IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF JANUARY, 2019 BEFORE THE HON’BLE MRS.JUSTICE S.SUJATHA W.P.No.36004/2018 C/W W.P.No.36005/2018 (T – IT) IN W.P.No.36004/2018:
BETWEEN :
Mr. SHYAMRAJ SINGH S/O SRI B.S.BALAJI SINGH, AGED ABOUT 40 YEARS, PRESENTLY AT EMBASSY HABITAT, NO.1002, NEXT TO MOUNT CARMEL COLLEGE, VASANTHNAGAR, BANGALORE-560052 ...PETITIONER (BY SMT.VANI H., ADV.) IN W.P.No.36005/2018:
BETWEEN :
M/s SVK MINERALS, PRESENTLY AT EMBASSY HABITAT, NO.1002, NEXT TO MOUNT CARMEL COLLEGE, VASANTHNAGAR, BANGALORE-560052, REP. BY ITS MANAGING PARTNER, Mr. SHYAMRAJ SINGH, S/O B.S.BALAJI SINGH, AGED ABOUT 40 YEARS. ...PETITIONER (BY SMT.VANI H., ADV.) AND :
1. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, BELGAUM-590006 2. THE PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, AAYAKAR BHAVAN, NO.1, QUEENS ROAD, BENGALURU-560001 3. THE INCOME TAX OFFICER WARD NO.1, HOSPET-583203, BELLARY DISTRICT 4. THE ASSISTNAT COMMISSIONER OF INCOME TAX, CIRCLE-1, AAYAKAR BHAVAN, FORT ROAD, BELLARY-581102 5. THE INCOME TAX OFFICER WARD 1(2)(5), BMTC BUILDING, KORAMANAGALA, BENGALURU-560098 6. THE COMMISSIONER OF INCOME TAX 3RD FLOOR, AAYKAR BHAVAN, SEDUM ROAD, KALBURGI-585105 7. THE TAX RECOVERY OFFICER (CENTRAL) 4TH FLOOR, CENTRAL REVENUE, BUILDING ANNEXE, QUEENS ROAD, BANGALORE-560001 …RESPONDENTS (COMMON) (BY SRI K.V.ARAVIND, ADV.) THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED NOTICE DATED 09.11.2009 VIDE ANNEXURE-S ISSUED UNDER SECTION 153C OF THE INCOME TAX ACT, 1961 PERTAINING TO THE ASSESSMENT ORDER DATED 31.12.2010 FOR THE ASSESSMENT YEAR 2008-09 PASED UNDER SECTION 143(3) READ WITH SECTION 153C OF THE INCOME TAX ACT VIDE ANNEXURE-B AND ETC.
THESE PETITIONS COMING ON FOR ORDERS, THIS DAY, THE COURT MADE THE FOLLOWING:
O R D E R These petitions involving similar and akin issues, have been considered together and are taken up for final disposal at this stage itself, with the consent of the learned counsel appearing for the parties.
2. Petitioner is challenging the validity of initiation of the proceedings under Section 153-C of the Income Tax Act,(‘Act’ for the sake of brevity) 1961, as well as the assessment order dated 31/12/2010 relating to the assessment year 2008-09 passed under Section 143(3) read with Section 153-C of the Act.
3. It is contended that a search was carried on 16/10/2008 in the case of Sri.Desu Bheemraj, Proprietor of M/s.S.V.Logistics and others at Hospet under Section 132 of the Act. Immediately, thereafter a survey was conducted under Section 133-A on 17/10/2018 in the business premises of the petitioner, a Partnership Firm at Basaveshwara Badawane, Hospet, Bellary District in connection with the search conducted on 16/10/2008. After issuing notice under Section 153-C of the Act, assessment order under Section 143(3) read with 153-C of the Act, was passed. Being aggrieved, these writ petitions are filed.
4. Learned counsel for the petitioner would submit that initiation of proceedings under Section 153-C of the Act is without jurisdiction and as such further proceedings namely, passing of the assessment order and issuance of the deemed notice are vitiated under law. Hence, she submits that alternative remedy of appeal is no bar to invoke the writ jurisdiction under Articles 226 and 227 of the Constitution of India. Learned counsel further argued that Section 153-C of the Act, which is in pari materia with Sections.158-BD was considered by the Hon’ble Apex Court in the case of Commissioner of Income Tax III v. Calcutta Knitwears, Ludhiana, (2014) 6 SCC 444, whereby the Hon’ble Apex Court has held that the said provision is a machinery provision and inserted in the statute book for the purpose of carrying out of a proceeding other than the searched person under Sections 132 or 132-A of the Act. Under Section 158-BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to any other person other than the searched person under Sections 132 or 132-A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc., to the assessing officer having jurisdiction over such other person. After receipt of the above said satisfaction and upon examination of the said documents relating to such other person, the jurisdictional assessing officer may proceed to issue notice for the purpose of completion of the assessments under Sections 158-BD of the Act, the other provisions of Chapter XIV-B shall apply.
5. It is further argued that before initiating proceedings under Section 156(3) of the Act, the assessing officer should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132-A of the Act, as held by the Hon’ble Apex Court in the decision referred to supra. The said judgment of the Hon’ble Apex Court has been applied to the proceedings under Section 153C of the Act for the purposes of assessment of income other than the searched person in terms of the Circular No.24/2015 [F.NO.279/ MISC./140/2015/ITJ] dated 31/12/2015 issued by the Central Board of Direct Taxes.
6. However, no satisfactory note of the officer of searched person is forthcoming and the satisfactory note said to have been passed, stated in the objections/reply filed by the respondents, do not satisfy the requirement of Section 153-C of the Act. Accordingly, the assessment order passed without fulfilling the mandatory requirement of recording the satisfactory note of the Assessing Officer of the searched person and handing over of the seized or requisitioned belongs or belonged to a person other than the person referred to in Section 153-A to the Assessing Officer having jurisdiction over such other person, is not complied with. Hence, seeks for setting aside the notices/assessment orders impugned herein.
7. Learned counsel Sri.K.V.Aravind appearing for the revenue justifying the impugned proceedings submitted that before conducting the search, these files were centralized and an order was passed under Section 127 of the Act in pursuance of the order passed on 28.4.2009. The Assessing Officer of the searched person and the other person being the same, handing over of the belongs seized to the Assessing Officer having jurisdiction over such other person, would not arise. Placing the original records before the Court, the satisfactory note said to have been recorded by the Assessing Officer of the seized person, is pointed out. The said satisfactory note reads as under:
“Mr. Shymraj Singh, Hospet Asst. years 2003-04 to 2008-09 9/10/2009 Sir, The search and seizure action was conducted in the case of M/s S.V. Logistics and others on 16/10/2008 and this is a connected case with the search case. Based on seized material, survey under section 133A was conducted in the case of M/s SVK Minerals, Hospet in with the assessee is a partner. Therefore, this case is convered under Section 153C of the Income Tax Act, 1961 and case has been notified under Section 127 by the Commissioner of Income Tax, Gulbarga vide F.No.116/Notification/CIT-GLB/2009-10 dated 28/4/2009. Hence, the income is to be assessed/reassessed under section 153 A of the Income Tax Act, 1961 for the above assessment years. Therefore, notices under Section 153C issued calling for the returns of income for the Assessment Year’s 2003-04 to 2008-09.”
8. Further, it was argued that the writ petition is not maintainable as the petitioners have not availed alternative remedy of appeal available under law.
9. I have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
10. It is apt to refer to Section 153-C of the Act applicable for the relevant year which reads thus:
“Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person”
The Hon’ble Apex Court in the case of Calcutta Knitwears, Ludhiana (supra) has observed thus:
“35. Having said that, let us revert to the discussion of Section 158-BD of the Act. The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under Sections 132 or 132-A of the Act. Under Section 158-BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to any other person other than the searched person under Sections 132 or 132-A of the Act, after recording such satisfaction, may transmit the records/documents/chits/ papers, etc. to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158-BD of the Act, the other provisions of Chapter XIV-B shall apply.
36. The opening words of Section 158BD of the Act are that the assessing officer must be satisfied that “undisclosed income” belongs to any other person other than the person with respect to whom a search was made under Section 132 of the Act or a requisition of books were made under Section 132A of the Act and thereafter, transmit the records for assessment of such other person. Therefore, the short question that falls for our consideration and decision is at what stage of the proceedings should the satisfaction note be prepared by the assessing officer: whether at the time of initiating proceedings under Section 158BC for the completion of the assessments of the searched person under Section 132 and 132A of the Act or during the course of the assessment proceedings under Section 158BC of the Act or after completion of the proceedings under Section 158BC of the Act.
37. The Tribunal and the High Court are of the opinion that it could only be prepared by the assessing officer during the course of the assessment proceedings under Section 158BC of the Act and not after the completion of the said proceedings. The Courts below have relied upon the limitation period provided in Section 158BE(2)(b) of the Act in respect of the assessment proceedings initiated under Section 158BD, i.e., two years from the end of the month in which the notice under Chapter XIV-B was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after 01.01.1997. We would examine whether the Tribunal or the High Court are justified in coming to the aforesaid conclusion.
38. We would certainly say that before initiating proceedings under Section 158BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD the existence of cogent and demonstrative material is germane to the assessing officers’ satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person.”
12. It is not in dispute that the Department has applied the said dictum laid down by the Hon’ble Apex Court to Section 153-C of the Act. A comprehensive reading of the provisions along with the Circular of the Department makes it clear that the Assessing Officer has to mandatorily record the satisfaction before initiating proceedings under Section 153-C of the Act.
13. The ingredients to be satisfied to attract Section 153-C are:
Firstly, the satisfaction report/note has to be prepared by the Assessing Officer of the searched person.
Secondly, any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs or belonged to a person other than the searched person.
Thirdly, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person.
For the purpose of Section 153-C 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 Assessing Officer who has jurisdiction over such other person, as held by the Hon’ble Apex Court in Calcutta Knitwears, (supra).
14. The arguments of the learned counsel for the revenue that the files were centralized subsequent to the search conducted on 16.10.2008 and the files were assigned to a single Assessing Officer as per the order dated 28.4.2009 of the Commissioner of Income Tax, hence, handing over books of account or documents, seized or requisitioned, appears to have been complied with may be acceptable, but the satisfactory note now placed on record by the revenue is not in conformity with the mandatory requisite of Section 153-C. The ingredients of Section 153-C should be explicitly expressed in recording the satisfaction report by the Assessing Officer of the searched person. In the said satisfaction note, the seized or requisitioned belongs to a person other than the person referred to the seized person, is not forth coming. Merely stating that the case is covered under Section 153-C of the Act and the case has been notified under Section 153 of the Act would not be suffice and the same cannot be construed as the satisfaction recorded under Section 153-C of the Act. On the other hand, the said note would disclose that it is only a note prepared for initiating proceedings under Section 153-C of the Act. The same, neither has any heading/title, to indicate it as a satisfaction recorded nor the contents suggests the satisfaction of the Assessing Officer. Hence, the said note is incomplete in as much as the satisfaction of the Assessing Officer as required under Section 153-C of the Act. On this ground alone, the proceedings initiated by the revenue cannot be sustained.
15. The aforesaid aspect goes to the root of the matter. Further proceedings initiated under Section 153-C of the Act are without jurisdiction and can be held to be vitiated in law. In such circumstances, there is no bar for the writ Court to entertain the writ petition de hors the alternative remedy of appeal available under the Act.
16. For the foregoing reasons, the writ petitions are allowed. The impugned notices and the assessment orders are set aside. However, revenue is at liberty to initiate any appropriate proceedings if permissible under the Act.
Sd/- JUDGE Msu/Dvr: