SRI A NARAYANASWAMY vs. THE DEPUTY COMMISSIONER OF INCOME-TAX

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF AUGUST, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO.217 OF 2020 BETWEEN: Sri A. Narayanaswamy, S/o. Late Ashwathaiah, Aged about 69 years Prop. Gurukurpa Enterprises, R/a 'Sri Gurukruppa', Balaji Nagar, 3rd Block, Sira, Tumukur-572 137. Since deceased, represented by Legal Representative and son Sri. M. N. Shivakumar S/o. Late A. Narayana Swamy, R/a 'Sri Gurukruppa', Balaji Nagar, 3rd Block, Sira, Tumukur-572 137. …Appellant (By Smt. Vani H., Advocate) AND: The Deputy Commissioner of Income-Tax Circle 1(3), Queen's road Bengaluru-560 001. …Respondent (By Sri. K.V. Aravind., Senior Standing Counsel) Digitally signed by MALA K N Location: HIGH COURT OF KARNATAKA

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020

The Advocate for the appellant has filed the above ITA / Income Tax Appeal Under Sec.260-a of Income Tax Act 1961, arising out of order dated 27/09/2019 passed in IT(SS)A No. 38/Bang/2008, on 27-09-2019 for the assessment years 1996- 97 to 2002-2003 and etc.

This Appeal, coming on for hearing, this day, P.S. Dinesh Kumar J., delivered the following: JUDGMENT This appeal by the Assessee, directed against order dated September 27, 2019 in IT(SS)A No. 38/Bang/2008 for A.Ys. 1996-97 to 2002-03 passed by the ITAT1 has been admitted to consider following questions of law: 1. Whether the Appellate Tribunal committed an error of law in upholding the assumption of jurisdiction by the respondent by issuing multiple notices under Section 158BC of the Act? 2. Whether on the facts and circumstances of the case, the Appellate Tribunal committed an error in upholding the assessment order under section 158BC though the issue of notice under section 143(2) of the Act on 20.10.2003 was beyond a period of one year from the date of filing the return in Form 2B by Appellant? 3. Whether the findings of Appellate Tribunal were perverse while rejecting the claim of cost of Acquisition of Rs.15,00,000/- de hors the fact that the said agreement was very much part of the seized 1Income Tax Appellate Tribunal

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 documents and the capital gains were computed based on the said agreement? 2. Heard Smt. H. Vani, learned Advocate for the Assessee and Shri. K.V. Aravind, learned Senior Standing Counsel for the Revenue. 3. Brief facts of the case are, a search under Section 132 of the Income Tax Act, 19612 was conducted on 02.11.2001 and thereafter, a Notice dated 06.03.2002 under Section 158BC of the Act was issued indicating the block period as 1995-96 to 2001-02 and calling upon assessee to file return within 45 days from the date of service of the notice. Assessee filed its returns on 02.05.2002 in Form-2. Assessee also filed its objections contending that the notice under Section 158BC of the Act was defective for not specifying the correct block periods and therefore, the assessment proceedings would fail. A letter dated 04.06.2002 was issued clarifying the block periods and to file the returns in Form-2B. The assessee 2‘the Act’ for short

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 filed its return on 19.06.2002 in Form-2B for the block period 1995-1996 to 2001-2002 upto 02.11.2000. 4. Subsequently, second notice dated 01.10.2003 under Section 158BC of the Act was issued. On 27.10.2003, assessee filed a reply under protest contending inter alia that a notice under Section 158BC of the Act could not be issued pursuant to a search. As such there was no search relevant to the said notice. By the said letter assessee also called upon the AO3 to consider the returns already filed in response to the first notice as his returns in response to second notice. 5. Later, another notice dated 28.10.2003 was issued under Section 143(2) of the Act, after expiry of 12 months from the date on which assessee filed his returns. The AO passed the assessment order4 under Section 158BC read with Section 143(3) of the Act computing the undisclosed income as Rs.81,49,970/-. 3 Assessing Officer 4dated 28.11.2003

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 6. On appeal, the CIT(A)5 partly allowed assessee’s appeal by deleting few additions. On further appeal, the ITAT partly allowed assessee’s appeal, but rejected the jurisdictional issue. The ITAT also rejected assessee’s claim with regard to cost of acquisition of assets to an extent of Rs.15,00,000/-. Hence, this appeal. 7. Smt. Vani, for the Assessee, praying to allow the appeal, submitted that:
the ITAT has erred in upholding the assumption of jurisdiction under Section 158BC of the Act by issuing multiple notices which is illegal, arbitrary;
issuance of notice under Section 158BC of the Act presupposes a search under Section 132 of the Act. Therefore, the notice shall mandatorily specify the block period for which assessee shall disclose the income by filing returns in the prescribed form; 5Commissioner of Income Tax (Appeals)

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020
not mentioning the block period in the notice issued under Section 158BC of the Act, vitiates the initiation of the proceedings ;
Section 158BC of the Act does not empower the AO to issue multiple notices whenever the assessee questions the validity or jurisdiction;
after the issuance of first notice under Section 143(2) of the Act, and after completion of hearing, it is not legal to issue one more notice under Section 158 BC of the Act;
issuance of notice dated 28.10.2003 is beyond limitation; hence contravenes the provisions of Section 143 (2) for the purpose of determining the undisclosed income under section 158 BC of the Act;
notice under Section 148 of the Act cannot be issued when the assessment is pending either by way of original assessment or by way of re-assessment proceedings;
the findings recorded by the ITAT are perverse because the cost incurred for acquisition of assets to

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 an extent of Rs.15,00,000/- was discernible from the agreement seized during search and the said amount being over and above loan amount, the ITAT has erred in rejecting the same by holding that the claim was not made before the AO or CIT(A). 8. In support of assessee’s contentions, Smt. Vani has placed reliance on following authorities: i. M/s Renuka Industries Vs. Income Tax Officer6; ii. ACIT Vs. Hotel Blue Moon7; iii. Smt Nilofer Hameed and others8, iv. Commissioner of Income Tax and another Vs. Monga Metals (P) Ltd9. 9. Opposing the appeal, Shri. K.V.Aravind, for the Revenue, submitted that assessee has filed block returns on 19.06.2002, indicating the block periods as A.Y’s 1995- 1996 to 2001-02, upto 02.11.2000 instead of 02.11.2001. 6ITA No.187 of 2003 7(2010) 321 ITR 362 SC 8[1999] 235 ITR 161 (Ker) 9[2017] 292 CTR 81 (ALL)

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 Therefore, the notice issued under Section 158BC after completion of assessment proceedings is valid. 10. In support of his contentions, Shri. Aravind has relied upon following authorities: (i) Commissioner of Income-tax-III Vs. Calcutta Knitwears10; (ii) K. Sakthivel Vs. Assistant Commissioner of Income-tax, Central Circle 1, Coimbatore11; (iii) Basant Kumar Patil Vs. Deputy Commissioner of Income-tax, Circle 7(1)12; (iv) Shirish Madhukar Dalvi Vs. Assistant Commissioner of Income-Tax and Others13; 11. We have carefully considered rival contentions and perused the records. 12. Undisputed facts of the case are, assessee is an individual. A search was conducted under Section 132 of 10 [2014] 43 taxmann.com 446 (SC) 11 [2012] 26 taxmann.com 35 12 [2014] 49 taxmann.com 430 (Kar) 13 [2006] 156 taxmann.com 79 (Bombay)

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 the Act on 02.11.2001 and a notice dated 06.03.2002 was issued under Section 158BC of the Act indicating the block period as 1995-96 to 2001-2002. Subsequently, letter dated 04.06.2002 was issued clarifying the block period. As the assessee filed his returns for the block period 1995- 96 to 2001, a second notice dated 01.10.2003 was issued under Section 158BC of the Act. Assessee’s grievance is that a second notice and subsequent notices could not have been issued. 13. Asseesee’s argument is that in the first notice issued after the raid under Section 158BC, the block period was not correctly mentioned. In the subsequent notice dated 01.10.2003, the Revenue has sought to rectify the same. Placing reliance on Hotel Blue Moon case, it was urged that the second notice is not referable to any raid. Therefore the notice is bad in law with regard to questions No.1 to 4.

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 procedure to be followed and hence not mentioning the exact date is not fatal to the case and the said view has been followed in Basant Kumar Patil (Para 22 to 24). We have perused the said authorities.

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 day of January, 1997. As the Sections specifically provides the period of notice, non compliance of this provision would vitiate the notice and would render the proceedings initiated one without jurisdiction. After setting out all these legal requirements, all that has been said is, the person to whom the notice is addressed has to file a return in the prescribed form and verified in the same manner 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. In the entire Section, there is no mention that the period of block period should be mentioned. The reason is not far to seek. The word 'block period' has been defined under Section 158BA, which finds a place in Chapter XIV- B, which deals with procedure for assessment of search cases. ………………….. 25. ………………. …………… If any term or expression has been defined in the enactment, then it must be understood. In the sense in which it is defined when the statute prescribes as to what is a block period, the authorities under the Act have no jurisdiction or power to alter the said period. Therefore consciously the Legislature after using the word "block period, which has a definite connotation and meaning in the context of the Act, did not further elaborate by saying that the notice should mention the period for which the return is to be filed. It is possible

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 that the authorities may mention in the notice, the block-period. It is only a practice, which has no statutory basis. Therefore, when the statute expressly provides what is a 'Block period, the question of any doubt or confusion in the mind of the assessee would not arise." (Emphasis supplied)

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020 gains on Rs.26,28,000/- (Rs.81,00,000 – Rs.54,72,000). She contended that in the agreement it is mentioned that assessee had paid an advance consideration of Rs.15,00,000/-. Therefore from out of Rs.26,28,000/-, a sum of Rs.15,00,000/- ought to have been reduced.

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NC: 2023:KHC:29823-DB ITA No. 217 of 2020

No costs. Sd/- JUDGE Sd/- JUDGE sd List No.: 1 Sl No.: 47