IN THE ITAT PUNE BENCH ‘A’
Lunawat Jayant Maniklal
v.
Deputy Commissioner of Income-tax, Circle 3, Pune
MUKUL SHRAWAT, JUDICIAL MEMBER
AND AHMAD FAREED, ACCOUNTANT MEMBER
IT Appeal No 1667
(PUNE) of 2005
[Block Period 1-4-1994 to 31-3-2000]
February 28, 2007
Section 158BD of the Income-tax Act, 1961 - Block assessment in search
cases -Undisclosed income of any other person - Block period 1-4-1994 to
31-3-2000 - During block assessment proceedings in case of a company ‘L’, its
owner ‘M’ confirmed payment of certain sum to assessee - Assessing Officer of
‘L’ did not accept statement of ‘M’ and made addition of that sum to income of
‘L’ - On appeal, Commissioner (Appeals) deleted said addition and held that it
was to be assessed in hands of assessee by initiating proceedings under section
158BD - Against said order, revenue filed appeal to Tribunal which was pending
- On basis of order of Commissioner (Appeals), Assessing Officer of instant
assessee issued notice under section 158BD - Assessee challenged initiation of
block assessment proceedings by submitting that on one hand revenue had formed
an opinion that payment to assessee was not genuine but on other hand, it was
treating same amount in hands of assessee as his undisclosed income - Whether
this anomaly in itself proved that revenue was utterly confused as to how to
tax this amount and in whose hands - Held, yes - Whether therefore, entire
proceedings as initiated under section 158BD were void and against statute and
consequently, liable to be quashed - Held, yes
An action under section 132 was conducted in the case of a company ‘L’. Along with that search operation, simultaneously, action under section 132 was conducted at the residence of one ‘M’ the owner of company. From his residence, some pages were seized wherein, on one of the paper, there was a noting mentioning a financial transaction with the assessee. ‘M’ was summoned and his statement was recorded under section 131 whereby he confirmed the payment of Rs. 35,00,000 in cash to the assessee. The Assessing Officer forwarded the copy of the said statement as well as copies of the seized materials to assessee for his comments and initiated proceedings under section 158BD against him. The assessee objected initiation of block assessment proceedings on ground that no satisfaction, as required by law, was recorded by the Assessing Officer. It was further submitted that even the revenue was not satisfied about the payment made to the assessee and due to this reason, the other concerned Assessing Officer had disallowed the claim of the said sum of Rs. 35,00,000 in the hands of the company ‘L’ As against that, the Assessing Officer held that the statement of ‘M’ was a reliable statement and the notice under section 158BD had also been issued after being satisfied on the basis of the information and evidence available to the Assessing Officer. Thus, the Assessing Officer added the said amount of Rs. 35 lakhs as undisclosed income in the hands of the assessee. On appeal, the Commissioner (Appeals) upheld the action of the Assessing Officer.
On second appeal:
Section 158BD envisages two situations where the Assessing Officer is
satisfied that (i) any undisclosed income belongs to any person other than the
person with respect to whom search was made and (ii) in such a situation, the
books of accounts, other documents or assets seized or requisitioned shall be
handed over to the other Assessing Officer having jurisdiction over such other
person, thereafter (iii) that this other Assessing Officer shall proceed
against such other person and the provisions of Chapter XIV-B shall apply
accordingly. The intention of the Legislature, thus, makes it clear that under
section 158BD, the papers obtained during the search are to be handed over to
the other Assessing Officer, who is necessarily the Assessing Officer having
jurisdiction over the such person about whom the satisfaction is reached,
though he is another person other than the person whose premises has been
raided, yet, the said other person has undisclosed income. A notice under
section 158BD was issued to the appellant assessee asking him to prepare a true
and correct return of the undisclosed income. On receiving that notice, a
letter was issued from the side of the assessee asking the Assessing Officer to
give the copy of the satisfaction recorded by him or by the Assessing Officer
before whom the proceedings under section 158BC were in progress, so that on
receiving the satisfaction so recorded by the concerned Assessing Officer, the
assessee would be enabled to file the complete return. Through a letter, the
concerned Assessing Officer stated that the proceedings under section 158BD
were initiated on the basis of intimation received to his office from the
Commissioner (Appeals), Pune, during the
course of appeal proceedings in the case of company ‘L’. Another letter was also placed on record
wherein the concerned Revenue Officer had informed that the Commissioner
(Appeals), Pune, during the course of appeal proceedings in the case of company
‘L’ had recorded the statement of the assessee on oath and intimated the office
to initiate proceedings under section 158BD. From the contents of all those
correspondence, it emerged that the concerned officer was guided by the
Commissioner (Appeals), Pune, who was hearing an appeal of the company ‘L’.
However, the revenue argued that the said Commissioner (Appeals), Pune had not
directed for initiation of the proceedings under section 158BD but simply
intimated to adopt a legal recourse, hence, the action thereafter could not be
termed as illegal or out of jurisdiction.
The Commissioner (Appeals), Pune, had directed the Assessing Officer in
unequivocal terms to communicate the observations to the concerned officer to
take remedial action under section 158BD under section 148 against the
assessee. Undoubtedly, that was not merely a passing over of an information or
mere intimation for adoption of remedial course by the concerned Revenue
Officers ; but it was a clear direction for issuance of notice that the amount
in question was to be assessed in the hands of such other person, i.e., the
assessee. [
Audi alteram partem, an interesting fact had emerged that while
completing the assessment proceedings of the company ‘L’ for the block period,
the Assessing Officer in the impugned order had held that the claim of
expenditure in respect of payment to the assessee, was not proved to be
genuine, hence, disallowed as unexplained expenditure under section 69C. So,
the Investigation Officer who had control over the seized material had reached
to the conclusion that the impugned seized paper was neither a conclusive
evidence nor contents of such seized paper were confirmed to be correct by the
assessee. Contrary to this observation of the Assessing Officer, when this disallowance
was challenged by the said assessee, then the Commissioner (Appeals) had
examined the instant assessee again and
thereafter held that the explanation was not satisfactory in respect of the
payment received by the assessee and required to be added as undisclosed
income. So, the addition was reversed from the hands of the company ‘L’, but
simultaneously, it was held that the payment in question was to be made in the
hands of the assessee, by initiating the proceedings under section 158BD. It
had been informed by the assessee during the course of instant proceedings that
even that order of the Commissioner (Appeals) had not been fully accepted by
the revenue department and was challenged before the Tribunal, which was yet to
be decided. So, on one hand, the revenue had formed an opinion that the payment
to this assessee was not genuine but on the other hand, it was treating the
same amount in the hands of the assessee as undisclosed income. This anomaly in
itself had proved that the revenue department was utterly confused as to how to
tax this amount and in whose hands. Naturally, this approach of the revenue
could not be approved because once a search and seizure action had been taken
and the revenue department had reached to the doorstep of a taxpayer and
searched his house, then there should not be any scope of an ambiguity or
instability in the action of the revenue department. [
One more aspect had also to be examined and to be analysed that who was
the officer authorized under section 158BD to record his satisfaction. The
section says that the Assessing Officer who is in possession of the seized
material is authorized to record his satisfaction in respect of an undisclosed
income to be assessed in the hands of another person and on recording that
satisfaction, he is expected to hand over all documents or seized material to
the Assessing Officer having jurisdiction over that other person. The revenue
had not established in the instant case, though repeatedly asked during the
course of hearing that whether any such procedure was adopted ; but failed to
place on record any such information. There was no such material or
correspondence placed, through which the revenue department could have
established that the Assessing Officer in possession of the seized material had
recorded his satisfaction and thereafter, handed over all the documents and
seized material to the Assessing Officer having the jurisdiction over such
other person. Therefore, a serious question had been raised from the side of the
assessee and he was right in raising this doubt ; that the concerned Assessing
Officer had resumed the jurisdiction which was not provided in the statute. On
this count as well, the entire proceedings as initiated under section 158BD
appeared to be void and against the statute. [
To conclude, the facts and circumstances of the case established that the
officer, who was in possession of the seized material failed to record his
satisfaction as mandatorily required under section 158BD and that the facts and
circumstances of the case as well as the legal position so emerged from the
above discussion led to the conclusion that the assumption of jurisdiction by
the Assessing Officer under section 158BD was not in accordance with law and as
prescribed in statute, hence, bad in law.
[
In the result, for statistical purpose, the appeal was to be allowed by
quashing the impugned judgment. [