RAJHANS BUILDERS vs. DY. COMMISSIONER OF INCOME TAX

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Petitioner   has   challenged   notice   dated 1.8.2007 as at Annexure B to the petition issued by respondent No.1, Deputy Commissioner of Income Tax,   under   section   153C   of   the   Income   Tax Act,1961 (‘the Act’ for short).   The petitioner has   also   challenged   the   reference   made   by   the Assessing Officer  on 31.7.07 to respondent No.2 the District Valuation Officer to opine on the valuation of  certain immovable properties of the petitioner   to   ascertain   the   investment   made   by the petitioner in such properties. The   petitioner   is   a   firm   engaged   in   the business of civil construction.   The petitioner regularly   files   its   return.     Search   operations were carried out by the Income Tax Department on 7.3.2006 in cases  of Rajhans group of companies. Statement   of   one   Shri   Shivlal   Jain,   Managing Partner   of   M/s.Rajhans   Builders     was   recorded under   section   132(4)   of   the   Act.     In   such statement, he admitted  having earned unaccounted income of Rs.6 crores  by the said group.  Later on during the search of his locker, he revised the   undisclosed income of the group to Rs.8.25 crores.  On the basis of the materials collected and the documents found, respondent No.1 issued the impugned notice under section 153C of the Act in which it was stated as under: “A search u/s 132 of the I.T. Act was conducted in   the   case   of   Rajhans   Group   &   others   on 07/03/2006. Whereas I am satisfied that money / bullion / jewellery / other valuable articles or things   and   /   or   books   of   account   /   documents seized belongs to you.   Therefore, your income of six assessment years immediately preceding the assessment   year   relevant   to   previous   year   in which the search was conducted i.e. from   A.Y. 2000­01   to   A.Y.   2005­06   is   required   to   be assessed/reassessed   in   accordance   with   the provisions of section 15o3C of the Act.     You are,   therefore,   required   to   furnish   return   of the company’s income u/s. 153A of the I.T.Act, 1961 for A.Y. 2000­01 being one out of the above six assessment years in respect of which you are assessable   under   the     Income­Tax   Act,   1961.The return should be filed in  the appropriate  form as prescribed in Rule 12 of the Income­Tax Rules, 1962. It should be duly verified and signed in accordance with the provisions of section 140 of the   said   Act   and   delivered   at   my   office   as mentioned   above   within   FIFTEEN   DAYS   from   the service of this notice.” It   is   this   notice   that   the   petitioner   has challenged in he present petition. At   our   request,   learned   counsel   for   the Revenue had made available  the satisfaction note recorded   by   respondent   No.1   for   issuing   the impugned notice in which it is stated as under: “A search and seizure action under section 132(1) in the cases of Rajhans Group was carried out on 7/3/2006   by   the   investigation   Wing   of   the Department.   During   the   course   of   search   and seizure operation, the statement of Shri Shivlal G.   Jain,   a   Managing   Partner   in   M/s.Rajhans Builders (R.F.) was recorded under section 132(4) of the Income Tax Act, 1961 wherein he admitted to   have   earned   an   unaccounted   income   of   R.   6 crore in his group. Later, during the course of the search of his locker under section 132(1) he reaffirmed   the   admission   of   disclosure     and revised   the   unaccounted   income   of   his   group concerns   at   Rs.8.25   crore.     Subsequently,   the assessee   group   i.e.   Rajhans   Group   concerns   and its   individuals   vide   their   letter   dated 31/03/2006   addressed   to   the   Asstt.   Director   of Income tax (Investigation) submitted the break­up of   the   disclosure   made   by   him.     The   relevant extract of the letter is reproduced below: “In   this   connection   and   with   reference   to   the survey conducted u/s.133A of the I.T.Act, 1961 at our   all   business   places   of   our   group   project sites   and   search   carried   out   u/s.132   of   the I.T.Act, 1961 at our residences, we have to state as under: During   the   course   of   search   conducted   on dated     7th  March,   2006   at   our   residences   and survey conducted on dated 7th  March 2006 at our all business places, certain loose papers/dairies and various other papers/documents were found. Covering all these loose paper/dairies & various other papers/documents total disclosure of Rs.825 crore   has   been   made   by   our   group   covering   the amount reflected therein. The   break   up   of   the   disclosure   statement given with this letter is made by us on behalf of all group concerns and individuals of the Rajhans Group.” From the break­up of disclosure filed by the assessee it can be seen that the   partners had declared   an   amount   of   Rs.1,00,00,000/­   in   the hands of M/s.Rajhans Builders (R.F.).   It could be seen from the records that the assessee had undertaken   six   different   projects   under   the banner of Rajhans Builders right from the period 1999­2000 which ended up in the year 2005/2006. Since   the   period   of   construction   of   different residential and commercial properties undertaken by the assessee stretched over a period of 6/7 years and, the disclosure  of unaccounted income offered by the managers/partners of the assessee firm did not specify a particular assessment year to   which     such   income   pertained,   and   the   fact that   assessee   firm   has   been   carrying   out   its construction activities over a period of the last 5/6 years, and the disclosure of Rs.8.25 crore of unaccounted   income   under   section   132(4)   of   the I.T.Act which includes the unaccounted income of Rs.1 crore was ;admittedly made by the assessee to   cover   all   loose   papers/diaries   and   various other papers documents, and in the light of the fact that no action under section 132/133A was taken place in the case of the assessee, and also taking   into   account   the   nature   of   business   of constructions

which involves

the expenses/investment for along period, and in the absence   of   specific   year   of   disclosure,   I   am satisfied that this is a fit case to issue notice u/s.153C of the I.T.Act.” Based   on   such   satisfaction   note   and   other materials     on record, learned counsel for the petitioner   vehemently   contended   that   the satisfaction   arrived   at   by   the   respondent   was based on no evidence.   Notice under section 153C of   the   Act,   therefore,   could   not   have   been issued. He   further   contended   that   the satisfaction was  recorded long after the search was over and the notice was issued thereafter. On the other hand, learned counsel Mrs.Bhatt for the Revenue opposed the petition contending that   respondent   No.1   after   recording   his satisfaction  that on the basis of the documents seized   during   the   search   carried   out   against Rajhans   Group   of   Companies,   unaccounted   income belonged to the assessee  was unearthed,  issued the   impugned   notice.   At   this   stage,   therefore, the court would not interfere. We are of the opinion that at this stage no interference  is called for.  Section 153C of the Act, as is well known, pertains to assessment of income of persons other than one who is subjected to   search.     Sub­section   (1)   of   section   153C provides     that where any Assessing Officer is satisfied that any money, bullion, jewellery or other   valuable   article   or   thing   or   books   of account   or   documents   seized   or   requisitioned belongs or belonged 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 juri iction 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   of   the   Act. Section 158BD of the Act makes similar provisions for   block   assessment   of   undisclosed   income   of persons   other   than   the   searched   person.     In context   of   section   158BD   of   the   Act,   the   Apex Court in the case of CIT v.  Calcutta Knitwears, 362 ITR 673 (SC) held and observed as under: “In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine quo non and must be prepared by the     Assessing  Officer  before  he  transmits the  records  to  the  other   Assessing  Officer who has juri iction over such other person. The  satisfaction   note  could  be  prepared  at either of the following states: (a) at the time   of   or   along   with   the   initiation   of proceedings against the searched person under section 158BC of the Act; (b) along with the assessment proceedings under section 158BC of the   Act;   and   (c)   immediately   after   the assessment   proceedings   are   completed   under section   158BC   of   the   Act   of   the   searched person.” Under   the   circumstances,     the   petitioner’s contention that notice under section 153C of the Act   could   not   have   been   issued   after   search operations were over cannot be accepted. With respect to the validity of the notice itself,   at   this   stage,   we   are   not   inclined   to examine the same in view of the decisions of the Supreme Court in the case of CIT  v. Vijaybhai N. Chandrani, 357 ITR 713 (SC) and in the case of CIT  v.  Chhabil Dass Agarwal, 357 ITR 357 (SC). The   decision   in   the   case   of   Vijaybhai   N. Chandrani (supra) was rendered  in the background of validity of notice under section 153C  of the Act being challenged before the High Court.  The High Court had quashed the notice on reaching to the conclusion that the documents seized by the Assessing   Officer   under   section   132A   did   not belong   to   the   assessee   and   therefore   condition precedent for issuing   notice under section 153C was not fulfilled.  In this context, the Supreme Court   held   that   the   assessee   could   not   have invoked   the   writ   juri iction     without   first exhausting   the   alternative   remedies   provided under  the Act and the High Court ought not to have   entertained   the   writ   petition.     It   was observed as under:

“14. In our considered view, at the said stage of issuance of the notices under Section 153C, the assessee could have addressed his grievances and explained his stand to the Assessing Authority by filing an appropriate reply to the said notices instead of filing the Writ Petition impugning the said notices. It is settled law that when an alternate remedy is available to the aggrieved party, it must exhaust the same before approaching the Writ Court. In Bellary Steels & Alloys Ltd. v. CCT, (2009) 17 SCC 547, this Court had allowed the assessee therein to withdraw the original Writ Petition filed before the High Court as the said proceedings came to be filed against the show-cause notice and observed that the High Court should not have interfered in the matter as the Writ Petition was filed without even reply to the show cause notice. This Court further observed as follows: “3.…In the circumstances, we could have dismissed these civil appeals only on the ground of failure to exhaust statutory remedy, but for the fact that huge investments involving the large number of industries is in issue.”

“5. This and the other facts cannot be taken up for consideration by this Court for the first time. In our opinion, the High Court was right in coming to the conclusion that it is appropriate for the appellants to file a reply to the show-cause notice and take whatever defence is open to them.”

“19. Thus, while it can be said that this Court has recognized some exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, Titagarh Paper Mills case and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.” Under the circumstances, we are not inclined to   entertain   the   writ   petition   in   view   of   the availability   of   statutory   remedies.     Since   we relegate   the   petitioners   to   remedies   under   the statute, at this stage, we express no opinion on the validity of the reference.   It is clarified that it would be open for the petitioner to raise all contentions with respect to the validity of the   notice   under   section   153C   as   well   as   the reference made to the DVO before the appropriate forum. With the above observations, the petition is disposed of. Interim relief is vacated. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn)