Income Tax Appeal No. 553 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 553 of 2010 Date of decision: 6.12.2010 The Commissioner of Income Tax-III, Ludhiana --- Appellant Versus M/s. Fashion Fabrics Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Denesh Goyal, Standing Counsel for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 31.12.2009, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in IT (SS) No. 25/CHANDI/2009, relating to the block period from 1.4.1996 to 5.2.2003. The following substantial question of law has been claimed by the Revenue for determination of this Court: Income Tax Appeal No. 553 of 2010 2 “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is justified in holding that the recording of satisfaction u/s 158BD of I.T. Act, by the Assessing Officer of the person searched and consequent issuance of notice u/s 158BD on 27.4.2006, was belated and beyond the period prescribed by law when the section 158BD of I.T Act does not specify any period within which the notice is required to be issued.” The facts, in brief, necessary for adjudication, as narrated in the appeal are that during the course of a search operation under Section 132 of the Act, carried out at the premises of Sh. S.K. Bhatia and M/s. Swastik Trading Company on 5.2.2003, certain incriminating documents pertaining to the present assessee were seized. As a result, the Assessing Officer issued notice under Section 158BC(c) read with Section 158BD to the assessee in response to which the assessee filed return for the block period from 1.4.1996 to 5.2.2003 declaring its income as ‘nil’. The assessment under the provisions aforesaid was completed and undisclosed income of the assessee was computed at Rs. 7,38,770/-, vide order dated 29.5.2008. The Commissioner of Income-tax (Appeals) {in short “the CIT(A)”}, on appeal preferred by the assessee vide order dated 13.8.2009 held that the notice under reference issued by the Assessing Officer and the subsequent proceedings were invalid and void. The Tribunal upheld the order of the CIT(A) and dismissed the appeal of the Revenue vide the order under appeal. We have heard learned counsel for the appellant and have perused the record. Income Tax Appeal No. 553 of 2010 3 The issue for consideration in this case is, whether the satisfaction under Section 158BD of the Act, required for initiating action against the assessee on the basis of the person searched is to be recorded during the course of block assessment proceedings of the searched person or not. The issue is no longer res integra. This Court in Income Tax Appeal No. 591 of 2009 (Commissioner of Income Tax, Ludhiana vs. Mridula, Prop. M/s. Dhruv Fabrics, Ludhiana), decided on 20.7.2010, came to consider the aforesaid issue elaborately. This Court after analyzing the relevant provisions in the above quoted case, held as under: “According to plain reading of Section 158BD ibid, the assessing officer, while framing assessment of an assessee under Section 158BC of the Act against whom action has been taken under Section 132 or 132A of the Act, is mandatorily required to record satisfaction before action can be initiated under Section 158BD of the Act against such other person. In other words, the satisfaction by the assessing officer making assessment under Section 158BC of the Act, in the case of the person searched, that there is certain undisclosed income as a result of examination of seized material which belongs to some other identified person, is essential for assuming jurisdiction under Section 158BD of the Act. The satisfaction required to be recorded is prima facie Income Tax Appeal No. 553 of 2010 4 satisfaction and is not firm or conclusive satisfaction at that stage. Section 158BE of the Act prescribes time limit for framing of assessments under Section 158BC and 158BD of the Act. The assessing officer of the person against whom action under Section 132 or 132A of the Act has been taken, is the assessing officer who initiates the proceedings under Section 158BD of the Act by recording satisfaction that any undisclosed income belongs to such other person so as to take action under Section 158 BD of the Act against that person. The Act nowhere specifically prescribes any time limit or limitation for initiation of proceedings under Section 158BD of the Act or for recording of satisfaction before taking action under that provision. The plain and reasonable construction that can be placed on the aforesaid provision would be that the recording of satisfaction for taking action against any other person under Section 158BD of the Act has to be between initiation of proceedings under section 158BC and before completion of block assessment under Section 158BC of the Act in the case of the person searched. It would, thus, mean that the action contemplated under Section 158BD of the Act against a third party to a search, is necessarily to be during the course of block assessment proceedings under Section 158BC of the searched person. It cannot be after the conclusion of the same as there is no occasion for an assessing officer to examine the seized material or Income Tax Appeal No. 553 of 2010 5 documents of the searched person when the block assessment proceedings have concluded and no other proceedings are pending before him. If any other time limit is read in the provisions/statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment under Section 158BC of the Act in the case of an assessee against whom action under Section 132 or 132A of the Act had been carried out is finalized, Revenue can take action at any time in the absence of any specific limitation prescribed in the statute. A construction which leads to such an anomaly should be avoided.” Admittedly, in the present case the block assessment order had been passed in the case of Sh. S.K. Bhatia on 31.3.2005 at total undisclosed income of Rs. 3,16,70,287/- and M/s. Swastik Trading Company on 31.3.2005 at an undisclosed income of Rs. 14,35,57,465/-. The satisfaction recorded for initiating the proceedings under Section 158BD of the Act by the assessing officer after the searched person was communicated by the assessing officer In-charge of the assessee on 3.3.2006 and notice under Section 158BC read with Section 158BD of the Act was issued on 27.4.2006. The learned counsel for the Revenue could not show that satisfaction for taking action against the assessee had been recorded prior to 31.3.2005 i.e. the passing of the block assessment in the case of the searched person. In such a situation, the proceedings initiated against the assessee under Section 158BD could not be held to be valid. The Tribunal was, thus, right in holding that the proceedings of the block Income Tax Appeal No. 553 of 2010 6 assessment pursuant to the notice issued under Section 158BD were invalid and void. No fault can, thus, be found in the approach of the Tribunal. In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) December 6, 2010 JUDGE *rkmalik*