Sukhdeo Prasad vs Astt. Cit

ORDER In the Itat, Allahabad Bench P.S. Kalsian, A.M. & Bhavnesh Saini, J.M.

Income Tax Act, 1961, sections 158BC & 158BI); In favour of: Assessee Search and seizure Block assessment Counsel : S.K. Garg & Siddharth Pathak, for the Appellant Ashok Kumar, for the Respondent Counsel : S.K. Garg & Siddharth Pathak, for the Appellant Ashok Kumar, for the Respondent Counsel : S.K. Garg & Siddharth Pathak, for the Appellant Ashok Kumar, for the Respondent OEDER Bha Vnesh Saini, J. M.

This appeal by the assessee is directed against the order of the Assistant Commissioner (Circle), Allahabad, dated 31-7-1998, under section 158BD/144 of the Income Tax Act, 1961, for the block period from 1-4-1986 to 5-7-1996. The assessee has filed this appeal on preliminary as well as other grounds. However, we take up the preliminary grounds first for disposal of this appeal which read as under "1. Because the impugned order dated 31-7-1998, is wholly illegal and without jurisdiction as the same has been passed without complying with the mandatory requirement of issuing and serving a notice as contemplated under clause (a) of section 158BC of the Income Tax Act.

2. Because the so-called notice dated 28-7- 1997, requiring the appellant ".....to prepare a true and correct return of your total income including the undisclosed income in respect of which you are individuaYHUFAirm/company Iassessing officerPIBOIILocal Authority are assessable for the block period mentioned in section 158B(a) of the Income Tax Act, (Emphasis, italicised in print, added) and submitted the same in prescribed form was wholly illegal and without jurisdiction.

3. Because the said notice dated 28-7- 1997, under which the jurisdiction has been sought-to have been assumed by the learned assessing officer for completing the block assessment is liable to be held to have not been issued at all and the assessment order dated 31-7-1998, as completed thereunder is wholly illegal and without jurisdiction.

4. Because notice in question, otherwise also, cannot be said to be satisfying the provisions of section 282 of the Income Tax Act,, 1961, and the same, therefore, cannot be held to be conferring a valid jurisdiction on the learned assessing officer to complete the assessment for block period commencing from 1-4-1986 to 5-7- 1996.

5. Because in any case and without prejudice to the objections taken to the inherent look, it is contended that the impugned order has been passed has the approval' as envisaged under section 158BG cannot be said to have been validly given by the learned CIT, Allahabad,

2. During the course of the proceedings, the assessee has also moved the petition dated 13-6-2001, for admission of additional ground which reads as under :

"12. Because the block assessment order dated 31-5-1998, is wholly without jurisdiction as the mandatory requirement of recording the satisfaction, which ought to have been recorded in the search case of M/s Ajai Kumar Vijay Kumar Dal Mill has not been complied with."

This petition was heard separately and after hearing the representatives of both the parties, we have allowed the petition for admission of additional ground vide order dated 3-10-2002. Since this ground is also preliminary in nature, therefore, we also take up this ground along with other grounds for disposal of this appeal.

3. The facts as taken from the assessment order are that during the search and seizure operation under section 132 of the Income Tax Act, 1961, carried out in the premises of M/s Ajai Kumar Vijai Kumar Dal Mill, Bindki, Fatehpur on 5-7- 1996, certain documents in the form of fixed deposits in various Bank s amounting to Rs. 2,70,425 were found and subsequently seized from the room of the assessee. As the FDRs were in the name of persons not belonging to the group against whom search warrant was issued, notice under section 158BC read with section 158BD of the Act was issued to the assessee on 28-7- 1997, asking him to file block return for the relevant block period within 16 days. No return was, however, filed in compliance to this notice and, as such, a letter dated 7-8-1997, disclaiming the applicability of provisions of sections 158BC and 158BD was received by the assessing officer from the assessee. The assessing officer issued reminder dated 17-6-1998, and notice under section 142(1) dated 20-7-1998, which were again served upon the assessee asking him to file the block return on 27-7-1998 (sic 28-7-1997). Both the notices were uncomplied. Considering the non-cooperative attitude of the assessee, the assessing officer completed the block assessment vide assessment order dated 31-7-1998, and determined the income of the assessee at Rs. 1,26,940 in accordance with Chapter XIV-B of the Act. The assessee feeling aggrieved with the block assessment order filed this appeal on preliminary grounds and grounds on merits. However, we take up the appeal on preliminary grounds incorporated above.

4. We have heard the learned counsel for the assessee as well as the learned Departmental Representative. The learned counsel for the assessee, besides relying upon the grounds of appeal, argued that notice dated 28-7- 1997, issued under section 158BC and 158BD is no notice under the law. In this notice, no. status is clear and the assessing officer has done only formality in the matter. The learned counsel for the assessee accordingly argued that the assessee filed objection before the assessing officer in this regard but the assessee was again directed to file the return on so many status, which is not warranted under the special procedure. He has further argued that the reminder dated 17-7-1998, was also issued in connection with the illegal notice dated 28-7-1997. He has further argued that no sufficient opportunity was granted by the assessing officer to the assessee as the assessment was framed on 31-7-1998, and last notice and reminder was served upon the assessee on 27-7- 1998. He has further argued that the assessee had also filed objection dated 27-7- 1998, before the Addl. CIT but the same was not dealt with. The learned counsel for the assessee further argued that search was conducted in the case of Ajai Kumar Vijai Kumar Dal Mill on 5-7-1996, and at that time limitation to complete the assessment was one year and, as such, the assessment is barred by limitation. He has also referred to the affidavit filed by the assessee before the authorities below, copy of which is available at pp. 14 and 15 of the paper book. The learned counsel for the assessee further argued that the assessing officer has not complied with the requirement of section 158BD, that there should have been satisfaction of the assessing officer before proceeding in the section, which should be discernible somewhere from the record. He has argued that the case of the assessee is clearly covered by the order of this Tribunal passed in the case of Vishwanath Prasad Ashok Kumar Sarraf, Varanasi, ITA No. 1574/All/1997, which was decided on 29-8-2002. He has taken us to various observations of the Tribunal in this case and accordingly argued that the facts and circumstances of the case of Vishwanath Prasad Ashok Kumar Sarraf are identical to the case of the assessee and, as such, the assessment order is liable to be quashed.

5. On the contrary, the learned departmental Representative argued that notice may be defective in this case. However, it was addressed to individual. Therefore, the assessee was required to file return in the status of individual. The learned Departmental Representative further argued that the assessee has replied the notice on dated 7-8-1997. Since the search was conducted in the whole of the premises, therefore, the recovery is connected with the assessee. He has further argued that the notice was served upon the assessee on 28-7- 1997, and therefore, the order is within limitation. The learned departmental Representative further argued that the facts of the case decided by this Tribunal in the matter of Vishwanath Prasad Ashok Kumar Sarraf (supra) are distinguishable and, as such, this case is not applicable to the case of the assessee. The learned departmental Representative, further argued that the assessing officer initiated proceeding under sections 158BC and 158BD to show that there was no authorisation of search in the case of the assessee. The learned Departmental Representative further argued that it is reflected from the notice that the assessing officer was satisfied to initiate proceedings under section 158BD and, as such, the requirements of section 158BD are complied with. The learned departmental Representative further argued that from the assessment order, it is clear that the assessing officer was satisfied about the undisclosed income of the assessee. The learned departmental Representative lastly relied upon the order of the Tribunal., Madras A Bench, in the case of L. Saro a v. Asstt. CiT (2001) 71 TTJ (Mad) 158.

6. In rejoinder, the learned counsel for the assessee argued that the satisfaction of the assessing officer should be discernible before the issue of notice. The assessment order came later and cannot be relied upon. He has further argued that even the assessment order did not show,that it was undisclosed income. The learned counsel for the assessee relied upon the order of the Tribunal, A Bench, Allahabad, in the matter of M/s Monga Metals (P) Ltd., Kanpur v. Asstt. CIT ITA No. 1377/All/1997 which was decided vide order dated 30-6-1999, which was also followed by the Tribunal 'A' Bench, Allahabad, in the case of V.V.S. Afloys Ltd., Kanpur v. Assistant Commissioner, decided vide order dated 30-11-1999. The learned counsel for the assessee accordingly argued that the notice issued is void ab initio under the law and, therefore, the case of the assessee is squarely covered by the order of the Tribunal 'A' Bench, Allahabad, in the case of M/s Monga Metals (P) Ltd., Kanpur (supra) and the order of the Tribunal, A Bench, Allahabad, in the case of V V S Alloys Ltd., Kanpur (supra).

7. We have considered the rival submissions of the parties, perused the material on record and case law referred to by the respective representatives of the parties. The whole case is dependent upon the issue of notice under section 158BC read with section 158BD dated 28-7- 1997. Therefore, the same is reproduced here for the sake of convenience.

Notice under section 158BC r/w section 158BD of The Income Tax Act, 1961.

PA No. Block Period 1-4-86 to 4-7-96.

Office of the Asstt. Commissioner of Income-tax (Circle), Allahabad.

Dated 28-7-97 To, Sri Sukhdeo Prasad, C/o Ajai Kumar Vijay Kumar Dal Mills, Bindki, Fatehpur, In pursuance of the provisions of section 158BC of the Income Tax Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you are individual/HUF/firm/company/ assessing officerP/body of individuals/local authority are assessable for the block period mentioned in section 158B(a) of the Income Tax Act, 1961.

The return should be in the prescribed Form No. 28 and be delivered in this office within 16 days of service of this notice, duly verified and signed in accordance with the provisions of section 140 of the Income Tax Act, 1961.

Sd.

Assistant Commissioner (Circle), Allahabad."

8. The assessee objected to the issue of this notice, which is also specifically mentioned in the assessment order, in which the assessee vide letter dated 7-8-1997, disclaimed the applicability of the provisions of sections 158BC and 158BD. A reminder dated 17-7- 1998, was also issued in respect of the same notice. Therefore, the only foundation for initiating the proceedings under section 158BD had been the notice dated 28-7- 1997. We find from the aforesaid notice that many status of the assessee are mentioned in this notice and the assessee is directed to file true and correct return of his income including the undisclosed income in respect of which he is an individual/HUF/firm/company/AOP/BOI/local authority. Similarly, the assessee was directed to verify the return according to the provisions of section 140 of the Income Tax Act. Again, it is not clear as to how the assessee will have to sign and under which status he will have to sign the return. Similarly point was taken up by the Tribunal, 'A' Bench, Allahabad, in the case of Monga Metals (P) Ltd., Kanpur (supra), in which it was challenged that the notice is silent as to the status under which the return was required to be furnished and similar notice was issued in that case also. In this case also, it was submitted that the assessee was unable to understand as to in which status return was to. be filed. Even it is not clear whether the assessing officer was satisfied with regard to the issue of notice under section 158BC or that the assessing officer was satisfied about the undisclosed income of the assessee. The Tribunal in the case of Monga Metals (P) Ltd., Kanpur (supra) has formulated three questions for consideration on the identical facts

8. The assessee objected to the issue of this notice, which is also specifically mentioned in the assessment order, in which the assessee vide letter dated 7-8-1997, disclaimed the applicability of the provisions of sections 158BC and 158BD. A reminder dated 17-7- 1998, was also issued in respect of the same notice. Therefore, the only foundation for initiating the proceedings under section 158BD had been the notice dated 28-7- 1997. We find from the aforesaid notice that many status of the assessee are mentioned in this notice and the assessee is directed to file true and correct return of his income including the undisclosed income in respect of which he is an individual/HUF/firm/company/AOP/BOI/local authority. Similarly, the assessee was directed to verify the return according to the provisions of section 140 of the Income Tax Act. Again, it is not clear as to how the assessee will have to sign and under which status he will have to sign the return. Similarly point was taken up by the Tribunal, 'A' Bench, Allahabad, in the case of Monga Metals (P) Ltd., Kanpur (supra), in which it was challenged that the notice is silent as to the status under which the return was required to be furnished and similar notice was issued in that case also. In this case also, it was submitted that the assessee was unable to understand as to in which status return was to. be filed. Even it is not clear whether the assessing officer was satisfied with regard to the issue of notice under section 158BC or that the assessing officer was satisfied about the undisclosed income of the assessee. The Tribunal in the case of Monga Metals (P) Ltd., Kanpur (supra) has formulated three questions for consideration on the identical facts "(i) the first question, in our opinion, for our decision, is with respect to the nature/status of the notice required to be served under section 158BC of the Act, i.e., is such a notice akin/analogous and within the parameter of a notice under section 148 of the Act?

(ii) If so, can the points raised by the assessee's counsel amount to illegalities in the notice and consequently have they rendered the notice illegal, bad in law and vague?

(iii) If the notice is found to be vague, can the assessment for block period be, quashed as a nullity ?

The Tribunal, after considering various provisions of the assessment under the law as well as the special procedure under Chapter XIV-B on the identical facts came to the conclusion that the notice required to be served under the provisions of section 158BC is akin/analogous and within the parameter of a notice under section 148 of the Act and, therefore, the grounds on which the notice under section 148 can be held to be bad in law are sufficient to hold a notice under section 158BC as bad in law. The Tribunal further held that the issuance of notice under section 158BC is not a procedural formality, but substantive requirement to be fulfilled before the assessing officer can proceed to make assessment of block period or before the assessment proceedings for the block period are set in motion and consequently the service of notice under section 158BC gives rise of jurisdiction to the assessing officer to proceed with the proceedings for the assessment of block period. The Tribunal, in that case, after consideration of similar notice, found that

(i) The notice has not been addressed to the principal officer as required under section 282 of the Act.

(ii) Status in which the return of so-called undisclosed income was required to be furnished has not been mentioned.

(iii) 'Assessment year' i.e., previous year relevant to assessment year falling within the block period, which in a way is an assessment year for the purpose of assessment of the block period, has not been mentioned. On the contrary, the notice specifies the 'definition' of the block period, i.e., assessment years for this purpose, which could not be equated to the specifying of the specific previous years falling within the block period.

Accordingly, the Tribunal in the case of Monga Metals (P) Ltd. (supra) held :

"....... we are of the opinion that the impugned notice is vague and illegal and cannot be said to be a valid notice as required under the provisions of section 158BC. "

Accordingly, the Tribunal further held that the notice in terms of section 158BC of the Act is bad in law and vague and the assessment framed in consequence of upon the assumption of jurisdiction on the basis of such notice is also bad in law and void ab initio. The appeal of the assessee was allowed on that issue.

9. Similar view was followed by the Tribunal, 'A' Bench, Allahabad, in the case of V VS Alloys Ltd., Kanpur (supra). We have already incorporated the notice dated 28-7- 1997, which was issued and served upon the assessee in this case.

Even in this case, the status of the assessee is not clear and how the assessee has to verify the return is also not clear. The assessee has disclaimed the applicability of the provisions of sections 158BC and 158BD in his case, while the department has not rectified the mistake and rather issued the reminder dated 17-7-1998, in which also nothing is mentioned about the objections raised by the assessee. However, during the course of arguments, the learned Departmental Representative precisely stated that the notice may be defective, which also supports our view that the notice in this case is also defective, vague and illegal and cannot be said to be a valid notice as required under the provisions of section 158BC. Since the assessing officer has assumed the jurisdiction in consequence upon the notice dated 28-7- 1997, which is invalid and vague, therefore, the assumption of jurisdiction on the basis of such notice is also bad in law and void ab initio.

10. The next primary issue, which is sought to be raised by the parties is that whether the assessing officer was satisfied as required under section 158BD before initiating the proceeding under section 158BD. We had an occasion to deal with this point of law in the matter of Vishwanath Prasad Ashok Kumar Sarraf, Varanasi (supra) vide order dated 29-8-2002, on similar facts. Certain important points were noticed by the Tribunal, which we may mention briefly. Chapter XIV-B inserted by Finance Act, 1995, with effect from I-7-1995, provides special procedure for assessments in search cases. Sec. 158BC of the Income Tax Act provides special procedure for block assessment, Where any search has been conducted under section 132 of the Income Tax Act or books of accounts, or other documents or assets are requisitioned under section 132A of the Income Tax Act, in the case of any person, the assessing officer shall serve a notice to such person requiring him to furnish within such time, not being less than 15 days and thereafter after Inoviding opportunity and serving a notice shall pass the assessment order In respect of seized incriminating material recovered during the course of the search operations.

However, another provision under section 158BD of the Income Tax Act provides procedure for the assessment in respect of undisclosed income of any person other than person searched. It provides that 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 of the Income Tax Act or whose books of account or other documents or assets were requisitioned under section 132A, then the books of account, or 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 Chapter XIVB shall be applicable. The distinction between these two provisions- under Chapter XIV-B would be that for section 158BC of the Income Tax Act there should be a search and consequent to the search there was recovery and seizure of incriminating material and the assessing officer after following the procedure prescribed shall pass the assessment order. However, in case of the assessment under section 158BD of the Income Tax Act, search party shall have to hand over the seized material revealing undisclosed income to the assessing officer having jurisdiction over the person in whose case search has been made. If the assessing officer having seized record with him and after satisfying himself from the seized record that there is any material revealing undisclosed income belonging to any other person other than the person with respect to whom search was made under section 132 or books of account or documents requisitioned under section 132A then to hand over the seized material and the documents to the assessing officer having jurisdiction over such other person and then that assessing officer having jurisdiction over such other person shall proceed against such other person under section 158BD to determine the undisclosed income by following the procedure provided. Therefore, the crux of the difference between these two provisions under Chapter XIV-B is that for assessment under section 158BC, the assessing officer is not required to record his satisfaction before proceeding to determine the undisclosed income in respect of block period. However, in the case of section 158BD, the assessing officer who had been handed over the seized material, documents and assets, etc. by the search party will have to satisfy himself that any undisclosed income belongs to any person other than the person searched under section 132 or whose books of account or documents were requisitioned under section 132A of the Income Tax Act. Therefore, though it is not provided under the Act what satisfaction is to be recorded by the assessing officer but the Act clearly provides that before proceedings under section 158BD the assessing officer who received the seized material and documents from the search party shall have to be satisfied that any undisclosed income belongs to any person other than the person searched, The difference is created in these two provisions of law under the same Chapter XIV-B that it should be the objective satisfaction of the assessing officer and that satisfaction of the assessing officer has to be on the material found during the search and the assessing officer will have to identify that such seized material which reveals the undisclosed income of the person other than the person in whose case search has been made under section 132(1) . Therefore, satisfaction of the assessing officer under section 158BD should not be treated as mere formality but it should be the positive satisfaction that the seized material reveals undisclosed income in case of other person. The tax law has to be interpreted strictly and has to be given meaning. The above noted distinction in both the provisions under Chapter XIV-B is, therefore, material and has to be complied with by the IT authorities before proceeding under section 158BD. We may mention here that notice is issued under section 158BC in other cases also. On this principle of law and after considering the judgment of the Allahabad High Court in the matter of Digvijai Chemicals Ltd. v. Asstt. CIT (2001) 248 ITR 381 (All), the judgment of Madras High Court in the matter of Shakthiyel Bankers & Ors. v. Assistant Commissioner (2002) 255 ITRs 144 (Mad), order of Tribunal, Chandigarh Bench, in the name of Ved Prakash Sanjay Kumar v. Assistant Commissioner (2000) 66 TTJ (Chd) 442, judgment of Hon'ble Delhi High Court in the matter of Ajit Jain v. Union of India (2000) 242 ITR 302 (Del), we have held in the case of Vishwanath Prasad Ashok Kumar Sarraf, Varanasi (supra) that the satisfaction has to be arrived at by the assessing officer before proceeding under section 158BD. We have also held that though there is no question of recording satisfaction in writing under section 158BD, but it should be discernible from the material that the assessing officer was, in fact, satisfied that undisclosed income belongs to person other than the person searched. As a'result, we set aside and quash the assessment order in that case.

11. In this case, we have directed the learned Departmental Representative to produce the assessment record of the assessee and Panchnama. Similarly, the learned departmental Representative was directed to produce the record of M/s Ajay Kumar Vijay Kumar Dal Mill, Bindki, in whose case search was conducted. However, the learned departmental Representative has not produced the record of M/s Ajay Kumar Vijay Kumar Dal Mill, Bindki. The learned Departmental Representative was directed to show the material available on the assessment record if. any satisfaction was arrived at by the assessing officer that any undisclosed income belongs to such person other than the person who is searched under section 132. However, the learned departmental Representative could not point out any material from which it can be discernible that the assessing officer was satisfied about the conditions laid down under section 158BD before issuing the notice dated 28-7- 1997. We have decided with regard to the validity of the notice above and we have held that the notice dated 28-7- 1997, had not been validly issued. Also, we have held that the same is void ab initio and bad in law and, therefore, the entire proceedings are vitiated. However, the learned Departmental Representative mainly argued that this notice was addressed to the individual and, therefore, status could be presumed though he has stated that there may be defect in the notice. Since the notice itself is defective and, therefore, it could not be presumed that the assessing officer was satisfied about the undisclosed income before issuing the notice. The learned Departmental Representative further argued that from the assessment order, it is clear that the assessing officer was satisfied about the undisclosed income of the assessee. Though the assessment order could not be taken into consideration in this regard as it is passed subsequent to the issue of notice under section 158BD, yet nothing is reflected in the assessment order that the assessing officer was at all satisfied about the undisclosed income belonging to the person other than the person searched. Rather the assessment order merely shows that some FDRs were recovered.

12. The learned Departmental Representative lastly relied on the order of the Tribunal, Madras Bench, in the case of L. Saroja v. Assistant Commissioner (2001) 71 TTJ (Mad) 158. In this case, it was held that there was no specific requirement of recording satisfaction about the fulfilment of the three cumulative conditions mentioned in section 158BD. We agree with the order of the Tribunal, Madras Bench, that there is no requirement to record satisfaction in writing. However, it has to be borne out from some material from the record that, in fact, the assessing officer was satisfied about the undisclosed income of the person other than the person searched. In that case also, the Tribunal has noted that unfortunately this has not been done in these cases, though specifically contended by the appellants. The Madras Tribunal restored the matter to the assessing officer. This authority is of no help to the revenue.

13. Keeping in view the above discussion and the authorities referred to above and the order in the case of Vishwanath Prasad Ashok Kumar Sarraf, Varanasi (supra), the entire assessment order is vitiated due to non-compliance of the provisions of law. This preliminary issue is accordingly decided in favour of the assessee and against the department. On this issue also, we set aside and quash the assessment order.

14. Though we have set aside and quashed the assessment order on the preliminary issues and in view of the above finding we need not decide the issue on merits of the case. Incidentally, we may mention that the assessment order itself is bad in law on other ground as in this case according to the assessment order itself the reminder notice dated 17-7- 1998 and notice under section 142(1) dated 20-7- 1998, were served upon the assessee on 27-7- 1998. However, we have noticed that in the reminder notice dated 17-7-1998, the assessee was required to file the return latest by 28-7-1998. The assessment was framed on 31-7-1998. The period for complying the notice is only one day from the date of service, which cannot be said to be that any reasonable and sufficient opportunity was granted to the assessee. Similarly, only three days time was available for completing the assessment proceeding i.e., from 28-7- 1998 to 31-7-1998. Therefore, it is clear that no sufficient opportunity was granted to the assessee while framing the assessment upon the assessee. As a result, we set aside and quash the assessment order on the preliminary issues.

15. No other point was argued or pressed or raised by both the parties.

16. As a result, the appeal of the assessee is allowed.