D C I T - CENTRAL CIRCLE - 1 - BARODA vs. LALITKUMAR M PATEL
What did the High Court hold?
The High Court held that the appeal merits no consideration and deserves dismissal. The Court referred to Section 158BD of the Income Tax Act, which requires the Assessing Officer to be satisfied that undisclosed income belongs to a person other than the one searched. This satisfaction must be recorded for the benefit of the assessee. The Apex Court in Manish Maheshwari v. Asst.CIT and A.R. Enterprises has clarified that a valid search under Section 132 is a sine qua non for block assessment, and Section 158BD necessitates the Assessing Officer's satisfaction that undisclosed income belongs to a person other than the searched individual. The Court noted that while the Assessing Officer was the same for both the searched entity (Jayraj Group) and the assessee, the Revenue was unable to point out any satisfaction recorded by the Assessing Officer in the case of the searched person, Jayraj Group. The Court found that the vital and mandatory requirement of recording satisfaction under Section 158BD, concerning the searched entity, was absent. Therefore, the Tribunal was justified in quashing the notice and assessment order. The appeal was dismissed.
What were the facts?
The Revenue has filed an appeal against the order of the Income Tax Appellate Tribunal (ITAT) for the block period 1.4.1995 to 19.12.2001. A search and seizure action was conducted on 19.12.2001 in the case of Jayraj Group. Incriminating materials related to the assessee, Shri Upendra N. Patel, and Shri Champak M. Patel were found. The Assessing Officer noted that the assessee and Shri Champak M. Patel acquired rights in property of M/s. Hindusthan Earth Movers Pvt. Ltd., which were later acquired by Shri Jayesh Dave and Shri Upendra N. Patel based on a compromise agreement. The sale deed reflected a sale consideration of Rs. 5.60 lakhs for Shri Upendra Patel, while the market price was significantly higher. Based on these discoveries, notices under section 158BD of the Income Tax Act were issued to the assessee. The ITAT quashed the notice and assessment order, leading to the present appeal by the Revenue.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in quashing and setting aside the notice under section 158BD of the Act as well as the assessment order passed under section 158BD of the Act by holding that reasons recorded for issue of the notice under section 158BD of the Act by the Assessing Officer to the assessee cannot be said to be valid satisfaction for issue of notice under section 158BD of the Act and thereby ignoring the findings on the basis of the seized documents by the Assessing Officer that certain undisclosed income belongs to the assessee? Assessee's Contentions: The assessee argued that the mandatory requirements of Section 158BD, as laid down by the Apex Court in Manish Maheshwari v. Asst. Commissioner of Income-tax, were not fulfilled. The assessee contended that the Tribunal had appropriately scanned the materials and arrived at a correct decision. Revenue's Contentions: The Revenue argued that the Assessing Officer was the same for both the searched and non-searched assessees. They contended that the satisfaction recorded by the Assessing Officer in the case of the present assessee should be construed as satisfaction in the case of the searched assessee. The Revenue submitted that the Tribunal incorrectly appreciated the law and its application to the facts.
Which sections of the Income-tax Act were involved?
Section 132,Section 132A,Section 148,Section 158BC,Section 158BD,Section 260A
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
ORAL JUDGMENT (PER : HONOURABLE MS JUSTICE SONIA GOKANI)
Aggrieved by the order of the Income Tax Appellate Tribunal for the block period between 1.4.1995 to 19.12.2001, this Tax Appeal is preferred under section 260A of the Income Tax Act, 1961 (“the Act” for short) proposing following substantial question of law for our consideration : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in quashing and setting aside the notice under section 158BD of the Act as well as the assessment order passed under section 158BD of the Act passed in the case of the assessee by holding that reasons recorded for issue of the notice under section 158BD of the Act by Assessing Officer to the assessee cannot be said to be valid satisfaction for issue of notice under section 158BD of the Act and thereby ignoring the findings on the basis of the seized documents by the Assessing Officer that certain undisclosed income belongs to the assessee?”
Brief facts are as follows :
Search and seizure action in case of Jayraj Group was carried out under section 132 on 19.12.2001. On the department finding certain incriminating materials in relation to Shri Upendra N. Patel, Shri Champak M. Patel and the present assessee respondent which were not accounted for in regular books of account, the Assessing Officer noted that the assessee and Shri Champak M. Patel acquired the rights in the property of M/s. Hindusthan Earth Movers Pvt. Ltd. Such rights were eventually acquired by Shri Jayesh Dave and Shri Upendra N. Patel on the strength of compromise agreement arrived at by and between the parties dated 30.9.2000. Civil Court also put a seal of approval on the same and compromise decree to that effect came to be passed. It was further noted that when the Memorandum of Understanding was arrived at on 1.11.1996, the rights in the land of M/s. Hindusthan Earth Movers Pvt. Ltd. had been acquired. The total cash payment was to the tune of Rs. 37 lakhs and the bank draft of Rs. 1 crore was also given which was handed over to the Court receiver appointed by the High Court of Bombay. It was noted that by virtue of compromise decree, the other two persons and the present assessee respondent received huge parcel of land, nearly 1,20,000 sq, mtrs., the sale deed was executed however, only reflecting the sale consideration of Rs.5.60 lakhs in case of Shri Upendra Patel. As the market price was much higher, these facts when were discovered during the search in case of Jayraj Group, notices under section 158BD of the Income Tax Act were issued. Authority relied on various documents as also on appraisal report for the same purpose.
Aggrieved by the order of the Assessing Officer, the assessee had moved the Commissioner of Income Tax and on failing to get any relief eventually it challenged the order of CIT(Appeals) before the Tribunal. Tribunal upheld the version of assessee and therefore, this appeal proposing afore-mentioned substantial question of law.
In the present appeal thus, we are essentially concerned with the question whether the Tribunal rightly quashed and set aside the notice under section 158BD and the assessment order passed in case of the assessee respondent on the ground that there was no valid satisfaction recorded by the Assessing Officer in case of the person searched prior to issuance of the notice to the assessee respondent.
We have heard learned counsel Shri K.M. Parikh for the department who has fervently argued before us that the Assessing Officer Shri A.K. Sinha was the Assessing Officer in case of both, searched and non searched assessees. He also further urged that the satisfaction recorded by the Assessing Officer in case of present assessee shall have to be construed in case of searched assessee only. The Tribunal incorrectly appreciated the law on the subject and also did not aptly apply the correct ratio to the facts of the case of the assessee. Therefore, the order requires interference.
Learned senior counsel Shri J.P. Shah appearing for the assessee respondent relying on various case laws has urged that this appeal deserves no consideration on merits inasmuch as the mandatory requirements as set out by the Apex court in case of Manish Maheshwari v. Asst. Commissioner of Income-tax and another reported in (2007) 289 ITR 341(SC) have not been fulfilled. He further urged that the Tribunal while dealing with the issue in question has appropriately scanned the entire materials and has rightly arrived at a correct decision which calls for no intervention.
On thus hearing both the sides and on examination of the order impugned and the materials produced before us, for the reasons to follow herein-in- after, we are of the opinion that this appeal merits no consideration and deserves dismissal.
At the outset the law on the subject requires
discussion :
Firstly taking up the relevant provision of the Income Tax Act, Section 158BD which reads thus : “158BD. Undisclosed income of any other person.- 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 other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly.” Section 158BC provides thus : "158BC. Procedure for block assessment. - Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132A, in the case of any person, then, - (a) the Assessing Officer shall - (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of Section 142, setting forth his total income including the undisclosed income for the block period: Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-section(2) and (3) of section 143, [section 144 and section 145] shall, so far as may be, apply; (c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; (d) the assets seized under section 132 or requisitioned under section 132A shall be dealt with in accordance with the provisions of section 132B.”
The Assessing Officer is authorised under section 158BD provision when he finds any undisclosed income emerging from record in case of the person who is not searched, while carrying out the search to transfer entire material to the person, on recording his satisfaction. 10.The Apex Court in the case of Manish Maheshwari v Asst. Commissioner of Income-tax and another (supra) had examined the provisions of Section 158BD of the Income Tax Act where the premises of a director of a company and his wife were searched under section 132 of the Income Tax Act and the question came of carrying out block assessment in relation to the company. The Court held that the Assessing Officer had to satisfy essentially two requirements (i) record his satisfaction that any undisclosed income belonged to the company, and (ii) hand over the books of accounts and other documents and assets seized to the Assessing Officer having juri iction against the company. Relevant findings of the Apex court on the subject need to be noted as under :
“11. The Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are : (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 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. xxx
Law in this regard is clear and explicit. The only question which arises for our consideration is as to whether the notice dated 06.02.1996 satisfies the requirements of Section 158BD of the Act. The said notice does not record any satisfaction on the part of the Assessing Officer. Documents and other assets recovered during search had not been handed over to the Assessing Officer having juri iction in the matter.”
The Apex Court took into account the decision of this Court given in case of Khandubhai Vasanji Desai and others v. Deputy Commissioner of Income-tax and another reported in (1999) 236 ITR 73, wherein this Court held thus : “This provision indicates that where the Assessing Officer, who is seized of the matter and has juri iction over the person other than the person with respect to whom search was made under sec. 132 or whose books of account or other documents or any assets were requisitioned under sec. 132A, shall proceed against such other person as per the provisions of Chapter XIV-B which would mean that on such satisfaction being reached that any undisclosed income belongs to such other person, he must proceed to serve a notice to such other person as per the provisions of sec. 158BC of the Act. If the Assessing Officer who is seized of the matter against the raided person reaches such satisfaction that any undisclosed income belongs to such other person over whom he has no juri iction, then, in that event, he has to transmit the material to the other person and in such cases the Assessing Officer who has juri iction will proceed against such other person by issuing the requisite notice contemplated by sec. 158BC of the Act.”
The Apex Court in case of Assistant Commissioner of Income-tax v. A.R. Enterprises reported in (2013) 350 ITR 489 (SC) has held thus :
“13. A bare reading of the afore-extracted provision makes it clear that the condition precedent for invoking a block assessment is a search conducted under section 132, or documents or assets requisitioned under section 132A. Moreover, section 158BD permits the application of the provisions of this Chapter only on the satisfaction of the Assessing Officer that the seized documents show undisclosed income of a person other than the person with respect to whom search was conducted or a requisition was made. It is trite law that such satisfaction must be recorded for the benefit of the assessee. In Manish Maheshwari v. Asst.CIT(2007) 3 SCC 794, this Court summarized the perquisites of section 158BD of the Act as follows : 11. ...(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 juri iction over such other person; and (iii) the Assessing Officer has proceeded under Section 158BC against such other person.
In Asst. CIT v. Hotel Blue Moon [2010] 3 SCC 259 at page 264, one of us (H L Dattu J.), while explaining the purport of Chapter XIV-B of the Act, has observed that a search is the sine qua non for the block assessment; the special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous year falling in the block period, intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. Hence, from the aforementioned
discussion it is clear that a valid search under section 132 of the Act is a sine qua non for invoking block assessment proceedings under Chapter XIV-B. Further, according to section 158BD of the Act, the Assessing Officer must record his or her satisfaction 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.” 11.Thus the law laid down on the subject is very clear that for taking recourse to block assessment under section 158BC in relation to the person not searched, whenever search has been conducted under section 132 or the documents have been requisitioned under section 132A, the Assessing Officer of the searched person needs to record his satisfaction that undisclosed income belongs to the person, other than the person with respect to whom search was carried out under Section 132 of the Act. He is also required to hand over the books of account or other documents or assets seized, to the Assessing Officer having juri iction over such person and thereafter, the Assessing Officer who has the juri iction would proceed under Section 158BC against such person who has not been searched. 12.In the instant case, as could be noted from the record, search had been carried out in case of Jayraj Group. On examination of the files produced before us by the learned counsel Shri Parikh, it can be seen that the satisfaction recorded by the Assessing Officer is in the case of this very assessee. On pertinently questioned about the satisfaction of the Assessing Officer in case of the searched person (i.e. Jayraj Group), Revenue is unable to point out any such satisfaction of Assessing Officer in case of Jayraj Group. It had been emphatically argued before us that the Assessing Officer being the same person i.e. Shri A.K. Sinha, such satisfaction when recorded in case of the present assessee should be considered and construed as a due compliance under the provisions and there would not be any occasion to handover the materials to himself being the very officer. 13.As far as second requirement of endowing the papers to the Assessing Officer having the juri iction to initiate the proceedings under section 158BC is concerned, learned counsel Mr.Parikh is right and is also not being disputed by the respondent that such formal order of transfer to oneself would neither be warranted nor in any manner affect the validity of the proceedings. 14.However, the vital and mandatory requirement of recording the satisfaction under section 158BD is concerned, as has been rightly noted by the Tribunal, such satisfaction is absent as far as Jayraj Group is concerned in whose case search under section 132 of the Income Tax Act has been carried out by the department. As such an essential requirement prior to initiating the proceedings under section 158BC, has not been fulfilled, the Tribunal is justified in quashing the notice issued against the assessee respondent and the assessment order passed pursuant thereto. As the order of the Tribunal is in consonance with the law laid down on the subject in case of Manish Maheshwari (supra), we find no reason to interfere with the same. 15.As the substantial question of law raised in this case is duly answered, nothing remains for entertaining this petition. 16.Tax Appeal is therefore, dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu
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