Income Tax Appellate Tribunal - Mumbai
Shri Siddhi Builders & Developers, ... vs Assessee on 9 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "A",
MUMBAI
BEFORE SHRI G.E.VEERABHADRAPPA, PRESIDENT
& SHRI I.P.BANSAL ,JUDICIAL MEMBER
IT(SS)A NO. 172/MUM/03
(Block Period 1989-90 to 1999-2000)
M/s. Shree Siddhi Builders & The ACIT, Circle 23(3),
Developers, 6th Floor, C/12, Prataksh Kar
C/o. Shri Prabhulal K. Thakkar, Vs. Bhavan, Bandra Kurla
Kantaben Rasiklal Bldg., Complex, Bandra (E),
Near Collector Office, Mumbai - 51.
Thane (W), -400 601
PAN:AAPFS9712C (Respondent)
(Appellant)
IT(SS)A NO. 151/MUM/03
(Block Period 1989-90 to 1999-2000)
The ACIT, Circle 23(3), M/s. Shree Siddhi Builders &
6th Floor, C/12, Prataksh Kar Developers, C/o. Shri Prabhulal
Bhavan, Bandra Kurla Complex, K. Thakkar,
Bandra (E), Vs. Kantaben Rasiklal Bldg.,
Mumbai - 51. Near Collector Office,
Thane (W), -400 601
(Appellant) PAN:AAPFS9712C
(Respondent)
Assesseee by : Shri Subodh L. Ratnaparakhi
Revenue by : Shri Pravin Varma
Date of hearing : 09/07/2012
Date of pronouncement : 27/07/2012
ORDER
PER I.P.BANSAL, J.M
These are cross appeals. They are directed against order dated 29th Nov.2002, passed by Ld. CIT(A)-XXIII, Mumbai for the block period 1989-90 to 1999-2000. The grounds of appeal raised by the assessee as well as revenue read as under:
2 IT(SS)A NO. 172&151/MUM/03(Block Period 1989-90 to 1999-2000) ASSESSEE'S GROUNDS OF APPEAL:
The following grounds of appeal are without prejudice to one another.
1. The Learned Commissioner of income Tax (Appeals) erred in upholding the order u/s 158BD and failed to appreciate that the order u/s 158BD is without jurisdiction and bad in law.
2. The Learned Commissioner of Income Tax (Appeals) failed to appreciate that the income from the project on completion had been declared in return of income for A. Y. 1998-99 and the same could not have been treated as undisclosed income under chapter XIVB.
3. The Learned Commissioner of Income Tax (Appeals) erred in confirming addition of Rs.54,84,006/- on account of unexplained payment for acquisition of development rights.
4. The Learned Tax (Appeals) erred in confirming addition of Rs.18,50,000/- u/s 68 as unexplained cash credit.
The appellant prays that:
a) The block assessment order u/s 158 BD may be annulled,
b) The income from the project may held to be assessable in A.Y. 1998-99 and not as undisclosed income in block assessment proceedings.
c) The addition of Rs.54,84,006/- u/s 69C on the alleged ground of unexplained expenditure may be deleted.
d) The addition of Rs.18,50,000/- on the alleged ground of unexplained cash credit may be deleted."
ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE:
"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in issuing notice under section 158BD on 8.3.2001, without there being any "satisfaction" recorded as to the existence of any undisclosed income belonging to the appellant prior to issue of such notice. The prerequisite condition for issue of notice as provided under section 158BD as laid down by the Hon'ble Supreme Court in the case of Manish Maheshwari 3 IT(SS)A NO. 172&151/MUM/03 (Block Period 1989-90 to 1999-2000) v/s ACIT, 289 ITR 341 (SC), being not in existence, the notice issued on 8.3.2001, is bad in law and the assessment following therefrom be held to be invalid and void-ab-initio."
REVENUE'S GROUNDS OF APPEAL :
i) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in deleting the entire addition of Rs.17,28,540/- made by the A.O. on the basis of estimated premium on sale of Flat No. 1, 2 & 3 inspite of the fact that all the partners have admitted cash element involved in purchase of land as well as sale of flats.
ii) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in directing the A.O. to adopt the value at Rs.42,46,758/- instead of Rs.43,64,658/- of Flat No. 13 & 14. The valuation has been done by the A.O. on the basis of seized materials.
iii) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in estimating the cost of unsold flat No. 18 at the Cost Price i.e. Rs.1,200/- per sq.ft. instead of Market Price of Rs.1,476/- per sq. ft. adopted by the A.O
iv) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in directing the A.O. to delete the addition made u/s. 40A(3) amounting to Rs.26,49,371/- as the assessee failed to prove the same.
(v) On the facts and circumstances of the case and in law, the learned Commissioner of "Income Tax (Appeals) has erred in reducing the addition made by the A.O. amounting to Rs.89, 19,206/- on account of unexplained expenditure in land by Rs.34,35,200/-.
vi) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in treating the date of receipt on money of Rs.6,40,400/- in respect of Flat No. 15 on January, 1995 on assumption since flat No. 15 and 16 have the same area and are serially next to each other.
4 IT(SS)A NO. 172&151/MUM/03(Block Period 1989-90 to 1999-2000)
vii) The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.
2. We had heard both the parties on the issue of admission of additional ground. The additional ground is a legal ground which does not require consideration of new facts the same was admitted and both the parties were heard on this ground.
3. The impugned assessment framed under section 158BD r/w section 143(3) of the Income Tax Act, 1961 (for short "the Act") is dated 14th February 2002. A search was conducted at the premises of Valji Kanji Thakkar Group, Thane, on 28th July 1999. In pursuance to such search, notice was issued to the assessee under section 158BD on 8th March 2001. The notice issued under section 158BD dated 8th March 2001, is received on 9th March 2011, a copy of which is placed on record. It is the main case of the assessee that assessment in the present case is liable to be quashed on the ground that there is no "satisfaction" recorded by the AO of the search person(s) against the assessee, which is a condition precedent for the validity of notice to be issued under section 158BD of the Act. In other words, it is the case of the assessee that no satisfaction whatsoever has been recorded by the A.O of the searched persons(s) against the assessee which could validate the assessment proceedings against the assessee.
3.1 As the assessee was taking this plea, the department vide ordersheet noting dated 5/8/2010 was directed to furnish "satisfaction note" recorded by the AO of the searched persons(s). Thereafter the matter was adjourned several times for placing the "satisfaction note" on record. Finally vide letter dated 6/7/2012, revenue has submitted that the evidence of recording of satisfaction note by the AO in the above case is in the form of letter dated 8/3/2001 issued by the DCIT, Circle 1(1), Thane to ACIT, Circle 30(1), Mumbai and it will be relevant to reproduce the said letter.
5 IT(SS)A NO. 172&151/MUM/03(Block Period 1989-90 to 1999-2000) "OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-
1(1), QURESHI MANSION, GOKHALE. ROAD, NAUPADA, THANE.
No. Thn/DC.Cir--1(1)/NKT/2000-2001 Date : 08th March, 2001.
The Asstt. Commissioner of Income-tax (Inv.), Circle - 30(1), Mumbai, Sub : Search action in the case of Shri Vaiji Khimji Thakkar -- Action u/s 158 BD of the IT. Act, 61 Kindly refer to your letter no. AC(Inv.)Cir.30(1)/S&S/2000--2001 dt. 5.3.2001.
2. An action u/s 132 of the I.T. Act was carried out in the cases of Nanji Khimji Thakkar group of Thane on 28.7.99 which continued till 8.9.99. This office is in receipt of Appraisal Report from Jt. DI(Inv.), Kalyan vide her confidential letter no.KYN/JDIT/Inv/Appraisal/99- 2000/197 dt. 29.11.99.
3. The cases of Nanji Khimji Thakkar group have been assigned to this Circle. After going through the Appraisal Report it is noticed that M/s Shree Siddhi Builders and Developers is a sister concern of NKT group and two brothers i.e. Shri Kanji Khimj Thakkar and Prabhulal Khimji Thakkar were the partners of the above firm alongwith two outsiders. It is learnt that the said firm is assessed by you.
4. As per the Appraisal Report dt. 29.11.99 the said firm has constructed the project named 'Anand Mangal' having 18 flats in the said building. The DDI(lnv.), Thane has quantified the undisclosed income of Rs. 51,59,063 and the undisclosed investment in land to the extent of Rs 89,19,206. Considering the above facts, you are requested to take necessary action as per the provisions of s. 158BD to assess the above mentioned undisclosed income in the hands of your assessee.
Sd/-
(U.B. TRIMAL) Dy. Commissioner of Income-tax Circle-1(1), Thane"
4. It may be mentioned here that according to the arguments of the learned Counsel, the said letter was received by the Assessing Officer of the assessee on 12th March 2001, as on the margin of the said letter there is an initial and the date is put as "12/3/2001". It is also the case of the learned 6 IT(SS)A NO. 172&151/MUM/03 (Block Period 1989-90 to 1999-2000) Counsel that the aforementioned letter cannot suggest that any satisfaction was recorded by the Assessing Officer of the searched person(s) according to which it can be said that the Assessing Officer of the searched person(s) was satisfied that undisclosed income belongs to the assessee. It is also the case of the learned Counsel that not only the satisfaction should be recorded but according to the requirements of section 158BD, the Assessing Officer of the searched person(s) should have handed over the material to the Assessing Officer of the other person to whom the material belongs on the basis of which the satisfaction has been recorded by the Assessing Officer of the searched person(s). It is on this short ground, both the parties had argued and the other aspects of the appeal were not gone into, as, if it is held that there was no "satisfaction" recorded by the Assessing Officer of the searched person(s) with regard to the undisclosed income of the assessee, then it will vitiate the assessment framed on the assessee.
5. In the letter dated 6/7/2012 filed before us by the Ld. CIT DR it has been clarified that the "satisfaction" is in the shape of aforementioned letter dated 8/3/2001 and the contents of the said letter have already been reproduced, therefore, it is undisputed that there is no other satisfaction recorded by the Assessing Officer of the searched person(s) and we will restrict ourselves to the aforementioned letter as it is not even the case of the Department that any other "satisfaction" is recorded by the Assessing Officer of the searched person(s).
6. Ld. A.R relied upon the following decisions to contend that recording of "satisfaction" by the A.O of the searched persons (s) and handing over of the material, on which such satisfaction is formed, by the A.O of the searched persons(s) to the AO of the person sought to be assessed in pursuance to notice under section158BD of the Act are conditions precedent for the validity of assessment to be framed under section 158 BD of the Act.7 IT(SS)A NO. 172&151/MUM/03
(Block Period 1989-90 to 1999-2000)
(i) Judgment of Hon'ble Supreme Court in Manish Maheshwari vs ACIT, [2007] 289 ITR 341 (SC), wherein it has been held that condition precedent for invoking block assessment is that the search has been conducted under section 132 of the Act or documents / assets have been requisitioned under section 132A and there must be a satisfaction recorded by the Assessing Officer that any undisclosed income belong to any other person and also the material has to be handed over to the Assessing Officer having jurisdiction over such other person, then only the assessment under section 158BD can be resorted to. Reference in this regard can be made to Para-7 of the judgment.
(ii) Judgment of Hon'ble Delhi High Court in CIT v/s Radhe Shyam Bansal & Ors, [2011] 337 ITR 271 (Del.), wherein it has been held that recording of satisfaction by the Assessing Officer of the searched person(s) is a condition precedent. Satisfaction must be recorded by the said Assessing Officer that any undisclosed income belongs to any person other than the person(s) searched. Thereafter, the Assessing Officer of the third person can proceed against his assessee under section 158BC.
The documents / books of account or assets seized or requisitioned have to be handed over to the Assessing Officer of the third person. Referring to this decision, it is a case of the learned Counsel that not only the satisfaction of the Assessing Officer of the searched person(s) is a condition precedent but simultaneously, it is necessary that material has also to be handed over by the Assessing Officer of the searched person(s) to the Assessing Officer of the third person which, in the present case, is the assessee. He submitted that in that case also, satisfaction was alleged to be recorded only in the shape of letter 8 IT(SS)A NO. 172&151/MUM/03 (Block Period 1989-90 to 1999-2000) written by the Assessing Officer of the searched person(s) to the A.O of the assessee which has been discussed in detail in the aforementioned decision and, therefore, he submitted that the facts of the assessee's case are similar to the facts of the said case.
(iii) CIT v/s Sunil Bhala, [2011] 336 ITR 550 (Del.), wherein also, on similar type of letter, similar propositions have been laid by the Hon'ble Delhi High Court and reference in this regard can be made to Paras-4 and 16 of the judgment.
7. For similar propositions Ld. A.R relied on the following decisions:-
i) CIT v/s Late Raj Pal Bhatia, [2011] 333 ITR 315 (Del.);
ii) New Delhi Auto Finance P. Ltd. v/s JCIT, [2008] 300 ITR 83 (Del.);
iii) CIT v/s Dawn View Farms P. Ltd., (2008) 224 CTR 504 (Del.);
iv) Manoj Agarwal v/s DCIT, [2008] 113 ITD 377 (SB) (Del.);
v) ACIT v/s Amit Pande, 14 Taxman.com 93 (Indore).
8. On the other hand, it was submitted by the learned Departmental Representative that the letter dated 8th March 2001, clearly depicts the satisfaction of the Assessing Officer of the searched person(s) to the Assessing Officer of the assessee and thus, ingredients of section 158BD are fulfilled. Therefore, Ld. D.R submitted that the assessment framed on assessee should be held valid.
9. We have carefully considered the submissions in the light of the material placed before us. The contents of the letter dated 8/3/2001 which is stated to be "satisfaction" by Department, have already been reproduced in the above part of this order. It can be seen that said letter is written by the AO of the searched persons(s) to the AO of the assessee in pursuance of letter dated 5/3/2001 sent by the AO of the assessee to the AO of the searched person(s). The Department was required to submit the copy of the 9 IT(SS)A NO. 172&151/MUM/03 (Block Period 1989-90 to 1999-2000) said letter. The photocopy of the said letter was not legible, therefore, a typed copy of the same was produced by the ld. CIT, DR. It will also be relevant to reproduce the said letter.
" No.AC(Inv)Cir.30( 1)/ S&S/2000-200 1 Office of the Astt.Commissioner of Income Tax (Inv) Cir.30(1), P.K. Bhavan, C-12, 1st Floor, Bandra Kurla Complex, Bandra (East), Mumbai - 51.
Date : 5th March, 2001.
The Dy.Comm. of Income Tax Cir.1(1), Thane.
Sub: Search Action in the case of Shri.Vaiji Kanji Thakkar Action u/s 158BD of the I.T. Act, 1961 There was a search action in the case of Shri.Valji Kanji Thakkar, son of Late Shri.Kanji Khimji Thakkar, partner of the firm of M/s.Shree Siddhi Builders & Developers on 22.07.1999. Certain papers pertaining to my assessee M/s.Shree Siddhi Builders & Developers were found and seized in the case of Shri.Valji Kanji Thakkar. The appraisal report was of the Dy.Director of Income Tax (Inv), Thane. Assessment in the case of M/s.Shree Siddhi Builders & Developers for A.Y. 1998-99 is getting barred by limitation by 31.03.2001. All those transctions reported in the appraisal report and reflected in the seized documents are to be considered while finalising the assessment in the case of my assessee. Proper assessment can only be made u/s 158BD of the Act. Notice u/s 158BD of the Act cannot be issued by me unless a letter to that effect is received from you. In view of these facts, you are requested to issue a letter to the undersigned for initiating the proceedings u / s 1 58BD of the Act. On receipt of such letter a protective assessment will be made for A.Y.1998-99 in the case of the assessee. Regular assessment will be made u/s 158BD of the Act.
An early reply in the matter is highly appreciated.
Sd/ (A. H. Syed) Asst. Commissioner of Income Tax Circle.30(1), Mumbai.
Copy to: 1. The Addl.CIT Range-I, Thane.
2. The Addl.CIT.Range-30, Mumbai.10 IT(SS)A NO. 172&151/MUM/03
(Block Period 1989-90 to 1999-2000) For information.
ACIT(Inv).Cir.30(1), Mumbai."
From the above letter it can be seen that AO of the assessee had required the AO of the searched persons(s) to issue him a letter so that the proceedings can be started against the assessee under the provisions of section 158 BD and it is also mentioned that notice under section 158BD of the Act cannot be issued by him unless a letter to that effect is received. Thus the aforementioned letter dated 8/3/2001 written by the AO of the searched person(s) was not his self action. The said letter is written only in response to the letter dated 5/3/2001 of the AO of the assessee dated 5/3/2001. It will be relevant to reproduce the language of section 158BD which read as under:
"Undisclosed income of any other person.
158BD. 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."
9.1 A bare reading of the aforementioned section will reveal that the event which trigger initiation of proceedings under section 158BD will be an event if the AO of the searched persons(s) 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 AO having jurisdiction over such other person and the AO shall proceed under section 158BC against such other persons. Interpreting these provisions in the cases relied upon by Ld. AR it has been 11 IT(SS)A NO. 172&151/MUM/03 (Block Period 1989-90 to 1999-2000) held that condition precedent for invoking block assessment is that there must be a "satisfaction" recorded by the AO that any undisclosed income belonged to any other person and also the material has to be handed over to the AO having jurisdiction over such person, then only the assessment under section 158BD can be resorted to. This position of law has become settled by the aforementioned decisions.
9.2 Now the contention of revenue is that letter dated 8/3/2001 should be considered as "satisfaction". Such contention of revenue cannot be accepted firstly; on the ground that letter dated 8/3/2001 is not a spontaneous act of the AO of the searched persons(s). Secondly; even the said letter does not record any "satisfaction" of the AO of the searched persons(s). In para -1 of the said letter reference is made to the letter of the AO of the assessee dated 5/3/2001. In 2nd para fact regarding conduct of search in the case of Nanji Khimji Thakkar Group on 28/7/1999 till 8/9/1999 is recorded and a reference is made to the receipt of appraisal report from Joint DDI, Kalyan. In 3rd para it is mentioned that the case of searched group is assigned to the DCIT, Circle 1(1), Thane and it is also mentioned that after going through appraisal report it is noticed that the assessee is a sister concern of NKT Group and two brothers i.e. Shri Kanji Khimji Thakkar and Prabhulal Khimji Thakkar were partners of the above firm alongwith two outsiders. It is also mentioned that it is learnt that the said firm is assessed by the AO of the assessee. In para 4 a reference to appraisal report dated 29/11/1999 is made according to which the assessee firm had constructed a project named as "Anand Mangal" having 18 flats in the said building and DDI(Inv), Thane have quantified the undisclosed income to the extent of Rs. 89,19,206/- and considering that fact the AO of the searched person(s) has written to the AO of the assessee to take necessary action as per the provisions of section 158BD of the Act to assess above mentioned undisclosed income in the hands of the assessee. Thus it can been seen that in para 1, 2 &3 there is no recording of "satisfaction" as 12 IT(SS)A NO. 172&151/MUM/03 (Block Period 1989-90 to 1999-2000) only facts have been stated. In para-4 the reference is made only to appraisal report and para-4 does not convey any "satisfaction" of the AO of the searched person(s). Thus there is complete lack of any "satisfaction" recorded by the AO of the searched persons(s) as the letter dated 8/3/2001 does not record any "satisfaction" against the assessee which can only be said to be the "satisfaction" of AO of the searched person(s). The quantification by the DDI(Inv) of the undisclosed income in the hands of assessee cannot be termed or equated with "satisfaction" recorded by the AO of the searched persons(s). Moreover the second ingredient to validate proceedings under section 158BD of the Act is also not fulfilled as no material whatsoever has been handed over by the AO of the searched person(s) to the AO of the assessee on the basis of which such alleged "satisfaction" is recorded.
9.2 In view of the above discussions it has to be held that assessment proceedings carried out against the assessee are not valid for the reason that notice under section 158BD was issued against the assessee without fulfilling the condition precedent necessary for issue of notice under section 158BD of the Act. The appeal filed by the assessee is allowed on this legal ground itself. As the assessment has been held to be invalid, other grounds raised by the assessee as well as revenue have become academic and are not required to be adjudicated.
10. In the result, appeal filed by the assessee is allowed in the manner aforesaid and appeal filed by the revenue is dismissed.
Order pronounced in the open court on the 27th day of July, 2012
Sd/- Sd/-
( G.E.VEERABHADRAPPA ) (I.P.BANSAL)
PRESIDENT JUDICIAL MEMBER
Mumbai, Dated 27th July, 2012
13 IT(SS)A NO. 172&151/MUM/03
(Block Period 1989-90 to 1999-2000)
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"A" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.