Income Tax Appellate Tribunal - Chandigarh
S.K. & Co., , Chandigarh vs Department Of Income Tax on 18 September, 2013
THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE SHR I T.R.SOOD, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
IT(SS)A No.22/Chd/2008
Block Period 1.4.1988 to 30.9.1998
M/s S.K. and Co., Vs. The D.C.I.T.,
90, Industrial Area-I, Circle-2(1),
Chandigarh. Chandigarh.
PAN:
&
IT(SS)A No.23/Chd/2009
Block Period 1.4.1988 to 30.9.1998
The DC.I.T., Vs. M/s S.K. and Co.,
Circle 2(1), 90, Industrial Area-I,
Chandigarh. Chandigarh.
PAN:
&
IT(SS)A No.5/Chd/2009
Block Period 1.4.1988 to 30.9.1998
The A.C.I.T., Vs. M/s Classic Cutlery(India),
Circle 2(1), Indl. Area, Phase-I,
Chandigarh. Chandigarh.
PAN:
&
IT(SS)A No.7/Chd/2009
Block Period 1.4.1988 to 30.9.1998
M/s Classic Cutlery(India), Vs. The A.C.I.T.,
Indl. Area, Phase-I, Circle-2(1),
Chandigarh. Chandigarh.
PAN:
&
IT(SS)A No.6/Chd/2009
Block Period 1.4.1988 to 30.9.1998
Smt.Dolly Jain, Vs. The D.C.I.T.,
House No.52, Sector 8-A, Circle-2(1),
Chandigarh. Chandigarh.
PAN:
(Appellant) (Respondent
2
Assessee by : Shri Ashwani Kumar
Department by : Shri Manjit Singh, DR
Date of hearing : 18.09.2013
Date of Pronouncement : 06.12.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
Out of these five appeals, two cross appeals filed by different assessees and the Revenue in the case of M/s S.K. & Co. and M/s Classic Cutlery (India) and appeal in the case of Mrs. Doll y J ain are against the order of the Commissioner of Income-tax (Appeals), Chandigarh dated 7.10.2008/31.12.2008 relating to block period 1.4.1988 to 30.9.1998 against the order passed under section 158BC r.w.s. 158BD/143(3) of the Income Tax Act, 1961.
2. The cross appeals filed by the assessees and Revenue of different assessees and appeal filed in IT(SEARCH & SEIZURE OPERATION) A. No. 6/Chd/2009 were heard together and are being disposed off by this consolidated order for the sake of convenience.
IT(SS)A No.22/Chd/2009 :: Assessee's Appeal
3. The assessee has raised the following grounds of appeal:
1. That order passed u/s 250(6) by the Ld. CIT(A) is bad in law in as much as assessment for the block period has been framed u/s 158BC(a) read with Sec.
158BD without any satisfaction having been recorded by the Ld. Assessing Officer and otherwise also, the assessment is barred by limitation.
2. That principles of natural justice have been grossly violated both by Ld. CIT(A) and the Ld. A.O. making the assessment void abinitio.
3. That the Ld. CIT(A) was not justified to arbitrarily uphold the addition made by the Ld. Assessing Officer at Rs. 20,14,806/- on account of alleged excess stock found/noticed during the course of search.
4. That the Ld. CIT(A) further gravely erred in upholding the following additions:- 3
a) Rs. 3,11,000/- on account of alleged unexplained money given by the firm to its partners for their personal use;
b) Rs. 2,00,QOO/- on account of alleged unexplained investment being the amount paid to M/S Lloyd Finance Ltd.;
c) Rs. 30,000/- as alleged sale outside the books of accounts.
d) Rs.73,980/- on account of alleged unexplained investment in purchase of raw material,
5. That the Ld. CIT(A) further gravely erred in upholding the action of the Ld. Assessing Officer in making an addition of Rs. 40,66,783/- on account of estimated GP rate of 25.5% for the entire block period. The estimate adopted by the Ld. Assessing Officer and the action of the Ld. CIT(A) in upholding the same is just on sheer surmises and conjectures.
6. That the Ld. CIT(A) further gravely erred in upholding the addition of Rs. 2,69,934/- on account of Gross Profit on alleged unaccounted sales." IT(SS)A No.23/Chd/2009 :: Revenue's Appeal
4. The Revenue has raised the following grounds of appeal:
"1. On the facts and in the circumstances of the case, the Learned C.I.T. (Appeal) in Appeal No. 498/P/06-07 vide order dated 07.10.2008 has erred in deleting
i) The addition of Rs. 1,03,000/- on account of investment made in purchase of car.
ii) The addition of Rs. 70,000/- on account of unexplained investment in purchase of SCF-24.
iii) The addition of Rs. 2,69,439/- and Rs. 28,02,786/- on account of GP rate applied on unaccounted sales and purchase/investment in stock.
2. It is prayed that the order of the Ld. CIT(A) be cancelled and that of the Assessing Officer may be restored.
3. The appellant craves to add or amend any grounds of appeal before the Appeal is heard or disposed off."
IT(SS)A No.7/Chd/2009 :: Assessee's Appeal
5. The assessee has raised the following grounds of appeal:
"1. On the facts and in the circumstances of the case, the Learned C.I.T. (Appeal) in Appeal No.497/P/06-07, vide order dated 31.12.2008, has erred in reducing and deleting
i) The G.P. rate from 43% to 36% even after admitting that no books of accounts were produced and that the A. O was justified in invoking provision of 4 section 145(2) of I. T. Act especially when the assessee had himself shown average G. P. rate of 43% in the year 1995-96.
ii) The addition of Rs.2,95,313/- made by the A.O on account of unexplained investment in purchases even when the assessee could not substantiate the purchases.
2. It is prayed that the order of the Ld. CJT(A) be cancelled and that of the Assessing Officer may be restored.
3. The appellant craves to add or amend any grounds of appeal before the Appeal is heard or disposed off."
IT(SS)A No.5/Chd/2009 :: Revenue's Appeal
6. The Revenue has raised the following grounds of appeal:
"1. That order passed u/s 250(6) by the Ld. CIT(A), Chandigarh is bad in law in as much as assessment for the block period has been framed u/s 158BD without any satisfaction having been recorded by the Ld. Assessing Officer and otherwise also, the assessment is barred by limitation.
2. That principles of natural justice have been grossly violated both by the Ld. CIT(A) and the Ld. A.O. making the assessment void abnitio.
3. That the ld. CIT(A) was not justified to uphold the action of the Ld. Assessing Officer in rejecting the books of accounts.
4. That the Ld. CIT(A) further gravely erred in adopting an arbitrary G.P. rate of 36% in those years in which the assessee has shown G.P. rate of less than 36% and thereby upholding an addition of Rs............ on account of low G.P.
5. That the Ld. CIT(A) was further not justified to uphold the addition of Rs.2,95,313/- on account of alleged unsubstantial purchases."
ITSS 6/Chd/2009 :: Assessee's Appeal
7. The assessee has raised the following grounds of appeal:
1. That order passed u/s 250(6) by the Ld. CIT(A), Chandigarh is bad in law in as much assessment for the block period has been framed u/s 158BC(a) read with Sec.158BD without any satisfaction having been recorded by the Ld. Assessing Officer and otherwise also, the assessment is barred by limitation.
2. That principles of natural justice have been grossly violated both by the Ld. CIT(A) and the Ld. A.O. making the assessment void abnitio.
3. That the Ld. CIT(A) was not further justified to arbitrarily uphold the following additions:
i) Rs.10,600/- out of cash found at Rs.15,600/- during the course of search.
The entire amount represented the Istri Dhan of the appellant.
ii) Rs.3,25,000/- on account of alleged investment in Maruti Car by ignoring 5 the factual explanations offered."
8. The facts in all the appeals are similar, however, reference is being made to facts in IT(SS)A Nos. 22 & 23/Chd/2008 for adjudicating the issue.
9. The preliminary issue raised vide ground No. 1 is against framing of assessment under section 158BC read with section 158BD without any satisfaction having been recorded by the Assessing Officer and also the assessment was barred by limitation.
10. The brief facts of the case are that search & seizure operations under section 132(1) of the Act were carried out at the residence of Shri Chander Deep Jain on 30.9.1998 and also at the residence of Shri Vipin Kumar Jain. Both Shri Chander Deep Jain and Shri V.K.Jain were brothers and were partners in M/s S.K. & Co. Search operations were also carried out at the business premises of M/s S.K. & Co. at 90 Industrial Area, Phase-I, Chandigarh. Further search operations were carried out at the business premises of M/s Classic Cutlery (India) at 88, Industrial Area, Phase-I Chandigarh, which was constituted of Shri V.K.Jain, Smt. Sneh Jain and Smt. Dolly Jain as partners. The Assessing Officer at para 2 of the assessment order has noted that despite several notices being given to the assessee in the proceedings initiated under section 158BC of the Act, the assessee failed to comply with the requisitions raised in the case and even failed to file the return of income.
11. The Assessing Officer came to a conclusion that the notice issued under section 158BC of the Act was issued to the assessee wrongly since the search warrant was not issued in the name of the firm M/s S.K. & Co. The assessment proceedings initiated by issue of notice 6 under section 158BC of the Act were filed on 29.09.2000 and intimation in this regard was issued to the assessee on 03.10.2000. On t h e s a m e d a y, A s s e s s i n g O f f i c e r i s s u e d a f r e s h n o t i c e u n d e r s e c t i o n 158BC read with section 158BD of the Act which in turn was served upon on the assessee on 09.10.2000. However, the assessee again failed to comply with the various notices issued and ultimately the return for the Block Period was filed on 27.06.2002. The assessee on 24.06.2002 filed a letter in which he raised legal objection in connection with the validity of the assessment proceedings and the said objections are reproduced by the Assessing Officer at pages 3 to 10 of the assessment order which are not being produced for the sake of b r e v i t y. T h e p l e a s o f t h e a s s e s s e e w e r e f o u n d t o b e n o t t e n a b l e b y t h e Assessing Officer in view of the peculiar facts of the case and the proceedings under section 158BC read with Section 158BD of the Act were held to be validly initiated. Thereafter, the Assessing Officer considered the merits of the case and made different additions under various heads and the total undisclosed income was assessed at Rs. 71,40,008/- vide order passed 158BC read with Section 158BD of the Act.
12. The CIT(Appeals) in the first instance referred to the number of opportunities afforded to the assessee during the course of assessment proceedings and the total non-cooperative attitude of the assessee before the Assessing Officer and then referred to the opportunities given by the CIT(Appeals) during appellate proceedings and at pages 8 to 10 tabulated the various dates of proceedings in the case and the non-cooperative attitude of the assessee before the CIT(Appeals). Thereafter, the CIT(Appeals) considered the legal issue raised by the assessee that the search was without search warrant and the assessment 7 was barred by limitation. The CIT(Appeals) held that the Hon'ble P u n j a b & H a r ya n a H i g h C o u r t i n t h e c a s e o f t h e a s s e s s e e h a s h e l d t h a t the search was valid and hence the matter is settled. The proceedings initiated under section 158BC of the Act were held to be validly initiated and certain material was found which revealed that the firm had indulged in unaccounting transactions. In respect of the second issue of the assessment having become time barred, it was held by the CIT(Appeals) that the notice under section 158BC can be issued onl y in those cases where there was warrant. As the earlier notice issued under section 158BC of the Act was void abinitio and the Assessing Officer having realized this mistake, had filed the assessment proceedings on 29.09.2000 and the assessee was informed vide letter dated 03.10.2000. Further the Assessing Officer had issued fresh notice 158BC read with Section 158BD of the Act and the requirements of issuing such notices was different and consequently the assessment under section 158BD was held to be not barred by time. The CIT(Appeals) placed reliance upon the ratio laid down b y the Hon'ble Kerala High Court in CIT Vs Don Bosco Card Centre [289 ITR 329 (Ker)]. Thus, ground of appeal raised by the assessee was dismissed.
13. The assessee is in appeal against the said findings of the CIT(Appeals). The ld. AR for the assessee pointed out that the Assessing Officer had issued notice under section 158BC of the Act a n d t w o d a ys b e f o r e t h e p r o c e e d i n g s w e r e g e t t i n g t i m e b a r r e d i . e . o n 03.10.2000, another notice was issued to the assessee under section 158BD of the Act. It was further pointed out b y the ld. AR for the assessee that as per the department, there was no search upon the assessee and hence, no proceedings under section 158BC of the Act and if there was no search, then the satisfaction before issue of notice 8 under section 158BD of the Act is to be seen. In an y case, the assessment framed in the hands of the assessee firm were time barred. Our attention was drawn to the warrant placed at Paper Book No. 5 which was in the name of Shri Vipin Jain and Shri Chander Deep Jain, partners of M/s S.K. & Co., though the warrant to search was the business premises of M/s S.K. & Co. The contention of the ld. AR for the assessee was thus that in view thereof, M/s S.K. & Co. i.e. the a s s e s s e e w a s a s e a r c h e d e n t i t y. Further, our attention was drawn to various search warrants placed at pages 7 to 10 in which the last Panchnama was in the name of M/s S.K. & Co.
14. The ld. AR for the assessee stressed that if there was search upon t h e a s s e s s e e t h e n t h e a s s e s s e e w a s t h e s e a r c h e d e n t i t y. It was further pointed out by the ld. AR for the assessee that the assessee had moved High Court that there was no search upon the assessee and the Hon'ble High Court had held that there was search as per the judgement in assessee's own case reported in 249 ITR 728 (P&H). Our attention was further drawn to satisfaction note of the Assessing Officer which was undated and was issued in the case of M/s S.K. & Co. The ld. AR for the assessee further placed reliance on Manish Maheshwari Vs ACIT [289 ITR 341 (P&H0]. The ld. AR for the assessee pointed out that the proceedings in the case were time barred as the proceedings under section 158BC of the Act, as per the Assessing Officer were not complied with by the assessee as no return of income was filed. The said proceedings were filed by the Assessing Officer though there were no provisions to extend time but the Assessing Officer in order to extend the time of limitation, had closed the earlier proceedings initiated under section 158BC of the Act and started the proceedings 9 under section 158BD of the Act. In this regard, ld. AR placed reliance on following decisions :
i) Yamini Aggarwal Vs CIT [ITA No. 18/Jab/1998 order dated 17.10.2005 (Jabalpur Bench)
ii) M/s Super Construction Co. Vs DCIT [IT(SS)A.No. 3/Ahd/1998 order dated 28.04.2006] (Ahmedabad Bench )
iii) CIT Vs K.M.Ganeshan (2011) 16 Taxman 134 (Mad) [332 ITR 562 (Mad ) ]..
15. The ld. DR for the revenue placed reliance on the observations of the CIT(Appeals) at page 5 para 4 to 10 of the appellate order, under which the CIT(Appeals) has enlisted the non-cooperative attitude of the assessee, both before the Assessing Officer and also before CIT(Appeals). It was further pointed out b y ld. DR for the revenue that the perusal of para 17 would reflect that before the CIT(Appeals), t h e p r o c e e d i n g s w e r e s t r e t c h e d t o f i v e ye a r s a n d 2 1 o p p o r t u n i t i e s w e r e given to the assessee. The ld. DR for the revenue further pointed out that the submission of the ld. AR for the assessee to the effect that search had been conducted upon the assessee and the same having been c o n f i r m e d b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i s i n c o r r e c t a s is apparent from the reply filed by the Department before the Hon'ble High Court placed at page 147 of the Paper Book that no search was carried out at the premises of M/s S.K. & Co. It was stressed by the ld. DR for the revenue that whether search was conducted or not, search warrant was crucial and the determining factor was the satisfaction note furnished by the Assessing Officer. It was pointed out by the ld. DR for the revenue that the same was though undated but earlier to that, there was a letter to JCIT stating that there were no proceedings pending under section 158BC of the Act. The ld. DR for the revenue pointed out that the JCIT gave the approval on 10 28/19.09.2000 and thereafter the file was closed. For recording of satisfaction under section 158BD of the Act, ld. DR for the revenue placed reliance on Manish Maheshwari Vs ACIT [289 ITR 341 (P&H)].
16. We have heard the rival contentions and perused the record. In the facts of the present case, search & seizure operations were carried out under section 132(1) of the Act at both the residential premises and the business premises of two partners Shri Chander Deep Jain and Shri Vipin Jain. The question arising in the present appeal is whether the assessment made by the Assessing Officer and confirmed by the CIT(Appeals) is validl y made under the provisions of 158BC read with Section 158BD of the Act and whether the said assessment is barred by limitation.
17. Search & seizure operations under section 132(1) of the Act were carried out at the residential premises of both the partners Shri C h a n d e r D e e p J a i n a n d S h r i V i p i n J a i n o n 3 0 . 0 9 . 1 9 9 8 . S i m u l t a n e o u s l y, search operations were also carried out at the business premises of the assessee before us and also at the business premises of M/s Classic Cutlery (supra). Thereafter, the Assessing Officer issued notice under section 158BC of the Act on 11.06.1999. The relevant findings of the Assessing Officer in respect of the assessment proceedings incorporated at page 2 of the assessment order are as under :
"After the search the Assessing Officer issued a notice under section 158BC(a) of the I.T. Act, 1961 to the assessee on 11.6.99 which was served upon the assessee on 21.6.99. Shri P.K. Sekhari, Chartered Accountant and Shri A.K. Jindal, Chartered Accountant appeared on behalf of the assessee from time to time during the assessment proceedings and filed the replies to the queries raised. The assessee was asked to file the return in the prescribed form. No compliance to this notice was made by the assessee. On 12.7.99 a letter was received from the counsel of the assessee requesting therein for supply of photocopies of the seized documents. On the letter itself the Assessing Officer noted that the copies were given in the Wing to the assessee and he may check and then contact the Assessing Officer. For failure to comply with the notice under section 158BC(a), prosecution proceedings were started by issuing a notice under section 276CCC of the I.T. Act, 1961. This notice was served upon the assessee on 21.7.1999. Meanwhile the Assessing Officer found that a notice under section 158BC(a) of 11 I.T. Act, 1961 was issued to the assessee wrongly. He found out that since the search warrant was not issued in the name of the firm so notice under section 158BC(a) was abinitio void. On 29th September, 2000 the Assessing Officer filed the assessment proceedings which were started by issuing notice under section 158BC(a) dated 11.6.1999. Intimation in this respect was given to the assessee vide letter No. 158/8289 dated 3rd October, 2000 which was duly served upon the assessee on 9th October, 2000. On the same day the Assessing Officer issued a fresh notice under section 158BC r.w.s. 158BD of the I.T. Act, 1961, which was served upon the assessee on 9th October, 2000. Through this notice the assessee was requested to file the return in Form No. 2B within a period of 16 days from the date of receipt of the notice. No compliance to this notice was made by the assessee within the prescribed period. Again prosecution proceedings under section 276CCC of the I.T. Act, 1961 for non-filing of return of income in response to the notice issued under section 158BC r.w.s. 158BD of the I.T. Act were initiated by issuing a notice which was served upon the assessee on 3rd March, 2001. A questionnaire dated 16.4.2001 alongwith notices under section 142(1)7143(2) bearing same dates were issued for 2nd May, 2001. These notices were served upon the assessee on 20.4.2001. Ultimately the assessee filed the return on 27th June, 2002, In the meanwhile the assessee preferred a writ petition against the search as well as the assessment proceedings before the Hon'ble Punjab & Haryana High Court, Chandigarh. In this Civil Writ Petition No. 14205 for 2000 the Hon'ble Punjab & Haryana High Court passed the following orders :
"For these reasons, we only quash the the assessment orders passed and proceedings of assessment qua petitioners No. 2&4 making it clear that it would not debar the revenue authorities from getting fresh assessment made, if permitted in law. As qua other petitioners, subject to aforesaid, the writ petition must fail and is accordingly dismissed."
18. The assessee raised objections to validity of the assessment proceedings and the said objections are reproduced at pages 3 to 10 of the assessment order. The Assessing Officer summarized the issue raised by the assessee at page 10 by observing as under :
From the above, the following are the issues raised in brief:
i) There was no search warrant in the case of the assessee yet the premises of the firm were searched. Hence the search was illegal and invalid in the eyes of law and the proceedings in consonance of invalid search are also illegal.
ii) The notice issued under section 158BC(a) is deemed as a valid notice.
Under Chapter XIV of I.T. Act notice for filing the return for block period and block assessment can be issued under no section except section 158BC(a)(ii) of the Act in cases covered by 15 SBC as well as by section 158BD. Though the words r.w.s. 158BD was not mentioned in the notices issued under section 158BC(a) dated 11.6.99, still as per the provisions of section 292 B of the I.T. Act omission to mention a particular provision in a notice or in an application is immaterial. Hence the same should be dropped being beyond time and no assessment be made.
iii) The present proceedings started by issuing notice under section 15 SBC r.w.s. 158BD are patently wrong because once the proceedings has been dropped against the assessee the same cannot be initiated again as there is no provision in 12 Income Tax Act which provides for dropping the proceedings or restart the proceedings.
19. Thereafter, the Assessing Officer deliberated on the contentions raised by the assessee and observed as under:
"All the above pleas, contentions made by the assessee are not tenable in view of the facts and legal position of the case which can become clear from the following: -
i) In regard to the first contention of the assessee, the Hon'ble Punjab & Haryana High Court has already delivered the judgement and has held the search as valid. Hence it needs no further comments. Moreover, as there was no search warrant in the case of assessee as admitted by the assessee also, proceedings under section 158BD are legally valid proceedings.
ii & iii) In regard to the second and third contention of the assessee that the proceedings had already become time barred on 30.6.2001 because the notice under section 158BC(a) dated 11.6.99 was a valid notice as Section 292B is* automatically attracted towards it and a period of 2 years of limitation is to be accounted from the date of that notice, it is not legally tenable. By attracting the provisions of section 292B, the already issued notice u/s 158BC(a) cannot be treated as a notice issued under section 158BD because for issuing notice under section I58BD the Assessing Officer is required to record the satisfaction. Hence before issuing notice under section 158BD, the notice issued u/s 158BC(a) is to be filed which is what the Assessing Officer has done. In the I.T Act under chapter XlV the provisions contained under section 158 BC envisages certain situations under which a notice under section 158BC(a) can be issued."
20. The Assessing Officer has given a finding that there was no search warrant in the case of the assessee and hence, the jurisdiction could not be assumed by issuing notice under section 158BC of the Act as the prescribed conditions under the Act were not fulfilled. The Assessing Officer further held that the right course was to file the proceedings and it was so filed by the Assessing Officer on 03.10.2000 and intimation in this regard was served upon the assessee on 09.10.2000. Thereafter, the Assessing Officer issued notice under section 158BC read with Section 158BD of the Act. It was further pointed out by the Assessing Officer that there was no time limit provided under the Act to issue the notice under section 158BD of the 13 Act. However, the proceedings had to start with the notice issued 158BC read with Section 158BD of the Act. The limitation in such cases was held to have started from the end of the month. Only notice under section 158BD of the Act was served which admittedly was s e r v e d i n t h e m o n t h o f O c t o b e r , 2 0 0 0 a n d c o n s e q u e n t l y, t h e a s s e s s m e n t was time barred as on 31.10.2002. The assessment in the case was completed on 31.10.2002 vide order passed under section 158BC read with Section 158BD of the Act and the same was held to be legally valid. In respect of the applicability of the provisions of section 158BD of the Act, it was held by the Assessing Officer that the present notice called for issuance of notice under section 158BD which was duly issued and served upon the assessee.
21. The CIT(Appeals) upheld the order of Assessing Officer on both counts i.e. the validity of assessment completed 158BC read with Section 158BD of the Act and also the period of limitation, within which the said order had to be passed.
22. The perusal of the documents placed by the assessee in the Paper Book reflects the proceedings initiated in the group of cases. The copy of Panchnama dated 30.09.1998 is placed at pages 5 to 7 of the Paper Book and the warrant is issued in the case of Shri Vipin Jain and Shri Chander Deep Jain partners in M/s S.K. & Co. with warrant to search the plot No.90, Industrial Area, Phase-I Chandigarh, business premises of M/s S.K. & Co. At page 7 is the list of books of account and documents found/seized during the course of search & seizure operation in the case of M/s S.K. & Co. At page 8 & 9 is second Panchnama dated 06.10.1998 which has similar narrations as in the first Panchnama. Then there is third Panchnama prepared on 09.10.1998 which is placed at pages 10 to 15 of the Paper Book with 14 identical narrations as in the case of first one. There is another Panchnama dated 13.10.1998 placed at pages 16 to 18, another one dated 15.10.1998 placed at pages 19 & 20 of the Paper Book and all the said Panchnamas are in the name of Shri Vipin Jain and Shri Chander Deep Jain partners with warrant to search plot No. 90 Industrial Area, P h a e - I , C h a n d i g a r h b u s i n e s s p r e m i s e s o f M / s S . K . & C o m p a n y. The order under second proviso to section 132(1) of the Income Tax Act seizing the stock of M/s S.K. &Co. was prepared on 15.10.1998 and is placed at page 21 alongwith copy of inventory of stock placed at pages 22 to 44 of the Paper Book. The Assessing Officer initiated proceedings under section 158BC of the Act by issue of notice on 11.06.1999. The assessee was requisitioned to file return of the block period in the prescribed firm. However, no compliance was made to the said notice by the assessee. On 12.07.1999, letter was received from the assessee to supply the photo copies of the seized documents w h i c h w e r e s u p p l i e d t o t h e a s s e s s e e i m m e d i a t e l y. F u r t h e r n o t i c e s w e r e issued as to why prosecution proceedings should not be initiated against the assessee for failure to comply with the notice issued under section 158BC(a) of the Act. The Assessing Officer, thereafter has filed the proceedings initiated under section 158BC of the Act on 29.09.2000 observing that the search warrant was not issued in the name of the firm. Thereafter, satisfaction was recorded by the Assessing Officer to initiate the proceedings under section 158BD of the Act and the said fact was intimated to the assessee on 03.10.2000. The copy of the satisfaction note is placed at page 1 of the Paper Book which in-turn is dated 28/29.09.2000. The assessee was required to file the return for the block period but no compliance was made to the said notice also. Further questionnaire was issued to the assessee on 16.04.2001 alongwith notices under section 142(1)/143(2) of the Act. 15 The assessee filed the return for the block period on 27.06.2002 declaring total income of Rs. 474,962.
23. The assessee, on the other hand, filed writ petition against the search proceedings as well as the assessment proceedings before the H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t u n d e r w h i c h t h e a s s e s s e e contended that the Director of Investigation had no reasonable information upon which the reasonable person could form a belief in order to exercise the jurisdiction under section 132 of the Act. The second contention raised by the petitioner was that the Investigation Officer of the search was also the Assessing Officer and the same was violative of Article 14 of the Constitution of India. The Hon'ble High Court held that the authorities had reasonable information before issuing the authorization for search and there was no malafides attributed in issuing the authorization. The Hon'ble High Court, thus held that "Therefore in the absence of any other cogent material, the search warrants are not required to be quashed" Further plea of the assessee of non recording of the facts correctly or the notice served by the authorities being not valid and the copies of certain documents applied or required, not being supplied, it was held that the same could be dealt with in accordance with law by the authorities concerned and the Court would neither delve into the matter nor express any information in this regard. It may be pointed out that before the H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t , t h e p a r t n e r s o f t h e a s s e s s e e firm were the petitioners alongwith their respective wives and also M/s S.K. & Co. i.e. the assessee and M/s Classic Cutlery India were p e t i t i o n e r N o s . 5 & 6 r e s p e c t i v e l y. T h e p e t i t i o n e r s r a i s e d a p l e a b e f o r e the Hon'ble High Court that the respondent No. 5 who was incharge of the assessment proceedings, handed over the notices issued to the firm. 16 It was alleged b y the petitioners that the said notices were wrongl y issued to the firm as no warrants were issued against the firm. Specific contention was raised by the assessee M/s S.K. & Co. and M/s Classic Cutlery In dia that there were no search warrants against them still the search was conducted and appraisal reports were prepared. Another objection raised by the petitioner was that the Investigation Officer had been appointed as the Assessing Officer and the investigation carried out by him was not correct. Before the Hon'ble High Court, the respondents admitted that there was no search warrant with respect to the two partnership concerns. The Hon'ble High Court, o n a n a l yz i n g t h e v a r i o u s j u d i c i a l p r e c e d e n t s h e l d a s u n d e r :
18. In the present case, the income-tax authorities had made available to us the original order recorded by respondent No. 2 before issuing the said authorisation. It requires to be mentioned that there is no mala fide attributed in this regard. A perusal of the same shows that respondent No. 2 had the information available. It is not necessary that if on such a reasonable information action is taken, the search must yield same result. It cannot be termed in these circumstances that there was no application of mind. We are not expressing any opinion on merits about the assessment at this stage but suffice to say that respondent No. 2 had reasonable information. It was recorded and, therefore, in the absence of any other cogent material, the search warrants are not required to be quashed.
As mentioned above, during the pendency of the present writ petition, assessment proceedings against the petitioners had been finalised. It is not in controversy, because it was admitted at either end, that appeals against the assessment orders are pending. Taking this fact into consideration, on behalf of the department, it had been vehemently urged that once the appeal is pending, the petitioners can take all these pleas, which are being urged before this Court, before the competent authority where the appeal is pending.
19. The law is well-settled that when alternative remedy is available or is being availed of, then the High Court in exercise of its extraordinary writ jurisdiction under article 226/227 of the Constitution would ordinarily restrain itself from exercising the said jurisdiction. However, there are certain exception to this general rule. We, however, hasten to add that this is self-imposed restriction.
24. The issue arising in the present case is in relation to the proceedings initiated under section 158BC read with Section 158BD of the Act and the period of limitation, out of which such proceedings had to be completed. A d m i t t e d l y, b e f o r e t h e H o n ' b l e H i g h C o u r t w h e n t h e petition was filed by the petitioners alongwith its partners, the 17 department took a stand that no search was conducted in the hands of the assessee firm and also in the hands of M/s Classic Cutlery (supra). The search warrant was claimed to have been issued in the name of Shri Vipin Jain, Shri Chander Deep Jain, Smt. Sneh Jain and no warrant was claimed to have been issued in the name of M/s S.K. & Co. and M/s Classic Cutlery. The proceedings initiated under section 158BC of the Act in the hands of the assessee were filed on 11.6.1999 and intimation in this regard was issued to the assessee vide letter No. 158/8289 dated 03.10.2000 which in-turn was served upon the assessee on 09.10.2000. S i m u l t a n e o u s l y, s a t i s f a c t i o n a s r e q u i s i t i o n e d u n d e r section 158BD of the Act was recorded for the initiation of proceedings against the assessee and notice 158BC read with Section 158BD of the Act was issued. The Hon'ble Supreme Court in the case of Manish Maheshwari Vs ACIT (supra) have laid down the following proposition :
The Condition precedent for invoking a block assessment is that a search has been conducted under section 132, or documents or assets have been requisitioned under section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under section 132A or documents or assets have been requisitioned under section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person, the conditions precedents wherefor 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. The conditions precedent for invoking the provisions of section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under section 132A of the Act. A taxing statute, as is well-known, must be construed strictly. In Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714, it was held :
"While dealing with a taxing provision, the principle of 'Strict Interpre- tation should be applied. The Court shall not interpret the statutory provision in such a manner which would create an additional fiscal burden on a person. It would never be done by invoking the provisions of another Act, which are not attracted. It is also trite that while two interpretations are possible, the Court ordinarily would interpret the provisions in favour of a taxpayer and against the Revenue."18
A large number of decisions of various High Courts have been cited at the bar. We would, at the outset, refer to a decision of the Gujarat High Court in Khandubhai Vasanji Desai v. Deputy Commissioner of Income-tax [1999] 236 ITR 731. Therein, it was clearly held :
"This provision indicates that where the Assessing Officer who is seized of the matter and has jurisdiction over the person other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, he shall proceed against such other person as per the provisions of Chapter XIV-B which would mean that on such satisfaction being reached that any undisclosed income belongs to such other person, he must proceed to serve a notice to such other person as per the provisions of section 158BC of the Act. If the Assessing Officer who is seized of the matter against the raided person reaches such satisfaction that any undisclosed income belongs to such other person over whom he has no jurisdiction, then, in that event, he has to transmit the material to the Assessing Officer having jurisdiction over such other person and in such cases the Assessing Officer who has jurisdiction will proceed against such other person by issuing the requisite notice contemplated by section 158BC of the Act." (p. 85)
25. F u r t h e r , t h e H o n ' b l e K e r a l a H i g h C o u r t i n C I T V s P a n c h a ya n y a m Management Agencies & Services 333 ITR 281 (Ker) have held as under :
6. Section 158BC provides for procedure for completion of assessment of an assessee who is searched under section 132 or whose books of account or other documents or assets are requisitioned under section 132A of the Act. The procedure contemplated under the section visualises issuing of notice and requiring the assessee to file the return in the prescribed form, which is Form 2B. Clause (b) of the said section makes it clear that section 142, section 143(2) and (3) and sections 144 and 145 are made applicable. In other words, a block assessment should be initiated first by calling for a return and the assessment is completed after giving proper opportunity to the assessee as if it is a regular assessment if possible with the co-operation of the assessee and after considering the evidence produced and the contentions urged by the assessee or otherwise he will make a best judgment assessment. It is pertinent to note that in the first proviso to clause (a) of section 158BC it is provided that there is no need to issue notice under section 148 of the Act, which means that there is no need for the Assessing Officer to record reasons for initiating assessment as required under sub-section (2) of section 148 of the Act.
7. We have now to consider the scope of section 158BD which states that where the Assessing Officer on verifying the documents or materials obtained on search made under section 132 or based on the documents or accounts requisitioned under section 132A is satisfied that such records or documents or materials seized reveal undisclosed income of any other person that is of any person other than the searched assessee, or the assessee whose accounts or documents are called for, then he shall hand over all those records pertaining to search or inspection to the Assessing Officer having jurisdiction over such other person who is to be assessed based on such materials. It is specifically provided that such other Assessing Officer to whom the file is transferred shall proceed for assessment under section 158BC and the provisions of Chapter XIV-B are applicable for such assessment. In our view, this is only an enabling provision to assess a person other than the assessee searched or other than the assessee whose books of account and documents were called for and verified under section 132A of the Act. What the statute visualises is the possibility of recovery of cash, valuables or 19 records in the course of search of an assessee which may pertain to another assessee or other assessees. In the normal course, an assessment in such cases could be initiated against such other assessee about whose income materials are gathered by the Department by making income escaping assessment under section 147 of the Act, which in many cases may be time barred. In order to safeguard the interest of the Revenue, the Legislature gave enabling power to the departmental officers to make assessment on persons about whose income, details are collected in the course of search of other assessees. Even though section 158BD is an enabling provision authorising the Department to assess any person other than the searched assessee or assessees against whom documents and records are called for under section 132A, still assessment in such case has to be completed strictly in accordance with the procedure provided under section 158BC as stated above. In our view, in the first place, there is no mention in section 158BD that the Assessing Officer before transferring the file to another officer having jurisdiction to assess the person other than the assessee proceeded under section 132 or 132A has to record his satisfaction in writing. It is pertinent to note that wherever Assessing Officers are required to record their satisfaction before issuance of notice, the statute prescribes the same. A situation of that nature is covered by section 148(2) which requires the officer to record reasons for reopening an assessment before issuing notice. Not only is there no such requirement in section 158BD but what we notice is that the satisfaction referred to therein is only about undisclosed income of a person other than the assessee searched under section 132 or investigated under section 132A and the satisfaction is only for the purpose of transferring the file to the officer having jurisdiction to assess such other person. In fact, after receipt of the documents and materials from the Assessing Officer transferring it, the officer to whom materials are transferred should follow the procedure under section 158BC, that is to issue notice to the assessee requiring him to file return in Form 2B and to make regular assessment after following the procedure contained in section 142, and if required to follow the procedure in sections 143(2) and (3), 144 and 145 of the Act. So much so, in our view, non-recording of reason and non-communication of the same by the Assessing Officer while issuing notice under section 158BC will not invalidate assessment completed under section 158BD read with section 158BC. In fact when records are received by the Assessing Officer from another officer under section 158BD he has to only issue notice to file return in Form 2B. The reasons and materials based on which undisclosed income is proposed to be assessed should be communicated to the assessee when assessment is made based on the return filed which is a step after issuing notice and after receipt of return. By virtue of operation of section 142 every assessee assessed under sections 158BC and 158BD gets an opportunity to file objections. In other words, the validity of the assessment is not affected by reason of the Assessing Officer's failure to record his satisfaction under section 158BD which is only for the purpose of transferring the file and once the file is transferred, the transferring officer becomes functus officio and the jurisdiction for all purposes is transferred to the officer to whom the file is transferred and who has jurisdiction to assess the assessee about whom details are obtained in the course of search of another assessee. The peculiar features of this case are such that there was no necessity for transferring the file from one officer to another, because the person searched is the managing partner and based on the materials gathered during search assessment is made on the partnership firm, wherein the searched assessee is the managing partner. So much so, issuance of notice under section 158BD read with section 158BC is sufficient for initiation of assessment which in this case is admittedly done and the assessee has filed return in Form 2B in terms of notice issued. Therefore what remains is only the assessee's contest against the assessment on the merits which the Tribunal has not done.
26. The first contention of the assessee in the present case was that search was conducted at the premises of the assessee and as such the 20 first issue of notice under section 158BC of the Act was validly instituted. The ld. AR for the assessee placed reliance on the ratio laid down by the Madras High Court in R.Srinivasan Vs ACIT (supra) in this regard. However, we find no merit in the stand of the assessee in this regard in view of the issue being deliberated upon by the Hon'ble P u n j a b & H a r ya n a H i g h C o u r t i n a s s e s s e e ' s o w n c a s e r e p o r t e d i n V i p i n Kumar J ain and others Vs Union of India 249 ITR 728 (P&H) wherein various arguments were raised between the parties and it was pointed out by the Department before the Hon'ble High Court that no search warrants were issued in the case of both the firms i.e. M/s S.K. & Co. and M/s Classic Cutlery (India) (Reference is made to Pg. 734 of the judgement). No further appeals having been filed by the assessee against the said decision, we find no merit in the plea raised by the assessee that search proceedings were carried out against the assessee and hence the same is dismissed.
27. The second limb of the issue raised is whether notice under section 158BC was initially issued and thereafter notice under section 158BD was issued to the assessee for making the assessment under section 158BC read with Section 158BD of the Act, what is the time of limitation for completing such assessment. As referred to by us in the paras herein above, the Hon'ble Supreme Court in Manish Maheshwari Vs ACIT (supra) has laid down the proposition that before issue of notice under section 158BD of the Act, in the case of persons who have not been searched but documents relating to the same were found during the course of search of other persons, then, satisfaction has to be recorded b y the Assessing Officer who is incharge of the searched person, that any undisclosed income belonged to such person and hand over documents to Assessing Officer incharge of such person. 21
28. This is first limb of the provisions of section 158BD of the Act and the second limb is the period of limitation under which such proceedings can be initiated and completed which is provided under section 158BE(2) of the Act. In respect of the search and seizure o p e r a t i o n i n i t i a t e d o r a f t e r f i r s t d a y o f J a n u a r y, 1 9 9 7 c l a u s e ( b ) t o section 158BE(2) of the Act provides a period of two years from the end of the month in which notice under the Chapter was served on such o t h e r p e r s o n . A d m i t t e d l y, i n t h e c a s e o f t h e a s s e s s e e , t h e f i r s t n o t i c e issued under Chapter, was under section 158BC of the Act, which was issued on 21.06.1999, thereafter the notice under section 158BD of the Act was issued on 01.10.2000. The assessee, for the first time filed the return for the block period on 27.06.2002. The assessment under section 158BC(a) read with section 158BD/143(3) of the Act was completed on 31.10.2002. The contention of the assessee in this regard i s t h a t t h e s a i d a s s e s s m e n t i s b a r r e d b y l i m i t a t i o n b e i n g b e yo n d t h e p e r i o d o f t w o ye a r s f r o m t h e d a t e o f t h e i s s u e o f f i r s t n o t i c e u n d e r section 158BC of the Act. The provisions under section 158BE(1)(b) of the Act provides that the order under section 158BC in respect of the search & seizure operation initiated on or after 01.01.1997, would be c o m p l e t e d w i t h i n a p e r i o d o f t w o ye a r s f r o m t h e e n d o f t h e m o n t h i n which the last date of the authorization for search under section 132 requisition under section 132A of the Act was executed. In view of the abovesaid provisions of the Act, the plea of the assessee needs to be adjudicated.
29. The Hon'ble Madras High Court in CIT Vs K.M.Ganeshan (supra) has deliberated upon the issue of limitation provided under section 158BE, 158BC and 158BD of the Income Tax Act and observed that premises where search was carried out and notice under section 158BC 22 of the Act was issued and thereafter where the Assessing Officer noted that the warrant was not in the name of the assessee, issued fresh notice under section 158BC read with section 158BD after a gap of two years, against which the assessee filed block return declaring 'nil' undisclosed income, the block assessment completed after further p e r i o d o f t w o ye a r s , w a s h e l d t o b e b e yo n d t h e p e r i o d o f l i m i t a t i o n under the Statute from the date of issuance of first notice under section 158BC of the Act. The relevant part of the judgement of the Hon'ble Madras High Court in CIT Vs K.M.Ganeshan (supra) is as under :
4. The facts are not much disputed. The dates of the relevant notices are as follows : The notice under section 158BC was issued to the assessee on July 27, 1999. After noticing that the warrant was not issued in the name of the assessee, a fresh notice under section 158BC read with section 158BD was issued on the assessee on February 7, 2001. The assessee filed the block return on January 29, 2003 admitting nil" undisclosed income.
The assessment was made on February 27, 2003. In this factual situation, the question that arises for consideration is as to whether the second notice issued on February 7, 2001 can be regarded as an appropriate notice under the appropriate provision as contended by the learned counsel for the Revenue so as to decide the case in favour of the Revenue. No format for notices which are required to be issued under sections 158BC and 158BD is prescribed. Admittedly, in this case, the warrant was not issued in the name of the assessee. Hence the notice could only be issued under the provision of section 158BD and the notice issued on July 27, 1999 under section 158BC is the appropriate notice. The statutory requirement for completion of block assessment under section 158BE(2)(b) is two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the January 1, 1997. The Explanation to that section provides for exclusion of the time limit which are not germane to the facts of the case. That issuance of notice by mere quoting of wrong provision could not vitiate the proceedings or effect of the notice is the trite and well settled principle of law which requires no authority to be cited.
5. In Sakthivel Bankers v. Asstt. Commissioner [2002] 255 ITR 1447 124 Taxman 227 (Mad.), a search was conducted in the premises of one L and certain documents were recovered during that search, which included documents pertaining to eight firms in which L and his wife were partners and also certain documents concerning his wife. L gave a statement offering a sum of Rs. 125 lakhs as undisclosed income and pleaded inability to furnish the names of persons in whose favour credits had been entered in the books of account of those firms. An order was passed. On further appeal the Tribunal passed an order of remand. On further appeal to the High Court, the High Court held that L knew the purpose for which the notice was issued he being the person, who apparently was in control of the affairs of the firm of which he was a partner. The firms as also his wife were not in doubt as to the purpose for which the notice was issued or the source of the authority of the officer issuing the notice. 23 In fact, in response to the notices returns were filed by all of them. Absence of mention of the provision in the notice was, therefore, not a circumstance which could be said to vitiate the ultimate order.
6. In the present case on hand also the assessee knew very well the purpose for which the notice was issued on July 27, 1999. It is also an admitted case that the warrant was not issued in the name of the assessee. In those circumstances, the notice issued under section 158BC on July 27, 1999 is only in accordance with the requirement of section 158BD. Even the notice issued under section 158BD on February 7. 2001 is also a notice issued under section 158BC read with section 158BD. Non-mentioning of section 158BD would not ipso facto invalidate the earlier notice dated July 27,1999. If that be so, the assessment made against the assessee is beyond the period prescribed under section 158BE(2)(b). Hence we are of the considered view that the Commissioner as well as the Tribunal has taken a correct and appropriate view which requires no interference of this court for entertainment of the appeal. Hence the appeal is dismissed by answering the question of law in the affirmative.
30. The ld. DR for the revenue has failed to bring to our notice any other decision to the contrary and in view of the ratio laid down by the Hon'ble Madras High Court in the case of CIT Vs K.M.Ganeshan (supra), we hold that the order passed under section 158BC read with S e c t i o n 1 5 8 B D o f t h e A c t i s b e yo n d t h e p e r i o d o f l i m i t a t i o n , a s t h e first notice under section 158BC(a) was issued on 21.06.1999 and the notice issued under section 158BC(a) read with section 158BD of the Act on 03.10.2000 was in line with the earlier proceedings initiated and hence, the assessment had to be completed within a period of two years from the end of the month of date of issue of last authorization for search under section 132 of the Act. The order passed on 31.10.2002 is beyond the period of limitation and hence the same is invalid. C o n s e q u e n t l y, t h e a d d i t i o n s m a d e v i d e t h e s a i d o r d e r p a s s e d under section 158BC(a) read with section 158BD of the Act do not stand and the same are hereby deleted.
31. In view of our holding the assessment framed under section 158BC read with Section 158BD of the Act to be time barred by limitation, we do not adjudicate the issues raised on merits of the 24 additions both by the assessee and the revenue, because same has become of academic nature
32. In the result, appeal of the assessee is allowed and that of the revenue is dismissed.
33. As the facts in the case of IT(SS)A Nos. 5 & 7/Chd/2009 (M/s Classic Cutlery (India), Chandigarh) are identical to the facts in the case of IT(SS)A Nos. 22 & 23/Chd/2008, our decision in IT(SS)A Nos. 22 & 23/Chd/2008 would appl y mutatis-mutandis to IT(SS)A. Nos. 5 & 7/Chd/2009 also.
34. As the facts in the case of IT(SS)A No. 6/Chd/2009 (Smt. Doll y Jain), is identical to the facts in the case of IT(SS)A No. 22/Chd/2008 our decision in IT(SS)A No. 22/Chd/2008 would apply mutatis- mutandis to IT(SS)A No. 6/Chd/2009 also.
35. In the result, appeals of the assessees in (IT(SS)A Nos. 22/Chd/2009, IT(SS)A No. 7/Chd/2009 & IT(SS) No. 6/Chd/2009 are allowed and appeals of the revenue in IT(SS)A No. 23/Chd/2008 and (IT(SS)A No. 5/Chd/2009 are dismissed.
Order pronounced in the open court on this 6th of December, 2013.
Sd/- Sd/-
(T.R.SOOD) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 6 t h December, 2013
'Poonam'
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh