Lordships held that, “the above conditions are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose terms has been searched or whose documents and other assets had been requisitioned under Section 132A of the Act”. While reiterating that taxing statute must be construed strictly, the apex Court further observed (paras 16 and 17 of SCC). Law in this regard is clear and explicit. The only question which arises for our consideration is as to whether the notice dated 6-2-1996 satisfies the requirements of Section 158-BD of the Act. The said notice does not record any satisfaction on the part of the assessing officer. Documents and other assets recovered during search had not been handed over to the assessing officer having jurisdiction in the matter. … No proceeding under Section 158- BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilised. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened. The Tribunal followed the binding precedent while dismissing appeal of revenue, and therefore, no question of law would arise in this appeal. The appeal, therefore, is dismissed. No costs. __________________ (V.V.S.RAO, J) ______________________________ (RAMESH RANGANATHAN, J) 01.10.2010 Pln [1] (2007) 3 SCC 794