Income Tax Appellate Tribunal - Delhi
Anupam Naglia, Gurgaon vs Assessee on 11 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'A' : NEW DELHI)
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
AND
SHRI T.S.KAPOOR, ACCOUNTANT MEMBER
I.T.(SS) No. -36/Del/2010
(ASSESSMENT YEAR- 01.04.1997 to 08.05.2003)
DCIT, vs Anupam Nagalia,
Circle-20(1), Room No-333, EG-3/18, Garden Estate,
E-2, Ara Centre, Jhandewalan Gurgaon
Extension, New Delhi.
(APPELLANT) (RESPONDENT)
C.O.-380/Del/2010
(In I.T.(SS) No.-36/Del/2010)
(ASSESSMENT YEAR- 01.04.1997 to 08.05.2003)
Anupam Nagalia, vs DCIT,
EG-3/18, Garden Estate, Circle-20(1), Room No-333,
Gurgaon E-2, Ara Centre, Jhandewalan
Extension, New Delhi.
(APPELLANT) (RESPONDENT)
Appellant by Sh. Salil Agarwal, Adv. &
Sh. Shailesh Gupta, CA
Respondent by Sh. A.Mishra, CIT DR
ORDER
PER DIVA SINGH, JM
The present appeal has been filed by the Revenue against the order dated 14.06.2010 of CIT (Appeals)-I, New Delhi for the block period 01.04.1997 to 08.05.2003 on the following grounds:-
1. "The order of the ld. CIT(Appeals) is not correct in law and facts;
2 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010
2. In the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in quashing the block Assessment completed under section 158BC read with section 158BD of Income Tax, 1961 whereas neither objection was raised against legal validity of proceedings before the AO nor any remedy was sought at any, other level;
3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
2. The facts available on record as per the assessment order show that search & seizure operation was conducted on the residence of the assessee on 08.05.2003 in connection with the search in Vatika Group of companies. For ready-reference we extract the opening para of the assessment order hereunder:-
"Search & Seizure operations were conducted at the residence of the assessee on 8/5/2003 in connection with the search in Vatika Group of Companies. A satisfaction note was recorded by the Assessing Officer having jurisdiction over the Vatika Group of Cases. Accordingly a notice u/s 158BD was issued on 31/05/2005 and the assessee filed its return of income u/s 158BD on 20/10/2005 declaring NIL undisclosed income.
Notice u/s 143(2) was issued and the assessee requested for the reasons for the issuance of notice u/s 158BD. A copy of satisfaction note was duly provided to the assessee and the assessee filed its letter dated 10/5/2006"
(Emphasis provided)
3. The AO considering the reply of the assessee that the documents were mere proposals and were never acted upon as they were claimed to be rough calculations etc. apart from various other explanations offered came to the conclusion that reliance placed upon the order dated 23.09.2005 in the case of S.M.Agarwal reported in ITA No-116/Del/2001 was misplaced and proceeded to make various additions resulting in the addition of Rs.1,89,53,900/-. This action was challenged by the assessee in appeal before the CIT(A) before whom 25 grounds were raised. Challenge was posed to the action of the AO on legal grounds as well as on merits. A perusal of the grounds raised shows that vide Ground No-1 to 9 assumption of 3 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 jurisdiction by the AO u/s 158BD was assailed. The specific grounds raised before the CIT(A) read as under :-
1. "The assessee has preferred this appeal against order of assessment made u/s 158BD of the Income Tax Act,1961 on 21.05.2007 assessing undisclosed income at Rs. 1,89,53,900/- against NIL undisclosed income declared by the assessee. In response to notices issued in the appellate proceedings, Sh. D.B. Jain, C.A. appeared from time to time with whom the appeal was discussed.
2. Against the order of assessment u/s 158BD the assessee has filed this appeal and raised 25 grounds, which are reproduced hereunder:
1) That the ld. DCIT, Central Circle-20 has erred both on law and on facts in initiating the proceedings and framing an order of assessment dated 21.05.2007 under Chapter XIVB of the Income Tax Act, 1961 and determining the undisclosed income of the assessee at Rs. 1,89,53,900/-.
2) That the instant assessment made, is barred by limitation and the provisions of section 158BD of the Act has been invoked only for collateral purposes, despite the fact, that all the document had been seized from the assessee on a search conducted at the residence of the assessee or 08.05.2003.
3) That the ld. Deputy Commissioner of Income Tax has failed to comprehend that the warrant of search was admittedly issued in the name of Vatika Group of Companies and assessee being the director was searched at his residence. It could thus not be denied that assessee was a person who had been searched on 08.05.2003.
4) That in doing so he has failed to appreciate the assessment has been framed by him by invoking the provisions of Sec. 158BD of the I.T. Act, 1961 and not that the proceedings have been initiated against the assessee by invoking the provisions of Section 158BC of the Income Tax Act, 1961.
5) That the ld. DCIT has further erred in failing to appreciate that under the provisions of section 158BD of the Income Tax Act, 1961 a note of satisfaction was required to be recorded in the case of the person who had been searched on the basis of which the AO having jurisdiction over the assessee was required to be satisfied that books of accounts, other documents or assets seized represented undisclosed income of then person against whom the proceedings have been initiated by him.
In the absence of any such satisfaction having been recorded in the case of person searched no valid proceedings could have been initiated against the assessee.
6) That the ld. Deputy Commissioner of Income Tax has failed to appreciate that no such documents or evidence were either found or seized from the person searched and as such no assessment could be made by invoking the provisions of Section 158BD of the Income Tax Act, 1961.
4 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010
7) That the ld. DCIT has failed to comprehend that the provisions of section 158BC and 158BD of the Act operate in different fields and it depends upon the satisfaction of the AO having jurisdiction in the case of person searched to initiate or not to initiate proceedings against the assessee and as such he was obliged in law to record a note of satisfaction in the course of such a person who has been searched before initiating the proceedings against the assessee.
8) That in the instant case, it is an admitted fact the purported alleged documents, on the basis of which assessment has been made, were seized from the assessee during the course of search stated to have been conducted on him on 08.05.2003 whereas it is undisputed fact that no such documents were found or seized as a result of search conducted on such other person, which search has been conducted on 08.05.2003.
9) That the present assessment has been framed by invoking the provisions of section 158BD of the Income Tax Act, 1961 only to circumvent the time provided to complete assessment u/s 158BE of the Act, which had expired. The assessment made is barred by limitation."
3.1. The facts were marshalled by the CIT(A) in para 3 of his order as under:-
3. "Ground No. 1 to 9 of the Grounds are regarding assumption of jurisdiction u/s 158BD of the Act. The relevant facts are, search and seizure operations u/s 132(1) of the Act was conducted at the residence of the assessee on 8.5.2003 as well as Vatika Group of Companies. Thereafter, notice u/s 158BD of the Act was issued on 31.5.2005 to the appellant and assessee in response thereto, filed his return of undisclosed income on 20.10.2005 declaring Nil undisclosed income. However, an assessment was made u/s 158BD/158BC/143(3) of the Act dated 21.05.2007 determining the undisclosed income of the appellant at Rs. 1,68,53,900/-. The appellant has disputed the initiation of proceedings under section 158BD of the Act and filed detailed written submission in respect of the above contention."
(Emphasis provided) 3.2. In support of the grounds raised the detailed submissions advanced on behalf of the assessee are found reproduced in the impugned order. The same are extracted hereunder:-
3.1.1 "In the written submissions, it has been contended that, satisfaction note was recorded in the case of assessee and, no satisfaction note was recorded by the Assessing Officer in the case of Vatika Group of companies.
Therefore, according to the assessee, no note of satisfaction was recorded by the AO having jurisdiction over the assessee who has been searched although 5 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 in the assessment order it is stated that, a satisfaction note was recorded by the AO having jurisdiction over the Vatika group of companies. The assessee has stated that, the AO has in the first para of the order of assessment framed u/s 158BD has noted that, "a satisfaction note was recorded by the AO having jurisdiction over the Vatika Group of Cases". Again in second para of the order, it is stated that a copy of satisfaction note was duly provided to the assessee and the assessee filed its letter dated 10.05.2006. The appellant has disputed the observation made by the AO in the first para of the order of assessment that a satisfaction note was recorded by the AO having jurisdiction over the Vatika Group of cases. It is contended that during the course of hearing, the assessee filed a reply dated 14th May, 2007 wherein assessee specifically raised this issue before the completion of assessment proceedings. The AO however, did not deal the aforesaid objections of the assessee. Further, it was submitted that, copy of the said satisfaction note had been served upon the assessee on 27.01.2006 when the satisfaction note was recorded on 31.05.2005 and, no reason for delay of over 7 months has been given. It was further submitted as under:
"A perusal of the satisfaction note served on the assessee shows that the heading of the so recorded reasons reads as under:
Reasons u/s 158BC read with 158BD in the case of Shri Anupam Nagalia".
Again the opening paragraph reads as under:
"Warrant was issued in the name of Vatika Group of Companies to search residence of Sh. Anupam Nagalia. On 08.05.2003, who was Director of some of the companies and also a Chartered Accountant. Scrutiny of seized documents reveals that assessee had unaccounted income under the following heads".
Further in the end the note reads as under:
"In view of the facts stated above and material available in the form of seized documents, I am satisfied that Sh. Anupam Nagalia had undisclosed income for the block period 01.04.1997 to 08.05.2003 which was not disclosed in the regular return of income.
Therefore, notice u/s 158BC read with section 158BD is issued. The aforesaid instances clearly indicate that the aforesaid note of satisfaction was recorded by the officer having jurisdiction over the assessee and was not recorded by the AO having jurisdiction over the person searched".
In support of above contention about the satisfaction note, the assessee has relied upon the decisions by the Apex Court in the cases of (1) Manish Maheshwari vs. ACIT vs. Kishori Lal Balwant Raj reported as 17 SOT 308 (Chandigarh) ITAT and ACIT vs. R.P. Singh reported as 165 Taxman 147 (Mag. Delhi ITAT). On the basis of aforesaid decisions, the assessee has objected to the initiation of proceedings since according to him no satisfaction note whatsoever was recorded by the AO having jurisdiction over the person searched.
6 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 The assessee has also contended that, the additions made in the hands of the assessee have been made on the basis of documents seized from assessee's premises allegedly pertaining to the assessee and not on the basis of even a single paper seized from the premises of Vatika Group of Companies. Even in the note of satisfaction there is no mention of any incriminating document seized from the residential premises of Sh. Anupam Nagalia. The assessee has therefore, objected to the observations of the AO that a note of satisfaction was recorded in the case of Vatika Group of companies. In fact, there cannot be any occasion to record any note of satisfaction for the papers seized during search on the assessee not pertaining to Vatika Group of Companies. Secondly, the assessee is aggrieved on the assessment made by the AO under the provisions of section 158BD since according to the assessee, the AO has no jurisdiction for assessment u/s 158BD which jurisdiction was wrongly assumed by the AO instead of application of provisions of section 158BC in order to circumvent non issue of notice u/s 158BC. In this connection without prejudice and in the alternative the assessee submitted that the assessment has been framed u/s 158BD whereas it should have been completed under the provisions of section 158BC and thus, the assessment made is barred by limitation and the provisions of section 158BD are not attracted in the case of the assessee. The appellant has submitted as under:
"The facts in this connection are that:
a) Assessee is an Individual.
b) He is a director in some of the Vatika Group of Companies.
c) There was search proceeding u/s 132 of the I.T. Act, 1961 on 08.05.2003.
d) The assessee being the director was searched at his residence. On the aforesaid facts and circumstances it could not be denied that assessee was a person who had been searched on 08.05.2003. As such assessment on assessee should have been made under the provisions of section 158BC and the assessment proceedings should have been concluded by 31st May, 2005.
However, in the present case a note of satisfaction was prepared only on 31.05.2005 and assessment was completed u/s 158BD on 21.05.2007 by wrongly assuming jurisdiction to assess the assessee u/s 158BD where assessment in assessee's case in respect of undisclosed income if any should have been completed u/s 158BC.
It was further submitted by the assessee, it is so since a search on assessee's premises was carried out on 08.05.2003 when a number of documents etc., were seized. Even a locker in the name of assessee's wife was also searched although no addition on the basis of contents in the said locker have been made in the hands of the assessee. The assessee again contended that in the instant case it is an admitted fact that the purported alleged documents, on the basis of which assessment has been made, were seized from the assessee from his residence during the course of search stated to have been conducted on him on 08.05.2003 whereas it is undisputed fact that no such documents 7 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 were found or seized as a result of search conducted on such other person which search has been conducted on 08.05.2003. The assessee again contended that if the AO found that as a result of papers seized by the department from assessee's residence on search on 08.05.2003, he could have issued a notice u/s 158BC, within the time prescribed under the Act and ought to have completed the assessment latest by 31st May, 2005 as provided u/s 158BE of the Act. However, in the instant case, no such notice was issued by him and, he has chosen to initiate proceeding u/s 158BD of the Act by recording satisfaction in assessee's hands.
From the aforesaid, assessee submits that it is evident that, instead of initiating proceeding by issue of notices u/s 158BC of the Act and, serving the same within a period permissible under the Act, the ld. AO issued notice u/s 158BD of the Act. In fact it may be stated that, recourse to the provisions of section 158BD of the Act can be said to have been taken for collateral purpose i.e., to circumvent the non-issue of notice u/s 158BC of the Act.
It is submitted that, the assumption of jurisdiction by invoking the provisions of section 158BD of the Act, is without jurisdiction, as no valid notice could have been issued beyond a period of two years from the end of the month in which search took place at assessee's premises. It is further submitted that the legislature has provided a period of two years to an AO to complete assessment u/s 158BC where search has taken place. It is however, submitted that when an action is taken, then it should not be because of any remissness on the part of the AO to initiate the proceedings. In the instant case, the ld. AO on the same facts had taken up the proceedings in the case of the assessee and, had completed the same after period of 2 years as prescribed and, as such, if, he did not choose to initiate proceedings under the correct provisions of the Act where he was within his jurisdiction, it is clear case of remissness on the part of the AO. It cannot be validly said that the ld. AO on the same facts takes up the assessment of all assesses where search was taken up issue a notice u/s 158BC of the Act on the assessee, there is no remissness on his part. It is submitted that, a person cannot be allowed to take advantage of his own lapse or remissness. The short submission of the assessee is that having searched the premises of the assessee, the AO cannot make the same a basis to initiate proceedings u/s 158BD of the Act. It is a case of an inaction on the part of the AO and, any inaction on then part of the AO has always to be at the core of national exchequer Reliance is placed on the judgment of Hon'ble Supreme Court in the case of ParshuRam Pottery Works Ltd. vs. ITO reported in 106 ITR 1 at page 10 where it has been observed as under:
"It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the
8 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the Income Tax assessment order are concerned, they cannot be reopened on the score of income escaping assessment u/s 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case".
It is submitted that, it is also well settled law that, assessee is not under obligation to ask the AO to assess him u/s 158BC for the papers seized from him. There can be no occasion to disclose what AO already knows. It is for the AO to raise such inferences and, draw his own conclusion.
It is submitted that the present assessment has been framed by invoking the provisions of section 158BD of the Income Tax Act, 1961 only to circumvent the time provided to complete assessment u/s 158BE of the Act, which had expired as such assessee contends that the assessment made is barred by limitation.
Without prejudice, the assessee, further submits that in then instant case search was conducted on Vatika Group of Companies on 08.05.2003 and in the cases of Vatika Group assessments were made by 31.05.2005, whereas in assessee's case proceedings were initiated by the AO on 31.05.2005, though without jurisdiction and improperly, yet inspite of, the assessee had furnished his reply on 10.05.2006. However, the AO again proceeded when assessment was going to be barred by limitation as had stated when according to assessee it had already become barred by limitation by long lapse of time, which according to assessee should have been completed on 31.05.2005 as there was a seizure made form the assessee on 08.05.2003. It is contended by the assessee that the entire purpose for making the assessment is to burden the assessee, with the tax liability and without affording to the assessee a fair and proper opportunity, when assessment had already become barred by limitation. The assessee is unable to comprehend any reason as to why proceedings which had been initiated on 31st May, 2005 and in respect of which the assessee had filed his reply on 10.05.2006 were not completed, when the assessee had already filed his reply as early as on 10.05.2006. It is 9 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 thus contended that the AO was sitting with predetermined mind to frame the assessment arbitrarily".
3.3. It is seen that the assessee's objections were confronted by the CIT(A) to the AO and Remand Report was sought from him. The relevant extract from the impugned order is reproduced hereunder:-
3.4 "In response to the submissions made by the assessee, a remand report was sought from the AO vide office letter No.F.No.CIT(A)-1/2008-09/135 dated 17.09.2008. The AO sent his report on 26.08.2009 which is being extracted hereunder:
"Kindly refer to your office letter F.No.CIT(A)-1/2008-09/135 dated 17.09.2008 on the above referred subject.
2. This office has been required to submit remand report on the specific issue that block assessment should have been completed u/s 158BC of the I.T. Act, 1961 on 31.05.2009 in pursuance of search having been conducted on the residence of the assessee and on the company M/s Vatika Landbase P. Ltd. in which he was director on 08.05.2003.
3. In this connection, following submissions may kindly be considered in appellate proceedings:
a) It is undisputed fact that search was conducted u/s 132 of I.T. Act, 1961 in the case of Sh. Anupam Nagalia and on the company M/s Vatika Landbase P. Ltd. in which he was director on 08.05.2003.
b) Notice u/s 158 BD of the Income Tax Act, 1961 was issued on 31.05.2005 after recording satisfaction note. Thus, the notice was issued within the limitation period.
c) Block assessment was completed u/s 158BD of I.T. Act, 1961 on 21.05.2007 on undisclosed income of Rs. 1,89,53,900/- against undisclosed income shown at Nil in return of undisclosed income.
d) The assessee complied with the notices and filed written submissions though raised objections relating to merits of the satisfaction note as not commensurate with the legal requirements of section 158BD of the Income Tax Act, 1961.
e) During the course of block assessment proceedings, the assessee did not raise the issue of block assessment u/s 158BC but objected to the initiation of proceedings u/s 158BD on merits of satisfaction note.
f) Therefore, in view of provisions of section 292BB of Income Tax Act, 1961, the assessee is precluded from taking any objection in the block assessment proceedings.
10 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 Accordingly, the objections of the assessee against the block assessment are liable to be rejected."
(Emphasis provided in the present proceedings) 3.4. The record further shows that the Remand Report forwarded by the AO was confronted to the assessee by the CIT(A) and comments of the assessee were invited thereon. It is further seen that the assessee vide letter dated 23.03.2009 forwarded the following submissions (these are extracted from pages 12 & 13 of the impugned order):-
3.5 "The assessee in comments on the remand report on 23.12.2009 submitted as under:
"It is submitted that the assessment as had been framed on 21.05.2007 is barred by limitation, whereas it had to be framed by 31.05.2005, since the search u/s 132(1) of the Income Tax Act, 1961 had been completed on 08.05.2003, when the documents on the basis of which an undisclosed income has been computed were found and seized from the residential premises of the assessee. It is an admitted fact that, the search had been conducted on the assessee u/s 132(1) of the Income Tax Act, 1961 on 08.05.2003, and as such as is provided u/s 158BE of the Income Tax Act, 1961 the assessment had to be framed within the period of two years from the end of the month, in which the last of the warrant of authorization was finally executed. In the instant case, it is also an undisputed fact that, the search had finally been concluded on 08.05.2003 and as such it is emphasized here that, no assessment in law could be made by the ld. AO. It is further submitted that, there is no further search conducted on the assessee or even on M/s Vatika Landbase Pvt. Ltd. of which the assessee was the director.
In such a situation, on a receipt of the notice u/s 158BD of the Act, 1961 dated 31.05.2005 from the ld. AO, the assessee has raised by way of an alternative argument in reply of such a notice and there is no note of satisfaction recorded for initiating the proceedings. However, the fact of the matter remains is that, the assessment framed by the ld. AO is evidently barred by limitation, as the assessment had to be framed, on the basis of search conducted on the assessee on 8.5.2003 and there was absolutely no valid justification not to have completed the assessment by 31.5.2005 and as such it was submitted the notice issued u/s 158BD was an attempt to wriggle out of an awkward situation for having not completed the assessment within the time provided in law and was to circumvent the provision of section 158BD of the Income Tax Act. It is thus manifestly clear that the assessment framed is barred by limitation and is wholly untenable in law.
11 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 In the comments of the ld. AO, dated 26.08.2009 it has been stated by him that, the assessee had not raised any such objection in the course of proceedings before him. In so far as the facts of the instant case are concerned, it is submitted that such a submission is not a correct statement made by AO and in fact such an objection was raised by the assessee, in its written submission dated 14.05.2007, a copy of which appears at page 72 of the paper book. Be that as it may, even otherwise the provisions of sec. 292BB of the Act, has no application.
It is further submitted that in so far as the validity of period of limitation is concerned, in any case and without prejudice the said provision of sec. 292BB of the Act otherwise too, have no application and further the aforesaid provisions, had been inserted by the Finance Act, 2008 w.e.f. 01.04.2008 whereas the assessment had been completed on 21.05.2007 and as such a provision otherwise too has no application. It is respectfully submitted that, the assessee could not have decided for himself not to participate in the proceedings despite the fact that, (the same has became barred by limitation) since the assessee had to comply with the notice issued and had not option not to do so, it and as such it could not be stated that merely because assessee had participated in the assessment proceedings he is not entitled to contend that assessment made was barred by limitation and the purported notice u/s 158BD of the Act was no notice in the eyes of law.
In such circumstances it is submitted the objection raised by the ld. AO by his letter dated 26.08.2009 is misdirected, misconceived and thus, deserves to be rejected as is entirely untenable.
It is thus prayed that, it be held that an assessment made is barred by limitation. In respect of the other issues and grounds of appeal detailed submissions have already been made and in respect of which there have been no counter submissions made by the ld. AO".
3.5. Considering the same the CIT(A) allowed the appeal of the assessee holding that the proceedings initiated u/s 158BD were not legal. He further went on to examine and hold that the same were time barred u/s 158BC. These detailed findings are found discussed in para 4 to para 4.9 at pages 14-21 of the impugned order. Aggrieved by this the Revenue is in appeal before the Tribunal.
4. The hearing in the present proceedings took place on two separate and distinct dates as after hearing both the sides, it was considered appropriate for the sake of completeness to direct the parties to place on record the written 12 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 submissions addressing their respective stand and that too after mutually exchanging the same amongst themselves first.
4.1. In compliance with the directions the Ld. CIT DR, Ms. Anuradha Mishra placed written submissions dated NIL consisting of four un-numbered pages alongwith Annexures. The Ld. AR has also placed written submissions dated 15.05.2014 as a rebuttal to the department's contentions and also a supplementary rebuttal to the arguments of the Ld. CIT DR dated 21.05.2014 numbering 10 pages and 8 pages respectively accompanied with Annexures. Accordingly while referring to the respective arguments of the parties before the Bench apart from making reference to the oral arguments advanced the written submissions available on record would also be refereed to.
5. Since the LD. CIT DR has more or less completely encompassed the arguments advanced orally on the date of hearing it is appropriate to reproduce the departmental stand in the words of the Ld. CIT DR herself:-
"Facts of the case:-
The search and seizure operation was conducted in Vatika Group of cases on 8.5.2003. On the basis of papers/documents found/seized from the premises of M/s Vatika Land Base Pvt. Ltd. notice u/s 158 BD of the Income- Tax Act, 1961 was issued in the case of Sh. Anupam Naglia. Assessment u/s 158 BC read with section 158 BD of the Income-tax Act was framed in the case of Sh. Anupam Naglia on 21.5.2007 at total income of Rs. 1,89,53,900/- as against the returned income at Nil. The above order was challenged by the assessee before the CIT(A) and the CIT(A) in his order dt. 14.6.2010 has quashed the order on the ground that the proceedings initiated u/s 158BD of the Income-tax Act were not legal and valid.
2. The decision of the CIT(A) can be summarized as follows:
I. That the search and seizure operation u/s 132( 1) of the Act was conducted on 8.5.2003 at the residence of the assessee as well Vatika Group of Companies.
This observation of the CIT(A) is factually incorrect because the search warrant was issued in the name of M/s Vatika Land Base Pvt. Ltd., Anil 13 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 Bhalla, Gaurav Bhalla.Gautam Bhalla. No search warrant was issued in the name of Shri Anupam Naglia (Copy of Search Warrant & Panchnama is enclosed for ready reference).
II. The basic statutory precondition for invoking provision contained in section 158BD of the Act is the satisfaction recorded by the AO of the searched person and that such satisfaction should be recorded in writing on the basis of material found as a result of search on the searched person.
Applying these to the facts of the instant case it should be seen that basis adopted for initiation of proceeding u/s 158BD of the Act in the case of appellant is that there has been a search conducted on the premises of Vatika Group of Companies and as a result of the material found during the search satisfaction was recorded by the AO having jurisdiction over the Vatika Group of Companies.
iii. ..... It is admitted that each of the aforesaid papers have been found as a result of search on the appellant and not from the premises of Vatika Group of Companies i.e. searched person.
This observation made by the CIT(A) is factually incorrect because the seized papers relied upon the AO for initiating proceedings u/s 158BD of the Act have been found from the premises of the Vatika Group of Company. No search was conducted on the appellant.
iv) The CIT(A) has also given an observation that undisputedly search has been conducted on the premises on 8.5.2003 (on the appellant Sh. Anupam Naglia), However, it is apparent that no action was taken on the basis of said search as no notice u/s 158BC of the Income-tax Act was issued to the appellant. In fact even the instant proceedings cannot be taken as proceedings u/s 158BC of the Act since, firstly initiation of the proceedings undoubtedly u/s 158BD of the Act and moreover, limitation for framing assessment u/s 158BC of the Income-tax Act expired on 31.5.2005 which is the date on which notice u/s 158BD was issued to the appellant.
The above observation of the CIT(A) are based on incorrect facts, since no search was conducted on Anupam Naglia, the appellant and therefore, there was no requirement of issuing notice u/s 158BC of the Income-tax Act in the case of Sh Anupam Naglia. Certain documents seized from the premises covered in the search on M/s Vatika Group of cases revealed that the assessee Sh Anupam Naglia had unaccounted income therefore, being satisfied that Sh Anupam Naglia had undisclosed income for the Block Period 01.04.1997 to 08.05.2003 which was not disclosed in the regular return of income, a notice u/s 158BC read with section 158BD of the IT Act was issued by the ACIT, Central circle - 20, New Delhi.
14 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010
3. To sum up, the CIT(A) is of the view that,
(a) A search was conducted in the case of appellant, Sh. Anupam Naglia, therefore, notice should have been issued in this case u/s 158BC of the Act. However, since no notice u/s 158BC was issued up to 31.5.2005 the limitation for issue of notice had clearly expired and any assessment u/s 158BC of the Act had become time barred.
(b) The notice issued u/s 158BD of Income-tax Act was illegal and invalid because the satisfaction recorded by the AO was based on the seized material found from the premises of appellant himself and not from any other person (M/s Vatika Land Base Pvt. Ltd.)
4. The above view taken by the CIT(A) IS factually incorrect in view of the following facts:
a) Search was carried out in the case of Vatika Group of cases specifically M/s Vatika Land Base Pvt. Ltd., Anil Bhalla, Gaurav Bhalla, Gautam Bhalla as is evident from the search warrant as well as Panchnama.
b) Search warrant was issued in the name of Vatika Land Base Pvt. Ltd. at the residence of Anupam Naglia i.e. EG-3118,Garden Estate, Gurgaon.
c) No search warrant was issued in the name of appellant Sh. Anupam Naglia.
d) It is settled Law that section u/s 132(1) is person specific and not premises specific.{Smt. Nasreen Yusuf Dhanani Vs ACIT-(2009) 118 ITD 133(MUM)}
e) The books of accounts/documents were seized from the searched persons.
M/s Vatika Land Base Pvt. Ltd., Anil Bhalla, Gaurav Bhalla and Gautam Bhalla.
f) AO has having jurisdiction with Vatika group of companies recorded satisfaction as required u/s 158BD of the Act and on the basis of this satisfaction, notice was issued u/s 158BD to the appellant. Reliance is placed on the following case:
(A) Vinod Goel (Page 30) 107TTJ 1853.
(B) Sanjay Kumar Modi (Page 3) 150 Taxman 175 (C) Ved PRakash, Sanjay Kumar 76 LTD 107 (Page 28(2) (D) ACIT vs 17 SOT 380 (12) (E) Jaxan Bai 94 Taxman 24 (page 28)
5. In view of the fact of the case and the legal position, it is clear that the CIT(A)'s order is based on incorrect facts and it should therefore be set aside."
6. On behalf of the assessee in support of the impugned order attention was invited to the specific ground raised by the Revenue. Carrying us through the sole 15 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 issue agitated by the Revenue it was his submission that the Revenue is only aggrieved as per the ground raised that the assessee has not raised any objection against the validity of initiation of proceedings before the AO and also by the fact that the assessee has also not sought any remedy at any other level. It was argued that no challenge is posed by the Revenue to the finding recorded in the impugned order by way of a specific ground and nor has the revenue raised any specific ground challenging the finding that the proceedings initiated u/s 158BD were not validly initiated, accordingly it was submitted that on this preliminary issue itself the department's appeal should be dismissed. For ready-reference we extract from the submissions dated 15.05.2014:-
1.1 "At the outset, it is submitted that in the aforesaid ground of appeal, the only grievance of the revenue is that, as the assessee has not raised any objection against the validity of initiation of proceedings before the ld. AO nor had sought any other remedy at any other level against the validity of initiation of proceedings, the ld. CIT(A) had thus erred in quashing the order of assessment passed u/s 158BD of the Act. However, revenue has not disputed nor any ground of appeal has been raised challenging the finding of ld. CIT(A) that the proceedings initiated u/s 158BD of the Act were not validly initiated."
6.1. Having advanced the preliminary objection to the maintainability of the departmental appeal the Ld. AR addressing the factual matrix while referring to the impugned order and that of the assessing officer emphasized the following dates so as to support the impugned order. These are extracted from the written submissions dated 15.05.2014 hereunder:-
3.1 "08.05.2003: A search and seizure operation was conducted on M/s Vatika Landbase (P) Ltd., Sh. Anil Bhalla, Sh. Gaurav Bhalla and Sh. Gautam Bhalla as also at the residence of the assessee-respondent Sh. Anupam Nagalia (Director in various companies of Vatika Group) (Kindly see copy of warrant of authorization annexed as Annexure - A and copy of panchnama enclosed at pg no. 1 of paper book).
3.2 23.07.2004: Notice u/s 158BC of the Act was issued to M/s Vatika Landbase Private Limited.
16 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 3.3 31.05.2005: Assessment was framed on M/s Vatika Landbase Private Limited u/s 158BC of the Act at an undisclosed income of Rs. 45,89,68,830/-. 3.4 No notice u/s 158BC of the Act was however issued in the name of the assessee-respondent.
3.5 31.05.2005: That a notice u/s 158BD of the Act was however issued to the assessee-respondent and thereafter, the assessee sought for the copy of satisfaction note and copy of seized documents vide replies dated 13.06.2005 and 29.06.2005 (kindly see pages 15 and 16 to 18 of the paper book). Thereafter, the purported satisfaction note was provided to the after a delay of almost seven months on 27.01.2006 (kindly see page 38 of the paper book). 3.6 21.05.2007: The AO framed an assessment at an undisclosed income of Rs. 1,89,53,900/-.
3.7 The assessee-respondent being aggrieved against the aforesaid order of assessment; preferred an appeal before ld. CIT(A) on various grounds including (kindly see pages 306 to 318 of the paper book).
i.Alleged satisfaction note so recorded is not by the AO of the searched person; hence assessment framed is illegal and void-ab-initio. ii.Satisfaction note was not recorded prior to the culmination of proceedings in the case of searched person.
iii.The assessment has been framed u/s 158BD of the Act, whereas, it should have been completed under the provisions of section 158BC of the Act and, thus, the assessment made is barred by limitation and provisions of Section 158BD of the Act are not attracted in the case of the assessee. On this ground alone, the assessment deserves to be cancelled.
3.8 14.06.2010: That ld. CIT(A) after calling for the remand report quashed the assessment so made by AO u/s 158BD of the Act (kindly see pages 18 to 21, para's 4.7 to 4.9 of CIT(A)'s order)."
6.2. Referring to the arguments of the Revenue advanced on the date of hearing i.e 12.05.2014 it was his submission that only the following grievance was posed by the Ld. CIT DR, the same again is reproduced in assessee's own words from the written submissions placed on record:-
5. "CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE: It is submitted that, the ld. CIT DR during the course of hearing on 12.05.2014 has made following submissions:
i. That the panchnama placed at page no. 1 of the paper book and also the warrant of authorization (annexed at annexure -A) as furnished by the revenue makes it clear that the search was conducted on M/s Vatika Landbase (P) Ltd., Sh. Anil Bhalla, Sh. Gaurav Bhalla, Sh. Gautam Bhalla and no search whatsoever was conducted in the name of Sh. Anupam Nagalia.
ii. That even though no search took place on Sh. Anupam Nagalia, however, search party entered the residence of Sh. Anupam Nagalia as could be seen from the 17 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 warrant of authorization so furnished by the Revenue and various documents were seized from the residential premises of Sh. Anupam Nagalia and thereafter, proceedings were validly initiated under section 158BD of the Act on Sh. Anupam Nagalia.
iii. That further, the ld. CIT DR relied on following decisions of Hon'ble ITAT to support its arguments, namely:
a) ACIT vs. Vinod Goel (ITAT Amritsar) reported in 111 ITD 70;
b) Smt. Nasreen Yusuf Dhanani vs. ACIT (ITAT Mumbai) reported in 118 ITD 133."
6.3. In rebuttal thereof it was again re-iterated that the Revenue is only aggrieved by the quashing of the proceedings on the ground that validity of the proceedings were not challenged before the AO. It was contended that not only this grievance is not relevant even otherwise it is de hors the facts as it has been ignored by the Ld. CIT. DR that the CIT (A) has categorically recorded a finding at page 20 para 4.8 of his order that the objection in regard to the initiation of proceedings was infact raised before the AO by the assessee vide letter dated 14.05.2007. In support of the same, our attention was invited to page 60 to 72 of the Paper Book filed (Specific para 16 at page 72). In this background it was his submission that the contention of the AO in his Remand Report dated 20.08.2009 copy of which is placed at pages 348-349 of the Paper Book regarding applicability of provisions of section 292BB of the Act is factually incorrect and contrary to material available on record. It was contended that where admittedly the only grievance posed by the Revenue is that no such ground was raised before the AO which factually is incorrect on facts then accordingly on the basis of this finding itself the sole ground raised by the Revenue deserves to be dismissed and the departmental appeal be accordingly dismissed.
6.4. Since arguments de hors the grounds were advanced it was contended by the Ld. AR that he would also address the issues raised in the arguments advanced by the Ld. CIT DR. It was contended that according to the Ld. DR no search was 18 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 conducted on the assessee and proceedings were validly initiated u/s 158BD it was again reiterated that this grievance is not arising out of the ground raised. It was again requested that the argument de hors the ground need not to be adjudicated upon as the department is traveling beyond the ground raised and in support for the said prayer, reliance was placed upon the following decisions:-
(a) CIT vs Sahara India Corporation Ltd.-296 ITR 285 (Delhi HC)
(b) CIT vs Samir Diamonds Exports Ltd. 245 ITR 548 (Bombay HC).
6.5. Contending that de-hors the ground the CIT DR had advanced her arguments it was emphasized that even if her arguments are considered for a moment, then it needs to be considered that the Ld.CIT DR has not disputed the fact that the premises which were searched upon was the residential premises of the assessee respondent and the documents had also been seized from the said premises in such a background it was argued section 158BD has wrongly been invoked which again supports the impugned order. The relevant extract from para 6.2 of the written submissions dated 15.05.2014 are reproduced hereunder:-
6.2 ....................................................................
"Thus, the submission of the assessee is that, in order to invoke the provisions of section 158BD of the Act, the basic premise/foundation is that the seized/incriminating material depicting undisclosed income should have been found from the premises of the searched person and once, the said material is seized the same has to be handed over by the AO of the searched person to the AO of the other person to frame assessment in accordance with the provisions of section 158BD of the Act. In the instant case, admittedly the material seized had been found from the premises of the appellant itself (whose premises has been searched) as is also noted in the warrant of authorization and panchnama and as such, assessment if at all to be framed had to be made in accordance with the provisions of section 158BC of the Act."
6.6. Even otherwise it was contended that the assessee respondent being a Director in various companies of M/s Vatika Group was searched on 08.05.2003 as such the assessment on the assessee could have been made only under the 19 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 provisions of section 158BC and the assessment proceedings should have been concluded by 31.05.2005 as provided u/s 158BE of the Act. However in the facts of the present case notice u/s 158BD was issued on 31.05.2005 and in pursuance to the said notice assessment was completed u/s 158BD of the Act on 21.05.2007. In the facts of the present case it was his submission that in respect of undisclosed income if any the assessment should have been completed u/s 158BC till 31.05.2005 as per the provision of section 158BE(1)(b) of the Act and accordingly since notice u/s 158BC had not been issued recourse to the provisions of Section 158BD was taken for the collateral purposes i.e. to circumvent the non-issuance of notice u/s 158BC. It would be appropriate to extract from the submissions dated 15.05.2014 filed so as to emphasize in assessee's own words the arguments advanced addressing the "mistake" of the AO:-
"6.3.3.................................................................... The short-submission here of the assessee-respondent is that having searched the premises of the assessee, the AO could not take recourse to the provisions of section 158BD of the Act. It is a case of an inaction on the part of AO to have not adhered to statutory provisions as envisaged u/s 158BC of the Act and, any inaction on the part of the AO has to be at the cost of national exchequer and for this proposition reliance is placed on the judgment of Hon'ble Supreme Court in the case of Parshuram Pottery Works Ltd. vs. ITO reported in 106 ITR 1 at page 10, wherein the lordships have held as under:
"It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income 20 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 escaping assessment u/s 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case. The appeal is consequently allowed, the judgment of the High Court is set aside and the impugned notices are quashed. The parties in the circumstances shall bear their own costs throughout."
6.7. It was also his contention that in the facts of the present case the proceedings initiated against the assessee by notice u/s 158BD was not accompanied by any satisfaction note. It was contended that though no specific ground has been raised by the Revenue however for the sake of completeness though he would be relying on the impugned order since arguments have been advanced by the Revenue he would further like to refer to certain other facts in this context. These are extracted from the submissions dated 15.05.2014 hereunder:-
6.4.1 "That on 13.06.2005 and 29.06.2005,the assessee-respondent sought from the AO a copy of note of satisfaction, if recorded for initiating proceedings u/s 158BD of the Act (see pages 15 and 16 to 18 of the paper book). The ld. AO never acceded to the request of the assessee till 27.01.2006 (see page 38 of the paper book), when the purported/alleged note of satisfaction was provided to the appellant.
6.4.2 Thus, it is evident that a note of satisfaction was provided to the assessee-respondent on 27.01.2006 i.e. nearly after 7 months of the request made by the assessee and thus, it is submitted that no valid proceedings were initiated against the assessee and since, there had been a failure on the part of AO to frame assessment u/s 158BC of the Act, a notice u/s 158BD of the Act was issued as an afterthought and that too by predating a satisfaction note recorded by dating the same as 31.05.2005. Thus, the proceedings so initiated u/s 158BD of the Act (without recording of proper satisfaction note) is without satisfying the statutory preconditions as envisaged under the Act and had been rightly quashed by ld. CIT(A) and in support of the aforesaid submission, the assessee-respondent would seek to place its reliance on the judgment of Hon'ble Supreme Court in the case of Manish Maheshwari vs. ACIT reported in 289 ITR 341.
21 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 6.4.3 In fact, the burden is very heavy on the revenue to establish that, such a note of satisfaction was recorded by showing independent evidence that a satisfaction note was recorded by the AO having jurisdiction over the person searched and that too prior to culmination of assessment made on M/s Vatika Ltd. on whose case an assessment was made which has not been done by the Revenue and as such, the assessment needs to be quashed on this ground alone.
6.4.4 Further, the assessee-respondent would seek to place its reliance on the findings as recorded by ld. CIT(A) in para 4.8 and 4.9 at pages 20 to 21 of the impugned order, which have not been rebutted by ld. CIT DR during the course of hearing before Hon'ble Bench nor any material has been produced before the Hon'ble Bench to controvert the same."
(Emphasis provided) 6.8. It was also contended that the case law relied upon by the Ld. CIT DR is distinguishable. Referring to the order in the case of ACIT vs Vinod Goyal 111 ITD 70 (Asr.), it was his submission that the documents therein were admittedly seized from the premises of the searched person and the proceedings were initiated u/s 158BD of the Act on the other person to whom the material belonged. In the facts of the present case it was contended that the documents were found and seized from the premises of the assessee itself as such the provisions of section 158BD as held by the CIT(A) have been wrongly invoked on facts. 6.8.1. Addressing the decision in the case of Smt. Nasreen Yusuf Dhanani vs ACIT 118 ITD 133 (Mum.) it was contended that it is also distinguishable on the same reasoning as herein also the documents were admittedly seized from the premises of the searched person who was the assessee's husband the proceedings initiated u/s 158BC were held to be wrongly invoked.
7. On the next date of hearing both the Ld. AR & Ld. CIT DR inviting attention to their submissions available on record contended that the written submissions have been mutually exchanged and they contain more or less the arguments advanced on the date of hearing. Ld. AR further brought to the notice of the Bench that over and above the written submissions dated 15.05.2014 the 22 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 assessee has also placed on record supplementary rebuttal to the written submissions of the CIT DR, these are dated 21.05.2014 and has been made available to the department. The Ld. CIT DR accepted the fact that it has been made available to her however it was her stand that her stand is fully addressed by the submissions already on record.
7.1. Ld. AR briefly summarizing the 8 paged submissions invited specific attention to para 3.1 to 3.2.3 as under:-
3.1 "The argument of ld. CIT DR that no search was conducted on assessee-
respondent, as no search warrant was prepared in the name of assessee is fallacious and contrary to material available on record, as it is an admitted fact that the search party, searched and entered the residence of assessee-respondent as the assessee was a director in M/s Vatika Landbase P. Ltd. and it is also an admitted fact that documents on the basis of which proceedings u/s 158BD of the Act had been initiated were also seized from the said premises of assessee. Thus, the submission of the assessee-respondent is that once the search party entered the premises of the assessee and seized documents therefrom, than proceedings should have been initiated u/s 158BC of the Act on the assessee-respondent instead of section 158BD of the Act. That in order to support the above said submission the assessee-respondent seeks to place its reliance on the order of Hon'ble ITAT Mumbai in the case of J.M. Trading Corporation vs. ACIT reported in 20 SOT 489 which is duly approved by Hon'ble Bombay High Court. (Copy enclosed as Annexure "A" and "B").
3.2 That, without prejudice to the above, it is submitted that in order to invoke the provisions of section 158BD of the Act, the basic premise/foundation is that the seized/incriminating material found as a result of search should depict undisclosed income and it is only then that a proper satisfaction could have been recorded by the officer of the searched person while handing over the documents to the officer of other person to make assessment. Whereas, in the instant case the purported satisfaction note so provided to the assessee-respondent fails this basic test of "depiction of undisclosed income from seized documents".
3.2.1 That on bare perusal of the purported satisfaction note placed at page 38 of the paper book, would make it evidently clear that the satisfaction so recorded in the instant case is a mere subjective satisfaction, as no investigation or analysis of documents were done before recording of the purported satisfaction. That it is further, submitted that the satisfaction so contemplated under section 158BD is of a level much higher than what an Assessing Officer acquires in order to invoke provisions of section 147/148 of the Act, as mere prima facie reason to believe is not sufficient for initiation of proceedings u/s 158BD of the Act, rather there 23 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 should be a concrete evidence establishing the fact that the document or books of accounts seized depicts undisclosed income of the assessee. That in order to support the aforesaid proposition, the assessee-respondent would seek to place its reliance on the order of Hon'ble ITAT Chandigarh in the case of ACIT vs. Kishori Lal Balwant Raj reported in 17 SOT 308.
3.2.2 That it is further submitted that none of the documents seized enclosed at pages 235 to 255 of the paper book, show that there is either any deemed income which can be held to be taxable under section 69, 69A, 69B or 69C of the Act. It may also be added here that the provisions of section 68 also could not be invoked as there are no credits in the books of accounts. That the assessee- respondent had explained before both the lower authorities that the said documents on which purported satisfaction note was recorded do not depict the undisclosed income of the assessee and the same is summarized below:
S.No. Annexure Pages Amount Page of Explanation/submission (in Rs.) Findings of assessee-respondent of the AO 1 A-11 33 18,23,628/ 4 Pg 329 to 334 of
- the paper book.
2 A-11 38 13,84,400/ 4 Pg 334 to 335 of the paper
- book.
3 A-11 34 5 Pg 335 to 337 of
2,15,000/- the paper book.
4 A-1 17 2,25,000/- 6 Pg 337 to 339 of
the paper book
5 A-2 1 1,05,000/- 8 Pg 339 to 334 of
the paper book
6 A-2 2/5 (upper 6,91,150/- 9 Pg 339 to 344 of
portion) the paper book
7 A-2 3/7 20,57,000/ 9 Pg 339 to 344 of
- the paper book
8 A-2 5/11 21,55,342/ 9 Pg 339 to 344 of
- the paper book
9 A-2 6/13 7,28,375/- 10 Pg 339 to 344 of
the paper book
10 A-2 8/17 5,15,000/- 11 Pg 339 to 344 of
the paper book
11 A-2 10/25 21,44,657/ 11 Pg 339 to 344 of
- the paper book
12 A-2 11/27 1,16,000/- 11-12 Pg 339 to 344 of
the paper book
13 A-2 30/33 4,34,350/- 12 Pg 339 to 344 of
the paper book
14 A-2 21/93 63,60,000/ 12 Pg 339 to 344 of
24 C.O.-380/Del/2010 &
I.T.(SS) No.-36/Del/2010
- the paper book
3.2.3 That on appraisal of the aforesaid submissions, it would become clear that the documents seized does not depict undisclosed income of the assessee and thus, the satisfaction so recorded is merely a purported and subjective satisfaction. It is also important to note that mere seizure of document (as is in the instant case), would not entail powers to the assessing officer to initiate proceedings under section 158BD of the Act, as the provisions of section 158BD are is sharp contrast with the newly inserted provisions of section 153C of the Act, wherein only seizure of document belonging to "other person" from the premises of the searched person is enough to initiate proceedings under section 153C of the Act, whereas, situation is entirely different under the provisions of section 158BD of the Act as has been explained by Hon'ble Delhi High Court in the judgment on SSP Aviation vs. DCIT reported in 346 ITR 177."
7.2. Referring to the documents filed it was further submitted that the SLP filed by the Revenue against the judgement of the Hon'ble Bombay High Court in J.M. Trading has been dismissed. Further relying upon on the above facts and addressing the specific para 18 of the judgement of the Jurisdictional High Court SSP Aviation vs DCIT (cited supra) which bring out the distinction between section 158BD and section 153A, it was contended that these decisions further strengthen the impugned order. Following submissions on facts and law in support of the impugned order were also made :-
3.2.4 Thus, it is submitted that since the documents were seized from the search being conducted on residential of the assessee-respondent and as such, there had been a failure on the part of AO to frame assessment u/s 158BC of the Act. The notice issued u/s 158BD of the Act was issued as an afterthought and that too by without satisfying the statutory preconditions as envisaged under the Act (i.e. without recording objective note of satisfaction) and had been rightly quashed by ld. CIT(A).
3.3 That without prejudice to our earlier submissions and to the above, it is submitted that (no books of accounts or any other documents belonging) to the assessee have been seized from the person searched. On the contrary, all documents referred to in all alleged satisfaction note (kindly see page 38 of paper book) have been found from the residence of the assessee-respondent against whom the proceedings u/s 158BD has been initiated and not from the premises of searched person i.e. M/s Vatika Landbase P. Ltd.
25 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 3.3.1 That, in such-cases, the provisions of section 158BD of the Act could not be invoked and, the revenue can at the best initiate proceedings against the assessee-respondent u/s 147 of the Act. It is further, submitted that, there is a conceptual difference between two classes of case, one where as a result of search conducted, the books of accounts and other documents have been found from the person searched but are found belonging to person other than the person searched, and secondly, a case where as a result of search conducted on the person searched, the books of accounts and other documents have though been found but not from the person searched (but are found from the person against whom the proceedings are being initiated u/s 158BD of the Act). It is submitted that in the latter class of cases, provisions of section 158BD of the Act are inapplicable.
3.3.2 Thus, all what the assessee has submitted is that, even assuming there was no search on the assessee then too, since the documents have been seized from the assessee-respondent and not from the person who had been searched, action u/s 158BD of the Act was wrongly initiated and hence the assessment made is without jurisdiction and has rightly been quashed by ld. CIT(A)."
8. We have heard the rival submissions and perused the material available on record alongwith written submissions filed on behalf of the parties before the Bench. On a careful consideration of the peculiar facts and circumstances of the case wherein the Revenue has deemed it appropriate to assail the impugned order effectively only on the grounds that :- a) the CIT(A) has erred in quashing the proceedings when the validity of the proceedings were not challenged before the AO; and b) no remedy was sought by the assessee at any other level we on consideration of the factual and legal aspects thereon primarily do not find any merit in the departmental appeal. Although the specific ground has been extracted right at the outset in this order, we for the sake of ready-reference still fill the need to reproduce the same hereunder again:-
1. "The order of the ld. CIT(Appeals) is not correct in law and facts;
2. In the facts and circumstances of the case, the ld. CIT(A) has erred in law and on facts in quashing the block Assessment completed under section 158BC read with section 158BD of Income Tax, 1961 whereas neither objection was raised against legal validity of proceedings before the AO nor any remedy was sought at any, other level;
26 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010
3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
8.1. On a consideration of the specific wording of Ground No-1 reproduced above, we are of the view that it may be possible to advance the argument that by the said ground the grievance is posed to the impugned order in toto and had it been advanced it would have been incumbent upon us to consider the same, however the fact remains that no such argument was advanced on behalf of the Revenue. The observation is being made in the background that it has been the vehement and repeated stance on behalf of the assessee that the grievance posed by Ground No-2 is factually incorrect and misplaced as such the impugned order not having been challenged on any other ground the appeal be dismissed. In these circumstances the Revenue if it had so felt the need to do so could have taken remedial measures which evidently is not the position. Despite this repeated argument, we note that no effort has been made to canvass that Ground No-1 though generally worded is being addressed. We also note that no request has been made for seeking permission to modify or alter any ground raised be granted by resorting to Ground No-3 raised before us by the Revenue. In the above background where the submissions advanced are available on record in writing considering Ground No-1 raised as being a general non-specific ground and Ground No-3 not having been invoked as such prima facie requires no adjudication, we proceed to address Ground No-2 raised before us. 8.2. On consideration of the facts available on record and the submissions of the parties qua Ground No-2, we find that the grievance posed by the Revenue is factually not correct. A perusal of paper book page 15 which is a letter dated 11.06.2005 addressed by the assessee to the ACIT, Circle-20 (received as per the stamp of the said office on 13.06.2005) shows that the assessee let alone during 27 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 the assessment proceedings even at the notice stage has not kept the department in dark about its intentions, grievance and awareness of the legal position. A perusal of the said letter shows that the assessee specifically requests the said authority for the documents taken into consideration for the issuance of notice and the "satisfaction note" required as per law to have been recorded by the AO of the searched person. For ready-reference, we reproduce the relevant extract from the letter dated 11.06.2005:-
"A notice dated 31.5.2005 has been served on me on 1.6.2005 purported to be a notice u/s 158BD of the Income Tax Act, 1961. It has been stated that whereas a search & seizure operation was conducted on Vatika Group of Companies on 8.5.2003 and on the basis of papers/documents found and seized in pursuance of the provisions of section 158BD, I am required to prepare a true and correct return of my undisclosed income. It is submitted that I do not have any undisclosed income. However, before I file a return in Form No.2B as directed, you are requested to please furnish to me a note of satisfaction which is required to be recorded in writing by you as has been held by the Hon'ble Delhi High Court in the case of Amity Hotels reported in 272 ITR 75. I shall be highly grateful if you could please furnish to me a note of satisfaction on the basis of which you proceeded to issue notice to me directing me to furnish a return of my undisclosed income by 17th June, 2005.
I shall be grateful, if this note of satisfaction is served on me as also the documents on the basis of which you are satisfied that there is an undisclosed income belongs to me. I shall be grateful if the needful is done expeditiously so that I do not delay in furnishing the return as directed by you."
(Emphasis provided in the present proceedings) 8.3. It is further seen that the said written request was followed by another written request dated 29.06.2005 addressed to the very same authority reiterating the same with greater elaboration. Copy of the same is available at paper book page 16 to 18, relevant extract thereof is reproduced hereunder:-
1. In the instant proceedings, a notice dated 31.05.2005 had been issued on me and served on 01.06.2005 purported to be a notice u/s 28 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 158BD of the Income-Tax Act, 1961. In the said notice, it is stated that whereas, a search & seizure operation was conducted on Vatika Group of Companies on 08.05.2003 and on the basis of papers/ documents found and seized in pursuance of the provisions of section 158 BD, I am required to prepare a true and correct return of my undisclosed income.
2.Sir, in order to comply with your direction to file a return u/s 158BD, I requested you vide my letter dated 11th June, 2005 filed in your office on 13th June, 2005 to provide me:-
i) A note of satisfaction which is required to be recorded in writing by you as has been held by the Hon'ble Delhi High Court in the case of Amity Hotels reported as 272 ITR 75 as also
ii) Copies of all such documents on the basis of which you are satisfied that there is an undisclosed income which belongs to me (Emphasis supplied).
3. After having waited for about 15 days of the above referred letter dated 11.06.2005, I personally contacted you in your office on 27.06.2005 when you verbally expressed your reluctance to serve the satisfaction note at this stage, and directed me to take the photocopies of such documents as I wish out of the seized records (Emphasis Supplied).
4. With great respect, it is most respectfully submitted that the proceedings have been initiated on the basis of satisfaction of the assessing officer having jurisdiction over the person who has been searched. Further, such satisfaction has been reached on the basis of evidence found as a result of seized evidence on such third person. It is thus evident that I have to examine such evidence and prepare my reply accordingly. It is thus respectfully submitted that in the instant case, provisions of section 158BD have been invoked. You will very kindly furnish me such evidence which satisfied the assessing officer to assume that an undisclosed income had been earned and that it belonged to me. I thus request you to please furnish such evidence or pass such order on this application as you consider appropriate according to law. It is thus submitted that unless the department furnishes such documents and provides copies thereof to me, it would be contrary to the principles of natural justice & fair play to expect the assessee to file a return of an alleged undisclosed income, (and that too considering the same as true and correct) without any evidence supplied in this behalf.
29 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010
5. It is most respectfully prayed that you may kindly furnish the basis for initiation of proceedings and also provide a copy of "satisfaction note", recorded by the learned ACIT, on the basis of which the instant proceedings have been initiated. This submission is being made on the basis of various Judicial pronouncements wherein it has been held that a valid initiation of proceedings can be made on the basis of a "satisfaction note", recorded by the learned Assessing Officer having jurisdiction on the assessee who had been subjected to a search u/s 132(1) of the Income-Tax Act. For the sake of convenience, the provision of section 158BD are being extracted herein below-
"'158BD. Undisclosed income of any other person 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"
6. From the reading of the aforesaid statutory provisions, it is a submission of the assessee that unless the assessing officer having jurisdiction over the assessee is "satisfied" based on the material found as a result of search there was an undisclosed income belonging to the instant assessee, no valid proceedings can be initiated against such an assessee. It is apparent that the search under section 132(1) of the Income-Tax Act had been made on Vatika Group of Companies on 08.5.2003 and orders of assessment have also been made on them by 31.05.2005 and in such circumstances it is not understood, how can a valid notice be issued after culmination of proceedings in the case of above named assessee.
7. The assessee seeks to bring to your kind notice the judgement of the Delhi High Court in the case of Bishan Chand Mukesh Kumar - vs- U.O.l. reported as 135 Taxman 154(Delhi) wherein on a Writ Petition filed, the department had conceded before the High Court that it would furnish the copy of satisfaction note and hence the Writ Petition was dismissed as withdrawn.
8. Sir, it is because of non furnishing of evidence assessee is not able to furnish the return and as such delay in filing the return is not attributable to assessee. It is submitted that in case you propose to 30 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 pass an adverse order, no interest be charged on such undisclosed income assessed."
(Emphasis provided by the Bench) 8.4. The above read alongwith letter dated 14.05.2007 taken into consideration by the CIT(A) and confronted to the AO shows that not only before the filing of the return but even after filing the return the assessee has been objecting to the validity of the proceedings as per record. It is further seen that vide letter dated 14.05.2007 the assessee again in writing objects to the proceedings u/s 158BD (copy placed at pages 60-72) not only vide para 16 thereof as taken note of in the impugned order but also vide specific paras 1 to 4. In paras 5 to 15 the documents on the basis of which satisfaction purportedly has been recorded on consideration to form the view that they pertained to unaccounted money was assailed in detail. A perusal of the same would show that objection to the validity of the proceedings were made on multiple reasons. However, for the purposes of the present proceedings only para 1 to 4 are being reproduced hereunder:-
1. "In the instant pending proceedings, a notice u/s 158BD of the Income Tax Act dated 31.5.2005 was issued to the assessee and in compliance of the aforesaid notice which was received by the assessee on 1.6.2005 a return of income was furnished under protest, on 20.10.2005.
2. It may be stated here that, on receipt of the aforesaid notice by the assessee, a letter of objection was filed, wherein the assessee sought for a copy of note of satisfaction allegedly recorded, if any, by the "assessing officer", who held jurisdiction over the person on which search was conducted, on the basis of which you had initiated the proceedings on the assessee. The note of satisfaction sought for was of the assessing officer, in whose case, the search was conducted by the assessing officer who held jurisdiction over the case of that assessee. In this case, it appears that search was conducted-on 8.5.2003 on "Vatika group of companies". The assessing officer who held the jurisdiction over Vatika Group of cases was the learned ACIT, Central Circle-20; whereas the assessee was being assessed by the assessing officer, Ward 37(1), New Delhi.
It is submitted that a note of satisfaction was required to be recorded by the ACIT, Central Circle-20, New Delhi in the course of proceedings in that case where the search was conducted that as a result of search 31 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 conducted on such a specified assessee, evidence has been found on the basis of which, he is satisfied, that an undisclosed income belongs i.e. any other person, in the instant case, me.
3. Sir, you were however kind enough to provide me with a copy of 'reasons under section 158BC read with section 158D in the case of Anupam Nagalia which is recorded by the ACIT, Central Circle-20, New Delhi'. It is the submission of the assessee that, this note of reasons has been recorded by the ACIT, Central Circle-20, New Delhi is not in the case of "Vatika group of companies" but in the case of the assessee & that too, probably after culminating the proceedings in these cases; whereas, it is most respectfully submitted, that a note of satisfaction, is required to be recorded by the assessing officer who held jurisdiction over that assessee, and in the case of the instant assessee i.e. me. From the perusal of the "reasons" which have been furnished by you, it is apparent that such a note of reasons as has been recorded by the ACIT, Central Circle- 20, New Delhi, is in my case and as such it is submitted that there has been no valid assumption of jurisdiction at the time of initiation of proceedings by you as there has been no note of satisfaction recorded by the assessing officer as is contemplated in law. Copy of reasons which has been supplied to me reads as under:-
Reasons u/s 158 BC read with section 158 BD in the case of Shri Anupam Nagalia "Warrant was issued in the name of Vatika Group of Companies to search residence of Sh. Anupam Nagalia on 8.5.2003, who was Director of some of the companies of Vatika Group and also a Chartered Accountant. Scrutiny of seized documents reveals that assessee had unaccounted income under the following heads:-
1. Remuneration- Annexure A-11, page 33,34,37 and 38 reveals receipt of unaccounted remuneration by Sh. Anupam Nagalia.
2. Profit in Danisco Deal - Annexure A-1 reveals receipt of unaccounted profit from business deal with M/s Danisco Ingredients (India) Pvt. Ltd.
3. Investment in assets - Annexure A-1, page 65 reveals unaccounted investment in land at Rajpur Road, Dehradun amounting to RS.55 lacs, at Village Bhondsi (Haryana) amounting to Rs. 18 lacs and immovable properties comprising loans and advances, investment in shares and deposits, jewellery etc. arnountinq to Rs.48 lacs.
4. Unaccounted loan -Annexure A-2, page 1,2,3,5,6,8,10,13,15 and 21 reveals transactions on account of loans not disclosed for the purpose of income tax.
In view of the facts stated above and material available in the form of seized documents, I am satisfied that Sh. Anupam Nagalia had undisclosed income for the block period 1.4.1997 to 8.5.2003 which was 32 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 not disclosed in the regular return of income.
Therefore, notice u/s 158BC read with section 158BD is issued."
4. It is submitted as is apparent these are reasons which have been recorded by the assessing officer having jurisdiction over me & can not be read to be a note of satisfaction; which is mandatorily required to be recorded in writing as has been held by the Apex Court in the case of Manish Maheshwari v/s ACIT reported as 289 ITR 341."
(Emphasis provided in the present proceedings) 8.5. Accordingly in the face of these repeated efforts to seek the requisite information and referring to various decisions including Manish Maheshwari rendered by the Supreme Court the raising of the above ground by the Revenue is surprising and unfortunate as there can be no doubt that the assessee has constantly and specifically objected to the validity of the proceedings before the AO. In view of the above challenge posed to the impugned order only on the ground that no such objection was raised before the AO is factually incorrect. 8.6. Considering and examining the other grievance of the AO included in Ground No-2 raised it has seen that challenge is posed to the impugned order on the ground that the assessee "has not sought any remedy at any other level", on consideration of the said ground we are constrained to observe that for the AO to submit by way of raising of such a ground unfortunately demonstrates the strange belief that an assessee challenging the validity of the proceedings must necessarily invoke the extra-ordinary Writ jurisdiction of the Hon'ble High Court compulsorily and such a stand is mandated in all cases. The grievance exhibits a shocking lack of legal understanding as the AO cannot absolve himself from dealing with the objections of the assessee on the validity of the proceedings and cannot be aggrieved by an assessee who on facts has availed of the Statutory right of appeal vested in him by the Statute, namely the Income Tax Act, 1961. Further the AO is no one to suggest that the assessee ought to have invoked the extra 33 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 ordinary Writ jurisdiction. Infact it would not be out of place to point out that there are umpteen instances to show that the Hon'ble High Court may refuse to entertain the Writ Petition and consequently refuse to exercise the extra-ordinary jurisdiction vested in the Court and instead direct the petitioner to first petition the concerned authority and/or avail of the remedy of the statutory remedy of appeal available under the statute. We may refer here to the judgement of the Jurisdictional High Court in the case of Adobe Systems Software Ireland Ltd. vs Assistant Director of Income Tax (2014) 363 ITR 174(Del) wherein their Lordships held that existence of Jurisdictional fact cannot be examined in Writ proceedings and assessee was directed to resolve disputed questions of fact in alternative remedies available under law. Infact to approach the Court without filing the return was considered to have led the Hon'ble Court to observe "The conduct of the petitioner has been one of defiance". Accordingly the grievance posed by the ground is misplaced.
8.7. A perusal of the impugned order shows that the CIT(A) after inviting the objections of the AO qua the proceedings has proceeded to decide the issue vide para 4.8 of his order after obtaining the Remand Report. The Remand Report of the AO has already been extracted by us in the earlier part of this order (specific para 3.3) a perusal of which would show that vide sub para 3.4 of the impugned order and para 3 (d), (e) & (f) of the Remand Report the AO contradicts himself in the ground raised. We first deem it appropriate to extract the same also hereunder :-
3.4 "In response to the submissions made by the assessee, a remand report was sought from the AO vide office letter No.F.No.CIT(A)-1/2008-09/135 dated 17.09.2008. The AO sent his report on 26.08.2009 which is being extracted hereunder:
"Kindly refer to your office letter F.No.CIT(A)-1/2008-09/135 dated 17.09.2008 on the above referred subject.
2. ............................................................................................
34 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010
3. ...........................................................................................:
a) ......................................................................................
b) .......................................................................................
c) .......................................................................................
d) The assessee complied with the notices and filed written submissions though raised objections relating to merits of the satisfaction note as not commensurate with the legal requirements of section 158BD of the Income Tax Act, 1961.
e) During the course of block assessment proceedings, the assessee did not raise the issue of block assessment u/s 158BC but objected to the initiation of proceedings u/s 158BD on merits of satisfaction note.
f) Therefore, in view of provisions of section 292BB of Income Tax Act, 1961, the assessee is precluded from taking any objection in the block assessment proceedings."
(Emphasis provided in the present proceedings) 8.8. In the light of these above consistent facts qua the findings arrived at in the impugned order available on record, we find that the conclusion arrived at by the CIT(A) in para 4.8 reproduced hereunder cannot be faulted with:-
"4.8. The Assessing Officer in the remand report, has contended that since this objection was not raised in the course of assessment proceedings, therefore, this objections may not be entertained in view of section 292BB of the Act. Firstly, the contention is factually incorrect as the contention regarding validity of proceedings was raised by the appellant in the course of assessment proceedings vide his reply dated 14.5.2007 and moreover, section 292BB of the Act has no application to the facts of the case. Section 292BB of the Act provides that where an assessee has appeared in any proceedings or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceedings or inquiry under this Act that the notice was not served upon him or notice was not served upon him in time or served upon him in an improper manner. It will be seen that the contention of the appellant is neither that notice was served or notice was not served upon him in time or served upon him in an improper manner. On the contrary, objection of the appellant is that statutory pre-condition for invoking provisions contained in section 158BD of the Act had not been satisfied in as much as satisfaction note so recorded is not recorded on the basis of seized material found from the searched person i.e Vatika Group of Cases and therefore, there could not have 35 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 been valid assumption of jurisdiction. In light of the above, it is held that section 292BB of the Act has no application to the facts."
8.9. On consideration of the facts available on record which we have brought out above in detail considering the findings arrived at in the impugned order against which a specific ground has been raised by the Revenue, we find on considering the ground raised no infirmity in the impugned order and accordingly dismissing the ground raised as misconceived and based on no facts and an incorrect appreciation of the law, the departmental appeal accordingly is dismissed.
9. Since before us the Ld. CIT DR dehors the ground raised has advanced various arguments assailing the impugned order which has been copiously addressed by the Ld. AR we propose to set out the specific reasoning of the Ld. CIT (A) in quashing the proceedings. The reasoning of the CIT(A) is reproduced hereunder:-
4. "I have gone through the facts of the circumstances of the issue as well as judicial pronouncements relied upon by the appellant. Section 158BD of the Act provides 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 against such other person and the provisions of this Chapter shall apply accordingly. "
4.1 On plain reading of the aforesaid statutory provisions contained in section 158BD of the Act, it will be seen that, it has been provided that, where the Assessing Officer of the searched person is satisfied 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, 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, thereafter the Assessing Officer of such other person shall proceed against such other person. The, Apex Court in the case of Manish Maheshwari 289 ITR 341 has held that, unless there is a valid satisfaction note recorded by the Assessing Officer of the 36 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 searched person, after going through the seized documents to the effect that initiation of proceedings u/s 158BD is called for, there is no justification, to initiate proceedings u/s 158BD of the I. T. Act. It concluded therein as under :-
"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 precedent whereof are: (i) satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect of 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.
The only question which arises for our consideration is as to whether the notice dated February 6, 1996, satisfies the requirements of section 158BD of the Act. The said notice does not record any satisfaction on the part of the Assessing Office, Documents and other assets recovered during search had not been handed over to the Assessing Officer having jurisdiction in the matter.
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 Vasantji Desai v. Deputy CIT [1999] 236 ITR 73. Therein, it was clearly held (page 85) "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 not jurisdiction, then, in that event, he has to transmit the material
37 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 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."
4.2 Also, Hon'ble Delhi High Court in the case of Janki Exports International v UOI reported in 278 ITR 296 has further held as under :-
"We find that section 158BD is somewhat analogous to section 147 in so far as the procedure that is required to be followed. Section 147 contemplates that if the Assessing Officer has reasons to believe that there is escapement of income, then notice can be issued under section 148 of the Act. So far as section 158BD of the Act is concerned, the Assessing Officer has to be satisfied that there is undisclosed income. Upon such satisfaction, the Assessing Officer is required to forward the relevant documents, papers, etc., to the Assessing Officer who is required to assess the person in respect of whom the undisclosed income has been discovered. Once this is done, we feel that the person who is to be proceeded against under section 158BD and then section 158BC, must be informed about the satisfaction of the Assessing Officer which has been recorded and he must be given a reasonable opportunity to object to the same. Satisfaction can be arrived on some material. That material would provide the reasonable satisfaction.
4.3 The Hon'ble Tribunal in the case of Manoj Aggarwal vs. DCIT reported in 113 ITD DCIT (SB) (Del) in para 123 to 124 has held as under :-
"123. Having held that recording of satisfaction is imperative before assumption of jurisdiction u/s 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. . ...................... .
124. . ........................... 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 l58BD 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 alongwith 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 38 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 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 section 158BD proceedings 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 158BD 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 decision in the case cited (supra) into the section 158BD proceeding for the reasons detailed herein."
4.4 In other words, the basic statutory pre-condition for invoking section 158BD of the Act is the satisfaction of the AO of the searched person and, such satisfaction is to be recorded in writing on the basis of material found as a result of search .on the searched person.
4.5. "Applying the foregoing principles to the facts of the instant case, it will be seen that in the instant case, the basis adopted for initiation of proceedings under section 158BD of the Act in the case of the appellant is that, there has been a search conducted at the premises of Vatika Group of Companies (herein after alternatively referred to as "searched person") and as a result of search, satisfaction note was recorded by the learned Officer having jurisdiction over Vatika Group of Cases. The satisfaction note, as recorded by the Assessing Officer having jurisdiction over Vatika Group of cases reads as under:-
"Reasons u/s 158BC read with 158BD in the case of Shri Anupam Nagalia Warrant was issued in the name of Vatika Group of Companies to search residence of Sh. Anupam Nagalia on 8.5.2003, who was Director of some of the companies of Vatika Group and also a Chartered Accountant. Scrutiny of 39 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 seized documents reveals that assessee had unaccounted income under the following heads:-
I. Remuneration-Annexure A-11, pages 33, 34, 37 and 38 reveals receipt of unaccounted remuneration by SH. Anupam Nagalia.
II. Profit in Danisco Deal-Annexure A-1 reveals receipt of unaccounted profit from business deal with M/s Danisco Ingredients (India) Pvt. Ltd.
III. Investment in assets-Annexure A-1, page 65 reveals unaccounted investment in land at Rajpur Road, Dehradun amounting to Rs.55 lacs at Village-Bhondsi (Haryana) amounting to Rs.18 lacs and immovable properties comprising loans and advances, investment in shares and deposits, jewellery etc. amounting to Rs.48 lacs.
IV. Unaccounted loan-Annexure A-2 page 1, 2, 3, 5, 6, 8, 10, 13, 15 and 21 reveals transactions on account of loans not disclosed for the purpose of income tax.
In view of the facts stated above and material available in the form of seized documents, I am satisfied that Sh. Anupam Nagalia had undisclosed income for the block period 01.04.1997 to 08.05.2003 which was not disclosed in the regular return of income.
Therefore, notice u/s 158BC read with section 158BD is issued.
(P.K.Singh) Asstt. Commissioner of Income Tax, Central Circle-20, New Delhi.
4.6. The aforesaid satisfaction note would show that the learned Assistant Commissioner of Income Tax, Central Circle-20, New Delhi has referred to the following material for concluding that there is undisclosed income of the appellant:-
(a) Pages 33, 34, 37 and 38 of Annexure A-11
(b) Annexure A-11
(c) Page 65 of Annexure A-1
(d) Pages 1, 2, 3, 5, 6, 8, 10, 13, 15 and 21 of Annexure A-2.
4.7. It is admitted position that, each of the aforesaid papers have been found as a result of search on the appellant and, not from the premises of M/s Vatika Group of Companies, i.e., searched person considered by the Assessing Officer for assuming jurisdiction u/s 158BD of the Act. Thus, since satisfaction note is not based on any seized material found from the searched person i.e. Vatika Group of cases, the basic statutory precondition for invoking provisions contained in section 158BD of the Act is lacking in the instant case. The burden was on the Assessing Officer to establish that, a valid satisfaction note 40 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 had been recorded on the basis of material found as a result of the searched person. In the instant case, the perusal of satisfaction note would clearly show that, since there is no material found as a result of the search on the searched person, no satisfaction could have been recorded under section 158BD of the Act in the case of the searched person. On the contrary, it is a case where proceedings have been initiated on the basis of material found as a result of search conducted on the appellant and, not on the searched person i.e. Vatika Group of cases. In these circumstances, it is evident that, statutory precondition for invoking provisions contained in section 158BD of the Act is not satisfied and therefore, notice under section 158BD of the Act is without jurisdiction. I am also supported here by the order of the Hon'ble Tribunal in the case of ACIT vs M/s Cozy Enterprises Ltd. in I.T.(SS) A. No. 249/Del/2005 wherein it has been held as under:-
6.2. Coming to the facts of this case, a diary was seized from Shri S.K.Jain, which contained the transactions of the assessee. No asset or material was seized from Shri Praveen Mittal. In terms of the decision in the case of Manish Maheshwari (supra), the AO of Shri.S.K.Jain had to record his satisfaction that undisclosed income in respect of transactions with the assessee was that of the assessee and handover the relevant part of the seized material to the A.O. having jurisdiction over the matter, namely, the second mentioned A.O. It appears to us that such note and material were transmitted to the first mentioned A.O. who issued a notice under section 158BC read with 158BD to the assessee. However, nothing was found in the case of Shri Praveen Mittal whose A.O. recorded the satisfaction note on the basis of submissions made in his case before him. As nothing was seized from him, noting was transmitted by the A.O. of Shri Praveen Mittal to the second mentioned A.O. who happens to be the same officer. Thus, in view of the decision in the case of Manish Maheshwari(supra), it is held that pre-conditions required to be satisfied before assuming jurisdiction under section 158BD in the case of the assessee were not satisfied.
Learned DR has not been able to show or refer to any material which was seized in the case of Shri Praveen Mittal so as to authorize his A.O. to record satisfaction in the case of the assessee. Thus, we are in the agreement with the learned counsel, albeit for somewhat different reasons, on the issue that the second mentioned A.O. did not have the jurisdiction to issue notice under section 158BC read with section 158BD on 15.07.2002. Therefore, the order passed on the basis of this notice is invalid in the eye of law.
"4.8. The Assessing Officer in the remand report, has contended that since this objection was not raised in the course of assessment proceedings, therefore, this objections may not be entertained in view of section 292BB of the Act. Firstly, the contention is factually incorrect as the contention
41 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 regarding validity of proceedings was raised by the appellant in the course of assessment proceedings vide his reply dated 14.5.2007 and moreover, section 292BB of the Act has no application to the facts of the case. Section 292BB of the Act provides that where an assessee has appeared in any proceedings or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceedings or inquiry under this Act that the notice was not served upon him or notice was not served upon him in time or served upon him in an improper manner. It will be seen that the contention of the appellant is neither that notice was served or notice was not served upon him in time or served upon him in an improper manner. On the contrary, objection of the appellant is that statutory pre-condition for invoking provisions contained in section 158BD of the Act had not been satisfied in as much as satisfaction note so recorded is not recorded on the basis of seized material found from the searched person i.e Vatika Group of Cases and therefore, there could not have been valid assumption of jurisdiction. In light of the above, it is held that section 292BB of the Act has no application to the facts.
4.9. I seek to add here that, undisputedly, a search had been conducted on the premises on 8.5.2003. However, it is apparent that no action was taken on the basis of the said search as no notice under section 158BC of the Act was ever issued to the appellant. Infact, even the instant proceedings cannot be taken as proceedings under section 158BC of the Act since firstly, initiation of proceedings was undisputedly under section 158BD of the Act and moreover, limitation for framing assessment under section 158BC of the Act expired on 31.5.2005 which is the date on which, notice under section 158BD of the Act was issued to the appellant. The order of assessment in dated 21.05.2007, which is then clearly barred by limitation. In light of the above, I hold that, the proceedings initiated under section 158BD of the Act were not legal, valid and are therefore quashed."
9.1. On a consideration of the same in the light of the arguments advanced by the parties before the Bench we find ourselves unable to come to a contrary finding and are of the view that the reliance placed by the assessee on the judgement of the Apex Court in the case of Parshuram Pottery Works Ltd. vs. ITO reported in 106 ITR 1 (SC) is not out of place. Inaction on the part of the AO for not adhering to the statutory provisions as envisaged u/s 158BC of the Act cannot be overlooked and solely to buy time the provisions and procedures under the statute cannot be 42 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 allowed to be circumvented and a fresh life be given by resorting to the provisions u/s 158BD. The relevant observations of the Apex Court in the aforementioned case of Parshuram Pottery Works Ltd. vs. ITO (cited supra), is reproduced hereunder:-
"It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment u/s 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case. The appeal is consequently allowed, the judgment of the High Court is set aside and the impugned notices are quashed. The parties in the circumstances shall bear their own costs throughout."
9.2. The decisions relied upon by the Ld. CIT DR and by the Ld. AR have been taken into consideration. It is seen that the decisions relied upon by the Revenue proceed on different facts and are distinguishable. For instance in the decision of ACIT vs Vinod Goel (2008) 111 ITD 76 (ASR) the peculiar fact available on record was that therein the validity of the proceedings had already been specifically challenged by the assessee before the Hon'ble High Court and the Hon'ble High Court had upheld the same in CWP No.-963 of 1999 vide its judgement and order dated 26.09.2000 and cognizance of this fact has been variously taken note of in the order of the Tribunal in paras 5, 6 and 7.
43 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 9.2.1. Similarly in Smt. Nasreen yusuf Dhanani vs ACIT (2009) 110 ITD 13(Mum.) heavily relied upon by the Ld. CIT DR. A perusal of the same would show that the subject matter of the addition therein was the contents of the locker in the joint name of the husband and wife, wherein the husband's name was appearing first and substantive additions had been made in the hands of the husband who was the searched person and only protective addition had been made in the hands of the wife and section 158BC had been invoked without following the mandatory procedures. On these peculiar facts it was held that the proceedings were to be quashed as satisfaction was found to be not recorded as laid by the Apex Court in Manish Maheshwari's case by the Apex Court. 9.3. A perusal of the decisions rendered by Courts and Tribunals on this point clearly brings out the consistent thread which binds them that is the recording of the satisfaction is the sine qua non for assuming jurisdiction u/s 158BD. The satisfaction so recorded must necessarily be by the AO of the searched person and although the Statute does not prescribe any specific time limit to do so and there were decisions in the public domain of the Hon'ble High Courts and Tribunals that the satisfaction note could only be prepared by the AO during the assessment proceedings u/s 158BC of the Act and not after the completion of the said proceedings however the issue is no longer res integra as the Hon'ble Apex Court eschewing the said view in the case of CIT vs M/s Calcutta Knitwears, Ludhiana rendered on 12.03.2014 in C.A.No.3958 of 2104 and others has laid the controversy at rest and held in para 44 thereof that for the purposes 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. Their Lordships have held that the satisfaction note could be prepared at either of the following stages: (a) at the time 44 C.O.-380/Del/2010 & I.T.(SS) No.-36/Del/2010 of or along with 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. However, on the satisfaction note their Lordships have been very categoric in holding that under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belongs to a person other than the searched person is necessary for initiation of action under Section 158BD.
9.4. Accordingly for the detailed reasons given hereinabove the appeal of the Revenue is dismissed.
10. It is seen that against the additions made by the AO which were challenged before the CIT(A) who dismissed the same as infructuous vide para 5 in view of his findings in para 4 to 4.9, the assessee has raised various grounds in its C.O. filed assailing the additions made by the AO. However both the parties have not addressed the same as arguments have remained confined to the departmental appeal accordingly in view of the fact that the impugned order has been upheld by us the C.O. filed by the assessee is dismissed as infructuous.
11. In the result the appeal of the Revenue and the C.O. filed by the assessee are dismissed.
The order is pronounced in the open court on 11th of July 2014.
Sd/- Sd/-
(T.S.KAPOOR) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:- 11/07/2014
*Amit Kumar*
45 C.O.-380/Del/2010 &
I.T.(SS) No.-36/Del/2010
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI