Commissioner of Income Tax vs Dr. T.M. Kuriachan

C.N. Ramachandran Nair, J.—The short question raised in the appeal filed by the Revenue is whether the Tribunal was justified in holding that in order to transfer a file by an AO to another AO to assess an assessee based on information gathered in search conducted on the premises of another assessee, the officer transferring the file should record his satisfaction about the undisclosed income to be assessed at the hands of other assessee under s. 158BD of the IT Act, 1961 (hereinafter referred to as the Act for short). We have heard learned senior standing counsel Shri P.K.R. Menon appearing for the Revenue and Shri Arun Raj, learned counsel appearing for the respondent assessee.

Facts leading to the controversy are the following:

The assessee and his wife are running a clinic at Adimali. In the course of search conducted in the premises of a company by name M/s. Eastern Retreads (P) Ltd., in which the assessee''s son was a director, the Department found evidence of undisclosed income of the assessee. The AO who searched the company did not have jurisdiction to assess the assessee, and therefore, the file was transferred to the AO having jurisdiction over the assessee for assessment under s. 158BD r/w s. 158BC for assessing undisclosed income. The first round litigation ended up in Annex. C judgment of this Court, wherein the matter was remanded to the Tribunal for reconsideration. Even though in the first round, the assessee had not raised a contention that assessment under s. 158BC r/w s. 158BD was made without the transferring officer recording his satisfaction about the undisclosed income of the assessee, which according to the assessee invalidates the assessment, after the remand the assessee raised such a contention which was accepted by the Tribunal; and assessment was accordingly cancelled. It is against this order, the Revenue has filed this appeal.

Since the question to be considered is whether in the absence of satisfaction recorded by the AO transferring the file to another officer under s. 158BD the assessment completed under s. 158BC r/w s. 158BD is invalid, we have to necessarily consider the scope of s. 158BD, for which the section is extracted hereunder:

158BD. Undisclosed income of any other person.--Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed under s. 158BC against such other person and the provisions of this chapter shall apply accordingly.

Chapter XIV-B provides for special procedure for assessment of search cases. The provision provides for assessment for block period pursuant to search made under s. 132 or based on requisition of accounts or documents under s. 132A of the Act. The provisions for assessment of undisclosed income of the assessee searched under s. 132 or whose books of accounts and other documents are requisitioned under s. 132A, are contained in s. 158BC of the Act. Unlike s. 148(2), there is no provision in Chapter XIV-B requiring the AO to record satisfaction of undisclosed income for making assessment of the searched assessee. However, Chapter XIV-B visualises that in the course of search of an assessee there is possibility of recovery of evidence and documents pertaining to undisclosed income of other persons based on which such persons could be assessed by the same officer if he has jurisdiction or by the AO having jurisdiction over such assessees. What is stated in s. 158BD is that if the AO on scrutiny of the evidence recovered in search conducted under s. 132 or based on documents requisitioned under s. 132A is satisfied that the same contains details of undisclosed income of any other assessee over whom such AO has no jurisdiction, he has to transfer the recovered materials and evidence and documents to such other officer having jurisdiction to proceed for assessment of such assessees under s. 158BC. The Department''s case is that for transferring the file from one AO to another what is required is only prima facie satisfaction about jurisdiction of the officer to whom file is transferred and there is no requirement to record it in writing. The case of the assessee is that in the absence of satisfaction recorded under s. 158BD by the AO transferring the file to the other AO, the assessment is invalid. The Revenue has brought to our notice the decision of this Court in Commissioner of Income Tax Vs. Panchajanyam Management Agencies and Services, wherein the Division Bench of this Court of which one of us [C.N. Ramachandran Nair, J.] is a member, has taken the view that the satisfaction under s. 158BD is only about evidence of undisclosed income of a person other than the assessee searched and there is no requirement to record the same; and such satisfaction being only for transferring the file from one officer to another, there is no requirement for the officer transferring the file to record the reason for transfer. Wherever satisfaction is required to be recorded before issuing notice of assessment, the Act specifically provides for it. Reference may be made to s. 148(2) of the Act, which mandates that before issuing reassessment notice for making income escaping assessment, the officer has to record his reasons for doing so. On the other hand, in case where search is made under s. 132 or documents or accounts are requisitioned under s. 132A, Chapter XIV-B in s. 158BC provides for initiation of assessment of undisclosed income of block period, which is by calling for a return in Form No. 2B. In fact, s. 158BC does not require the AO to record his satisfaction for issuing notice for assessment of undisclosed income for the block period for assessing the assessee searched or whose accounts were called for under s. 132A of the Act. In fact, s. 158BD is only an enabling provision to assess any other assessee other than the searched assessee if in the course of search of another assessee evidence of undisclosed income is received in respect of the assessee who is not searched. However, the assessment pursuant to the enabling provision i.e. under s. 158BD also is an assessment under s. 158BC and the procedure contemplated is also one and the same. In fact, what s. 158BD says is that when the evidence collected in search of an assessee revealed undisclosed income of another assessee, who is not searched, the material or evidence so received can be the basis for making assessment under s. 158BC of the assessee who is not searched. The satisfaction required under s. 158BD for the Officer to transfer the material and evidence gathered during search or after requisition of accounts is only to justify transfer of the file to the AO, who has jurisdiction to assess the assessee who is not searched but in respect of whose undisclosed income evidence is gathered. In fact, it is absolutely left to the Officer to whom the file is transferred under s. 158BD to consider the transferred evidence and materials and to decide whether to proceed with assessment against that assessee under s. 158BC or not. So much so, the satisfaction for transferring a file by one Officer to another is only prima facie satisfaction on jurisdiction and on identifying the AO, who has the jurisdiction over the other assessee, the materials and evidence collected in search or requisition are transferred. The satisfaction for initiation and completion of assessment under s. 158BD is obviously that of the AO to whom transfer is made by the Officer who conducted search.

Even though the above is our view and we have taken such a view in the decision above referred, the learned counsel for the respondent assessee has referred to the decision of the Supreme Court in Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, , wherein the Supreme Court has taken the view that if satisfaction is not recorded by the AO for transferring the file under s. 158BD, the assessment made under s. 158BC is invalid. Since the decision of the Supreme Court above referred is binding on us, we have to only dismiss the Departmental appeal. We, accordingly, dismiss the appeal filed by the Revenue.