Income Tax Appellate Tribunal - Mumbai
Shoreline Hotel (P) Ltd. vs Deputy Commissioner Of Income Tax on 16 April, 2008
Equivalent citations: (2008)116TTJ(MUM)536
ORDER
K.C. Singhal, J.M.
1. This appeal is directed against the order of the CIT(A), confirming the addition of Rs. 19,01,475 on account of bogus purchases, made by the AO in the block assessment proceedings initiated under Section 158BD of IT Act, 1961 (the Act).
2. The learned counsel for the assessee has raised the following additional ground:
The notice issued under Section 158BD of IT Act, 1961 is illegal, invalid and bad in law and consequent assessment framed thereupon is liable to be cancelled.
It has been submitted by the learned Counsel for the assessee that the ground raised is purely legal and goes to the root of the matter and is also based on the legal finding given by the Hon'ble Supreme Court in the case of Manish Maheshwari v. Asstt. CIT . Reliance has been placed on the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT for adjudication of the additional ground. The only objection raised by the learned Departmental Representative is that such ground was never taken before the lower authorities. After hearing both the parties, the additional ground raised by the assessee is admitted; being purely legal ground and goes to the root of the matter.
3. It has been contended by the learned Counsel for the assessee that before the junsdiction under Section 158BD is invoked, the condition precedent for assumption of such jurisdiction must be satisfied i.e., (i) the satisfaction must be recorded by the AO having jurisdiction over the persons searched, that a particular income belongs to the person, other than the person searched; and (ii) the material found in the course of search, on the basis of which such satisfaction was recorded, is handed over to the AO having jurisdiction over the person, to whom such seized material belongs. For this proposition, the reliance has been placed on the decision of the Supreme Court in the case of Manish Maheshwari (supra). He has also relied on the judgment of Delhi High Court in the case of Janki Exports International Through S.P. Gupta v. Union of India and certain other Tribunal decisions, copies of which are placed before us. It has been contended by him that no such satisfaction was recorded by the AO, who framed the assessment in the case of the person searched under Section 132. However, the learned Departmental Representative has submitted before us that the satisfaction has been recorded by the AO having jurisdiction over the person searched and therefore the AO validly assumed jurisdiction in the case of assessee, by invoking the provisions of Section 158BD. The satisfaction note was not available at the time of hearing, but the learned Departmental Representative promised to furnish the same within a short period and the same has also been furnished by him.
4. Submissions from both parties have been considered carefully. The question for our consideration is whether the jurisdiction under Section 158BD has been validly acquired? In this connection, it would be appropriate to refer to the judgment of Hon'ble Supreme Court in the case of Manish Maheshwari (supra). In para 11 of the said judgment, it has been clearly stated that before applying the provisions of Section 158BD, three conditions must be satisfied, viz., (i) satisfaction must be recorded by the AO 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; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under Section 158BC against such other person.
5. At this stage, it would also be appropriate to refer to the decision of Chandigarh Bench of the Tribunal, in the case of Asstt. CIT v. Kishore Lal Balwant Rai (2007) 17 SOT 380 (Chd). In that case, a question arose, whether the satisfaction in terms of Section 158BD could be recorded after the finalisation of the block assessment proceedings, in the case of person searched under Section 132. The argument of the Department was that satisfaction could be recorded at any time and a notice under Section 158BD could be issued at any time for the reason that there was no time-limit prescribed by the statute. This contention was rejected by the Tribunal vide para 27 of the said order. The Tribunal took note of the fact that legislature intended that the IT authorities should proceed to finalise the proceedings of assessment of search cases in an efficient and speedy manner. Therefore, the object of the legislature would be frustrated if the contention of the Department was to be accepted. The Tribunal considered the legal finding recorded by the Hon'ble Supreme Court in the case of Manish Maheshwari (supra) and finally concluded that satisfaction contemplated under Section 158BD was required to be recorded by the AO of the person searched at any time, but not later than the finalisation of the assessment of the undisclosed income for the block period in the case of person put to search.
6. In the context of these two decisions, let us now examine whether the jurisdiction under Section 158BD was validly assumed. We have gone through the satisfaction note sent by the AO having jurisdiction over the searched person, to the AO having jurisdiction over the assessee. To appreciate the controversy, it would be appropriate to reproduced the said letter dt. 21st Sept., 2001, asunder:
Immediate/urgent No. Jt. CIT/CR-IX/Inform Office of the Jt. CIT, Central Range-IX, under Section 158BD/2001-02 6th Floor, Bldg. C-10 Pratyakshkar Bhavan, Bandra-Kurla Complex, Bandra (East) Mumbai-400 051 Tel. 654 2458 Fax 6524737 21st Sept., 2001 To The Dy. CIT Central Circle 2, 9th Floor, Old CGO Building Annexe, M.K. Road, Mumbai-20.
Sub : Passing on of information in the case of your assessee Hotel Faryaz & Hotel Marine Plaza, beneficiary of the Hawala bills given by M/s Nishalchandra Sales & Marketing (P) Ltd. (NSMPL), M/s Nishalchandra Steels & Chemicals (P) Ltd. (NSSCPL), M/s Chogule Loha & Rasyan (P) Ltd. (CHOGULE)--regarding.
Refer to the subject mentioned above. In this regard during the course of search operation on 22nd/23rd Oct., 1997 in the cases of M/s Nishalchandra Sales & Marketing (P) Ltd. (NSMPL), M/s Nishalchandra Steels & Chemicals (P) Ltd. (NSSCPL), M/s Chowgle Loha & Rasyan (P) Ltd. (CHOGULE) having address of 106, Maganlal Chambers, Baburao Marg, Carnac Bunder, Mumbai it was found that these parties were indulging in providing Hawala/accommodation bills to various parties. Dy. CIT, CC-38, the AO having jurisdiction over these cases, has prepared a detailed report on the modus operandi adopted by Hawala bill operators. Your assessees happen to be two of the beneficiaries in this Hawala bill racket operated by Sh. Chandramani Section Misra and Sh. Santosh Kr. Tiwari directors of abovementioned paper/table space office companies. The details of the Hawala bills taken by your assessee(s) are as under:
Bill beneficiary Hawala Date Amount
bill party
Hotel Faryaz/s NSMPL 27-04-1996 2,67,017.06
28-06-1996 2,57,780.60
14-11-1996 2,64,810.98
21-01-1997 2,69,496.90
25-03-1997 2,74,184.82
12-09-1997 2,62,467.52
Hotel Marine Plaza NSMPL 11-04-1997 4,71,146.50
30-04-1997 4,66,185.52
20-05-1997 4,75,448.82
17-06-1997 4,88,694.85
Total bogus bills taken by your above assessees are to the tune of Rs. 15,95,758.88 and Rs. 19,01,470.69, respectively during the period from 27th April, 1996 to 12th Sept., 1997. Detailed report of the Dy. CIT, CC-38 is also enclosed along with this letter for taking necessary action as per provisions of Section 158BD in the cases of your abovementioned assessee. For any further information you may directly co-ordinate with the Dy. CIT, Central Circle-38 under intimation to this office.
Sd/-
(Ravi Sarangal) Jt. CIT Ends : As above Central Range-IX, Mumbai
7. The perusal of the above shows that only the report of Dy. CIT, Central Circle 38 was enclosed with this letter for necessary action and no other material was enclosed. We have also gone through the report, which refers to various statements recorded in the course of search, to emphasize that purchases by the assessee were bogus. However, none of the statements forms part of the said report. This shows that none of the material found in the course of search, indicating the undisclosed income of the assessee, was handed over to the AO having jurisdiction over the assessee. Thus, the second condition, as pointed out by the Hon'ble Supreme Court, has not been satisfied and consequently, the assumption of jurisdiction under Section 158BD was illegal. Secondly, it is seen from the above letter that information was given vide letter dt. 21st Sept., 2001, while the search in the cases of M/s Nishalchandra Sales & Marketing (P) Ltd. and other companies was carried out on 22nd Oct., 1997. That means, the block assessment could be completed latest by 31st Oct., 1999. Therefore, the satisfaction should have been recorded by the AO having jurisdiction over the person searched under Section 132, latest by 31st Oct., 1999. However, such satisfaction note is dt. 21st Sept., 2001, which is much beyond the period by which the block assessment could be completed in the case of person searched. Thus, such belated recording of satisfaction is contrary to the legal position laid down by the co-ordinate Bench at Chandigarh, in the case of Kishore Lal Balwant Rat (supra). Therefore, even on this account the recourse to Section 158BD was illegal.
8. In view of the above discussion, it is held that provisions of Section 158BD were not invoked in accordance with law and consequently, the entire block proceedings in the case of assessee were illegal and without jurisdiction. Consequently, the block proceedings initiated in the case of the assessee are cancelled. In view of the same, the other grounds need not be adjudicated.
In the result, appeal of the assessee is allowed.