Whether when subjective satisfaction was arrived at by AO for initiation of proceedings u/s 158BD on basis of meterails found during Search, it can be said that initiation of proceedings was vitiated - NO: HC

THE issue before the Bench is - Whether when subjective satisfaction was arrived at by AO for initiation of proceedings u/s 158BD on basis of meterails found during Search, it can be said that initiation of proceedings was vitiated. And the verdict goes against the assessee.

Facts of the case

Revenue conducted a Search u/s 132 in the case of Malpani Groups. During the course of search, a locker key was found at the residence of Shri Surjanath Sidh. It was found that the locker in Oriental Bank of Commerce was in the name of Shri Pursottam Mundra, who was an employee of said Surajnath Sidh. During the course of search in locker, certain dishonoured cheques were found and seized. Out of these, the major dishonoured cheques were found to be in respect of Raju Fabrics, Roopan Textiles and Rahul International. Details were called from the Bank regarding the account holders. The copy of the bank statements were also called for which showed that a huge amount of cash was deposited and the cheques have been issued. The said cheques were from the accounts of Rahul International and Roopa Textiles and were mostly issued in the names of (i) Gunjan Exports, (ii) Raju Fabrics and (iii) Aditya Yarn Pvt. Ltd. On further enquiry, the address given in the bank accounts were found to be bogus except in the case of Rahul International, Prop. Shri Dilip V. Makwana. During the course of statement under section 131, Shri Dilip V. Makwana stated that he was working as a peon in the office of Shri Rajendra Goyal, Director of Goyal Industries Ltd. He admitted that the account in The Udhna Citizen Co. Op. Bank Ltd., Ring Road was opened at the instruction of Shri Satyanarayan Sharma @ Dayma, who was the manager of Goyal Industries Ltd. He also admitted that the blank cheques were signed by him at the instruction of Shri Satyanarayan Sharma. He stated that he had no knowledge regarding the deposit of cash or issue of cheques in the said account. Statement of Shri Satyanaayan Sharma was recorded under section 131. As the department’s case, said Shri Sharma stated that he was working as manager in the Goyal Industries Ltd. and the bank accounts which were in the name of Rahul International Prop. Shri Rahul Chopra, Rahul International Prop. Shri Dilip Makwana, Roopa Textiles Prop. Shri Rajesh Nath and Raju Fabrics Prop. Shri Satyanarayan Dayma, were operated by him on the instruction of Shri Rajendra Goyal (Director of Goyal Industries Ltd.). During the interrogation, said Shri Satyanarayan Sharma confirmed that he was working as manager in the Goyal Industries Ltd. i.e. Shri Rajendra Goyal, but two concerns namely Raju Fabrics and Gunjan Exports were being run as his proprietary concerns and the books of accounts were being written at the office of Shri Rajendra Goyal, Director of Goyal Industries Ltd. He also stated that the cash deposited in the accounts of Rahul International and Roopa Textiles was actually given to him by the aforesaid Rajendra Goyal, Director of Goyal Industries Ltd. He also stated that he was actually handling all the bank accounts of the group at the instruction of Shri Rajendra Goyal. It appears that in view of the aforesaid statement made by said Shri Satyanarayan Sharma, summons were issued to Shri Rajendra Goyal and his statement was also recorded under section 131 of the Income-tax Act. The aforesaid Rajendra Goyal denied the knowledge of bank accounts and he also denied that the said Shri Satyanarayan Sharma is his employee. According to him, he was purchasing the yarn from Goyal Industries Ltd. However, the authority did not accept the case on behalf of the aforesaid Shri Rajendra Goyal, Director of Goyal Industries Ltd. and formed an opinion that undisclosed income discovered during the search has been earned and belongs to the persons i.e. Goyal Industries Ltd., Goyal Synthetics Pvt. Ltd., Foremost Finvest Pvt. Ltd., Aditya Yarn Pvt. Ltd. And Raju Fabrics and Gunjan Exports, Prop. Shri Satyanarayan Sharma, which are other than persons covered under section 132 of the I.T. Act, and therefore, having so satisfied has issued notices upon the respective assessees and others as mentioned in the Notice under section 158BD of the I.T. Act.

Assessees submitted that as such none of the requirements as contemplated/provided under section 153BD were satisfied in the present case. It was submitted in the impugned notices, nothing had been mentioned with respect to his satisfaction against the respective assessees, more particularly, that undisclosed income belonged to the respective assessees. It was submitted that as such whatever was alleged and/or the satisfaction arrived at was against Rajendra Goyal individually. It was submitted that even if during the course of search something might have been found against said Rajendra Goyal, who may be a director of the Goyal Industries Ltd., it cannot be said that any undisclosed income belonged to the respective assessees. It was submitted that it does not born out that the Assessing Officer was satisfied that any undisclosed income belonged to the respective assessees. It was submitted that as requirements as provided under section 132 of the Act were not satisfied, the subjective satisfaction of the Assessing Officer against the respective assessees was vitiated.

Revenue submitted that during the course of the search conducted in the case of Malpani Group, certain incriminating material was found against Rajendra Goyal, Director of Goyal Industries Ltd. and even against the respective assessees and others against whom notices under section 158BD of the Act were issued. It was submitted that considering the statements recorded during the inquiry/search, the Assessing Officer was satisfied that the undisclosed income has been earned and belonged to the persons against whom the notices issued under section 158BD of the Act. It was submitted that as such during the course of inquiry it has been found that accounts in the respective banks in the name of other persons were actually benami accounts of Goyal Industries Ltd. and the same were operated by Shri Satyanarayan Sharma on the instructions of Rajendra Goyal, Director of Goyal Industries Ltd. It was submitted that the satisfaction arrived at by the Assessing Officer while initiating the proceedings under section 158BD of the Act were not vitiated.

Having heard the parties, the Court held that,

++ when the subjective satisfaction has been arrived at by the Assessing Officer for initiation of the proceedings under section 158BD of the Act on the basis of the material collected during the course of search/inquiry, it cannot be said that satisfaction arrived at by the Assessing Officer while initiating proceedings under section 158 of the Act has been vitiated in any manner;

++ there is ample material on record, so mentioned in the satisfaction note, against the respective assessees and Goyal Industries Ltd and another. It is required to be noted that even the said Rajendra Goyal is the Director of Goyal Industries Ltd. and the Company i.e. Goyal Industries Ltd. is run through its Director/Manager/employees etc. Considering the material on record and in the facts and circumstances of the case and the satisfaction Note, we are satisfied that no error or illegality has been committed in issuing notice under section 158BD of the Act;

++ pursuant to the interim order passed by this Court, the block assessment proceedings were permitted to be concluded, however, are not served and implemented upon the assessees.