Recording of reasons is a condition precedent for proceeding for action u/s 158BD (material of another person found during search): Delhi High Court

Lead Matter: CIT XIII v. Radhey Shyam Bansal, decided on on 30 May, 2011, ITA No.582/2008

Relevant Facts:

1. A search was conducted under Section 132 of the Income Tax Act (the “Act”) in the premises of one Manoj Aggarwal of Baldev Park, Delhi on 30.8.2000.

2. In the course of search it was found that there were a lot of bogus accommodation entries found. Consequently, the Assessing Officer (“AO”) of Mr. Agarwal wrote to the AO of the respondent assessee, Mr. Radhey Shyam Bansal that he was acting as mediator in transactions of bogus accommodation entries.

3. Upon a notice being served, the assessee Mr. Bansal filed a block return from AY 1991-92 to 2001-02.

4. AO: Income by way of commission to the extent of Rs. 50,85,315/- was added. Also an amount of Rs. 9,81,29,575 was added u/s 69 as unexplained investment. The order of the AO was challenged before the CIT (A) who did not provide any relief to the assessee.

5. The Tribunal set aside the orders on the basis:-

a. There was no satisfaction of the AO recorded.

b. The issue of notice was beyond the limitation period.

Questions of law:

1. Whether the Assessing Officer is bound to record satisfaction within the meaning of Section 158BD of the Act, during the process of Assessment of the person searched under Section 158BC of the Act?

2. Whether satisfaction as contemplated in Section 158BD of the Act has been duly recorded regard being had to be letter dated 15.7.2003 or in the assessment order, wherein undisclosed income of the respondent-assessee has been reflected and negation of such satisfaction by the Income Tax Appellate Tribunal is erroneous and perverse for not accepting such satisfaction?

Dismissing the appeal of the Department, the Hon’ble Court held that:

1. Recording of satisfaction by the assessing officer of the searched person is a condition precedent. Satisfaction must be recorded by the said assessing officer that any undisclosed income belongs to any person, other than the person searched.

2. No satisfaction is borne out by the statements of the AO.

The decision is available here.