CREATIVE CO-OPERATIVE CREDIT SOCIETY LIMITED vs. AMAL GARG-DY.COMMISSIONER OF INCOME TAX

C/SCA/22417/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 22417 of 2005

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE AKIL KURESHI

and HONOURABLE MS JUSTICE SONIA GOKANI

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ CREATIVE CO-OPERATIVE CREDIT SOCIETY LIMITED....Petitioner(s) Versus AMAL GARG-DY.COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR KETAN H SHAH, ADVOCATE for the Petitioner(s) No. 1 MR RK PATEL, ADVOCATE for the Petitioner(s) No. 1 MR KM PARIKH, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI Page 1 of 10

C/SCA/22417/2005 JUDGMENT and HONOURABLE MS JUSTICE SONIA GOKANI

Date : 26/02/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The   petitioner,   a   cooperative   society,   has challenged a notice dated October 03, 2005 issued by   the   Deputy   Commissioner   of   Income­tax, Vadodara, on various grounds. Such notice though carries the title of being issued under section 158BD   of   the   Income­tax   Act,   1961   (hereinafter referred to as 'the Act'), in the body of the notice, it is stated as under : “A search u/s, 132 of the Income­tax Act, 1961   has   taken   place   at   business, residential and other premises on 13.08.2002 in your case. Based on seized materials and other facts and as per Provisions of Income­ tax   Act,   assessment   of   block   period   (as mentioned   above)   in   your   case   has   to   be completed by following special procedure as laid down in Chapter­XIV­B of the Income­tax Act.   Therefore,   you   are   hereby   given   a notice   U/S.158BC   of   the   Income­tax   Act   to furnish   a   return   in   the   prescribed   Form Page 2 of 10

C/SCA/22417/2005 JUDGMENT No.21:1   and   verified   and   signed   in accordance with the provisions of   Section 140 of the I.T. Act setting forth your total income including the undisclosed  income for the   block   period.   The   return   of   income including  undisclosed  income  may please  be filed   within   45   days   of   receipt   of   this notice.” 2. The brief facts are that one Piyush Shroff HUF was subjected to search operations under section 132   of   the   Act   on   August   13,   2002.   The proceedings under section 158BC of the Act were carried   out   and   completed   on   August   03,   2004. Long time thereafter, the impugned notice came to be issued against the petitioner on the premise that during such proceedings under section 158BC of the Act, the concerned authority was satisfied that undisclosed income belonged to the present petitioner and that, therefore, the proceedings under section 158BD were called for. 3. This action is challenged by the petitioner on various grounds. Firstly, that the notice itself demonstrates   total   non­application   of   mind.   It Page 3 of 10

C/SCA/22417/2005 JUDGMENT records that the search operation was carried in case   of   the   present   petitioner   and   that, therefore, the petitioner should furnish a return under section 158BC of the Act. According to the petitioner,   these   are   gross   misstatements   of facts. The second ground of challenge is that no satisfaction   was   recorded   by   the   Assessing Officer   of   Piyush   Shroff   HUF   before   the assessment   was   completed   and   that,   therefore, action against the petitioner under section 158BD of   the   Act   cannot   be   taken.   It   was   lastly contended that in any case, the action is rather belated.   As   noted,   the   proceedings   against   the searched person completed on August 03, 2004 and after more than a year, the impugned notice came to be issued. 4. In   support   of   his   contentions,   the   learned counsel for the petitioner placed reliance on the following decisions : (i) Commissioner   of   Income­tax   v.   Mridula, Prop.   Dhruv   Fabrics,   reported   in   (2012)   20 Page 4 of 10

C/SCA/22417/2005 JUDGMENT taxmann.com 575 (Punj. & Har.). (ii) Manish Maheshwari v. Assistant Commissioner of Income­tax, reported in (2007) 159 TAXMAN 258 (SC). (iii) Chandrakantbhai  Amratlal Thakkar v. Deputy Commissioner  of Income­tax,  reported  in (2012) 20 taxmann.com 395 (Guj.). (iv) Kandubhai

Vasanji

Desai

Deputy Commissioner  of Income­tax,  reported  in (1999) 236 ITR 73 (Gujarat). 5. On   the   other   hand   the   counsel   for   the   Revenue drew our attention to the  affidavit­in­reply  in which   it   is   stated   that   reference   to   search operations against the petitioner and the notice under section 158BC in the impugned notice dated October   03,   2005,   were   due   to   typographical errors. The notice was, in essence, under section 158BD of the Act. He further contended that the Assessing Officer had arrived at a satisfaction Page 5 of 10

C/SCA/22417/2005 JUDGMENT that undisclosed income found during the search belong to the present petitioner. 6. Having   thus   heard   the   learned   counsel   for   the parties   and   having   perused   the   documents   on record, it emerges that in the notice itself, the petitioner has been referred to as a person who was   subjected   to   search.   He   was,   therefore, called   upon   to   file   return   as   specified   under section 158BC of the Act. Admittedly, the facts were to the contrary. Even if these are explained away   as   mere   typographical   errors,   such   major discrepancies would demonstrate a degree of non­ application   of   mind   at   the   end   of   a   person signing such a notice. We are, however, of the opinion   that   the   notice   must   fail   on   far   more substantial grounds. 6.1 As laid down by the Apex Court in the case of Manish Maheshwari (supra), section 158BD of the Act provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person. The conditions precedent Page 6 of 10

C/SCA/22417/2005 JUDGMENT 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   Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under   section   158BC   against   such   other person. 6.2 In   the   case   of  Chandrakantbhai   Amratlal Thakkar (supra), this Court observed as under: “13. Section 158BD of the Act mandates Page 7 of 10

C/SCA/22417/2005 JUDGMENT that   the   Assessing  Officer   of   the   person with respect to whom search was made should be   satisfied   that   any   undisclosed   income belongs to any person, other than the person with   respect   to   whom   the   search   was   made under section 132 of the Act and it is after recording  such satisfaction  that the  books of account, other documents or assets seized or requisitioned are required to be handed over   to   the   Assessing   Officer.   In   the present case, evidently no such satisfaction has been recorded by the Assessing Officer of   the   person   with   respect   to   whom   the search was made, prior to handing over the documents   referred   to   in   the   aforesaid communication.   In   the   circumstances,   the basic   condition   precedent   for   invoking section 158BD of the Act qua the petitioner has   not   been   satisfied.   In   the   aforesaid premises,   in   the   absence   of   the   basic requirement   for   invoking   section   158BD   of the Act being satisfied, the respondent No.2 lacked the jurisdiction to issue such notice and   as   such   the   impugned   notice   under section   158BD   of   the   Act   cannot   be sustained.” 6.3 In the case of Mridula, Prop. Dhruv Fabrics (supra),   the   Punjab   and   Haryana   High   Court held that the action contemplated under section Page 8 of 10

C/SCA/22417/2005 JUDGMENT 158BD of the Act against a third parson to a search is necessarily to be initiated during the   block   assessment   proceedings   of   the searched person. 6.4 In the case of Padmini M. Nair v. Union of India,   reported   in   (2013)   215   TAXMAN   49 (Guj.), this Court observed that a mere note produced by the revenue cannot be seen as any recording   of   satisfaction   as   envisaged   under section 158BD of the Act. 7. In the present case, the Revenue has not produced any evidence to show that the Assessing Officer of   the   searched   person   had   arrived   at   a satisfaction   during   the   course   of   such proceedings that the undisclosed income belong to the present petitioner. In the affidavit­in­reply also,   all   that   is   stated   is   that   during   the search   against   the   Piyush   Shroff   HUF,   certain incriminating documents were seized, on the basis of which the deponent of the affidavit­in­reply is satisfied that  based on the material seized Page 9 of 10

C/SCA/22417/2005 JUDGMENT from   the   office   of   the   'Karta'   of   HUF, undisclosed   income   belong   to   the present petitioner­Cooperative   Credit   Society.  Even   in the affidavit­in­reply, it is nowhere stated that such   satisfaction   was   arrived   at   during   the course of proceedings under section 158BC of the Act and that such satisfaction was recorded by the Assessing Officer. Neither in the affidavit­ in­reply  nor   through   the   documents   this   vital aspect emerges. The important pre­condition for action under section 158BD of the Act, therefore, having not been satisfied, the action must fail. On this ground, the impugned notice dated October 03, 2005 is quashed. Rule is made absolute. There shall be, however, no order as to costs. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Aakar Page 10 of 10