Income Tax Appellate Tribunal - Ahmedabad
Purnima Angadia Service,, Ahmedabad vs Department Of Income Tax on 30 March, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BENCHES
"C" BENCH: AHMEDABAD
(BEFORE S/SHRI MAHAVIR SINGH, JM AND A N PAHUJA, AM)
IT (SS) A No. 194 and 212/Ahd/2006
Block Period: 1-4-1995 to 17-07-2001 and 1-4-1996 to 29-7-2002
The A.C.I.T., Circle- 1(4), Vs Purnima Angadia Service,
Room NO.305, 3rd floor, Aayakar 32, Jarman Silver Market,
Bhavan, Ashram Road, Ahmedabad 1st floor, Marchi Pole, Ratanpole,
Ahmedabad,
[PAN: AAEFP 0356L]
Appellant Respondent
IT (SS) A No. 202/Ahd/2006
Block Period: 01-04-1995 to 17-07-2001
Purnima Angadia Service, Vs The D.C.I.T., Circle-1(4),
32, Jarman Silver Market, Room NO.305, 3rd floor, Aayakar
1st floor, Marchi Pole, Ratanpole, Bhavan, Ashram Road,
Ahmedabad, Ahmedabad
Appellant Respondent
Assessee by Shri P. M. Mehta, AR
Revenue by Shri Sanjeev Kashyap, DR
ORDER
A N PAHUJA: The cross-appeals in IT(SS)A No. 194/Ahd/2006 filed by the Revenue and IT(SS)A No.202/Ahd/2006 filed by the assessee directed against an order dated 30-03-2006 of the learned CIT(A)-III, Ahmedabad while the appeal in ITA No. 212/Ahd/2006 by the assessee against an order dated 12- 7-2006 of the learned CIT(A)-I, Ahmedabad, raise a number of grounds.
2. Since common issues are involved, these appeals were heard together for the sake of convenience and are being disposed of through this common order. The Revenue in their appeal in IT(SS)A No. 194/Ahd/2006 have raised issues IT(SS)A Nos. 194, 202 and 212/Ahd/2006 2 M/s. Purnima Angadia Services relating to admission of additional evidence by the learned CIT(A) in contravention of Rule 46A of the Income- tax Rules, 1962 and lack of sufficient opportunity provided by the learned CIT(A) apart from deletion of addition of addition of Rs.21,38,000/- u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). In the appeal in IT(SS)A No.212/Ahd/2006, the Revenue have raised grounds relating to cancellation of penalty of Rs.17,13,600 levied u/s 158BFA (2) of the Act. The assessee in their appeal has raised a number of grounds relating to issue of notice u/s 158BD of the Act while other three grounds relate to addition of Rs.4,00,000/- on account of exaggerated khep income , Rs.2,02,000/- on account of cash belonging to customers and Rs.60,000/- on account of cash deposits from small depositors besides levy of surcharge on the tax determined in pursuance to block assessment.
3. Adverting first to the legal issue raised by the assessee in ground no.1 of their appeal, which reads as under:
"1. In law and in facts as well as circumstances of the appellant's case the learned Commissioner of Income-tax (Appeals) has grossly erred in holding that the order passed by the Assessing Officer under section 158BD read with section 143(3) and 144 of t he I. T. Act with the previous approval of Addl. Commissioner of Income-tax Central Range-1, Ahmedabad is not bad in law.
1.1 The learned Commissioner of Income-tax(Appeals) ought to have appreciated, inter-alia, that
(a) The assessment order passed under section 158BD does not speak anything about search having been carried out by the Income-tax Department in pursuance of the authorization issued under section 132(1) of the I. T. Act nor does it mention anything whether the seized material was requisitioned in terms of section 132A of the I. T. Act and if so by whom and when and in whose case. Therefore, the notice issued by the Assessing Officer u/s. 158BD is without jurisdiction and bad in law. Accordingly, the present order finalized by the Assessing Officer us. 158BD read with section 143(3) and 144 of the I. T. Act is ab initio void and deserves to be cancelled.
IT(SS)A Nos. 194, 202 and 212/Ahd/2006 3
M/s. Purnima Angadia Services
(b) ........
(c) ............"
4. At the outset, the learned Counsel on behalf of the assessee submitted that facts and issue raised in the aforesaid ground are squarely covered by the decision dated 3.7.2009 of the ITAT in the case of M/s Rajesh Kumar Ramesh & Co. in ITSS(A) no.165/Ahd./2006,wherein following the decision of Special Bench of Tribunal in the case of Manoj Aggarwal v. DCIT (2008) 113 ITD 377 (Del), the ITAT quashed the block assessment. The ld. DR did not dispute these submissions of the ld. AR. The impugned orders reveal that the assessee is engaged in the business of angadia. A search action u/s 37(3) of FEMA Act, 1999 was carried out by the Enforcement Directorate on the luggage van of Ashram Express on 9-7-2001, taken on lease by Shri Jagdish Gujjar and Prabhu G. Jadhav. The search of baggage/parcels in the luggage van resulted in seizure of valuables like Indian currency, gold biscuits, silver bars, diamonds, jewellery (imported) etc. The cash, bullion and jewellery worth Rs.3,34,89,705/- were seized and inventoried vide Panchnamas done by ED officials separately in the names of various angadias, from whose baggage the assets were seized .
Subsequently, block assessment u/s 158BC of the Act was framed in the case of Shri Jagdish Gujjar and Prabhu G. Jadhav on 31-7-2003 and consequently a notice u/s 158BD of the Act was issued to the assessee on 30.7.2004 . In response, the assessee filed return declaring nil undisclosed income on 12-08- 2004. The assessee during the course of assessment proceedings vide letter dated 22.12.2004 submitted that out of cash of Rs.28,00,000/- belonging to it, Rs.25,00,000/- belonged to the firm and Rs.3,00,000/- belonged to 8 other persons. Since the assessee failed to produce their books of accounts before the AO nor explained the source of cash, the said amount was assessed as unaccounted income vide order dated 1.3.2005. On appeal, the ld. CIT(A) allowed part relief. In view of these facts, the learned counsel on behalf of the assessee stated that the notice u/s.158 BC r. w. s. 158BD of the Act issued on 30-07-2004 is barred by limitation in view of the decision of Special Bench of IT(SS)A Nos. 194, 202 and 212/Ahd/2006 4 M/s. Purnima Angadia Services Tribunal in the case of Manoj Aggarwal v. DCIT (2008) 113 ITD 377 (Del). We find from the above facts and circumstances, that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of ITAT Delhi Special Bench in the case of Manoj Aggarwal (supra), wherein the Tribunal held on this issue as under:-
"113. Section 158BD commences with the words "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" and thus it is clear that the satisfaction of the Assessing Officer assessing the person searched is the first and foremost requirement. The Assessing Officer can arrive at this satisfaction only after ascertaining whether there is any undisclosed income at all and this finding can be arrived at by him only in the course of the section 158BD assessment proceeding. Thereafter, he has to arrive at a finding as to the person to whom such income belongs. This finding also can be arrived at only in the course of the section 158BC proceeding in the case of the person searched. He may find that part of the said undisclosed income belongs to the person searched and the rest belongs to other person or persons. At this stage, he has to give a finding in this behalf as to which of the undisclosed income belongs to the person to whom the rest of the income belongs. This finding too has to be arrived at in the course of the section 158BC proceeding. After arriving at this finding, he makes an assessment of the undisclosed income relating to the person searched in his hands and hands over the material relating to the undisclosed income belonging to the other person or persons to the respective Assessing Officer. As section 158BC proceeding is specifically intended for determining the undisclosed income, the material unearthed has to be examined in the course of the said proceeding and if such examination shows that the undisclosed income belongs to some other persons a finding in this behalf has to be recorded in the course of the section 158BC proceeding as such finding has to form an integral part of the said proceeding and in conformity with the intention behind the said provision. So, it is essential that such finding has to form part of the section 158BC proceeding and so must find a place in the order under section 158BC. The Assessing Officer assessing the person searched has to give a finding on each and every material and evidence unearthed after a careful and judicious evaluation and such exercise involves a finding that the undisclosed income belongs to a specified person as found by him on the section 158BD proceeding revolves. If, therefore, in the course of the section 158BC proceedings the Assessing Officer assessing the person searched does not give a finding that any part of the undisclosed income unearthed belongs to a person other than the person searched, section 158BD can never be invoked. It is this finding that is an integral part of both the proceedings whether under section 15BC or 158BD. For, IT(SS)A Nos. 194, 202 and 212/Ahd/2006 5 M/s. Purnima Angadia Services such finding determines in whose hands the undisclosed income unearthed has to be taxed. If the undisclosed income belongs to the person searched, he is subjected to block assessment on such income under section 158BC but if such income or part of such income belongs to a person not searched, section 158BD takes over. This is the essence of the entire enactment relating to search."
114. Section 158BE provides for time limit for completion of block assessment. It stipulates that the order under section 158 BC shall be passed within two years from the end of the month in which the last of the authorization for search under section132 was executed or for requisition under section 132A as the case may be and so the order envisaged under section 158BC has necessarily to be passed within this time frame set in law. If there is a time-limit for passing of such order, there is an implied time-limit for giving a finding as to the person to whom the undisclosed income belongs which under no circumstances can be beyond the time- limit set in section 158BE. If there is no such finding given in the order under section 158BC, the provisions of section 158BD stand ousted at the expiry of the said time-limit for the reason that such a finding is the very basis for invoking section 158BD.
115. Section 158BD as said earlier begins with the expression "where the Assessing Officer is satisfied" and so very section implies a recording of satisfaction. The satisfaction contemplated is a judicious satisfaction and not a subjective satisfaction and unless the same is recorded it is not possible for any person to discern whether the satisfaction meets the requirements of law at all. The satisfaction can be found in the order passed under section 158BC and if no such order is passed then it will have to be found in the note handing over the material seized to the Assessing Officer assessing the other person. In any event, it has to be in writing and in view of section 158BE, the said recording has to be made before the time set in section 158BE expires. After the said date, it is not possible to invoke section 158BD at all.
116. A view is expressed that wherever a time-limit is intended, the Parliament has provided for the same and in the absence of a specific provision made in this respect it has to be assumed that there is no time- limit intended in law. It has to be remembered that the mater relates to fixing huge financial and other civil liability on the person affected and it has been repeatedly held that there must be a finality to any proceeding under the Act and that a concluded proceeding cannot be reopened at the whim and fancy of the Assessing Officer without the due process of law. Strict interpretation of fiscal statutes is the order of the day and as the provisions for search are draconian in nature such provisions have necessarily to be strictly construed. It will have to be remembered that section 158BD provides for invoking jurisdiction under the said section IT(SS)A Nos. 194, 202 and 212/Ahd/2006 6 M/s. Purnima Angadia Services enabling the Assessing Officer assessing the other person in respect of whom the Assessing Officer assessing the person searched gives a finding that the undisclosed income unearthed as a result of search belongs to the said person and once such a finding is given the provisions of section 158BD come into operation. This, therefore, involves assumption of jurisdiction and cannot be constructed as a procedural matter. In the absence of a finding in this behalf, there is no jurisdiction to the other Assessing Officer at all to proceed further in the matter. As the time-limit set in section 158BE applies to such finding, it is only logical that the said time-limit automatically applies for invoking the provisions of section 158BD and it is for this reason that the Parliament did not find it necessary to specify a separate time-limit for the same, as the enactment itself shows that both sections 158BC and 158BD are inter-linked, interlaced and inter-winded and both form part and parcel of the same chapter."
4.1. Further as regards to the limitation for issue of notice u/s 158BD of the Act, the Special Bench in Manoj Aggarwal (supra) in Para 123 to 127 held as under:-
"123. Having held that recording of satisfaction is imperative before assumption of jurisdiction under section 158BD, we may now turn to examine the meaning of the expression "where the Assessing Officer is satisfied" appearing at the beginning of section 158BD for the meaning so ascertained gives us a clue as to the nature of the note of satisfaction that is envisaged in the said section. It is the submission of the learned Representative for the appellant that such satisfaction must clearly show detection of undisclosed income on examination of the seized material as belonging to the person not searched and that it cannot be based on assumptions and surmises or guesswork. The learned Departmental Representative argued that the term 'satisfaction' appears in various parts of the Act itself and that even in section 147/148 dealing with cases of reassessment for assessing income which had escaped assessment, the only requirement is that the Assessing Officer must have reason to believe that there is a prima facie case of existence of escaped income and that there is no requirement that there must be a clear finding of undisclosed income as suggested. In this context, reference has been made to the Apex Court decision in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. 291 ITR 500 wherein the term 'reason to believe' has been interpreted and the Apex Court held therein that "what is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the IT(SS)A Nos. 194, 202 and 212/Ahd/2006 7 M/s. Purnima Angadia Services concern at that state. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer". It is therefore submitted that in the recording of satisfaction it is enough if a prima facie case is made out.
124. It is true that the term 'reason to believe' has came to be judicially interpreted even since the provision for reassessment was introduced in the Act and so the view expressed by the Apex Court in the decision cited supra is in tune with its own earlier decisions. But, the point that has to be considered is whether the use of the term 'reason to believe' and 'satisfaction' have the same meaning wherever the said terms are used de hors the context in which the said term appears? The term 'reason to believe', as the Apex Court held, implies that the Assessing Officer subjectively believes that he has reason to believe on the basis of the material before him that there is escapement of income in the case of an assessee and so that escaped income has to be brought to tax by re- opening his assessment as per the provisions of section 147/148 of the Act. On the other hand, the term 'satisfaction' in section 158BD connotes that there exists undisclosed income and that such undisclosed income is that of the person not searched. The use of the expression 'satisfied' in section 158BD cannot be read in isolation and it has to be understood in the context in which the said term appears in the said section. It will be seen that section 158BD starts with the expression "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. . .". It is significant that the term 'satisfied' is not used in a vacuum but along with the words 'that any undisclosed income belongs to. . . other than the person with respect to whom search was made..' and the words in the context are 'undisclosed income' and 'belongs to' which clearly indicate that at that point of time when satisfaction is recorded by the Assessing Officer the undisclosed income is to be identified. Further, the said expression does not stop there. It further uses the expression "belongs to any person, other than the person with respect to whom search was made" which indicates that the undisclosed income identified by the Assessing Officer is found to be belonging to the other person. It would thus mean that at the stage of recording, the Assessing Officer has reached a finding that undisclosed income has been detected as a result of search and also further that such income belongs to the person not searched. All these constitute findings and not a more belief held by the Assessing Officer on the examination of the seized material and hence the satisfaction contemplated in section 158BD is totally different than contemplated in section 147. It is fundamental that the Assessing Officer finds out whether there is undisclosed income. If he finds that there exists undisclosed income, then he has to give a finding as to whom the said income belongs. In the absence of such a finding, it is not possible to conclude a block assessment under section 158BC. Only thereupon, the IT(SS)A Nos. 194, 202 and 212/Ahd/2006 8 M/s. Purnima Angadia Services section 158BD proceeding in respect of the other person for making a similar block assessment of such undisclosed income would commence. Hence, in our considered view, the note of satisfaction must contain a positive finding by the Assessing Officer making the assessment under section 158BC indicating therein the undisclosed income found as a result of his examination of the seized material, the person to whom such income belongs and proceed accordingly as provided for in the said section. The circumstances envisaged and the context in sections 147 and 158BD are entirely different in nature and so it is not possible to import the Apex Court decision in the case cited (supra) into the section 158BD proceeding for the reasons detailed herein.
125. In the instant case, we may now examine whether there is any record of satisfaction that meets the requirement of law as enunciated above. We have already reproduced the copy of the said record dated 19-12-2002. It is signed by the Dy. Commissioner of Income-tax, Central Circle - 3, New Delhi. It is therefore admittedly recorded by the Assessing Officer making the section 158BD assessment as the notice under the said section has also been issued by him. This note records that search in the case of Shri Manoj Aggarwal and associate concerns and the block assessment made on him conclusively establishes the fact that he was involved in providing bogus accommodation book entries to various persons on commission basis and for this purpose he had used the names and bank accounts of various companies, benami proprietorship concerns in the names of his employees, in the names of relatives, various HUF entities and firms and one such concern is M/s. Bishanchand Mukesh Kumar the bank accounts of which were operated by S/Shri Mukesh Kumar and Bishanchand Aggarwal; that the sources of cash and clearing deposits and the withdrawals from these bank accounts need to be examined; these accounts have been used for accommodation book entries and hence, undisclosed income has arisen in the hands of this concern which has been found during the course of search and seizure operations in the case of Shri Manoj Aggarwal and his associate concerns; thus, proceedings under section 158BD are applicable in this case. Admittedly, this note is after the date of block assessment in the case of Manoj Kumar Aggarwal which was finalized on 29-8-2002. Further, the note of satisfaction is not recorded by the Dy. CIT, Central Circle-3, New Delhi acting as the Assessing Officer making the assessment under section 158BC of Manoj Kumar Aggarwal since the said assessment has been finalized earlier. Clearly the note of satisfaction dated 19-12-2002 is beyond the date of block assessment in the section 158BC proceedings dated 29-8-2002 in the case of Shri Manoj Aggarwal. Therefore, the satisfaction recorded is belated.IT(SS)A Nos. 194, 202 and 212/Ahd/2006 9
M/s. Purnima Angadia Services
126. Further, the said note of satisfaction speaks of Manoj Kumar Aggarwal doing accommodation business through various benami concerns and in the names of various persons and earning commission through such accommodation and that one such concern used by him is the appellant-firm. It further states that the bank accounts of the firm have to be examined and the source of the cash and clearing deposits and the withdrawals from the banks have to be examined. There is thus no finding in the said note that on examination of the seized material by him in the case of Manoj Kumar Aggarwal he has found that there is undisclosed income and that such undisclosed income belongs to the assessee-firm. On the other hand, it says that the bank accounts of the firm have to be examined. There is not even a whisper of detection of undisclosed income in the hands of the firm. The very record leaves a tell tale evidence to the effect that no finding has been arrived at to show that there exists undisclosed income of the assessee-firm. Had it been so, there would have been a reference to the same and there was no need to state that further examination of various accounts was required. Hence, the note itself admits that no undisclosed income in the hands of the appellant has been found even on the date of such noting which militates against the requirement of a note of satisfaction in terms of section 158BD. In order to ascertain whether in the course of the assessment proceeding in the case of Manoj Aggarwal under section 158BC there is any finding of any undisclosed income in the case of the appellant; even there, we did not come across any finding that any part of the undisclosed income belongs to the appellant or any reference to any material therein indicating the same. In the circumstance, we have to hold that the satisfaction note dated 19-12-2002 is not the one contemplated in section 158BD and further that even if it is assumed to be in terms of the said section it does not even remotely show that there is undisclosed income belonging to the appellant-firm calling for the assumption of jurisdiction under section 158BD. In the circumstance, we hold that the said note of satisfaction is non-established in law and further that the section 158BD proceedings pursuant thereto is invalid and void ab initio on this ground also.
127. We are of the firm view that the proceedings under section 158BD are invalid for the reasons above stated and so the assessment made pursuant to these proceedings is bad in law. The same is accordingly liable to be cancelled."
5. Following the aforesaid decision, the ITAT In their order dated 03-07-2009 in IT(SS)A Nos. 165 /Ahd/2006,relied upon by the ld. AR, concluded as under in para 5:
IT(SS)A Nos. 194, 202 and 212/Ahd/2006 10M/s. Purnima Angadia Services "5. In view of the above facts and circumstances, we find that a search action u/s 37(3) of FEMA Act, 1999 was carried out by the Enforcement Directorate on the Luggage Van of Ashram Express on 9-7-2001 taken on lease by Shri Jagdish Gujajr and Prabhu G.Yadhav. The assessee is engaged in the business of angadia. The search of baggage's/parcels in the luggage van resulted into seizure of valuables like Indian currency, gold biscuits silver bard, diamonds, jewellery (imported) etc. The cash, bullion and jewellery worth Rs.3,34,89,705/- were seized and inventoried vide Panchnamas done by ED officials separately in the names of various angadias from whose baggage the seized assets were found. The block assessment proceedings u/s 158BC was started in the case of Shri Jadish Gujjar and Prabhu G Jadhav and block assessment was framed u/s 158BC vide order dated 31-07-2003. The assessee was one of them and consequently, proceedings u/s 158BD of the Act was initiated in the case of the assessee. The assessee filed its return of income dated 21-9-2004 declaring undisclosed income at NIL in response to the notice issued u/s 158BD dated 12-4-2004, which was served on 17-4-2004. It means that, the block assessment proceeding in the case of the assessee u/s.158BD of the Act was taken after more than three years from the date of search.
In view of the facts and circumstances, and the legal proposition laid down in the case law of Manoj Agarwal (supra), the block assessment proceedings initiated u/s 158BD vide notice dated 12-04-2004 is barred by limitation and accordingly, we quash the block assessment order. Accordingly, we allow the appeal of the assessee on jurisdiction"
6. Since facts and circumstances in the case under consideration are similar to the facts in the aforecited decision dated 03-07-2009 of the ITAT and the block assessment proceedings in the case of the assessee u/s.158BD of the Act were initiated after more than three years from the date of search while no contrary decision has been brought to our notice by the learned DR, following the aforesaid decisions of the Tribunal in the case of Manoj Aggarwal(supra) and M/s Rajesh Kumar Ramesh & Co(supra), we hold that notice dated 30.7.2004 issued u/s 158BD of the Act is time barred and, therefore, the assessment framed on 1.3.2005 u/s 158BC read with sec. 158BD of the Act is without jurisdiction and void ab initio. In view of the foregoing, we quash the assessment order dated 1.3.2005 and consequently the impugned order. In this view of the matter, the remaining grounds in the appeal of the assessee as also the grounds IT(SS)A Nos. 194, 202 and 212/Ahd/2006 11 M/s. Purnima Angadia Services raised in the two appeals of the Revenue, do not survive for adjudication and are therefore, dismissed.
10. In the result, appeal of the assessee is allowed while the two appeals filed by the Revenue are dismissed.
Order pronounced in the open Court on 13th August,2009 Sd/- Sd/-
(MAHAVIR SINGH) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 13th August, 2009 LAKSHMIKANT/ Copy of the order forwarded to: 1. The assessee
2. The A.C.I.T., Circle- 1(4),Room NO.305, 3rd floor, Aayakar Bhavan, Ashram Road, Ahmedabad
3. CIT(A)-I & III
4. The CIT concerned
5. The D.R. ITAT, Ahmedabad,
6. Guard File BY ORDER DR / AR, ITAT, Ahmedabad