Punjab-Haryana High Court
The Commissioner Of Income Tax-Iii vs M/S. Calcutta Knitwears on 20 July, 2010
Author: Ajay Kumar Mittal
Bench: Adarsh Kumar Goel, Ajay Kumar Mittal
In come- tax Appeal No. 154 of 2010
1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
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Income-tax Appeal No. 154 of 2010
Date of decision: 20.7.2010
The Commissioner of Income Tax-III
Ludhiana
--- Appellant
Versus
M/s. Calcutta Knitwears, Ludhiana
--- Respondent
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CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE AJAY KUMAR MITTAL
---
PRESENT: Mr. Vivek Sethi, Standing Counsel for the
Revenue-appellant.
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AJAY KUMAR MITTAL, J.
In this appeal filed under Section 260-A of the Income- tax Act, 1961 (in short "the Act') at the instance of the Revenue, it has been submitted that the following substantial questions of law arise in this appeal for the consideration of this Court, from the order of the Income-tax Appellate Tribunal, Chandigarh Bench, 'B' Chandigarh (for short "the Tribunal") passed on 23.4.2009, in I.T/S.S. No. 20/CHD/2008 for the block period 1.4.1996 to 31.3.2002:
1- Whether on the facts and in law, the Hon'ble Income Tax Appellate Tribunal was justified in holding the In come- tax Appeal No. 154 of 2010 2 recording of satisfaction u/s 158BD by the Assessing Officer of the person searched and consequent issuance of notice u/s 158BD on 10.2.2006 was belated and beyond the period prescribed by law when the section 158 BD read with section 158BE does not specify that satisfaction has to be recorded by the Assessing Officer before completion of assessment u/s 158BC of the Income Tax Act, 1961 and no time limit has been provided for issue of notice under Section 158BD of the Income-tax Act, 1961."
2- Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in dismissing the appeal of the department and not adjudicating the appeal on merits."
Briefly, the facts may be noticed. The assessee is a firm engaged in manufacturing hosiery goods in the name and style of "M/s. Calcutta Knitwears." On 8.3.2006, the assessee filed its return for the block period 1.4.1996 to 31.3.2002 declaring its income as Nil. Search operations under Section 132 of the Act were carried out in the premises of Bhatia Group of cases, namely, M/s. Swastic Trading Company and M/s. Kavita International Company, on 5.2.2003. During the search operation, some incriminating documents pertaining to the assessee-firm were found. The assessing officer, accordingly issued notice under Section 158BD of the Act on 10.2.2006 on the assessee which was served on it on 14.2.2006. The assessment was, thereafter In come- tax Appeal No. 154 of 2010 3 completed under Section 158BC read with Section 158 BD of the Act, on 8.2.2008. The assessing officer did not accept the position mentioned in the return and finalized assessment after making the additions of Rs. 16,05,744/- on account of unexplained investment and Rs. 5,71,172/- of profit element. Feeling dissatisfied, the assessee preferred appeal to the Commissioner of Income-tax (Appeals-II) [in short "the CIT (A)"]. The appellate authority, vide order dated accepted the submissions made on behalf of the assessee and deleted the additions made by the assessing officer.
The Revenue thereafter preferred appeal before the Tribunal whereby the assessee also, filed cross-objections. The Tribunal vide order dated 23.4.2009 allowed the cross-objections of the assessee but dismissed the appeal of the Revenue as having been rendered infructuous on view of the fact that assessment stood cancelled after the cross-objections were allowed. While doing so, in-so-far as the validity of issuance of notice under Section 158BD is concerned, Tribunal in unequivocal terms observed that realistic position in the case of the present assessee was pari material to the one of the case of Mridula, a Proprietor of M/s. Dhruv Fabrics, Ludhiana and, therefore, for the instant case as well the same view would prevail. As regards the second limb, the time limit for recording satisfaction and initiation of action in consequence thereof as well, the Tribunal again took cognizance of the fact that in the case of Mridula also, the recording of such satisfaction beyond the period of limitation provided under Section 158BE(1) rendered the issuance of notice under Section 158BD as belated and invalid. The Tribunal, thus, followed the ratio of the In come- tax Appeal No. 154 of 2010 4 judgment in that case and consequently held the notice under Section 158BD issued on 10.2.2006 to the present assessee as invalid and the assumption of jurisdiction by the assessing officer to make impugned block assessment as invalid and void. To put in plain words, the assessment framed in the case was, thus, cancelled as lacking in jurisdiction. Hence, this appeal.
The provisions of Sections 158BD and 158BE came up for consideration by this Court in Commissioner of Income-tax- I, Versus Ludhiana Mridula, Prop. M/s. Dhruv Fabrics, Ludhiana (ITA No. 591 of 2009), wherein it was held as under:
"Section 158BD was inserted in Chapter XIV by the Finance Act, 1995, with effect from, 1.7.1995. The aforesaid provision is made applicable when the following conditions are fulfilled:-
(a) there should be undisclosed income within the meaning of Section 158B(b) which relates to the assets or books/ documents found and seized/requisitioned;
(b) the assessing officer should record a finding that there was undisclosed income in such assets or books of accounts or documents of the searched person which belonged to the person other than the one searched.
In come- tax Appeal No. 154 of 2010 5 According to plain reading of Section 158 BD ibid, the assessing officer, while framing assessment of an assessee under Section 158BC of the Act against whom action has been taken under Section 132 or 132A of the Act, is mandatorily required to record satisfaction before action can be initiated under Section 158BD of the Act against such other person. In other words, the satisfaction by the assessing officer making assessment under Section 158 BC of the Act, in the case of the person searched, that there is certain undisclosed income as a result of examination of seized material which belongs to some other identified person, is essential for assuming jurisdiction under Section 158BD of the Act. The satisfaction required to be recorded is prima facie satisfaction and is not firm or conclusive satisfaction at that stage.
Section 158BE of the Act prescribes time limit for framing of assessments under Section 158BC and 158BD of the Act. The In come- tax Appeal No. 154 of 2010 6 assessing officer of the person against whom action under Section 132 or 132A of the Act has been taken, is the assessing officer who initiates the proceedings under Section 158BD of the Act by recording satisfaction that any undisputed income belongs to such other person so as to take action under Section 158 BD of the Act against that person. The Act nowhere specifically prescribes any time limit or limitation for initiation of proceedings under Section 158BD of the Act or for recording of satisfaction before taking action under that provision. The plain and reasonable construction that can be placed on the aforesaid provision would be that the recording of satisfaction for taking action against any other person under Section 158BD of the Act has to be between initiation of proceedings under section 158BC and before completion of block assessment under Section 158BC of the Act in the case of the person searched. A construction which leads to such an anomaly should be avoided. Once that is so, In come- tax Appeal No. 154 of 2010 7 then action contemplated under Section 158BD against a third party to a search, where the assessing officer who has jurisdiction over the searched party finds that seized materials by way of documents, books of accounts and valuables belong to the third party which involves undisclosed income of such person, by recording satisfaction is necessarily to be during the course of block assessment proceedings under Section 158BC of the searched person. It cannot be after the conclusion of the same as there is no occasion for an assessing officer to examine the seized material or documents of the searched person when the block assessment proceedings have concluded and no other proceedings are pending before him. If any other time limit is read in the provisions/ statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment under Section 158 BC of the Act against an assessee against whom action In come- tax Appeal No. 154 of 2010 8 under Section 132 or 132A of the Act had been carried out is finalized, Revenue can take action at any time in the absence of any specific limitation prescribed in the statute.
It is not disputed that the premises of S.K. Bhatia and Group were searched on 5.2.2003 and block assessment under Section 158BC was framed on 8.2.2008. The satisfaction as contemplated under Section 158BD in the case of the assessee was recorded on 8.2.2008 as observed by the Assessing Officer of the person searched, i.e. the Assistant Commissioner of Income- tax, Central Circle-VII, Ludhiana and notice was issued on 2.9.2005. The satisfaction having been recorded and the proceedings initiated after finalization of the block assessment in the case of S.K. Bhatia and Group on 8.2.2008, same were bad in law. In the present case, the block assessment under Section 158BC of the act was framed on 8.3.2006 whereas the satisfaction as contemplated under Section 158BD in the case of the present assessee was recorded on 8.2.2008. As such the satisfaction having been recorded at a belated stage was bad in law.
In view of the above, the substantial questions of law claimed by the Revenue are answered against the Revenue and finding no merit in the appeal, the same is accordingly dismissed.
(AJAY KUMAR MITTAL)
JUDGE
In come- tax Appeal No. 154 of 2010
9
(ADARSH KUMAR GOEL)
July 20, 2010 JUDGE
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