COMMISSIONER OF INCOME TAX-I, AMRITSAR vs. MANJIT SINGH

Q: Which sections of the Income-tax Act were involved?

Section 158BD, Section 132, Section 158BC, Section 143(3), Section 140A, Section 142(1), Section 144, Section 132A, Section 260A

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ITA/358/2011HC Punjab & HaryanaPHHC01095695201115 July 2014Author: MR. JUSTICE SURINDER GUPTA,MR. JUSTICE RAJAN GUPTA9 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal by the Revenue was without merit and dismissed it. The Tribunal had categorically noted that there was no satisfaction recorded by the Assessing Officer of the searched person as envisaged under Section 158BD of the Act. This finding was supported by a letter from the Assistant Commissioner of Income Tax stating that the satisfaction note was neither available on record nor could it be confirmed if it was prepared by the then AO. The Court also noted that proceedings under Section 158BC were initially initiated and then dropped against the assessee, indicating no satisfaction was recorded under Section 158BD. The Supreme Court's decision in *Mahesh Maheswari's case* was cited, emphasizing that recording of satisfaction by the AO that undisclosed income belonged to a person other than the searched person is mandatory. The Court distinguished the Revenue's reliance on *Lekshmi Traders* by noting that the issue of non-recording of satisfaction was not under consideration in that case. Therefore, the substantial questions of law were answered against the Revenue and in favour of the assessee.

What were the facts?

The Revenue (Commissioner of Income Tax I, Amritsar) appealed against an order of the Income Tax Appellate Tribunal (ITAT) that quashed an assessment order passed against Shri Manjit Singh (assessee) for the block period 1.4.1987 to 9.10.1997. The ITAT's order was passed in ITA(SS) A.No.17 (ASR)/2002. The dispute arose after a search and seizure operation on Shri Joginder Singh on 9.10.1997, which revealed documents belonging to Shri Manjit Singh. Proceedings under Section 158BD of the Income Tax Act, 1961 were initiated against Shri Manjit Singh on 25.10.1999, and he filed a return showing undisclosed income of ₹2,25,000/-. The Assessing Officer (AO) framed an assessment under Section 158BD read with Section 143(3) on 31.10.2001, determining total undisclosed income at ₹68,10,540/-. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, and the ITAT subsequently allowed the assessee's further appeal, leading to the present appeal by the Revenue.

What were the issues?

1. Whether the Hon'ble ITAT was justified in quashing the assessment order as void ab initio, considering the assessee filed a return under Section 158BD in response to a notice? - Assessee's argument: The ITAT correctly quashed the assessment order because the AO of the searched person (Shri Joginder Singh) did not record any satisfaction note, which is a mandatory prerequisite for initiating proceedings under Section 158BD against another person. Reliance was placed on judgments in *Manish Maheshwari vs. ACIT*, *CIT v. Tirupati Oil Corporation*, *Chandrakantbhai Amratlal Thakkar v. Deputy Commissioner of Income Tax*, *New Delhi Auto Finance P. Limited v. Joint Commissioner of Income Tax*, *CIT v. Raj Pal Bhatia*, and *CIT vs. Sunil Bhala*. - Revenue's argument: The ITAT was not justified. The AO of the searched person was also considered the AO of the assessee, and compliance with Section 158BD was met. Reliance was placed on *CIT v. Lekshmi Traders* to support the initiation of proceedings. 2. Whether the Hon'ble ITAT was justified in quashing the assessment order by relying on *Shri Munish Maheshwari vs. ACIT* where the facts were distinguishable? - Assessee's argument: (Implicitly argued by relying on *Manish Maheshwari* which is the same case as *Shri Munish Maheshwari*). The judgment in *Manish Maheshwari* is directly applicable as it mandates the recording of satisfaction. The facts are not distinguishable in principle regarding the requirement of a satisfaction note. - Revenue's argument: The facts in *Shri Munish Maheshwari* were distinguishable as no records were transferred to the AO having jurisdiction.

Which sections of the Income-tax Act were involved?

Section 158BD,Section 132,Section 158BC,Section 143(3),Section 140A,Section 142(1),Section 144,Section 132A,Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

ITA No.358 of 2011 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.358 of 2011 (O&M) Date of decision:15.7.2014 Commissioner of Income Tax I, Amritsar ...Appellant Versus Shri Manjit Singh, Prop. Manjit Motors, Goal Bagh, Amritsar ...Respondent CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH Present: Mr.Denesh Goyal, Advocate for the appellant. Mr. K.L.Goyal, Sr. Advocate with Mr. Rohit Gupta, Advocate for the respondent. Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.358 and 359 of 2011 as according to the learned counsel for the parties, the issue involved in both the cases is common. However, the facts are being extracted from ITA No.358 of 2011. 2. ITA No.358 of 2011 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 23.6.2011, Annexure 3 passed by the Income Tax Appellate GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.358 of 2011 (O&M) 2 Tribunal, Amritsar Bench, Amritsar in ITA(SS) A.No.17 (ASR)/2002 for the block period 1.4.1987 to 9.10.1997, claiming following substantial questions of law:- “(i) Whether the Hon'ble ITAT, Amritsar Bench, Amritsar is justified in quashing the assessment order passed by the ACIT, Range III, Amritsar as void ab initio without appreciating that the assessee has himself filed return on 1.12.1999 for the block period 1.4.1987 to 9.10.1997 in compliance to the notice issued under Section 158BD of the Income Tax Act, 1961 on 28.10.1999? ii) Whether the Hon'ble ITAT, Amritsar Bench, Amritsar was justified in law in quashing the assessment order relying upon the judgment of the Hon'ble Supreme Court in the case of Shri Munish Maheshwari vs. ACIT and others 289 ITR 341 wherein the facts of the case are quite distinguishable as no records were transferred in that case to the AO having jurisdiction over the matter?” 3. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in ITA No.358 of 2011 may be noticed. A search and seizure operation under Section 132 of the Act was conducted on 9.10.1997 at the business as well as residential premises of Shri Joginder Singh. During the course of proceedings under section 158BC of the Act, it came to the notice of the Assessing Officer that undisclosed Income of certain documents seized, such as Annexures A.30, A.40 and A.43 from the residence of Shri Joginder Singh belonged to Shri Manjit Singh. After recording his satisfaction, the Assessing Officer initiated proceedings under Section 158BD of the Act on 25.10.1999. Notice was sent to the assessee by 28.10.1999 requiring him to file his return within 30 days of the receipt of the notice. In response to the notice, the assessee submitted the return of GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.358 of 2011 (O&M) 3 income in Form 2B on 1.12.1999. In his return, Shri Manjit Singh showed undisclosed income of the block period at ` 2,25,000/- on which tax payable came to ` 1,35,000/-. The assessee enclosed with the return a challan for ` 25000/- deposited in the State Bank of India, Amritsar. Subsequent to the filing of the return and in response to the then Assessing Officer's notices dated 28.3.2000 and 30.10.2000, pointing out his failure to comply with the provisions of section 140A of the Act, the assessee filed copies of challans for different amounts deposited in the State Bank of India. The assessee also filed written submissions. He was also confronted with the statement of accounts to explain the sources of deposits and purpose of withdrawals. After considering the seized material, the information gathered from the banks, reply filed by the assessee during the assessment proceedings and the statement of the assessee, undisclosed income on account of certain heads was found by the Assessing officer and accordingly after affording an opportunity of being heard to the assessee, the Assessing Officer framed assessment under Section 158BD read with section 143(3) of the Act on 31.10.2001, Annexure I determining the total undisclosed income for the block period from 1.4.1987 to 9.10.1987 at ` 68,10,540/-. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 20.3.2002, Annexure 2, the CIT(A) partly allowed the appeal. The assessee filed further appeal before the Tribunal. Vide order dated 23.6.2011, Annexure 3, the Tribunal allowed the appeal. Hence the instant appeals by the revenue. 4. Learned counsel for the revenue submitted that the Assessing Officer of the searched person namely Shri Joginder Singh was said to be GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.358 of 2011 (O&M) 4 the Assessing Officer of the assessee herein and therefore, in such circumstances, it could not be said that compliance of Section 158BD of the Act was not there. To support the initiation of proceedings under section 158BD of the Act, reliance was placed upon the following observations of the Kerala High Court in CIT v. Lekshmi Traders, (2012) 344 ITR 281:- “5.....In other words, the procedure for assessment of a person other than the searched person under Section 158BD is the same procedure contained in Section 158BC. Since no notice is prescribed under Section 158BD,what is required is to issue an intimation about the initiation of proceedings under Section 158BD by the Officer, and then to call for return in form 2B prescribed under Rule 12(1)(a) for assessment under Section 158BC of the Act. In this case,Annexure D notice clearly shows that the jurisdiction of the Assessing Officer for initiation of proceedings for assessment is by virtue of powers under Section 158BD, and the return called under the said notice is the return in Form 2B, which is the return required to be filed by the assessee for assessment under Section 158BC.” 5. On the other hand, learned counsel for the assessee on the strength of the judgments in Manish Maheshwari vs. Assistant Commissioner of Income Tax and another, (2007) 289 ITR 341, CIT v. Tirupati Oil Corporation, (2001) 248 ITR 194(Bom.), Chandrakantbhai Amratlal Thakkar v. Deputy Commissioner of Income Tax, and another, (2011) 137 ITR 258 (Guj.), New Delhi Auto Finance P. Limited v. Joint Commissioner of Income Tax, (2008) 300 ITR 83 (Delhi), CIT v. Raj Pal Bhatia and others (2011) 333 ITR 315 (Delhi) and CIT vs. Sunil Bhala and another, (2011) 336 ITR 550 (Delhi) submitted that recording of satisfaction by the Assessing Officer of the searched person that undisclosed income belonged to some other person was sine qua non for initiation of GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.358 of 2011 (O&M) 5 proceedings under Section 158BD of the Act. Reliance was also placed on the findings of the Tribunal to submit that since there was no satisfaction note recorded by the Assessing Officer of the searched person (i.e.Shri Joginder Singh) that undeclared income belonged to somebody else, the Tribunal had rightly set aside the order under Section 158BD of the Act. 6. After hearing learned counsel for the parties, we do not find any merit in the appeal. 7. The Tribunal had categorically noticed that there was no satisfaction recorded by the Assessing Officer of the searched person as envisaged under section 158BD of the Act. The findings recorded by the Tribunal to the following effect support the case of the assessee:- “9. In this case, Shri Manoj Kumar, Assistant Commissioner of Income Tax, Circle III, Amritsar has submitted a letter dated 16.6.2011, which reads as under:- 'Office of the Assistant Commissioner of Income Tax, Circle III, Amritsar. F.No.ACIT/Circle-III/ASR/11-12/336 dated 16.6.2011 To The Dy.CIT(D.R.) ITAT, Amritsar. Sir, Sub: Asstt. record in the case of Shri Joginder Singh s/o Shri Jaswant Singh C/o Narula Filling Station, Goal Bagh, Amritsar – Block period 1.4.87 to 1.10.97 – Satisfaction Note – Reg - Kindly refer to your office letter F.No.DR/ITAT/2011-12/20 dated 14.6.2011 on the subject cited above. In this connection, it is submitted that the Satisfaction Note is neither available on the record that was sent to your goodself on 13.6.2011 nor is it available on any other folder. It is also not possible for the undersigned to tell if the Satisfaction GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.358 of 2011 (O&M) 6 Note was prepared by the then AO or not. This is for your kind information. Yours faithfully, sd/- (Manoj Kumar) Assistant Commissioner of Income Tax Circle III, Amritsar Copy to the Commissioner of Income Tax I, Amritsar w.r.t the office letter F.No.CIT-I/ASR/UITO(tech)/2011-12/978A dated 10.6.2011. Yours faithfully, sd/- (Manoj Kumar) Assistant Commissioner of Income Tax Circle III, Amritsar 10. From the above letter, it is clear that no satisfaction as envisaged under Section 158BD of the Act has been recorded by the AO to this effect that any undisclosed Income belongs to any person, other than the person with respect to whom search had been made under section 132 of the Act. 10.1 It is also interesting to note that in both the cases, the concerned AO has initiated proceedings under section 158BC of the Act by issuing notices dated 15.3.1998 and subsequently proceedings initiated under section 158BC of the Act were dropped against both the assessees. This fact is clear from the order dated 15.10.1999, which reads as under:- “Government of India Office of the Assistant Commissioner of Income Tax, Investigation Circle I, Amritsar Name of the assessee Shri Manjit Singh Address of the assessee Prop. M/s Manjit Motors, Goal Bagh, Amritsar Status Individual Previous year 1.4.1987 to 12.10.1997 (Block period) GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.358 of 2011 (O&M) 7 Assessment year Block assessment year Section under which order is passed 14393/158BC of the IT Act

Date of order 15.10.1999 In this case a notice under Section 158BC of the IT Act dated 5.3.1998 was issued and was served upon the assessee on 6.3.1998 asking him to file his return of the block period within 30 days from the date of service. No return was filed. Another notice under section 142(1) of the IT Act dated 8.10.1998 was issued and served upon the assessee, asking him as to why ex parte order under section 144 should not be passed in his case. Vide a written reply filed on 10.2.1999, the authorized counsel of the assessee submitted that no search action under Section 132 or 132A of the IT Act was taken against the assessee. In view of the above, the proceedings under section 158BC may be dropped. After verification the proceedings under section 158BC of the IT Act are hereby filed. This order is passed with approval of the Additional Commissioner of Income Tax Range I, Amritsar which was received vide letter No.791 dated 14.10.1999. (K.K.Mahajan) Asstt. Commissioner of Income Tax, Investigation Circle I, Amritsar Copy to the assessee. (ACIT)”.

10.

2 In the case of Shri Surjit Singh also, vide order dated 15.10.1999 in similar circumstances, proceedings initiated under section 158BC of the Act were dropped. From these orders, it is clear that no satisfaction was recorded as per the provisions of section 158BD of the Act. Had the AO recorded the satisfaction under section 158BD of the Act, the department GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh would have initiated the proceedings under section 158BD read with section 143(3) of the Act against the assessee. Admittedly, a search was conducted on 9.10.1997 and the proceedings under section 158BC of the Act were dropped against both the assessees vide order dated 15.10.1999. This means that the AO of the searched person has not recorded any satisfaction, as envisaged under section 158BD of the Act.”

Further, the Supreme Court in Mahesh Maheswari's case (supra) had held that recording of satisfaction by the Assessing Officer that undisclosed income belonged to person other than the searched person was mandatory. It was observed as under:- “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. xx x xx xx xx x The provisions contained in Chapter XIVB are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. xx xx xx xx xx xx xx x 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 Assessing Officer having juri iction over such 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 s. 158BC of the Act. "

Similar view has been expressed in Tirupati Oil Corporation, Chandrakantbhai Amratlal Thakkar, New Delhi Auto Finance P. Limited, GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh Raj Pal Bhatia and Sunil Bhala's cases (supra).

10.

In so far as judgment in Lekshmi Traders' case (supra) on which reliance has been placed by the learned counsel for the revenue, is concerned, therein the question was whether in the absence of service of notice under Section 158BD of the Act, the proceedings thereunder were valid or not. The issue of non-recording of satisfaction for assumption of juri iction against the person other than the searched was not under consideration. Therefore, no advantage can be derived by the revenue from the said pronouncement.

11.

In view of the above, the substantial questions of law are answered against the revenue and in favour of the assessee. Consequently, the appeals stand dismissed. (Ajay Kumar Mittal) Judge July 15, 2014 (Jaspal Singh) ‘gs’ Judge GURBAX SINGH 2014.09.02 16:50 I attest to the accuracy and integrity of this document High Court Chandigarh

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