Income Tax Appellate Tribunal - Chandigarh
Ved Prakash Sanjay Kumar vs Assistant Commissioner Of Income-Tax on 31 August, 1999
ORDER
Saluja, J.M.
1. The asscssee has filed this appeal against assessment order dated 26-2-1998 made under section 158BC of the Income-tax Act, 1961.
2. Ground Nos. 2 and 3 relating to proper opportunity and limitation and assessment being barred by limitation, were not pressed.
3. Ground Nos. 1, 4 and 5 relating to action taken under section 132 and conversion of survey proceedings under section 133 A into proceedings of search under section 132 have been argued by the Id. counsel.
4. In this case the survey under section 133A of the Income-tax Act, 1961 was conducted on the business premises of the assesscc on 24-12-1996. At the same time search and seizure operations under section 132 were carried out ai the residential premises of the partners of the firm and warrant of search was executed on 5-2-1997. The assessee-firm was constituted of three partners, namely, Shri Ved Parkash Anand, Shri Sanjay Kumar and Smt. Rhu Anand. During the course of these operations various books of account and documents were found and seized. The Assessing Officer issued notice under section 158BC to the assessee on 23-4-1997, which was served on 28-4-1997. The Assessing Officer required the assessee to file the return for the block period 1986-87 to 1996-97 within 16 days from the service of notice. The notice under section 142(1) along with query letter dated 21-7-1997 was also issued and served upon the assessee on 24-7-1997. The assessee ultimately filed the return for block period on 8-12-1997 and thereafter the assessment was completed on 26-2-1998.
5. The ld. counsel submitted that in the case of the assessee only survey under section 133A was made in the premises of the asscssee and few papers were found during survey. He submitted that no papers were seized as the same could not be seized under section 133A. He further submitted that thereafter summons under section 131 may have been issued and that no search warrant were issued in the case of the assessee and in any case this could only be confirmed by the Id. DR. He further submitted that no panchnama was prepared in the case of the asscssee.
He further submitted that the inference that the assesses is covered by the provisions of Chapter XIV-B relating to special procedure for assessment of search cases could only be on the basis of some documents found in the case of search of partners of the assessee-firm, in whose cases search was conducted/carried out. He further submitted that such documents found with the partners should have disclosed some undisclosed income of the assessee before the assessee could be roped in under the provisions of Chapter XIV-B. The ld. counsel referred to the provisions of section 158BD which are reproduced hereunder for the sake of convenience :--
"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."
6. The Id. counsel submitted that the aforesaid provisions deal with the concept of "deemed search", as once the Assessing Officer is satisfied that any undisclosed income reflected in the books of account or other documents or assets (hereinafter referred to as material) seized or requisitioned under section 132 or section 132A, belongs to the assessee and not to the person who has been searched or in whose case the material was requisitioned, then such Assessing Officer shall hand over the material to the Assessing Officer having jurisdiction over the assessee and then the other Assessing Officer shall proceed against the assessee and the provisions of Chapter XIV-B shall apply accordingly. He further submitted that the Assessing Officer in such a situation has to record satisfaction, before assuming jurisdiction in the case of the assessee, that the material found during search in the case of other person discloses undisclosed income which belongs to the assessee. He submitted that the satisfaction has to be reached by the Assessing Officer on the basis of material found during search and that such satisfaction has to be recorded, whether the Assessing Officer is different in the case of the person searched and the assessee or the Assessing Officer is common in the case of both persons i.e. person searched or the person to whom undisclosed income belongs.
7. The ld. DR intervened at this stage and sought permission to refer to Page 2 of the paper book where a copy of letter dated 21-7-1997 written by the Assessing Officer to the assessee is placed. He referred to point No. 3 of the said letter wherein it is mentioned that "on perusal of the various books of account/documents found during the course of search, it is observed that material was being weighed at Kishan Dharam Kanta, weighment slips of Kishan Dharam Kanta were obtained and were verified with the sale bills. There is a difference as per these weighment slips and trucks dispatched as per sale bills. The details of such trucks are enclosed as per Annexure VI. Please get the sale of material verified from the regular hooks of accounts". The Id. DR submitted that though satisfaction of the Assessing Officer is required under section 158BD and the Assessing Officer was satisfied in the present case, but the satisfaction has not been recorded in writing. He submitted that where Assessing Officer is common in the case of person searched and in the case of person to whom undisclosed income, reflected in the material found, belongs, he cannot communicate with himself.
8. The ld. counsel submitted that the end portion of section 158BD which provides that "Assessing Officer shall proceed against such other person" is very important as the Assessing Officer could only proceed against the assessee after reaching satisfaction under section 158BD on the basis of material found during search of the partners that some undisclosed income belongs to the assesses. He urged that once satisfaction of the Assessing Officer is not recorded, it would mean that Assessing Officer had no material on the basis of which he proceeded against the assessee. He further submitted that the material found during search and which disclosed undisclosed income of the assessee, should have been listed by the Assessing Officer. He, therefore, urged that action of the Assessing Officer in issuing straightaway notice under section 158BC is void ab initio. He stressed that omission to reach the satisfaction as required under section I58BD is an illegality and not an irregularity and that the same cannot be removed.
9. The ld. DR again intervened and submitted that the survey under section 133A in the case of the assessee was valid and that only photocopies of a diary, named "Babloo Diary" were taken and that he said diary was impounded later on. He further submitted that though no panchnama was drawn in the case of assessee-firm but panchnamas were there in the case of partners. The ld. DR referred to the opening portion of the assessment order and submitted that since there was search in the case of partners, Assessing Officer was right in drawing inference under section 158BD that certain undisclosed income belongs to the assessee-firm. He further submitted that strictly speaking the provisions of section 158BD were not applicable as Assessing Officer was same in case of search of partners and the assessee-firm and he relied on totality of material and circumstances before issuing notice under section 158BC. He further submitted that no notice is required to be issued under section 158BD and that it is a case of deemed search and satisfaction of the Assessing Officer is implied in group cases. He stressed that Assessing Officer has applied his mind and issued notice under section 158BC and that the Assessing Officer was within his powers to issue notice under section 158BC to the assessee-firm on the basis of material found during search of partners. He further submitted that the provisions of section 158BD were procedural and procedural irregularity cannot make the assessment proceedings a nullity. He submitted that in case of irregularity the assessment order could be restored to the file of the Assessing Officer.
10. The ld. counsel continued with his arguments and submitted that there was no illegality about survey and that the assessee is not in challenge against survey made under section 133A. He stressed that in the present case search was made at the premises of the partners and the Assessing Officer did not mention as to on which material he relied before reaching the satisfaction that the said material disclosed an undisclosed income of the assessee-firm. He submitted that such material has not been mentioned in the order sheet/file of the department. He again stressed that the satisfaction of the Assessing Officer has to be recorded, as it may be required to be proved before the Courts. In this connection he submitted that Assessing Officer is quasi-judicial authority and he is required to comply with the provisions of the Act, before assuming jurisdiction over the assessee and visit it with 60% lax under the provisions of Chapter XIV-B. The ld. counsel referred to CBDT Circular No. 717, dated 14-8-1995 reported in 215 ITR 70 (St.), For the proposition that even administratively it is enjoined on the Assessing Officer to follow the statutory provisions. The ld. counsel further referred to the decision of the Tribunal (Ahmedabad 'A' Bench) in the case of Patel Rajeshkumar Kantilal & Co. v. Asstt. CIT [1998] 62 TTJ (Ahd.) 189, wherein the Tribunal considered the said Circular No. 717, dated 14-8-1995 and held lhat the Assessing Officer was not justified in making additions on mere presumptions and assumptions. The ld. counsel emphasised that there has to be material with the Assessing Officer on the basis of which addition is made for each assessment year within block period. Regarding the question as to how the satisfaction has to be arrived at by the Assessing Officer, the ld. counsel was fair enough to mention that everything need not be recorded but the basis for satisfaction of Assessing Officer should be there. He submitted that some procedure is required to be followed by the Assessing Officer for assuming jurisdiction over the assessee in terms of section 158BD and if such procedure is not followed, it would lead to anarchy- The ld. counsel also referred to the provisions of section 147, which provide that "if the Assessing Officer has reason to believe that any income chargeable to lax has escaped assessment for any assessment year" and submitted that even while proceeding under section 147, the Assessing Officer requires some material for his belief that any income chargeable to lax had escaped assessment. He, therefore, stressed that where the provisions of section 158BD clearly provide that Assessing Officer has to be salisfied lhat any undisclosed income belongs to any person, other than the person in whose case search was carried on, there must be some material with the Assessing Officer in reaching such satisfaction and Assessing Officer has to inform the assessee that he is covered under the provisions of suction 158BD on the basis of such and such documents/material found in search at the premises of such and such person. He submitted that this action of the Assessing Officer is justiciable, as assessee is fastened with the liability of 60% tax for income for 10 assessment years falling within the block period. He again emphasised that return of income under section 158BC is for undisclosed income, which has to be on the basis of material found during search of another person. With reference to plea of the ld. DR that the assessment could be restored to the file of the Assessing Officer to regularise the irregularity in following the procedure, the ld. counsel submitted that the Courts cannot allow the department to regularise the irregularity, if it is taken as a case of irregularity. In this connection he submitted that it would mean as if search warrant, which was not issued earlier, can be issued subsequently and the proceedings regularised. He, therefore, pleaded that the assessment made in the present case is bad in law and ought to be held as a nullity.
11. The ld. DR referred to the notice issued under section 158BC and submitted that if the words "read with section 158BD" are added to that notice, it would be a valid notice. He submitted that the omission of the said words in the notice would not make the notice issued under section 158BC as invalid. In this connection he referred to the decision of the Hon'ble Madras High Court in the case of I. Devarajan v. Tamil Nadu Farmers Service Co-operative Federation [1981] 131 ITR 506, wherein at page 534 of the order it was observed that "we do not find that the omission to score the whole of first page after the words extracted already, was such as to mislead anyone or that the search in pursuance thereof, can be characterised as a illegal exercise of the powers."
11.1 The ld. counsel commenting on the said decision submitted that in the said case search warrant was issued, but in the present case simply writing the words "read with section 158BD" in the notice issued under section 158BC would not have been sufficient, as the satisfaction of the Assessing Officer was not reached in accordance with the provisions of section 158BD and further it was not supported by any material.
12. We have carefully considered the submissions made by both the parties and have perused the orders. We have also taken note of the fact that in the case of the assessee notice under section 158BC has been issued, as appears from the order sheet entry and that no satisfaction has been recorded under the provisions of section 158BD before issuing notice under section 158BC. We have also carefully gone through the provisions of section 158BD and we feel that the said provisions involve the following steps, before the Assessing Officer can proceed against any person in whose case search has not been conducted and before issuing notice under section 158BC, namely :--
(a) there is a search under section 132 in case of say 'A' or requisition of books of account or other documents or any assets (in short material) in case of 'A':
(b) the material is seized in such search;
(c) the Assessing Officer is satisfied that any undisclosed income reflected in such material belongs to another person say 'B';
(d) the material so seized or requisitioned is to be handed over by the Assessing Officer after reaching such satisfaction, to the other Assessing Officer having jurisdiction over 'B';
(e) the other Assessing Officer shall proceed against 'B';
(f) where the Assessing Officer is same in the case of both 'A' and 'B', then :--
(i) whether the satisfaction is to be recorded by the Assessing Officer in the order sheet/file;
(ii) whether the material on the basis of which aforesaid satisfaction is reached, is to be identified on file by the Assessing Officer;
(III) whether in the circumstances mentioned in section 158BD, Assessing Officer can straightaway issue notice to 'B' under section I58BC on the basis of mental satisfaction alone which is neither recorded nor linked to the material seized in a raid against 'A'.
It would be observed from above that search under section 132 in case of 'A' is the first essential step and location of undisclosed income from out of the material seized during search is the next logical step. Further on the basis of the said material some undisclosed income belonging to another person, i.e., other than the person in whose case search was conducted, is then required to be found and the Assessing Officer has to reach satisfaction that such undisclosed income belongs to other person i.e. 'B'. Thereafter the provisions of section 158BD require that after reaching such satisfaction the Assessing Officer will hand over the material in question to the other Assessing Officer having jurisdiction over 'B' and the other Assessing Officer shall proceed against 'B' and provisions of Chapter XIV-B shall apply accordingly. The provisions of section 158BD are, however, silent about the situation where the Assessing Officer conducting the search and in possession of the seized material is the same in the case of 'B' to whom according to the Assessing Officer the undisclosed income belongs. Thus an answer is to be found as to how the Assessing Officer has to reach satisfaction that undisclosed income discovered from the material belongs to 'B'. We feel that even if the arguments of the ld. DR that satisfaction is not required to be recorded in writing, are accepted, yet some positive satisfaction on the part of the Assessing Officer is enjoined by the provisions of section 158BD. We feel that such satisfaction cannot be subjective satisfaction of the Assessing Officer and that it has to be an objective satisfaction, which has to be based on the material found during the search of 'A'. This leads to the logical conclusion that the basis of satisfaction of Assessing Officer has to be the material found during search and unless such material is identified and brought on record and is in someway jotted down on the file of the Assessing Officer, such satisfaction cannot be correctly reached, leave aside the argument whether it is required to be recorded or not ? We may mention that even where the Assessing Officers are different in case of person searched and the other person to whom the impugned undisclosed income belongs, the material in question is to be handed over under the provisions of section 158BD and the said material cannot be handed over without being identified and brought on file of the Assessing Officer. Here we may also refer to the provisions of section 158BE(2), which deal with the period of limitation for completion of block assessments in the case of "other person" referred to in section 158BD, In such cases the assessment order is to be made within one year from the end of the month in which notice under Chapter XIV-B was served on such other person in respect of search initiated or material requisitioned. Thus we hold that satisfaction by Assessing Officer under section 158BD has to be reached in some positive way, in black and white, and on the basis of material found during search, which discloses that some undisclosed income belongs to the assessee. We may refer here to the decision of the Tribunal, Nagpur Bench (Mag.), in the case of Smt. Jatan Bai Baid v. Asstt. CIT [1998] 96 Taxman 24, wherein it was held that in the absence of any positive satisfaction by the Assessing Officer of undisclosed income of assessee and in the absence of any reference to section 158BD in the notice issued, the impugned notice was invalid. We may also refer here to the decision of the Hon'ble Gujarat High Court in the case of Khandubhai Vasanji Desai v. Dy. CIT [1999] 103 Taxman 181, wherein the constitutionality of the provisions of section 158BD was examined with reference to articles 14, 19(1)(g) and 21 of the Constitution. In the said case the question relating to discrimination was examined in the context of satisfaction which was to be reached by the Assessing Officer in the case of "other person" while in the case of raided person satisfaction was to be reached by higher authorities like D.G. or Director, Chief Commissioner or the Commissioner etc. It was held that the provisions of section 158BD were not violative of article 14. In this connection the Hon'ble High Court observed that "other person" is not known when authorisation for search or requisition is issued and that starting point of limitation in relation to any person in whose case warrant of authorisation is issued and that in relation to "other person" is different and therefore provisions made for considering different starting points of limitation are not discriminatory. The Hon'ble High Court also examined the provisions of section 132(1) and observed that "reason to believe contemplated by section 132(1) is for the purpose of issuance of warrant of authorisation which precedes the detection of undisclosed income and it enures for the entire search and seizure of assets, etc., irrespective of the fact whether they belong to raided person or any other person". The Hon'ble High Court also examined the provisions of section 132(4A) and observed that "a presumption is raised under section 132(4A) that if such material is found in possession or control of any person in the course of a search, then it belongs to such person.. . . the person who is found in possession may not necessarily be the owner of such undisclosed income or property. It is only after the undisclosed income or property is detected to be in possession of any person that the question would arise to ascertain as to whether it belongs to the raided person or to any other person and that stage truly comes only after issuance of authorisation. It is on the strength of presumption against the raided person, who is found to be in possession or control of the material that he can be proceeded against for the purpose of assessment under Chapter XIV-B. However, if it is found that any of the undisclosed income belongs to someone else which may happen at any point of time after the material is seized pursuant to the authorisation either when the statement is recorded under section 132(4) or even thereafter when the raided person is required to file the return in Form 2B in cases which fall in Chapter XIV-B and the Assessing Officer may be satisfied with some part of undisclosed income really does not belong to the raided person, who is being proceeded against and that it belongs to some other person that the occasion arises for the first time to proceed against such other person. Thus, the satisfaction which the Assessing Officer is required to reach for proceeding against such other person as contemplated by section 158BD is entirely a different matter from the reason to believe that the Designated Authority is required to have on the basis of information in his possession for purpose of issuing an authorisation for search and seizure under section 132(1) "The Hon'ble High Court further observed that "it is only when the Assessing Officer is satisfied that any undisclosed income belongs to any other person that the occasion to proceed against such other person for the block assessment of the undisclosed income belonging to him can arise. Necessarily, therefore, a different starting point of commencement of limitation for making the assessment of the block period in case of such other person was required to be fixed and the obvious starling point was the serving of notice to such other person after the requisite satisfaction was reached by the Assessing Officer that any undisclosed income belonged to such other person". In view of the foregoing it is clear that satisfaction of the Assessing Officer has to be evidenced by recording or by proving on the file, with reference to the material and facts, that undisclosed income in consequence of any search belongs to the assessee. The "other person" mentioned in section 158BD comes into the picture only by virtue of such satisfaction of the Assessing Officer on the basis of material showing undisclosed income of such other person and it is only after such satisfaction and transmission of relevant material that the other Assessing Officer has to take action and proceed to issue notice under section 158BC. Thus the powers of the Assessing Officer under section 15SBD cannot be invoked in a light and arbitrary manner and without complying with basic pre-reqitisites specified in section 158BD. We feel that the object underlying the provisions of section 158BD is not to give unbridled power to the Assessing Officer to proceed against any person without reaching satisfaction in an objective manner based on the cogent material/documents seized at the lime of search. The satisfaction of the Assessing Officer is not a mere formality but it should be positive satisfaction that the seized material pertains to the other person and reveals undisclosed income of that other person. We feel that the provisions of section 158BD, incorporated in Chapter XIV-B dealing with special procedure for assessment of search cases, have to be construed strictly, as the same provide a launching pad for the Assessing Officer to assume jurisdiction and proceed against a person, other than the searched person, so as to rope him within the provisions of Chapter XIV-B. We feel that the Assessing Officer has to make himself sure of the correctness of the seized documents by proper examination and unless the Assessing Officer is fully satisfied that such document disclose undisclosed income of another person, he shall not proceed against such other person on the basis of such documents and that too without bringing them on record. We may also refer here to the provisions of sections 145(2), 271(1), 273(1), 273(2) and 273A which deal with the satisfaction to be reached by Assessing Officer before invoking the said provisions. In this connection we may refer to the decision of the Hon'ble Bombay High Court in the case of CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41, wherein they observed that "the power to impose penalty under section 271(1)(c) depends upon satisfaclion of ITO in the course of assessment proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of conditions specified in clauses (a), (b) and (c) of section 271(1) before the assessment proceedings arc concluded". There are other similar decisions which we need not enumerate here. In a nutshell satisfaction has to be reached by the Assessing Officer under section 158BD on the basis of materials disclosing undisclosed income of the assessee and has to be suitably recorded since such action of Assessing Officer is justiciable by Courts. We may refer here to the recent decision of the Hon'ble Kerala High Court in the case of T.S. Sujatha v. Union of India [1999] 238 ITR 599, wherein notice issued by the Assessing Officer under section 158BD to be asscssee has been held valid. Thus the procedure of issuing notice under section 158BD before the issue of notice under section 158BC stands approved by the Hon'ble High Court, though impliedly. Since the Assessing Officer has failed to follow the provisions of section 158BD in the manner discussed above, we hold that the notice issued by him straightaway to the assessee-firm under section 158BC is void ab initio. We feel that the said provisions have been incorporated in the Act for being followed in the spirit in which they have been enacted and any violation thereof by the Assessing Officer leads to illegality which is fatal to the assessment proceedings and this illegality cannot be remedied by restoring the matter to the file of the Assessing Officer.
Accordingly we quash the assessment framed in this case without following the due process of law as contemplated under the provisions of section 158BD. Since the contentions of the ld. counsel have been accepted on legal grounds, we do not propose to deal with the other grounds raised in the appeal.
13. In the result the appeal is allowed.