Nigam Mathew Proprietor, C.K.Mathew & Sons v. Commissioner of Income Tax

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI** **WEDNESDAY,THE 20TH DAY OF MARCH 2019 / 29TH PHALGUNA, 1940** **ITA.No. 65 of 2014** **AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, DATED 30-08-2013 IN IT(SS) A NO.09/Coch/2009 FOR THE ASSESSMENT YEARS1996-97 TO 2001-02, BLOCK PERIOD 01.04.1996 TO 18.04.2002** ## **APPELLANT/RESPONDENT/ASSESSEE:** **SHRI.NIGAM MATHEW PROPRIETOR C.K.MATHEW & SONS, CHERUVATHUR HOUSE, MISSION QUARTERS, THRISSUR - 680 001.** **BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.BOBY M.SEKHAR SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN** ## **RESPONDENT/APPELLANT/REVENUE:** **THE COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, SAKTHAN THAMPURAM NAGAR, THRISSUR - 680 001.** **BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX** ## **OTHER PRESENT:** **SC,INCOME TAX- SRI. JOSE JOSEPH** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15.03.2019, THE COURT ON 20.03.2019 DELIVERED THE FOLLOWING:** I.T.Appeal No.65/2014 2 ## **C.K.ABDUL REHIM & R.NARAYANA PISHARADI, JJ.** ************************** I.T.Appeal No.65 of 2014 ---------------------------------------------Dated this the 20[th] day of March, 2019 ## **J U D G M E N T** ## **R.Narayana Pisharadi, J** Is it mandatory for the Assessing Officer who proceeds under Section 158BD of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') to record his satisfaction that undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act? This is the substantial question of law that needs to be answered in this appeal filed by the assessee. 2. The authorities under the Act conducted a search on 18.04.2002 in a jewellery at Ernakulam. During the search, copies of the first pages of two agreements executed by the appellant regarding purchase of shop rooms were seized. On the reverse side of the agreements, there were endorsements made regarding payment of money by the appellant. The I.T.Appeal No.65/2014 3 statement of the appellant was recorded on 18.04.2002 itself by the Additional Director of Income Tax. The statement revealed that the appellant had paid a total amount of Rs.12,25,000/- for purchase of shop rooms. The Additional Director made recommendation to initiate necessary action against the appellant and forwarded a report to the Joint Director. The report ultimately reached the Assessing Officer of the appellant. The Assessing Officer issued notice to the appellant under Section 158BD read with 158BC of the Act. Assessment under Section 158BD of the Act was completed on 30.08.2006 on a total income of Rs.11,58,800/- for the block period from 01.04.1996 to 18.04.2002. 3. Aggrieved by the assessment order, the appellant filed appeal before the Commissioner of Income Tax (Appeals). By order dated 26.05.2009, the Commissioner of Income Tax (Appeals) allowed the appeal. The revenue filed appeal against that order before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'). As per the impugned order dated 30.08.2013, the Tribunal allowed the appeal filed by the revenue. The assessee has now come up in appeal against the order of the Tribunal. I.T.Appeal No.65/2014 4 4. We have heard learned counsel for the parties. 5. Learned counsel for the appellant contended that before the Assessing Officer having jurisdiction over the person with respect to whom the search was made, handed over the documents seized during the search, to the Assessing Officer having jurisdiction over the other person, it is mandatory that he shall prepare a satisfaction note. Learned counsel would contend that no such satisfaction note was prepared in the instant case and since the Assessing Officer did not record his satisfaction regarding the undisclosed income of the appellant, the entire proceedings initiated against the appellant are vitiated. 6. Section 158BD of the Act reads as follows: _“Where the Assessing Officer is satisfied that any undisclosed income belongs to any 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, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other_ I.T.Appeal No.65/2014 5 _person and that Assessing Officer shall proceed under Section 158 BC against such other person and the provisions of this Chapter shall apply accordingly."_ ## 7. In **Manish Maheshwari v. Assistant Commissioner** **of Income Tax : AIR 2007 SC 1696** , the Apex Court has noticed the conditions precedent for invoking a block assessment under Section 158BD of the Act. The Apex Court has held as follows: _“Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC 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 account 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 158BC against such other person.”_ I.T.Appeal No.65/2014 6 ## 8. In **Commissioner of Income Tax v. Calcutta** **Knitwears: AIR 2014 SC 2970** , the Hon'ble Supreme Court has reiterated the law as follows: _“In the result, we hold that for the purpose of Section 158 BD 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 assessment proceedings are completed under Section 158BC of the Act of the searched person”._ (emphasis supplied). 9. The decisions of the Apex Court referred to above categorically lay down that preparation of a satisfaction note by the Assessing Officer regarding the undisclosed income of the person other than the person in respect of whom the search was conducted is sine qua non before proceeding I.T.Appeal No.65/2014 7 against such other person. It is necessary that the Assessing Officer shall not merely reach a satisfaction about the undisclosed income of the other person but he has to record his satisfaction in that regard. 10. In the instant case, admittedly, the Assessing Officer had not recorded his satisfaction about the undisclosed income of the appellant. The result is that the entire proceedings initiated against the appellant stand vitiated. 11. The Tribunal has found that only a prima facie satisfaction of the undisclosed income of the person, other than the person with respect to whom the search was made, is sufficient. The Tribunal has found that the entries in the documents seized during the search and the statement of the appellant recorded on the same day revealed that the appellant had undisclosed income and such a prima facie satisfaction by the authority concerned was sufficient. 12. True, what is required is only a prima facie satisfaction of the Assessing Officer of the undisclosed income of the person other than the person with respect to whom the search was conducted. But, the crucial aspect is recording of such satisfaction by the Assessing Officer. The Tribunal has I.T.Appeal No.65/2014 8 stated in paragraphs 18 and 20 of its order that when the appellant himself had admitted that the incriminating material belonged to him, recording of satisfaction of the undisclosed income of the assessee by the Assessing Officer was an empty formality and the requirements under Section 158BD of the Act shall be deemed to have been fulfilled. The Tribunal also found that under the peculiar facts of the case, the satisfaction prescribed under Section 158BD of the Act is deemed to have been established. These findings made by the Tribunal are contrary to the law laid down by the Hon'ble Supreme Court in the decisions referred to above. 13. On the basis of the discussion above, we hold that it is mandatory for the Assessing Officer under Section 158BD of the Act to record his satisfaction about the undisclosed income of the person other than the person with respect to whom the search was conducted. Preparation of satisfaction note by the Assessing Officer is sine qua non before transmission of records by him to the other Assessing Officer who has jurisdiction over such other person. The substantial question of law is answered in favour of the assessee and against the revenue. I.T.Appeal No.65/2014 9 14. In the light of the findings above, it is not necessary to examine the other factual and legal issues involved in the case. 15. Consequently, the appeal is allowed. The assessment order dated 30.08.2006 (Annexure B) passed against the appellant and the impugned order dated 30.08.2013 (Annexure D) passed by the Income Tax Appellate Tribunal are set aside. No costs. (sd/-) **C.K.ABDUL REHIM, JUDGE** (sd/-) **R.NARAYANA PISHARADI, JUDGE** jsr I.T.Appeal No.65/2014 10 ## **I.T.APPEAL NO.65 OF 2014** ## **APPENDIX** ## **ANNEXURES OF APPELLANT** **- ANNEXURE A – TRUE COPY OF ASSESSMENT ORDER DATED 21.02.2005 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRLCE-2(1), RANGE-2, THRISSUR.** **ANNEXURE-B – TRUE COPY OF THE ASSESSMENT ORDER DATED 30.08.2006 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), RANGE-2, THRISSUR.** **ANNEXURE-C TRUE COPY OF THE APPELLATE ORDER NO.I.T.A.NO.20/R-II/TCR/(CIR(A)/V/06-07 DATED 26.05.2009 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-V, KOCHI.** **ANNEXURE-D – TRUE COPY OF THE ORDER NO.IT(SS) A NO.09/Coch/2009 DATED 30.08.2013 OF ITAT COCHIN BENCH, COCHIN.** ## **RESPONDENT'S ANNEXURES** ## **NIL** **TRUE COPY** **PS TO JUDGE**