Income Tax Appellate Tribunal - Delhi
Dr. (Mrs.) Surjit Tosaria vs Joint Commissioner Of Income Tax on 23 November, 2004
Equivalent citations: (2005)92TTJ(DELHI)338
ORDER
R.V. Easwar, J.M.
1. The assessee, who is the appellant in the appeal, is a doctor working with the Municipal Corporation of Delhi deriving salary income and income in the form of interest and dividends. She is assessed to tax in the status of individual. The present appeal arises out of the block assessment made in her case under Section 158BC of the IT Act.
2. Several grounds have been taken before us. The first issue which is articulated in the first five grounds is whether the block assessment is valid in law. The contention before us is that there was no search in the assessee's case under Section 132 of the IT Act and, therefore, there can be no valid block assessment under Section 158BC.
3. In order to appreciate this issue, a few facts have to be noted. On 29th Sept., 1997 the Director of IT (Inv.), New Delhi, issued a warrant of authorisation under Section 132 r/w Rule 112(2)(a) of the IT Rules, 1962, in Form No. 45 against one Shri IS. Tosaria, who is the husband of the assessee. A xerox copy of the warrant has been placed before us by the learned Departmental Representative, The name of the assessee is not seen mentioned in this warrant. The warrant authorised the authorised officers to carry out the search of the premises at D-15, MCD Flats (MCD Colony), Defence Colony, New Delhi, where it was suspected that books of account, documents, money, bullion, jewellery or other valuable article or thing has been kept and may be found, The Panchnama prepared on conclusion of the search on 30th Sept., 1997 is at pp. 1 to 9 of the paper book filed by the assessee. The said Panchnama is also in the name of Shri IS. Tosaria. Item 5(a)(vi) of the Panchnama stated that in the course of the search, inter aha, one locker key No. 285 in respect of Allahabad Bank, NDSC-1, New Delhi, was found and seized. The last page of the Panchnama noted that an order under Section 132(3) in respect of the locker No. 343, the key of which was found during the search, in the case of the assessee's husband, was served on the assessee Smt. Surjit Tosaria by the authorised officer. On the same day, i.e., 30th Sept., 1997, an order under Section 132(3) was passed against the assessee and her mother Smt. Kaushalya, with copy to the manager of Allahabad Bank, ordering them not to remove, part with or otherwise deal with the articles found in the aforesaid locker. It may be clarified here that the locker was in the joint names of the assessee and her mother. At p. 12 is the Panchnama in respect of the articles found in the locker. It appears from the Panchnama, which is dt. 14th Oct., 1997 that the search of the locker took place on 14th Oct., 1997 between 3.10 PM and 4.30 PM and was finally concluded.
4. The AO, thereafter, issued a notice under Section 158BC on 18th Feb., 1999, calling upon the assessee to file the block return. The assessee filed the block return on 30th March, 1999 declaring total income, including undisclosed income, amounting to Rs. 8,79,020 for the block period and the undisclosed income declared was nil. The AO conducted enquiries in the course of the assessment proceedings and finally determined the undisclosed income of the assessee at Rs. 8,80,797. Various additions were made in the block assessment relating to the asst. yrs. 1988-89 to 1993-94 and 1996-97.
5. The assessee filed an appeal before the CIT(A) and challenged the block assessment on various grounds, including the ground that there was no search operation under Section 132(1) in assessee's case. The additions were also challenged on merits. However, the CIT(A) held that from the Panchnama dt. 14th Oct., 1997 drawn up in respect of the search of the locker, there was a warrant of authorisation for search under Section 132(1) and from this, it was clear that this section "was utilised in the appellant's case and, therefore, the assessment was rightly framed under Section 158BC". He considered the additions in the block assessment on merits and gave part relief.
6. The assessee has filed a further appeal before the Tribunal. The assessee has also raised an additional ground before the Tribunal by application dt. 11th Nov., 2003 to the effect that the correctness of the addition made in the block assessment for the asst. yr. 1993-94 has not been adjudicated upon by the CIT(A). This additional ground has been admitted by the Tribunal by an order passed on the application itself on 14th Nov., 2003.
7. Before us, the main ground of attack, predictably, was that the block assessment was null and void for want of jurisdiction, because there was no warrant of authorisation under Section 132(1) in the assessee's case. The warrant was issued only in the case of the assessee's husband, I.S. Tosaria, on 29th Sept., 1997. The so-called warrant referred to by the CIT(A) as having been issued in the name of the assessee, is only an order under Section 132(3) of the Act, which is only a consequential order, consequent to the warrant issued in the husband's case, so that the IT authorities could search the locker which stood in the joint names of the assessee and her mother. Strong reliance was placed on the judgment of the Hon'ble Delhi High Court in CIT v. Ms. Pushpa Rani (2004) 136 Taxman 627 (Del), in which it was held that there should be a search warrant in the case of the very assessee against whom a block assessment order is passed and if a limited warrant is issued, to facilitate the search of the locker which is in the name of the assessee, the AO ought to have made additions on the basis of the materials seized from the locker. It was submitted that in the present case none of these conditions is present. First, there is no search warrant under Section 132(1) issued in the assessee's name and second, though the locker belonging to the assessee and her mother was searched, no addition on the basis of the articles seized from the locker were made in the block assessment order. It was thus, submitted that there was no search in the assessee's case and, therefore, the AO cannot pass a block assessment order upon the assessee. The order passed is, therefore, null and void, lacking in jurisdiction.
8. The learned CIT-Departmental Representative, on the other hand, submitted that it is the normal practice followed by the authorities of the Inspection Wing of the Department to record a separate satisfaction in respect of the search of a locker in order to subserve the main satisfaction recorded in the case where the search warrant has been issued and such subservient warrants are known as "consequential warrants" in the Department's parlance. As a matter of practice, such warrants are signed by the Addl. Director of IT (Inv.) and not by the Director of IT (Inv.). He filed a copy of the warrant of authorisation issued under Section 132 r/w Rule 112(2)(a) of the IT Rules, dt. 30th Sept., 1997, in the names of Smt. Surjit Tosaria, the assessee and Smt. Kaushalya Devi, her mother, which was signed by the Addl. Director of IT (Inv.). This is the warrant, which according to the learned CIT-Departmental Representative, is the consequential warrant issued in respect of the search of the locker belonging to the assessee and her mother jointly. In the second page of the warrant, it has been stated that the issuing authority has reason to suspect that the books of account, money, bullion, etc. has been kept and are to be found in the locker Nos. 342 and 343, Allahabad Bank. It was pointed out that the key to this locker had been found in the course of the search of the husband's place on 30th Sept., 1997. Since a warrant has been issued in the assessee's case also, for whatever reason, the block assessment is valid and is not lacking in jurisdiction. The learned CIT-Departmental Representative also submitted that irrespective of whether any material was found in the locker or not, it was open to the AO to frame a block assessment in the assessee's case, since the only condition prescribed by Section 158BC is that there should have been a warrant of authorisation issued in the assessee's case, which condition is satisfied, as demonstrated earlier.
9. With reference to the judgment of the Hon'ble Delhi High Court (supra) cited on behalf of the assessee, the learned CIT-Departmental Representative submitted that the order of the Tribunal dt. 9th April, 2003, which was the subject of appeal before the Hon'ble High Court, shows that it was conceded on behalf of the Department before the Tribunal that no warrant had been issued in the case of the assessee. It was further submitted that the finding of the Tribunal that absence of a search warrant in the assessee's case invalidates the assessment was reversed by the Hon'ble Delhi High Court. It was further submitted that the Hon'ble Delhi High Court did not pronounce upon the question as to what are the materials that can be utilised for the purpose of framing a block assessment. It was strenuously contended that the provisions of Chapter XIV-B of the IT Act, which are special provisions made to cover search cases, should be so interpreted as to avoid multiplicity of proceedings or absurd results. With reference to the present case, the learned CIT Departmental Representative further pointed out that the amendment made to Section 158BB(1) w.e.f. 1st July, 1995, to include post-search investigations and evidence collected in the course of the same, operates in favour of the Department in the sense that after this date it is open to the AO, while framing a block assessment, to include or refer to materials collected in the course of searches made in other cases also. Reference was made to pp. 1, 3, 6, 8 and 21 of the paper book filed by the assessee, which all contained details about the assets found in the course of search in the premises of the assessee's husband and it was submitted that all these materials can be made use of by the AO in the case of the assessee, though the search warrant in respect of the residence at D-15, MCD Flats, Defence Colony, New Delhi, is in the name of the assessee's husband.
10. Certain further points were also made by the learned CIT-Departmental Representative. He submitted that the assessee had not filed returns of income for the various years comprising in the block period. The assessee has herself prepared a balance sheet and a cash flow statement to explain the materials found during the search. These were not on the record of the Department prior to the search. It was, therefore, open to the AO to make use of the balance sheet, cash flow statement, etc. for making the block assessment in the assessee's case, having regard to the amendment made to Section 158BB(1) w.e.f. 1st July, 1995. Further, it was pointed out that the AO did not make any fishing or roving enquiries in the course of the block assessment proceedings, but was quite definite and certain about the additions that had to be made.
11. In his brief reply, the learned counsel for the assessee submitted that the contention of the Department to the effect that the search warrant is premises-specific and not assessee-specific cannot be accepted in the light of the orders of the Tribunal in the case of Smt Jatan Bai Baid v. Asstt. CIT, (1998) 96 Taxman 24 (Nag)(Mag) and Urmila Chandok v. Asstt. CIT, (1998) 60 TTJ (Mad) 758. It was clarified by him that the assessee's case is not a "follow-up case" contemplated by Section 158BD, but is a direct case of block assessment under Section 158BC and, therefore, the satisfaction regarding the locker and the articles that might have been kept therein should be qualitatively the same as the satisfaction required to be arrived at under Section 132 and it is not sufficient compliance with the law to say that the satisfaction in the case of a locker is subservient to the main satisfaction under Section 132, arrived at in the case of the assessee's husband. To a query from us, the learned counsel for the assessee submitted that a block assessment had been made in the case of the assessee's husband under Section 158BC in which no addition has been made.
12. As regards the cash flow statement and the balance-sheet filed by the assessee in the course of the block proceedings, the learned counsel for the assessee submitted that these cannot be construed as books of account, as held by the Bombay Bench of the Tribunal in the case of S.P. Goel v. Dy. CIT, (2002) 82 ITD 85 (Bom)(TM).
13. We have carefully considered the rival contentions with regard to the first issue which arises in the appeal, namely, the legality of the block assessment, which is challenged on the ground that no search warrant under Section 132 was issued in the assessee's case. The facts brought on record show that a search warrant under Section 132(1) was issued in Form No. 45 on 29th Sept., 1997, by the Director of IT (Inv.) in the case of I.S. Tosaria, the husband of the assessee, who was suspected to have kept books of account, money, bullion, etc. in the premises at D-15, MCD Flats, Defence Colony. The search was carried out on 30th Sept., 1997 between 8.30 AM and 10.30 P.M. in the course of which, inter alia, the locker key was found. Immediately an order under Section 132(3) was served on the assessee in respect of the locker and this fact is also mentioned in p. 4 of the Panchnama prepared in respect of the search of the husband's premises. On 30th Sept., 1997, a warrant under Section 132 in Form No. 45 also appears to have been issued in the joint names of the assessee and her mother Smt. Kaushalya Devi (copies of the warrant filed by the learned Departmental Representative, as noted earlier). This warrant has been signed by the Addl. Director of IT (Inv.). However, when we look at the order passed under Section 132(3), on the assessee and her mother, it refers to warrant of authorisation dt. 29th Sept., 1997 issued by the Director of IT (Inv.). Obviously, the reference is to the warrant issued in the husband's case. The source of the order under Section 132(3), passed on the assessee and her mother is the warrant issued in the husband's case on 29th Sept., 1997 under Section 132. The warrant issued in the joint names of the assessee and her mother on 30th Sept., 1997, a copy of which has been filed before us by the learned CIT-Departmental Representative, has been signed by the Addl. Director of IT (Inv.). A perusal of Section 132(1) shows that a warrant of search cannot be issued by the Addl. Director of IT (Inv.). Section 116 of the Act shows that the post of Addl. Director of IT came into effect from 1st June, 1994. However, there is no amendment in Section 132 empowering the Addl. Director of IT to authorise a search under that section. Even the learned CIT-Departmental Representative, as already noted, had stated before us that consequential warrants are as a matter of practice signed by Addl. Director of IT (Inv.). But when the Addl. Director of IT is not authorised to sign the warrant of search under Section 132, we cannot take cognisance of the warrant issued on 30th Sept., 1997 by the Addl. Director of IT (Inv.) in the joint names of the assessee and her mother. This warrant is admittedly a consequential warrant merely to facilitate the search of the locker. Since it is signed by the Addl. Director of IT (Inv.), it is not a valid warrant under Section 132(1). If that is so, the factual position is that there is no valid warrant issued under Section 132(1) in the assessee's name. In Nenmal Shankarlal Parmar v. Asstt. CIT, (1992) 195 ITR 582 (Kar), the Kamataka High Court held that the mere mention of residential premises in the warrant does not enable the Department to effect seizure of any material and hence, it must beheld that a warrant under Section 132 which has not been issued in the name of the assessee, but issued in the name of a firm in which the assessee was a partner, does not authorise the IT authorities to search the assessee's premises and effect seizure therefrom. In other words, the High Court held that a warrant under Section 132(1), in order to be valid, must be issued in the name of the assessee. It is thus assessee-specific and not premises-specific. If the principle is applied to the present case, it will be seen that no valid warrant under Section 132(1) was issued in the name of the assessee. The warrant issued in the name of the assessee's husband cannot authorise the search of the locker, which stood in the joint names of the assessee and her mother. The warrant issued on 30th Sept., 1997 by the Addl. Director of IT (Inv.) in the joint names of the assessee and her mother, for the purpose of facilitating the search of the locker, is not a valid warrant under Section 132(1), since it has not been signed by any of the authorities mentioned in the section. The ultimate result is that there is no warrant under Section 132(1) in the name of the assessee. It is also seen that no addition has been made in the block assessment in respect of the articles or materials seized from the locker. In these circumstances, the judgment of the Hon'ble Delhi High Court in the case of CIT v. Pushpa Rani (supra) applies with full force.
14. The learned counsel for the assessee has filed the copy of the judgment of the Delhi High Court cited above, as well as the order of the Tribunal dt. 9th April, 2003, which was the subject-matter of appear before the Hon'ble High Court. Para 9 of the order of the Tribunal is relevant. In this paragraph, after recording that the learned Departmental Representative was unable to furnish any clarification and stated that the facts stated by the assessee regarding non-issue of search warrant in the cases of two ladies (assessees there) were correct, the Tribunal held that even the search warrant in the case of the bank locker would not confer jurisdiction under Section 158BC on the AO. Before the Hon'ble High Court, it was submitted on behalf of the Department, against this part of the order of the Tribunal, that the officer was armed with the search warrant and, therefore, whatever material was found, it could be the basis of the block assessment and the Tribunal should have held so. With reference to this argument, the Hon'ble High Court held that since the Tribunal has recorded a finding that no addition was made on the basis of the assets found in the lockers, it would be a futile exercise if the appeal is entertained. The same position obtains in the present case also, because here also the AO has not made any addition in the block assessment on the basis of the materials seized from the locker in the Allahabad Bank. Therefore, apart from the fact that there was no valid search warrant under Section 132(1) in the case of the assessee and that the search warrant dt. 30th Sept., 1997 issued by the Addl. Director of IT (Inv.) in the joint names of the assessee and her mother is invalid, the block assessment cannot also be upheld because no addition has been made therein on the basis of the materials seized from the locker.
15. For the above reasons, the block assessment framed upon the assessee is held to be invalid and without jurisdiction.
16. The above decision of ours is sufficient to dispose of the appeal. However, we heard arguments of both sides on the merits of the various additions also and, therefore, in deference of the same and for the sake of completeness, we would also examine the correctness of the additions.
17. The learned counsel for the assessee has submitted a chart which shows the various additions made, the explanation and evidence adduced by the assessee, the reasons given by the IT authorities and the contentions pressed before the Tribunal. In addition to the chart, the learned counsel for the assessee raised the following five broad propositions which are applicable to all the additions made in the block assessment:
1. The AO did not collect any evidence in the course of the search in order to make the additions and, therefore, the additions have to be deleted on this score alone.
2. The balance-sheet and the cash flow statements which were filed by the assessee in the course of the block assessment proceedings did not satisfy the requirements of Section 158BB(1). They were materials which were not found during the search and they also relate to a period prior to the block period as they explain the opening cash as on the first day of the block period. They are not taken in by the words "and relatable to such evidence" introduced w.e.f. 1st July, 1995, qualifying the evidence found during the search and other materials or information as are available with the AO. According to the learned counsel for the assessee, the balance-sheet and cash flow statements were not in any way relatable to the evidence, if any, collected during the search and other materials or information available with the AO.
3. The credits which are added under Section 68 of the Act are not a matter to be considered in a block assessment. They are to be considered only in the normal assessment made under the other provisions of the Act and for this reason alone, the credits have to be deleted from the block assessments.
4. The additions made towards salary in some of the assessment years falling within the block period cannot be sustained because the salary received by the assessee, a Government doctor, on which tax is deducted at source, can never be considered as assessee's undisclosed income, as held by the Rajasthan High Court in the case reported in CIT v. Ashok Taksali (2002) 257 ITR 352 (Raj).
5. The AO has nowhere stated that the credits are in cash. There is evidence to show that many of the credits are through cheques.
In support of the above submissions, the learned counsel for the assessee drew our attention to the relevant pages of the paper book.
18. On the other hand, the learned CIT-Departmental Representative submitted that the credits were introduced in the assessee's cash flow statements only to explain investments made by her. So far as the cash balance as on 1st April, 1987 is concerned, the assessee has shown a heavy cash balance. This cannot be accepted. The possibility of the assessee having saved such a huge amount is remote. Further, it is not the case of an addition being made in relation to a period prior to the block period as erroneously made out on behalf of the assessee. If the opening balance were ignored, as it was done by the AO, then the cash balance on the date of search would be a negative figure of around Rs. 1 lakh, which the assessee could not explain. So far as the contention of the assessee that the salary can never be considered as the undisclosed income of the assessee is concerned, the learned CIT-Departmental Representative submitted that the facts before the Rajasthan High Court cited by the assessee are not similar to the facts of the present case. He further submitted that mere deduction of tax does not amount to disclosure by the assessee, because tax is deducted by the employer and not the assessee. Further, from p. 128 of the paper book, it was clear that the assessee has not been filing any return of income, though she was liable to tax on the salary and other income.
19. We have carefully considered the rival submissions. In CIT v. Ravikant Jain (2001) 250 ITR 141 (Del), the Hon'ble Delhi High Court has held that a block assessment under Chapter XIV-B of the Act is not intended to be a substitute for a regular assessment, that its scope and ambit is limited in that sense to materials unearthed during the search, that it is in addition to the regular assessment already done or to be done. Actually, the amendment to Section 158BB(1) with retrospective effect from 1st July, 1995 has made it clear that the materials or information which are available with the AO and which he proposes to use in the block assessment should be relatable to the evidence found during the search or requisition of the books or other documents. A perusal of the assessment order in the present case shows that what has been assessed in the block assessment are the following items :
Asst. yr. Items assessed. 1988-89 (a) Opening cash in hand under Section 69A (b) Cash credits Rs. 82,500 (c) Salary from MCD Rs. 30,450 1989-90 (a) Salary from MCD Rs. 27,960 (b) Cash credits Rs. 35,000 1990-91 (a) Salary from MCD Rs. 32,200 (b) Cash credits Rs. 65,000 1991-92 (a) Salary from MCD Rs. 58,920 (b) Cash credits Rs. 1,17,000 1992-93 (a) Salary from MCD Rs. 54,760 (b) Cash credits Rs. 3,000 1993-94 (a) Cash credits Rs. 30,000 (b) Salary from MCD Rs. 1,47,970
A perusal of the assessment order shows that the cash credits were found not in the books of account of the assessee, because the assessee was not maintaining regular books of accounts. They were noticed in the cash flow statement filed by the assessee in the course of the assessment proceedings. A perusal of the assessment order shows that there was no evidence collected by the AO during the search in respect of the cash credits. The reasons given in the assessment order for assessing the cash credits under Section 68 are the same as any AO would do in a normal assessment. The AO has merely held that the assessee has not discharged the onus of proving the three ingredients of Section 68, namely,(i) identity of the creditor, (ii) the creditworthiness of the creditor, and (iii) the genuineness of the transaction. The addition of the cash credits is in no way linked to any evidence said to have been collected in the course of the search. Actually, what was searched in the assessee's case was only the locker in Allahabad Bank and from para 3 of the assessment order it is clear that nothing found in the locker was seized. It is also seen that no addition has been made in the block assessment order in respect of the jewellery or Rs. 1,49,167 found in the locker. Therefore, the assessment of the cash credits does not satisfy the condition prescribed in Section 158BB(1) that the undisclosed income should be assessed on the basis of the evidence found as a result of search and such other materials or information which are available with the AO and are relatable to the evidence so found. Therefore, on this ground also, the addition of the cash credits cannot be upheld.
20. The contention that the balance sheet and cash flow statements were filed in the course of the block assessment proceedings and, therefore, do not satisfy the condition prescribed in Section 158BB(1) has to be accepted. These documents could have been treated as material or information available with the AO and relatable to the evidence found in the search only if some evidence with regard to them or connected with them, such as cash or any other assets or valuable article, were found and seized in the course of the search in the assessee's case. That is not the position. These were filed only to explain the opening cash balance so that the investments made by the assessee during the block period can be treated as covered by the opening cash balance. The investments themselves have not been seized in the course of the search. Therefore, the balance sheet and the cash flow statements cannot be considered either as evidence found as a result of the search or as material or information relatable to any evidence found as a result of the search. In this view of the matter, the addition made in respect of the opening cash balance as unexplained money under Section 69A of the Act for the asst. yr. 1988-89 cannot be sustained.
21. So far as the salary income is concerned, we are of the view that the judgment of the Rajasthan High Court cited by the assessee is applicable to the present case. In this judgment, it has been held that once the salary income of any year falling in the block period has been assessed and tax has been deducted at source, there is no question of holding that income as undisclosed income of the block year for taxing it again after the search. Though it was pointed out on behalf of the Department that in the present case the assessee has not been filing any returns for the years falling in the block period, it is not disputed that tax at the appropriate rate has been deducted at source from the salary by the employer, which is the Municipal Corporation of Delhi and deposited with the Government. In such a case, the ratio of the judgment applies. As in the case before the Rajasthan High Court, in the present case also there is nothing on record to show that the TDS amount has been taken back as refund by the assessee.
22. In Dy. CIT v. Shaw Wallace & Go. Ltd. (2001) 248 ITR 81 (Cal), the Calcutta High Court held that there is a distinction between a regular assessment and a block assessment and that in the case of a regular assessment, the AO is free to examine the veracity of the return as well as the claims made by the assessee, but in a block assessment, he has to tax only the undisclosed income unearthed as a result of the search and seizure. It was explained that the logic behind the two modes of assessment was that concealment of income and claiming of deduction or exemption in respect of disclosed income cannot be treated at par. This decision was followed by the Calcutta High Court in Bhagwati Prasad Kedia v. CIT, (2001) 248 ITR 562 (Cal). In CIT v. Dr. M.K.E. Memon (2001) 248 ITR 310 (Bom), the Bombay High Court held that the difference between the two types of assessments was not always appreciated by the IT authorities. In this judgment also the difference between the two types of assessments was pointed out at p. 314.
23. For all these reasons, the additions made in the block assessment cannot survive and they are deleted.
24. In the result, the appeal is allowed.