SHRI SUBHASH CHANDRA DEY,DHARMANAGAR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- SILCHAR, SILCHAR

The common grievance of the assessee is, that the ld. CIT(A) has erred in confirming the penalty imposed u/s 158BFA(2) of the Act. The ld. Counsel for the assessee filed an application for permission to raise an additional ground of appeal. These applications are almost identically worded and, therefore, for the facility of reference, we take note of the application in ITA No. 121/GTY/2011, which reads as under:- “1. That the above appeal has been filed against the order of the learned Commissioner of Income Tax (Appeals), Shillong dated 29-06-2011 against Appeal No. Sil-2/2007

That the said appellate order was passed against the impugned Penalty Order u/s 158BFA(2) read with 158BFA(3) of the LT. Act, 1961 passed by the Ld. Assistant Commissioner of Income Tax, Circle, Silchar prior to decision of main Appeal against the Order U/S. ls8BC of the LT. Act, 1961 is still pending before the Honourable Third member under Group Cases Appeal No. ITA No. 60, 61, 63, 64, 65 & 66/Gau/2003. In this regards a Copy of request letters dated 27/07/2010 & 06/10/2010 were sent to the Honourable President, Income Tax Appellate Tribunal, Central Govt, Officers Building, 4t h Floor, 101, Mahrishi Marg, Mumbai-400020 are attached herewith as Annexure 'A' & Annexure 'B' respectively in Paper Book for your kind perusal and sympathetically consideration.

That on examination of main order passed U/S. 158BC/143(3)/158BG of the I.T. Act, 1961 dated 31/01/2002 against the Panchanama drawn on 08/12/1999 for Search Warrant issued. It is mentioned in First Para on the said order attached under SI. No. 11 with the Form No. 36, which reproduced below: "Search and Seizure u/s. 132 of the Income tax act,1961 were conducted in the business and residential premises of the assessee alongwith other members of the group on 8.12.99 and subsequent dates. In the course of search books of accounts cash were seized as described in the panchanamas. On the business premises at Office Tilla, Dharmanagar cash found Rs. 39,310/- out of which Rs. 30,000/- was seized. Other valuables worth Rs. 1,66,800/- found in the course of search was not seized. In the bank locker No. 82 in the name of the assessee and his wife Smt. Sima Sen with 581, Dharmanagar jewellery and ornaments valued at Rs. 21,000/ was found on 11-2-2000 but not seized. The search was finally concluded on 11-2 2000." (A) In this regards, please find herewith the following documents for your sympathetically consideration under Rule 29 of the Appellate Tribunal Rules. Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 3 Though they are very much part of the record of the learned Assessing Officer, yet as measure of abundant precaution, we pray that permission may kindly be granted to adduce the same as additional evidence for deciding the appeal:

(E) That the limitation U/S. 158BE(1)(b) of the LT. Act, 1961 for time limit for completion of block assessment, which reproduced below: "within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 151 day of January, 1997." (F) That the main order u/s. 158BC/143(3)/158BG of the I.T. Act, 1961 was passed on 28/02/2002, where limitation was up to 3151 December, 2001 to pass the said order.

That in view of main order u/s. 158BC/143(3}/158BG of the I.T. Act, 1961 passed on 28/02/2002 is barred by limitation U/S. 158BE(1}(b} of the I.T. Act, 1961 as well as order passed u/S. 254/251/158BFA(2}/158BFA(3} of the I.T. Act, 1961 are liable to annulled as bad in law.”

The brief facts of the case are that search u/s 132 of the Act was carried out upon all these assessee on 8th December, 1999. Notice u/s 158BC of the Act were issued and served upon the assessee. The Assessing Officer has passed the assessment orders in respect of the assessees involved as under:- Date Name of the assessee 31/01/2002 Shri Ashish Kumar Dey 28/02/2002 Shri Sunil Chandra Dey (through L/R Smt. Maya Rani Dey) 17/09/2003 Shri Subhash Chandra Dey

The Assessing Officer has made various additions. Dispute travelled to the Tribunal and there happened to be difference of opinion amongst the Member constituting the Bench, which was ultimately referred to the third member and Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 5 after the opinion of the third Member, the Bench has given effect to that order in ITA No. 60 & 66/Gau/2003 in the case of Smt. Maya Rani Dey (L/R of Late Sunil Chandra Dey), ITA No. 61 & 65 /Gau/2003 in the case of Shri Subhash Chandra Dey and ITA No. 63 & 64/Gau/2003 in the case of Shri Ashish Kr. Dey (these were cross-appeals at the end of the revenue as well as the assessee).

The ld. Counsel for the assessee raised a preliminary objection that the assessment orders are time barred. This additional ground was raised before the Division Bench in the quantum appeal but this ground has been rejected by the Bench by observing as under:- “3. Before we proceed, learned authorized representative has sought to raise assessee's additional ground challenging validity of all the three impugned block assessment(s) framed in assessees' cases for the reason that the same are time barred since not finalized within two years from the date of conclusion of search on 08.12.1999. He quotes sec. 158BE(1)(6) of the Act (as applicable at the relevant point of time) and pleads that impugned assessments framed on 28.02.2002 (first assessee) and on 31.1.2002 in the latter two assessees' cases are invalid since framed beyond the limitation time. We find no merit in assessee's instant arguments since we are passing "giving effect order" only u/s 255(4) of the Act. Our juri iction is confined to the issue(s) raised before Hon'ble Third Member only. The Revenue's pinpoints at this stage that the assessees had pleaded the very additional ground before Hon'ble Third Member also which was not entertained as evident from , para 35.6 of the order dated 05.04.2019. We therefore decline this additional ground sought to raised at this stage.”

Thus, the determination of income in the quantum proceedings attained finality before the Tribunal after its order dt. 12/07/2019 passed in ITA Nos. 60, 61, 63, 64, 65, 66/Gau/2003. 7. The controversy before us in the present appeals relates to levy of penalty u/s 158BFA(2) of the Act. Before adverting to this provision and the specific pleas raised before us, we deem it proper to keep in mind the scheme of block assessments u/s 158BC of the Act. Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 6

Sections 158B(b) and 158BB provide the definition of undisclosed income and its computation for the block period. These provisions read as under: 158B(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. 158BB Computation of undisclosed income of the block period.-- (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) where assessments under Section 143 or Section 144 or Section 147 have been concluded (prior to the date of commencement of the search or the date of requisition), on the basis of such assessments; (b) where returns of income have been filed under Section 139 (or in response to a notice issued under Sub-section (1) of Section 142 or Section 148) but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired, but no return of income has been filed,-

Expounding the scope of the block assessment and inclusion of undisclosed income, the Hon'ble Delhi High Court in the case of CIT v. Ravi Kant Jain (2001) 167 CTR (Del) 566: (2001) 250 ITR 141 (Del) has observed that the special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO. Evidence found as a result of search is clearly relatable to Sections 132 and 132A. Similarly Hon'ble Rajasthan High Court has explained the scope of block assessment and determination of undisclosed income in CIT v. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83 : (2001) 248 ITR 350 (Raj). The following observations are worth to note: "However, under the scheme of the provisions for block assessment, it is apparent that it relates to assessment of 'undisclosed income' of the assessee excluding the income subjected to regular assessment in pursuance of the returns filed by the assessee for such period. It is also apparent from the perusal of Section 158BB that the returns are also required to be filed in pursuance of the notice under Section 158BC(a) and the assessment is to be framed on that basis in the light of material that has come into possession of the assessing authority during the course of search which is the foundation of the proceedings. That being so, the correctness or otherwise of the returns filed in pursuance of the notice under Section 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of 'undisclosed income' which is with the Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 9 assessing authority, and premise of such proceedings. If the returns filed by the assessee do not accord with the materials which are already in the possession of the authority, it can be estimated to the best judgment by the assessing authority on the basis of the material in his possession. However, the assessing authority is not conferred with power to make estimation of income de hors the material in his possession, while making regular assessment order under Section 158BB. It has to be borne in mind that proceedings under Sections 158BB and 158BC are that of undisclosed income. Therefore, the proceeding carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of accounts. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing authority during the course of search proceedings and on which basis the belief about the existence of undisclosed income is entertained by the assessing authority inviting invocation of Sections 158BB and 158BC. The enquiry into the correctness of such returns with reference to material so found has nexus with the object of the special provisions, to adjudicate whether the assessee is still honestly disclosing his income correctly after incriminating material has been found in the possession of the Revenue authority before such returns can be rejected and thereafter to frame assessment estimating the income liable to tax to the best of judgment on the basis of the material that is available with him.”

The Hon'ble Bombay High Court had also an occasion to examine the concept of block assessment in CIT v. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom), wherein it was found that an assessee had constructed a bungalow and incurred an expense of Rs. 4,16,000. Thereafter search was carried out and the AO referred the valuation of the bungalow to the Departmental Valuer who determined the value of the property at Rs. 6,66,000 and the AO added the difference to the income of the assessee as undisclosed income. The Tribunal has deleted the addition on the ground that addition was not made on the basis of the material gathered during the course of search, rather all these informations were available to the AO at the time of regular assessment. He obtained the DVO's report subsequent to the regular assessment, therefore, addition is made beyond the scope of block assessment. The Hon'ble Bombay High Court upheld the deletion made by the Tribunal. Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 10

The Tribunal Mumbai Bench in the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai) has made extremely lucid enunciation of law on the subject and we cannot do better than to extract some of the observations made in that decision; "23.There are adequate safeguards present against any possible misuse of the provision of search and seizure. Chapter XIV-B was introduced in order to make procedure of assessment of search and for requisition cases more effective. Under the provisions of this chapter the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995 be assessed separately as income of that block of ten previous years. The provision was introduced to streamline the procedure concerning the search matters. It is abundantly clear from the perusal of the prescription of Section 158BA that within the pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income. Such undisclosed income must come as a result of search. This section does not provide a licence to the Revenue for making roving enquiries connected with the completed assessment. It is beyond the power of the AO to review the assessments completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence or material the AO is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which Courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such inference is disproved by other evidence. We find that the scheme of Chapter XIV-B does not give power to the Revenue to draw the presumption in regard to the undisclosed income. The AO could proceed on the basis of material detected at the time of search and the evidence gathered. Under Section 132(4), the authorised officer may, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Act.”

From the above it is clear that undisclosed income in block assessment has to be determined on the basis of the seized material. Thus for assessing an assessee for a block period there should be a search conducted under Section 132. The search only would infuse juri iction to an AO over the assessee. The next step for the AO is to serve a notice upon the assessee under Section 158BC inviting it for furnishing the return. When the return is being furnished the AO was required to Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 11 issue notice under Section 143(2) etc. and compute the undisclosed income of the assessee. If such return was not filed then on the basis of the seized material AO would compute the undisclosed income for the block period.

The scheme of the block assessment indicates that assessee has to compute its undisclosed income for the purpose of filing a block return on the basis of seized material. If he failed to compute the true undisclosed income on the basis of the seized material and the AO determined a different undisclosed income than the one disclosed by the assesses, the assessee would be liable to penalty under Section 158BFA(2) on the differential amount.

The second proviso appended with s. 158BC(1) prohibits an assessee to revise its return filed for the block period. This in response to a notice under s. 158BC if an assessee had filed the return of income, it cannot revise that return.

Sec. 158BFA(1) contemplates that if the assessee furnishes the return after expiry of the time limit provided in the notice issued under s. 158BC(1) then assessee shall be liable to pay simple interest @ 1 per cent of the tax on undisclosed income.

The above chronological procedural requirement contemplates that an assessee (i) has to compute the undisclosed income on the basis of the seized material for filing the return in response to notice under s. 158BC, (ii) if the assessee failed to compute true undisclosed income and the AO determined a different undisclosed income than the one returned by the assessee, the assessee will be exposed to penalty, (iii) if the assessee failed to file the return within the time-limit provided in the notice issued under s. 158BC, an interest under s. 158BFA (1) would be imposed upon the assessee. Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 12

Though, its interpretation or construction in order to understand the meaning and scope is not in dispute, nor are we called upon to explain that, but it contemplates that if there is a variation between the undisclosed income determined by the Assessing Officer and the undisclosed income returned by the assessee vis-à-vis, ultimately determined by the Assessing Officer in the assessment order u/s 158BC or 158BD of the Act, then, on that variation, the Assessing Officer would levy a penalty either equivalent to the taxes computable on that amount or three times to such taxes. It can be explained by way of a simple example, namely, an assessee has filed his return of income, disclosing Rs.100/- as undisclosed income, the Assessing Officer determined undisclosed income at Rs.120/- then on this amount of Rs.20/-, taxes are computable @ 60%. The penalty can also be computed @ 60% or it can be calculated at Rs.12/- or maximum at Rs.36/-.

In the application for permission to raise an additional ground of appeal, the ld. Counsel for the assessee contended that all these Assessment Years are time barred but in the quantum proceedings, this plea was not raised by the assessee either before Assessing Officer or before the ld. CIT(A). It was raised first time before the Tribunal and the Tribunal has rejected this contention (findings extracted supra).

On due consideration of the above facts and circumstances, we are of the view that penalty is an independent proceeding. If an assessee can absolve himself from visiting with penalty by raising any juri ictional issue, then, the Tribunal and other adjudicating authorities are bound to take cognizance of that juri ictional issue. It has been submitted before us that time limit to pass an assessment order is two years from the end of the month in which the last authorization for search u/s 132 of the Act was executed. This time limit has been provided u/s 158BE(1)(b) of the Act. The ld. Counsel for the assessee has Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 13 reproduced this provisions in the application extracted supra. The last authorization in all these cases was on 08/12/1999. Assessment order ought to have been passed by 31/12/2001. We have noted the dates of assessment order in each case in para no. 3 of this order. They are beyond the due date i.e., 31/12/2001. These are time barred and there cannot be any consequential proceedings.

Though we are not empowered to comment on the decision of the Co- ordinate Bench passed in the quantum proceedings, it is pertinent to observe that the Tribunal has committed an error while adjudicating this ground of appeal in the quantum proceedings. At the cost of repetition, we would take note of the Tribunal’s finding in paragraph no. 3 of the quantum order, which reads as under:- “3. Before we proceed, learned authorized representative has sought to raise assessee's additional ground challenging validity of all the three impugned block assessment(s) framed in assessees' cases for the reason that the same are time barred since not finalized within two years from the date of conclusion of search on 08.12.1999. He quotes sec. 158BE(1)(6) of the Act (as applicable at the relevant point of time) and pleads that impugned assessments framed on 28.02.2002 (first assessee) and on 31.1.2002 in the latter two assessees' cases are invalid since framed beyond the limitation time. We find no merit in assessee's instant arguments since we are passing "giving effect order" only u/s 255(4) of the Act. Our juri iction is confined to the issue(s) raised before Hon'ble Third Member only. The Revenue's pinpoints at this stage that the assessees had pleaded the very additional ground before Hon'ble Third Member also which was not entertained as evident from , para 35.6 of the order dated 05.04.2019. We therefore decline this additional ground sought to raised at this stage.”

In our opinion, apart from the issue on which there was a difference of opinion amongst the Members who constituted the Bench, the Tribunal while Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 14 giving effect to the majority opinion was required to take note of all other issues, if any raised before it. It can be explained with a simple example, namely, an assessment was reopened u/s 147 of the Act. There was a difference of opinion between the Members who constituted the Bench on the issue, “whether reopening is in accordance with law or not?” The difference was referred to Third Member who has given his opinion. The subsequent Bench was required to give effect to the majority opinion but this part will be confined to the issue whether the reopening is in accordance with law or not. Apart from this preliminary issue, there can be the issues on merits of addition or there can be any other juri ictional issue, namely, no notice u/s 143(2) was issued which is also a mandatory juri ictional aspect. The subsequent Bench which was giving effect to the majority opinion on the preliminary issue was also required to take into consideration all other aspects. For example in the present case, the assessee raised preliminary objection that assessment orders are time barred and, therefore, they are not sustainable in the eyes of law. This objection was raised before the Third Member for the first time but the Third Member was of the view that his juri iction is confined to the question of difference of opinion referred to him. He cannot entertain any other additional plea. The assessee raised this ground before the Bench, which was giving effect to the opinion of the Third Member. Thus, while giving effect to the opinion of the Third Member, if any additional ground of appeal which has juri ictional aspect, was raised by the assessee, it was required to be entertained. In the present proceedings, we do not have power to rectify the mistake. More so, the action at the end of the Tribunal for rectifying such type of mistake contemplated u/s 254(2) is by now time barred and we do not have power to condone the delay for rectifying the mistake.

For fortifying ourselves, we make reference to the decision of the Hon’ble Juri ictional High Court rendered in the case of CIT vs. Smt. Maya Rani Dey (L/R of Late Parthasarathi Dey) reported in (2012) 253 CTR (Gau) 242. It is pertinent to Block Year: 01/04/1989 to 08/12/1999 Shri Subhash Chandra Dey I.T.A. No. 121/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Smt. Maya Rani Dey I.T.A. No. 122/ GTY /2011 Block Year: 01/04/1989 to 08/12/1999 Shri Ashish Kumar Dey 15 observe that, in this case, Smt. Maya Rani Dey, represented her son Late Parthasarathi Dey. It is a family, Sunil Chandra Dey is the father, Parthasarathi Dey is the son and Maya Rani Dey is the mother. Late Parthasarathi Dey was also covered under the same search conducted on 08/12/1999. In the quantum appeal, the assessee took a preliminary ground that the assessment order passed on 31/12/2003 was barred by limitation. This plea of the assessee was accepted by the Tribunal in ITA No. 75 (Gau) of 2007. Dissatisfied with this order, revenue carried the matter in appeal before the Hon’ble High Court and the Hon’ble High Court has concurred with the Tribunal. The judgment is also reported in (2012) 253 CTR (Gau) 242. The ld. Counsel for the assessee has also placed on record copy of this decision. Therefore, the other family members, at least for the penalty proceedings deserve to be treated at par.

We do not have power to condone the delay for rectifying the mistake suo moto and, therefore, it has attained finality at the end of the Tribunal. But that does not mean that we cannot take cognizance of the preliminary grounds raised by the ld. Counsel for the assessee. Once an assessment order which is the very basis of all the consequential proceedings is barred by limitation, then it is to be treated as nullity and on that basis no consequential order can be passed. Therefore, no penalty can be imposed on the assessee. We allow all these appeals and quash all the orders passed u/s 158BFA(2) qua all the three assessees.

In the result, appeals of the assessee are allowed.

""यथ" / The Respondent संबं"धत आयकर आयु"त / Concerned Pr. CIT 3. 4. आयकर आयु"त ( अपील ) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, Guwahati /DR,ITAT, Guwahati, 6. गाड" फाईल /Guard file.