Opinion – Block Assessment u/s. 158BD or
initiation of proceedings u/s. 153C of the
Income-tax Act, 1961

The provision of section 158BD came in effect with the introduction of Chapter XIV-B as special procedure for assessment of search cases w.e.f. 1-7-1995. A stipulation was made to assess undisclosed income of any other person as per provision of section 158BD. The provision reads as under:-

“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 person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly.”

The controversies arose from time to time regarding the validity of the assessment by initiation of proceedings u/s 158BD. It was noticed that most of the time, the satisfaction by the Assessing Officer having jurisdiction to assess the person searched u/s 132 or requisition made u/s 132A has not recorded his satisfaction regarding the detected concealed income of some other person and in stereo manner since certain books of account, documents, jewellery or valuables belong to some other person, notice u/s 158BC read with section 158BD was issued. The Hon’ble Gujarat High Court in the case of Khandubhai Vasanji Desai reported at 236 I.T.R. 73 at page 88 observed the difference between sections 158BC and 158BD as under:-

“So far as the raided person is concerned the Assessing Officer is armed with the provisions of sub-section (4A) of section 132 which raises a presumption, albeit rebuttable, that such material found in the possession or control of any person belongs to such person. Therefore, in the case of the raided person this presumption would be the basis on which the Assessing Officer can proceed under section 158BC by serving a notice on such person to furnish a return in the prescribed Form No. 2B. In cases, however, where the presumption is rebutted at any stage or if it transpires at the threshold to the satisfaction of the Assessing Officer that any undisclosed income belongs to a person other than the person with respect to whom the search was made or the books of account, documents or assets requisitioned, then it is that satisfaction which enjoins a duty on the Assessing Officer to proceed against such other person. Both the raided as well as such other person are to be proceeded against under Chapter XIV-B on the basis that the undisclosed income belongs to them and therefore they fall in the same category”.

Further, the Bombay High Court in the case of CIT vs. Tirupathi Oil Corporation Ltd. [2001] 248 I.T.R. 194 (Bom), held that notice under section 158BC of a firm based on search of a partner of the same firm is bad in law and hence quashed the assessment on the ground that the firm and partners are two different entities under the Income-tax Act and section 158BD should have been initiation in the case of the firm.

It was noticed that in most of the cases the Assessing Officer initiated proceeding u/s 158BD against other person without recording his satisfaction for initiation of proceeding against other person. However, the satisfaction of the Assessing Officer intending to initiate the proceedings u/s 158BD has to be recorded.

The Hon’ble Gujarat High Court in the case of Rushil Industries Limited vs. Harsh Prakash reported at 251 I.T.R. 608 observed as under:-

“The petitioner was engaged in the business of ship breaking. Search operation under section 132 of the Income-tax Act, 1961, were conducted in respect of two persons one of whom had disclosed that he was providing cheques for cash. The seized materials indicated that the petitioner was involved in converting its unaccounted funds into legally accounted funds through these persons and received cheques for “sales” made by it to a party R which were not found to be genuine. The Joint Commissioner of Income-tax issued notice under section 158BC read with section 158BC to the petitioner to furnish a return of the petitioner contended that there was no seizure of books of account, documents or assets belonging to the petitioner which indicated undisclosed income and hence notice could not have been issued under section 158BD.

A bare reading of the provisions of section 158BD (quoted above) would show that for taking action under the said section, the Assessing Officer is merely required to be satisfied that the books of account or other documents or assets found in the search show undisclosed income of a person other than one against whom the search was conducted. Merely because no books of account or other documents or assets were found in the search against the two abovenamed persons it cannot be said that no action for alleged undisclosed income was called for against the petitioner under section 158BD. The expression “undisclosed income” had been defined to include income based on an entry in the books of account or other documents “which has not been or would not have been disclosed for the purposes of this Act”. In our considered opinion, the definition of “undisclosed income” would include any entries in the books of account or other documents showing concealment of the real source of income as on the present case herein. Learned counsel appearing for the Department is very right in his submission that the requirement of section 158BD is only a prima facie satisfaction by the Assessing Officer that in the search operation there is material to show undisclosed income of a person other than one who is searched.

It was further observed on the question of satisfaction the Allahabad High Court in the case of Digvijay Chemical Limited vs. ACIT reported at 248 I.T.R. 381 held as follows:-

“As regards the second question, we are of the opinion that there was sufficient satisfaction by the Deputy Commissioner of Income-tax, Amritsar, for handing over the books of account and documents to the Assessing Officer of the appellant. This matter has been dealt with in paragraph 22 of the Tribunal’s order where it has been held that the Deputy Commissioner of Income-tax, Amritsar, was satisfied that the undisclosed income mentioned in the seized documents pertains to the appellant. We see no error in this finding. There is nothing in section 158BD that this satisfaction must be recorded in writing. It may be noted that wherever the Income-tax Act required recording of reasons before reaching a satisfaction it has specifically provided to this effect, e.g., in section 148(2).

As regards section 158BD, we are of the opinion that there is no requirement to afford opportunity of hearing to a party before recording satisfaction under section 158BD. After all, opportunity of hearing has to be given to the assessee before making the assessment, and hence it would be unreasonable to require another opportunity of hearing before recording satisfaction. Moreover, section 158BD does not require giving of opportunity. This satisfaction is not a quasi-judicial order but an administrative order”.

However, Hon’ble Supreme Court in the case of Manish Maheshwari vs. Asst. Commissioner of Income-tax and Another reported at 189 I.T.R. 341 held as under:-

“where the premises of a director of a company and his wife were searched under section 132 of the Income-tax Act, 1961, and a block assessment had to be done in relation to the company, the Assessing Officer had to (i) record his satisfaction that any undisclosed income belonged to the company, and (ii) hand over the books of account and other documents and assets seized to the Assessing Officer having jurisdiction against the company.

The Hon’ble Supreme Court has also given emphasis and recorded (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.

The conditions precedent for invoking the provisions of section 158BD, thus, are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under section 132A of the Act.

The identical provision has been made out after amendment for the assessment after search and seizure operation introduced w.e.f. 1-6-2003. In provision of section 153C under the head ‘Assessment of income of any other person’, the provision as it stands reads as under:-

“Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable articles or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.”