THE COMMISSIONER OF INCOME TAX vs. M/S.BIMBIS CREAMS AND BAKES

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN THURSDAY, THE 29TH DAY OF MARCH 2012/9TH CHAITHRA 1934 ITA.No. 982 of 2009 ( ) ----------------------- ITA.138/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: ---------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: -------------- M/S.BIMBIS CREAMS AND BAKES, KOCHI, ERNAKULAM. BY ADV. SRI.T.M.SREEDHARAN (SR.) BY ADV. SRI.V.P.NARAYANAN BY ADV. SMT.BOBY M.SEKHAR BY ADV. SMT.NISHA JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29-03-2012, ALONG WITH ITA. 1369/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX (ITA 982/2009) ANNEXURE A: COPY OF ASSESSMENT ORDER DT.29.5.2003 FOR THE BLOCK PERIOD FROM 1.4.1988 TO 10.3.1999. ANNEXURE B: COPY OF ORDER DT.28.9.2004 OF THE COMMISSIONER OF INCOME TAX(APPEALS). ANNEXURE C: COPY OF ORDER DT.9.5.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.138/COCH/2004. ANNEXURE D: TRUE COPY OF REPORT OF THE COMMISSIONER OF INCOME TAX DT.23.1.2012. ANNEXURE R1(a): TRUE COPY OF NOTICE NO.PAN/UIR B.304/1W2 DATED 29.5.2001 ISSUED BY THE DEPUTY COMMISSIONER (INVESTIGATION) OF INCOME TAX, CIRCLE-2, DIVISION-1, ERNAKULAM. TRUE COPY P.S. TO JUDGE

C.R. C.N.RAMACHANDRAN NAIR, & K.VINOD CHANDRAN, JJ. .................................................................... I.T. Appeal Nos.982 & 1369 of 2009 .................................................................... Dated this the 29th day of March, 2012. JUDGMENT Ramachandran Nair, J. Both the appeals filed by the Revenue are against common order issued by the Tribunal cancelling a block assessment completed against the respondent under Section 158BD of the Income Tax Act (hereinafter called “the Act”) on the ground that the Assessing Officer before issuing notice for assessment did not record reasons and that the assessment is also barred by limitation. We have heard Senior counsel Sri.P.K.R.Menon appearing for the Revenue and Senior counsel Sri.T.M.Sreedharan appearing for the respondent. 2. First question to be considered is whether the Tribunal was justified in cancelling the block assessment confirmed in first appeal for the reason that Assessing Officer has not recorded reasons for issuance of notice for assessment under Section 158BD of the Income Tax Act (hereinafter called “the Act”). We notice that the Tribunal

ITA 982&1369/09 2 held in favour of the assessee following their order in appeal in the case of M/s.Panchajanyam Management Agencies case wherein also similar issue arose for consideration. However, Senior counsel appearing for the Revenue referred to the judgment of this court in COMMISSIONER OF INCOME TAX VS. PANCHAJANYAM MANAGEMENT AGENCIES & SERVICES reported in (2011) 333 ITR 281 wherein this court reversing the order of the Tribunal held that recording of reasons under Section 158BD is only for transferring file from one officer to another officer which happens when the officer searching an assessee does not have jurisdiction over the other assessee in respect of whose undisclosed income particulars and evidence are found in the course of search justifying assessment under Section 158BD of the Act. Just going by our decision wherein we reversed the Tribunal's order relied on by them in issuing the impugned order we should allow this appeal on this ground by vacating the order of the Tribunal. However, for the sake of completeness, we proceed to consider the appeals with reference to the facts of these cases also. 3. Based on information received about unaccounted income

ITA 982&1369/09 3 earned by a group of concerns basically controlled by one Sri.Abdul Gafoor, the department conducted search on 10.3.1999 by issuing separate search warrants in the name of Bimbis Group of concerns by specifically authorising search in Bimbis Fast Food, Bimbis Ice Cream, Khaiber Hayath (Sadya) and Lala Fast Food. Under separate search warrant the residential premises of Sri.Abdul Gafoor, the person controlling the group of business concerns, was also searched on the very same date. However, it may be noticed that no search warrant was issued in the name of the respondent-assessee which is a partnership firm wherein 95% of the shares were held by Mrs.Souda Gafoor, wife of Sri.Abdul Gafoor, who is the real owner of the entire business group. One Sri.P.K.Moideen, the only other partner, has only 5% shares in the respondent-firm. No search warrant was issued in the name of the respondent or in the name of both the partners namely, Mrs.Souda Gafoor and Sri.P.K.Moideen. However, since evidence regarding business and earning of unaccounted income by the respondent-firm were found in the course of search in the residential and business premises of Sri.Abdul Gafoor, the husband of Mrs.Souda

ITA 982&1369/09 4 Gafoor holding 95% of the shares of the respondent-firm, notice was issued under Section 158BD against the respondent-firm based on materials gathered in search in the business and residential premises of the respondent-firm's managing partner's husband. It so happened that since the business premises and the residence of Sri.Abdul Gafoor and his wife Mrs.Souda Gafoor who is the managing partner of the respondent-assessee were one and the same, the Assessing Officer who has jurisdiction to assess the searched assessees was the same officer who has jurisdiction to assess the respondent-firm as well. So much so, there was no scope for transfer of file from one Assessing Officer having jurisdiction over the searched assessee to another Assessing Officer for assessment under Section 158BD as both the searched assessee and the assessee in respect of whom details of suppressed income were received, were assessable by the same Assessing Officer. Under our orders, the Commissioner of Income Tax has filed a detailed statement explaining the reason why there was no transfer of file and the assessment both under Section 158BC against the searched assessees and under Section 158BD against the respondent were

ITA 982&1369/09 5 completed by the same officer having jurisdiction over both the assessees falling within same Circle. Going by our judgment, when the same Assessing Officer has jurisdiction to assess the searched assessee under Section 158BC and the other assessee under Section 158BD whose undisclosed income is also found in the course of such search, there is no necessity for the Assessing Officer to record satisfaction as required under Section 158BD because there is no transfer of file from one officer to another. Following our above judgment, we allow the appeal on this issue by setting aside the order of the Tribunal and uphold the assessment under Section 158BD. 4. The next question to be considered is limitation claimed by the assessee and accepted by the Tribunal. Counsel for the assessee relied on decision of the Punjab and Haryana High Court in COMMISSIONER OF INCOME TAX Vs. PARVEEN FABRICS (P) LTD. reported in (2011) 198 TAXMAN 463 wherein the Punjab High Court held that simultaneous with Section 158BC-assessment initiated against the searched assessee, the department should proceed against the other assessees for assessment under Section 158BD. We are

ITA 982&1369/09 6 unable to accept this contention because the limitation provided under Section 158BE is for completion of assessment both under Section 158BC and under Section 158BD. While Section 158BE(1) deals with limitation for completion of assessment under Section 158BC, Section 158BE(2) provides for limitation for completion of assessment under Section 158BD. Under clause (b) of Section 158BE(2) time for completion of assessment under Section 158BC is two years from the end of the month in which notice under this Chapter was served on the person other than the searched assessee. What is clear from Section 158BD is that when a proceeding for assessment is initiated against any person other than the searched assessee based on materials received during search, such assessment also has to be completed under Chapter XIVB by issuing notice under Section 158BC. In this case admittedly the assessments of the searched assessees under Section 158BC were completed within time and though the assessments were cancelled by the Tribunal on technical grounds, we have vide judgment in I.T.A. No.1201/2009 and connected cases dated 10.1.2012 allowed the department appeals and restored the appeal back to the Tribunal to

ITA 982&1369/09 7 decide the matter on merit. The assessees in those cases have no dispute that the assessments of the searched assessees completed under Section 158BC were barred by limitation. However, limitation is raised only by the respondent-assessee which also forms part of group of concerns in as much as 95% of the shares of the respondent-firm are held by none other than the wife of the person controlling the business of all concerns within the group, on the ground that there is delay in initiation of proceedings under Section 158BD. 5. We notice that the assessment of the searched assessees in the same group were completed on 29.3.2001 which was admittedly within the period of limitation prescribed. However, only after completion of assessment of the said assessees, notice was issued under Section 158BD on the respondent-assessee on 29.5.2001. The assessment1 was completed on the respondent-assessee on 29.5.2003 which is within two years from the end of the month in which notice under Section 158BD was issued to the respondent-assessee as provided under Section 158BE(2)(b) of the Act. So much so, the assessment under Section 158BD is well within the statutory period with reference to

ITA 982&1369/09 8 date of issuance of notice under Section 158BD. 6. Relying on the decision in PANCHAJANYAM MANAGEMENT AGENCIES case Senior counsel for the respondent- assessee submitted that the Assessing Officer was bound to initiate simultaneous proceedings under Section 158BD against the respondent-assessee i.e. along with Section 158BC assessments initiated against the group of concerns searched by the department. Senior counsel for the Revenue submitted that there is no time limit prescribed under the Act for issuance of notice under Section 158BD and according to him, the Assessing Officer has to first complete the assessment that gets time barred first and then proceed to make assessment under Section 158BD later. Besides finding force in this contention, we also feel that it is only on completion of assessment under Section 158BC on the searched assessee the Assessing Officer can conclude that the remaining income in respect of which details were collected during search could be assessed in the hands of other assessees. In fact, bifurcation of income relating to searched assessees and income relating to others will be clear only after determining the

ITA 982&1369/09 9 income of the searched assessees. So much so, in our view, a prudent officer should first complete assessment under Section 158BC on searched assessees and thereafter based on the materials available, proceed for assessment under Section 158BD against other assessees about whom details were obtained in the course of search. In the absence of any provision in the Act requiring the department to issue notice under Section 158BD within a time frame, we do not think the court can prescribe any time limit. At the maximum we can declare an assessment arbitrary, if assessment is not initiated within a reasonable time which is not the case here because assessment was initiated under Section 158BD within two months from completion of assessment under Section 158BC against searched assessees which was made within time. So much so, we hold that the assessment under Section 158BD was initiated within a reasonable time and the same was completed within the statutory period of 2 years as contemplated under Section 158BE(2)(b) of the Act. We, therefore, allow the appeal on this issue as well by reversing the order of the Tribunal and by holding that the assessment completed on the respondent under Section 158BD

ITA 982&1369/09 10 is well within time. In view of the findings above, we set aside the orders of the Tribunal and restore the appeals back to the files of the Tribunal with direction to the Tribunal to hear and dispose of the appeals along with the appeals of the group of concerns remanded by us vide judgment above referred. C.N.RAMACHANDRAN NAIR Judge K.VINOD CHANDRAN Judge pms