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Income Tax Appellate Tribunal - Mumbai

Baban Dashrath & Co., Navi Mumbai vs Dcit Rg 22(3), Mumbai on 31 March, 2017

              IN THE INCOME TAX APPELLATE TRIBUNAL
                   MUMBAI BENCHES "D" MUMBAI

       BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND
          SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)

                     IT(SS)A No. 40/MUM/2011
              Assessment Year: 01.04.1996 to 26.02.2003

M/s. Baban Dashrath Hande & Co. Vs      DCIT 22(3)
F-108, APMC Fruit Market,               3rd Floor, Tower No. 6,
Sector-19, Turbhe,                      Vashi Rly Station Complex, Vashi
Navi Mumbai - 400706                    Navi Mumbai-400703

PAN No. AAAPH3070K

                     IT(SS)A No. 37/MUM/2011
              Assessment Year: 01.04.1996 to 26.02.2003

DCIT 22(3)                         Vs   M/s. Baban Dashrath Hande & Co.
3rd Floor, Tower No. 6,                 F-108, APMC Fruit Market,
Vashi Rly Station Complex, Vashi        Sector-19, Turbhe,
Navi Mumbai. -400703                           Navi Mumbai - 400706

                                        PAN No. AAAPH3070K

(Appellant)                             (Respondent)

                    Assessee by:        Ms. Aasifa Khan, AR
                    Revenue by :        Mr. B. Pruseth, CIT(DR)

            Date of Hearing     :            17/01/2017
           Date of pronouncement:            31/03/2017


                                    ORDER

PER N.K. PRADHAN, AM

These two cross appeals - one by the assessee and the other by the revenue for the block period 01.04.1996 to 26.02.2003 involve some common issues. As such we are proceeding to dispose them off by this consolidated order for the sake of convenience. The appeals are directed against the order of the Commissioner (Appeals) - 33, IT(SS)A No. 37 & 40/MUM/2013 2 Mumbai and arise out of order u/s 158BC r.w.s 158BD of the Income Tax Act 1961 (the 'Act').

2. The grounds of appeal filed by the assessee read as under:

i. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the Block Assessment order passed by the learned DCIT under section 158BC read with Section 158BD is without jurisdiction, illegal, null and void ab-initio.

ii. On the facts and circumstances of the case and in law, the learned CIT(Appeals) failed to appreciate that the Block Assessment Order passed by the learned DCIT on 30.10.2008 suffers from serious legal infirmities and deserves to be struck down as the serving of notice u/s 158BD dated 20.10.2006 by him is invalid and without jurisdiction since (a) the satisfaction of undisclosed income in the bands of the Appellant was not reached / recorded by the authority making assessment on the person searched and (b) the said notice is belated and served beyond the time limitation prescribed.

Without prejudice to Grounds 1 to 2 here above the following grounds are taken up:

iii. On the facts and circumstances of the case and in law, the learned CiT(A) has erred in computing assessed income at Rs. 3,30,991/- by disallowing estimated packing expenses of Rs. 5,74,376/- by ignoring the fact that incurring of such expenses was customary in the line of the business of the appellant.

3. The grounds of appeal filed by the revenue read as under:

i. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the revised income of the assessee be taken at Rs. 3,30,991/- as against assessed income of Rs. 40,63,749/-.

ii. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the A.O. should not have ignored the trading losses and granting the impugned relief only on the basis of statement without any substantial proof.

iii. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in granting relief, failing to appreciate that the A.O. was constrained in giving any relief as no details were furnished during the assessment proceedings.

iv. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing to take the profit for the block period at Rs.

3,30,991/- by excluding only packing expenses treating the same to take on estimated basis without considering the fact that all the expenses were estimated as no supporting evidences were produced either during the assessment proceedings or during the appellate proceedings, thus contravening to provisions laid in Rule 46A of the Act.

4. We begin with 1st & 2nd ground of appeal filed by the assessee. The timeline pertinent to the instant appeal contains the fact that (i) search and seizure action u/s 132 of the Act was carried out in the case of M/s Ramchandra Dashrath Hande & Co. (RDHC) on 26.02.2003 and it was discovered that the assessee in the instant appeal M/s. Baban Dashrath & Co. (BDC) was also operating from the same premise, (ii) order u/s 158BC was passed by the ACIT, Central Circle - 36 on 24.08.2005 in the case of RDHC, (iii) satisfaction note for initiating proceedings u/s 158BD was recorded by the ACIT 22(3) on 19.10.2006 (iv) notice u/s 158BD was issued to BDC by the ACIT, Central Circle 22(3), Vashi, Mumbai on 20.10.2006 and (v) order u/s 158BC r.w.s. 158BD was passed by the DCIT 22(3) on 30.10.2008.

5. Before us, the learned counsel of the assessee filed a copy of the judgement of the Hon'ble Delhi High Court in the case of CIT vs. Bharat Bhushan Jain (2015) 61 taxmann.com 89 (Del). She submits that in the instant appeal, the notice u/s 158BD has been issued to BDC after a year of the completion of assessment u/s 158BC and, therefore, the said notice could not be held to be valid.

6. On the other hand, the learned DR submitted that there was persistent non-cooperation by BDC. He supported the order of the learned CIT(A) on the above grounds of appeal.

7. We have heard the rival submissions and perused the relevant material on record. The relevant section 158BD reads as under:

"Where the Assessing Officer is satisfied that any undisclosed income belongs to any 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, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly."

7.1 Section 158BD requires that the AO of the searched person should be satisfied in respect of the following:

(i) there should be "undisclosed income" within the meaning of section 158(b) referable to the assets or books/documents found seized/requisitioned;

(ii) there should a finding by the AO that there was undisclosed income in such assets or books of account or documents of the searched person;

(iii) and that such undisclosed income belonged to the person other than the one searched.

Therefore, the AO of the searched person, after reaching satisfaction in respect of the above, should hand over the assets, relevant books of account and documents, found seized/requisitioned to the AO assessing the "other person". If he has jurisdiction over the other person as well, he can issue the notice under section 158BD. In case, the AO of other person is different, he has to communicate the satisfaction note and transmit the relevant materials. Only thereafter, the AO of the "other person" can proceed to initiate action by issuing notice under section 158BC r.w.s. 158BD.

7.2 A similar issue arose in Bharat Bhushan Jain (supra). In that case, the assessee-respondents were third parties, who were issued notice u/s 158BD pursuant to the search proceedings in respect of other persons. In all these cases, the search proceedings were conducted on August 3, 2000. Thereafter, notice was issued to them for block assessment for filing of relevant details for the previous years. The assessment proceedings were completed on August 29, IT(SS)A No. 37 & 40/MUM/2013 5 2002. Thereafter, the present assessee-third parties were issued notices u/s 158BD. Having considered the relevant dates of recording of the satisfaction note by the Assessing Officer and issue of notices to the present assessees, the Hon'ble Delhi High Court concluded as under:

"Having regard to the intent of the Supreme Court in paragraph 44 of the Calcutta Knitwears (supra), where it was indicated that the Revenue has to be vigilant in issuing notice to the third party under section 158BD, immediately after the completion of assessment of the searched person, this court is of the opinion that a delay ranging between 10 months of one-and-half years cannot be considered contemporaneous to assessment proceedings. We are of the opinion that notices were not issued in conformity with the requirements of section 158BD and were unduly delayed. The appeals of the Revenue, accordingly, fail and are dismissed."

7.3 We now refer to the judgement of the Hon'ble Supreme Court in CIT vs. Calcutta Knitwears (2014) 43 taxmann.com 446 (SC). The issue is at what stage of the proceedings under chapter XIV - B does the assessing authority require to record his satisfaction for issuing a notice u/s 158BD of the Act. Their Lordships held as under:

"In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; (b) along with the assessment proceedings under section 158BC of the Act; and

(c) immediately after the assessment proceedings are completed under section 158BC of the act of the searched person."

8. In the instant appeal, the satisfaction note has been recorded by the AO after more than 13 months of the assessment order passed u/s 158BC of the Act. The timeline has been narrated at para 4 here- in-above. There cannot be any justification for such a delay. Non- cooperation of the assessee cannot be a ground for recording satisfaction note after 13 months of finalisation of assessment u/s 158 BC of the Act.

9. Respectfully following the decision in Calcutta Knitwears and Bharat Bhushan Jain, we hold the notice u/s 158BD issued by the AO as invalid. As a result, there is no necessity of adjudicating the other grounds of appeal.

10. In the result, we allow the appeal filed by the assessee and dismiss the appeal filed by the revenue.

Order pronounced in the open court on 31/03/2017 Sd/- Sd/-

       (SAKTIJIT DEY)                     (N.K. PRADHAN)
      JUDICIAL MEMBER                   ACCOUNTANT MEMBER

Mumbai:
Dated: 31/03/2017
Biswajit, Sr. P.S.

Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
                                                         BY ORDER,
//True Copy//
                                                  (Dy./Asstt. Registrar)
                                                      ITAT, Mumbai