S. 158BD order void if referring AO’s “satisfaction” not recorded
On 30.8.2000, search u/s 132 was carried out on the premises of Manoj Aggarwal pursuant to which a block assessment u/s 158BC was made on 29.8.2002. On 15.7.2003, Manoj Aggarwal’s AO sent a letter to the assessee’s AO that the assessee had given bogus accommodation entries. On 22.3.2004, a notice u/s 158B was sent to the assessee and thereafter an assessment order was passed. This was upheld by the CIT(A). However, the Tribunal set aside the assessment on the ground that (i) Though the assessee’s AO had recorded satisfaction, Manoj Aggarwal’s AO had not recorded satisfaction that undisclosed income belongs to any person other than the searched person, (ii) though Manoj Aggarwal’s AO had written a letter to the assesse’s AO, it was after the assessment order was passed and he had become “funtus officio“, (iii) the notice u/s 158B was issued after beyond reasonable time (19 months). The department filed an appeal only on the question whether recording of satisfaction by the searched party’s AO was mandatory. HELD dismissing the appeal:
(i) In Manish Maheshwari vs. ACIT 289 ITR 341 (SC) it was held that recording of satisfaction by the AO of the searched person that any undisclosed income belongs to any person, other than the person searched, was a condition precedent and it is only thereafter that the AO of the third person can proceed against his assessee u/s 158BC;
(ii) The word “satisfaction” has not been defined in the Act. By its very nature “satisfaction” must precede the sending of papers/documents by the searched person’s AO to the third person’s AO. Mere use or mention of the word “satisfaction” in the order/note will not meet the requirement of concept of satisfaction as used in s. 158BD. The satisfaction has to be in writing and can be gathered from the assessment order, if it is so mentioned/recorded, or from any other order, note or record maintained by the AO of the person searched. The AO must reach a clear conclusion that good ground exists for the AO of the third person to initiate proceedings as material before him shows or would establish “undisclosed income” of a third person. There must be rational and tangible nexus between the material found in search and the satisfaction;
(iii) On facts (without going into the issue of whether the AO was “functus officio“), the assessment order passed in the case of Manoj Aggarwal does not show any “satisfaction” that any undisclosed income belongs to the assessee. Though Manoj Aggarwal’s AO wrote a letter to the assessee’s AO informing him that the assessee was providing bogus accommodation book entries and the the quantum of transactions was given as per Annexures, the Annexures were missing from the file. No evidence and material was brought on record to show that the assessee had received cash for the entries. So, the onus on the AO that there was valid satisfaction was not discharged.