Case Law Details
PCIT Vs Jitendra H Modi Huf (Gujarat High Court)
Summary: The Revenue filed an appeal before the High Court challenging the order of the Income Tax Appellate Tribunal dated 16 March 2017. The primary issue concerned the validity of proceedings initiated under Section 158BD of the Income-tax Act and whether the Tribunal was justified in quashing the assessment on account of delay in recording satisfaction. A second issue related to deletion of addition of ₹36.67 lakh treated as undisclosed income for the block period from Assessment Year 1992–93 to 2001–02.
The case arose from a search and seizure operation conducted on 17 April 2001 against an individual. An assessment order under Section 158BC was passed on 30 April 2003. However, no satisfaction was recorded by the Assessing Officer at that stage indicating that proceedings under Section 158BD should be initiated against the present assessee. Such satisfaction was recorded only on 20 January 2004, nearly nine months after completion of the assessment under Section 158BC. Based on this, the Assessing Officer initiated proceedings under Section 158BD and made an addition of ₹36.67 lakh as undisclosed income.
The assessee challenged the assessment before the Commissioner (Appeals), who rejected the plea regarding delay and upheld the proceedings. The Commissioner held that once satisfaction is reached, issuance of notice within a reasonable time would be valid and found no merit in the assessee’s argument, particularly noting non-filing of return by the assessee.
On further appeal, the Tribunal examined the issue of delay in recording satisfaction. Relying on the judgment of the Supreme Court in Calcutta Knitwears, the Tribunal held that although satisfaction can be recorded after completion of proceedings under Section 158BC, such recording must be in accordance with the parameters laid down by the Supreme Court. The Tribunal found that recording satisfaction nearly nine months after completion of assessment did not meet the requirement and therefore quashed the block assessment proceedings.
The Revenue challenged this finding before the High Court, arguing that the law permits recording of satisfaction even after completion of assessment under Section 158BC. The High Court examined the Supreme Court’s ruling in Calcutta Knitwears, which clarified that recording of satisfaction is a mandatory requirement for initiating proceedings under Section 158BD. The Supreme Court had also held that such satisfaction could be recorded at three stages: at the time of initiation of proceedings under Section 158BC, during such proceedings, or immediately after completion of such proceedings.
The High Court noted that while the Supreme Court allowed flexibility in timing, it emphasized that the satisfaction note must be recorded “immediately” after completion of assessment under Section 158BC if not done earlier. The Court observed that the term “immediately” is not defined and cannot be fixed in absolute terms. However, it held that a delay of nearly nine months, in the absence of any limiting factor preventing earlier recording of satisfaction, cannot be considered as immediate action.
The Court also referred to a decision of the Delhi High Court in Bharat Bhushan Jain, where delays ranging from ten months to one-and-a-half years were held to be not contemporaneous with assessment proceedings and therefore invalid.
Applying these principles, the High Court concluded that the delay of about nine months in recording satisfaction was excessive and did not meet the requirement of immediacy as contemplated by law. Consequently, the initiation of proceedings under Section 158BD was held to be invalid.
In light of this finding, the High Court upheld the Tribunal’s decision to quash the block assessment proceedings. As a result, the addition of ₹36.67 lakh made as undisclosed income was also deleted. The appeal filed by the Revenue was therefore dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
This Appeal is filed by the Revenue against the judgment of Income Tax Appellate Tribunal dated 16th March 2017. The following questions of law have been presented for our consideration.
[A] “Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in quashing the assessment order passed under Section 158BC r.w.s 144 of the Act on the ground that the notice issued u/s. 158BD of the Act was bad in law due to inordinate delay in recording satisfaction ?”
[B] “Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in quashing the assessment [B] “Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was right in deleting the addition of Rs. 36,67,115/= made under the head “undisclosed income” for the block period 1992-93 to 2001-02 and upto 17th April 2001 ?”
Briefly stated, the facts are that certain search and seizure operations were carried out against one Jitendra H Modi on 17th April 2001. The assessment order under Section 158BD of the Income-tax Act, 1961 [“the Act” for short] was passed against the searched person on 30th April 2003. Till this date, the Assessing Officer had not recorded any satisfaction on the basis of material on record that the assessment in the hands of the present assessee under Section 158BD of the Act ought to be carried out. Such satisfaction was recorded only on 20th January 2004. The Assessing Officer thereupon passed an order of assessment under Section 158BD of the Act on 17th April 2001 for the Block Period : AY 1992-1993 to AY 2001-2002. He made addition of Rs. 36.67 lacs in the hands of the assessee for the said period.
The assessee carried the matter in appeal before the Commissioner with respect to the latter issue. The Commissioner [Appeals] opined as under :-
“I find myself handicapped in making any worthwhile intervention at this stage. As far as the plea of time gap is concerned, in my view, reasonable time would mean to be reasonable time and in the facts and circumstances of the case once the satisfaction is reached issuance of notices is indeed within such range. There is no substance in the appellant case especially when it had chosen not to file return of income despite the issuance of notice. The The assessee carried the matter in appeal before the Tribunal and once again took up the question of delay in recording the satisfaction for issuance of notice under Section 158BD of the Act. The Tribunal, referring to the judgment of the Supreme Court in the case of Commissioner of Income-tax III v. Calcutta Knitwears, reported in 362 ITR 673, held that the satisfaction which was recorded nearly nine months after passing of the order under Section 158BC of the Act did not satisfy the parameters laid down by the Apex Court in the said judgment. Resultantly, the Tribunal terminated the proceedings of block assessment on the ground of undue delay in recording the satisfaction by the Assessing Officer of the searched person.
This judgment of the Tribunal is challenged in the present Appeal. As is well known, the Supreme Court in the case of Calcutta Knitwears [Supra] considered the question of recording of satisfaction against the person other than the searched person in the context of provisions contained in Section 158BC and 158BD of the Act. The cases before the Supreme Court were such where the Tribunals and the High Courts had taken a view that any satisfaction recorded by the Assessing Officer after passing order under Section 158BC of the Act would not satisfy the requirements of law. The Supreme Court reversed such view and held that even after passing of the order under Section 158BC of the Act, it would be open for the Assessing Officer of the searched person to record a satisfaction for initiating proceedings under Section 158BD of the Act. The relevant observations of the Supreme Court in this regard were as under :-
“43. In the lead case, the assessing officer had prepared a satisfaction note on 15.07.2005 though the assessment proceedings in the case of a searched person, namely S.K Bhatia were completed on 30.03.2005. As we have already noticed, the Tribunal and the High Court are of the opinion that since the satisfaction note was prepared after the proceedings were completed by the assessing officer under Section 158BC of the Act which is contrary to the provisions of Section 158BD read with Section 158BE [2](b) and therefore, have dismissed the case of the Revenue. In our considered opinion, the reasonings of the learned Judges of the High Court is contrary to the plain and simple language employed by the legislature under Section 158BD of the Act which clearly provides adequate flexibility to the assessing officer for recording the satisfaction note after the completion of proceedings in respect of the searched person under Section 158BC. Further, the interpretation placed by the Courts below by reading into the plain language of Section 158BE [2](b) such as to extend the period of limitation to recording of satisfaction note would run counter to the avowed object of introduction of Chapter to provide for cost effective, efficient and expeditious completion of search assessments and avoiding or reducing long drawn proceedings.
44. In the result, we hold that for the purpose of Section 158BD of the Act, a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages:(a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act, and (c) immediately after the It could be thus seen that while holding that provisions of law no where require that the satisfaction note must be recorded before the proceedings under Section 158BC are completed, it was further provided that such satisfaction note could be prepared at any of the following stages, namely; [a] at the time of, or along with the initiation of proceedings against the searched person under section 158BC of the Act; [b] along with the assessment proceedings under Section 158BC of the Act, and [c] immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person.
It could be thus seen that while holding that provisions of law no where require that the satisfaction note must be recorded before the proceedings under Section 158BC are completed, it was further provided that such satisfaction note could be prepared at any of the following stages, namely; [a] at the time of, or along with the initiation of proceedings against the searched person under section 158BC of the Act; [b] along with the assessment proceedings under Section 158BC of the Act, and [c] immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person.
Thus, even going by the judgment of the Supreme Court in the case of Calcutta Knitwears [Supra] that satisfaction note can be recorded after completion of the proceedings under Section 158BC of the Act, the same must be done immediately thereafter. The Supreme Court in the said judgment had noted that there is no embargo in the law for recording satisfaction after completion of proceedings under Section 158BC of the Act. It was further noticed that Section 158BE [2] (b) of the Act only provides for limitation for completion of block assessment under Section 158BD which is two years from the end of the month in which the notice for such purpose was served on such person, who happen to be other than the searched person. It was in this background the Supreme Court had culled out the ratio, as reproduced in para 44 of the judgment. Thus, even if such satisfaction note were to be recorded after completion of the proceedings under Section 158BC, the same has to be done immediately thereafter. The term ‘immediately’ has not been defined nor is it possible to quantify it in absolute terms. In any case, period close to nine months for completion of the proceedings under Section 158BC of the Act, without there being any limiting factor on the Assessing Officer to have recorded satisfaction earlier, cannot be stated to be an immediate action. Delhi High Court in the case of Commissioner of Income-Tax v. Bharat Bhushan Jain, reported in 370 ITR 695 [Delhi] had an occasion to examine similar issue. After referring to the judgment of the Supreme Court in the case of Calcutta Knitwears [Supra], it was observed as under :-
“Having regard to the intent of the Supreme Court in paragraph 44 of the Calcutta Knitwears [Supra], where it was indicated that the Revenue has to be vigilant in issuing notice to the third party under section 158BD, immediately after the completion of assessment of the searched person, this court is of the opinion that a delay ranging between 10 months of one-and-half years cannot be considered contemporaneous to assessment proceedings. We are of the opinion that notices were not issued in conformity with the requirements of section 158BD, and were unduly delayed. The appeals of the Revenue, accordingly, fail and are dismissed.”
In the result, Tax Appeal is dismissed.
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