Satisfaction that undisclosed income belongs to some person other than person searched needs to be recorded by AO

From the noted portion of the Tribunal’s impugned judgment, it clearly emerges that no such satisfaction was recorded by the Assessing Officer of the searched person. At any rate, no such satisfaction was produced before the Tribunal. In fact the Tribunal found that the satisfaction recorded for issuance of notice was by the Assessing Officer of the present respondent and not by the Assessing Officer of the person who was subjected to search. Such recording of satisfaction and issuance of notice were also long after the last date for completion of the assessment. We also notice that in fact the Assessing Officer of the searched persons had made additions with respect to same issues in the hands of the Acharya Group. Only when such additions were deleted in appeal, the question of proceeding against the respondent- assessee cropped up.

Obviously therefore, the Assessing Officer of the searched person during the pendency of the assessment proceedings, could not have arrived at the satisfaction that the income was that of the present assessee and not the persons originally searched.

A very similar issue came up before the Apex Court in the case of Manish Maheshwari Vs. Asst. Commissioner of Income Tax & Anr., (2007 289 ITR 341 (SC) highlighting the requirement for issuance of notice against the person other than the searched person, it was held that the Assessing Officer, having not recorded the satisfaction that undisclosed income belonged to the company which was not searched, proceeding against the company would not be valid.

HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 1040 of 2011

COMMISSIONER OF INCOME TAX
Versus
M/S JYOTI SALT INDUSTRIES C/O JAGDISH R ACHARYA

Date : 20/09/2012

ORAL ORDER

(Per : HONORABLE MR. JUSTICE AKIL KURESHI)

1) Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (hereinafter to be referred to as “the Tribunal”) dated 31.1.2011 raising following questions for our consideration:-

“[A] Whether the Appellate Tribunal is right in law and on facts in annulling the assessment order, holding that the Assessing Officer wrongly acquired jurisdiction to proceed against the appellant under section 158BD of the Income Tax Act, 1961?

[B]Whether the Appellate Tribunal is right in law and on facts in not deciding the issue of penalty u/s.158FA(2) on merits?”

2) Though two questions have been framed by the Revenue in the tax appeal, to our mind, only question No.1 arises out of the judgment of the Tribunal and the same arises in the following factual background:-