Proceedings under Section 158BD cannot be initiated after the completion of the block assessment of the searched person
October, 26th 2007
This is to inform you that the Delhi Tribunal in the case of Radhey Shyam Bansal vs ACIT, Circle 37(1), New Delhi, IT (SS) A. No. 12/Del/2007, Shri Manoj Bansal vs ACIT, Circle 37(1), New Delhi, IT (SS) A. 14/Del/2007, Shri Sukesh Kumar Gupta vs ACIT, Circle 37(1), New Delhi has held that proceedings under Section 158BD cannot be initiated after the completion of the block assessment of the searched person and the notice under section 158BD is to be issued within a reasonable period of time from the date of recording of the satisfaction which, in any case, cannot be more than 60 days from the completion of the block assessment of the searched person.
These are three appeals filed by three different assessees who are connected.The issue arising in all the three appeals are common, the grounds are identically worded and since they were all heard together they are disposed of by a single order for the sake of convenience.
2.We may take up the case of Radhey Shyam Bansal to explain the essential facts.He is a resident individual.There was a search under section 132 of the Income-tax Act in the premises of one Manoj Aggarwalof BaldevPark, Delhi on 30th August 2000.In the course of the search, several materials were seized on the basis of which a block assessment was completed in his case under Section 158BC of the Act on 29th August, 2002.On 15th July 2003, a letter was sent by the Assessing Officer assessing Manoj Aggarwal to the Assessing Officer to the Assessing Officer assessing the present assessee (Radhey Shyam Aggarwal) to the effect that the assessees were acting as mediators in transactions involving substantial tax evasion by giving bogus accommodation entries to various person.Thereafter, a notice was issued onn22ndMarch 2004 to the assessee, purporting to be a notice under Section 158BD of the Act.By this notice, the assessee was called upon to file a block return within 30 days of the receipt of the notice.In response thereto, the assessee filed a block return for the period from the assessment year 1991-92 to the assessment 2001-02 (upto 30.8.2000, the date search) in the prescribed form declaring Nil as undisclosed income.The Assessing Officer thereafter conducted enquiries, recorded statements, etc., and ultimately come to the conclusion that the assessee was receiving commission as a mediator for giving accommodation entries to various beneficiaries.The total undisclosed commission income was determined at Rs.50,85,315 in the case of Radhey Shyam Aggarwal, Rs.31,42,934 in the case of Sukesh Kumar Gupta and Rs.25,07,174/- in the case of Manoj Bansal.In addition, the Assessing Officer also included Rs.9,81,29,575 in the assessees case as unexplained investment under Section 69 of the Act on protective basis on the footing that the assessee had paid cash to Manoj Aggarwal.Similar additions were also made in the other two cases on protective basis.
3.The assessee filed an appeal to the CIT(Appeals) raising several contentions including the contention that the notice under Section 158BD was barred by limitation, that the Assessing Officer assessing the searched person (Manoj Aggarwal) had not recorded any satisfaction under Section 158BD, that no opportunity to cross examine the person on the basis of whose statement allegations were made against the assessee, that no opportunity was given to the assessee to rebut the material collectedagainst him and that at any rate the rate of commission adopted by the Assessing Officer was exaggerated and was not supported by any evidence or material.The CIT (Appeals) did not accept the assesses contention that no satisfaction was recorded by the Assessing Officer assessing the case of the searched person.He noted that the Assessing Officer assessing Manoj Aggarwal had written a letter on 15th July, 2003 to the Assessing Officer having jurisdiction over the assessee in which he had mentioned that the diaries seized from the possession of Manoj Aggarwal established that Radhey Shyam Bansal was a mediator for providing book entries to various beneficiaries and that there was evidence of cash amounts having been received by Manoj Aggarwal from Radhey Shyam Bansal.On this basis, the CIT(Appeals) held that this letter amounted to the satisfaction of the Assessing Officer assessing the searched person as required by Section 158BD.As regards the contention that the notice was barred by limitation he held that no time limie was prescribed for issuing the notice under Section 158BD and even otherwise there was no inordinate delay so as to vitiate the proceedings.He rejected the other contentions of the assessee with regard to the procedure adopted by the Assessing Officer while completing the assessment, as such, not giving an opportunity to the assessee to cross examine Manoj Aggarwal and held that since the gist of the statement was given to the assessee for rebuttal the purpose of cross examination was achieved.Ultimately, he also held that the rate of commission adopted by the Assessing Officer was reasonable.
4.The assessee is in further appeal before the Tribunal.The following connections were raised by the learned representative for the assessee:
(a)The notice under Section 258BD should be issued within a reasonable time.The notice issued on 22.3.2004 was much beyond any reasonable period, even taking the starting point of the reasonable time from the date of completion of the block assessment in the case of Manoj Aggarwal which was done on 29.8.2002.A period of nearly 19 months had elapsed from the date of completion of the block assessment of Manoj Aggarwal before the notice under Section 158BD was issued which cannot be considered as a reasonable time by any standards.Reliance in this connection was placed on the judgements of the Supreme Court in Government of India vs Citadel Fine Pharmaceuticals (184 ITR 467) and State of Gujarat vs Patel Raghav Nath and Others (AIR 1969 (SC) 1297).An order of the Delhi Bench of the Tribunal in the case of NHK-Japan Broadcasting Corporation vs DCIT (2006) 101 TTJ 292 was also relied upon.
(b)The notice issued on 22.3.2004 did not contain any particulars as to in which case search was conducted, what were the materials seized therein, how those materials were sought to be connected to the assessee etc.Thus the assessee was in no position to know as to what was being put against him.
(c)No satisfaction was recorded by the Assessing Officer assessing Manoj Aggarwal as required by Section 158BD and by the judgement of the Supreme Court in Manish Maheshwari vs ACIT and Another (2007) 289 ITR 341.The letter dated 15.7.2003 written by the said Assessing Officer to the Assessing Officer having jurisdiction over the assessee was written after the block assessment was completed in the case of Manoj Aggarwal, which was against the statutory provision.The satisfaction has to be recorded before completion of the assessment of the person searched under Section 132.Reliance for this proposition was placed on the order of the Chandigarh Bench of the Tribunal in ACIT, Yamunanagar vs Kishore Lal Balwant Rai, Jagdhari (Order dated 29th June 2007) (copies placed at pages 75 to 168 of the case law paper book).In the case of Khandubhai Vasanji Desai and Others vs DCIT and Another (1999) 236 ITR 73, the Gujarat court has held that 15 days is a reasonable time to issue notice under Section 158BD of the Act, recognizing the position that the Assessing Officer, once he has reached the requisite satisfaction, is bound to act swiftly to proceed against the other persons as soon as may be.
(d)The assessment is vitiated since the rules of natural justice and fair play have not been followed.The Assessing Officer did not accept the assessees request for cross-examination of Manoj Aggarwal whose statements were relied upon by the Assessing Officer.The Assessing Officer even recorded statements from Manoj Aggarwal on 22.2.2006 and 13.3.2006, while the assessees request dated 6.2.2006 for cross examination was pending with him.While recording the statements from Manoj Aggarwal on these dates, the Assessing Officer was fully aware that the assessee had asked for cross examination, but still proceeded to deny the same to the assessee.The untested statement of Manoj Aggarwal cannot be admitted in evidence as held by the Honble Delhi High Court in CIT vs SMC Share Brokers Ltd(288 ITR345) and CIT vs. Pradeep Kumar Gupta (2007) 207 CTR 115.
(e)The Assessing Officer has collected various materials behind the back of the assessee and has used them in the assessment without confronting the assessee with the same for rebuttal.The assessment framed without giving the assessee due opportunity to rebut the material used against him is bad in law and requires to be vacated.
(f)The Assessing Officer making the assessment of Manoj Aggarwal has accepted his untested statement on the face of it which is contrary to law.In this connection, the reliance placedby the Assessing Officer on the judgement of a Full Bench of the Kerala High Court in M.K.Tthomas Vs. State of Kerala (40 STC 278) actually supports the assessees case in as much as it says that though the right to cross-examine is not part of the rules of natural justice, so long as it is claimed it can not be denied.The Assessing Officer has not thought fit to record the statements of other mediators, who are stated to be almost 50 in number, which is a serious lapse on his part.
(g).In any case, the rate of commission adopted by the Assessing Officer is arbitrary and excessive and should be reduced to 0.20% of the amounts involved.The Assessing Officer has also omitted to consider the fact that there was no material in the seized record to show that the assessee received commission from the beneficiaries.It is well-settled that in a block assessment, the Assessing Officer can not travel beyond the seized material see judgement of the Honble jurisdictionalHigh Court in Ravi Kant Jain (250 ITR 141).
5.On the other hand, the learned CIT DR, Mr. R.K.Gupta, made the following submissions in defence of the orders of the departmental authorities :
(a)The orders passed by the income-tax authorities suffered from no infirmity, factual or legal.They are based on the seized material and other evidence, such, as the statement recorded from Manoj Aggarwal and the assessment has also been framed after giving due opportunity to the assessee which will beevident from the fact that the assessee has placed detailed written submissions dated 29.3.2006 which have been fully considered by the Assessing Officer in the block assessment order.The assessment therefore does not suffer from the infirmity of being contrary to the rules of natural justice.
(b)No time limit has been prescribed by law for the issue of a notice under Section 158BD.Therefore, the issue of the notice on 22.03.2004 and the completion of the assessment on 31.03.2006 can not be questioned on grounds of limitation.
(c)The Assessing Officer assessing Manoj Aggarwal in whose case a search under Section 132 of the Act had been conducted has recorded proper satisfaction as can be seen from his letter dated 15th July, 2003 to the Assessing Officer having jurisdiction over the present assessee.This meets with the requirement of law that satisfaction should be recorded by the Assessing Officer having jurisdiction over the person searched under Section 132.No further satisfaction is required to be recorded by the Assessing Officer assessing the assessee under Section 158BD read with Section 158BC.
(d)The Assessing Officer did make all attempts to provide opportunity to the assessee to cross examine Manoj Aggarwal; he also provided the assessee with all the details of the statement of Manoj Aggarwal.Thus the purpose sought to be served by cross examination was effectively served by putting the gist of the statement of Manoj Aggarwal before the assessee for rebuttal.Therefore, the fact that the assessee did not actually cross examine Manoj Aggarwal in the proper sense of the term and as is generally understood in law, is not a fatal flaw in the assessment proceedings and for that reason alone, it can not be said that the assessment was framed without following the rules ofnatural justice.Reliance was placed on the judgement of the Bombay High Court in the case of One-up Shares and Stock Brokers Pvt. Ltd. Vs R.R.Singh, Cit and Others (2003) 262 ITR 275.
(e)In all, there were about 50 mediators and, therefore, it is not humanly possible to hand over all the records seized during the search and other material collected by the Assessing Officer to all of them and in fact such a step was not even necessary and so long as the gist of the material seized and proposed to be used in the assessment was brought to the notice of the assessee, as was done in the present case, the assessee cannot complain that the assessment was framed in violation of the rules of natural justice.
(f)The rate of commission adopted by the Assessing Officer was quite reasonable having regard to the evidence on record and the facts and circumstances surrounding the case.
6.We have carefully considered the facts and rival contentions.The first questions which arises in the case is whether it is mandatory on the part of the Assessing Officer assessing the person searched under Section 132 of the Actto record asatisfaction that any undisclosed income belongs to any person other than the searched person.This question has now been answered by the Supreme Court in the case of Manish Maheshwari vs. ACIT and Another (supra).In this case, it was held that before the provisions of Section 158BD are invoked against a person other than the person whose premises were searched under Section 132,the conditions precedent have to be satisfied and that the Assessing Officer assessing the searched person had to (i) record his satisfaction that any undisclosed income belonged to any person other than the searched person, and (ii) hand over the books of account and other documents and assets seized to the Assessing Officer having jurisdiction against the other person.In the case before the Supreme Court , the premises of a director of a company and his wife were searched under Section 133.In the course of the search, it transpired from the seized material that certain income belonged to the company.No satisfaction was recorded under Section 158BD of the Act by the Assessing Officer who searched the director and his wife nor did he transfer the relevant records to the Assessing Officer having jurisdiction over the company. The Supreme Court held that since no satisfaction has been recorded by Assessing Officer assessing the director and his wife to the effect that certain income which could be gleaned from the seized material belonged to the company, the mandatory condition for invoking section 158BD was not satisfied and accordingly quashed the block assessment made on the company under Section 158BD read with Section 158BC.If this judgement is applied to the present case, as we are respectfully bound to, we find that no satisfaction has been recorded by the Assessing Officer assessing Manoj Aggarwal.The notice dated 22.3.2004 (page 6 of the paper book) issued under Section 158BC read with Section 158BDdoes not refer to any satisfaction having been reached by the Assessing Officerassessing Manoj Aggarwal.The satisfaction note dated 22.3.2004, a copy of which has been placed at page 24 of the paper book, is a note recorded by the Assessing Officer assessing Radhey Shyam Bansal (the present assessee).It is not the satisfaction note recorded by the Assessing Officer assessing Manoj Aggarwal who is the DCIT, Central-3, New Delhi.Thus one of the statutory conditions precedent for invoking section 158BD has not been complied with.
7.That takes us to the question whether the letter dated 15.07.2003 written by the DCIT, Central-3, New Delhi, who is the Assessing officer having jurisdiction over Manoj Aggarwal, to the Assessing Officer, Circle 37(1), New Delhi, who is the Assessing Officer assessing Radhey Shyam Bansal (aasessee before us) can be construed to represent the requisite satisfaction.On this issue, the Chandigarh Bench of the Tribunal has passed an elaborate order on 29th June, 2007 in the case of ACIT, Yamunanagar Vs Kishore lal Balwant Rai and other connected cases.A copy of this order is at pages 75 to 168 of the paper book.Strong reliance was placed on this order by the learned representative for the assessee to contend that the satisfaction has to be recorded during the course of the assessment proceedings of the person put to search under Section 132 or requisitionunder Section 132A because only in the course of such assessment proceedings, will the Assessing Officer be in a position not only to detect the undisclosed income but also to identify the person to whom it belongs.It has been further observed that after the assessment of the person searched is completed, the Assessing Officer would become functus officio regarding the powers and functions and outlined in Section 158BC and he can no longer be construed as an Assessing Officer for the purpose of Chapter XIV-Bin so far as the person search is concerned.Once the assessment of the person searched is completed, the task of the Assessing Officer to identify the undisclosed income and the personto whom such income belongs, on the basis of the material seized during the search, attains finality and thereafter it is not open to him record any satisfaction of any kind.He is no longer in seisin of the assessment of the searched person and can not therefore assume jurisdiction over the same and record any satisfaction.We respectfully agree with the view taken by the Chandigarh Bench as to the time framewithin which the satisfaction should be recorded by the Assessing Officer having jurisdiction over the assessment of the person searched.In the case on hand, the block assessment of Manoj Aggarwal was completed under Section 158BC on 29.8.2002.Thereafter, The Assessing officer assessing him became functus officioand was legally under a disability to record any satisfaction to the effect that any undisclosed income belongs to Radhey Shaym bansal.Therefore, the letter written on 15.7.2003 by the DCIT, Central-3, New Delhi who was the Assessing Officer having jurisdiction over Manoj Aggarwal, can not be construed to be the satisfaction as required by Section 158BD since it was written after the completion of the block assessment of Manoj Aggarwal.
8.We thus holdthat no satisfaction has been recorded under Section 158BD by The Assessing Officer having jurisdiction over the assessment of Manoj Aggarwal and that the letter written by him on 15.7.2003 to the Assessing Officer having jurisdiction over Radhey Sham Bansal cannot be legally taken to be the requisite satisfaction.The result is that the assessment of Radhey Shyam Bansal has been made without satisfying the mandatory precedent under Section 158BD.
9.The next question to be addressed is whether the notice under Section n158BD requires to be issued within a reasonable time and if it is not so issued, whether the assessment made pursuant to the notice is liable to be set aside on that ground.The contention of the learned representative for the assessee, it may be recalled, was that the notice should have been issued at least withina reasonable time after the completion of the assessment of the searched person.In the present case, the block assessment of Manoj Aggarwal was completed on 29.08.2002 but the notice under Section 158BD was issued only on 22.03.2004, that is about 19 months later.The further contentions based on the judgement of the Gujarat High Court in Khandubhai Vasanji Desais case (supra) was that the notice should be issued within 15days from the completion of the block assessment in the case of the searched person or at any rate within 60 days from that date, the sanctity behind this period being the provisions of Section 132(9A).In Khandubhais case, the Gujarat High Court referred to the time limit of 15 days having regard to the fact that under Section 132(9A) as it stood at the relevant time the authorized officer who conducted the search against a person has to hand over the books of account, documents and assets seized to the Income Tax Officer having jurisdiction over the person to whom the books of account, documents and assets seized relate, within 15 days of the seizure and thereafter the Assessing Officer is required to serve notice on such person to whom the books of accounts etc.relate requiring him to furnish a block return under Section 158BC.The Gujarat High Court was concerned with the constitutional validity of Section 158BD of the Act and one of the contentions was expressed in the form of an apprehension that a notice under Section 158BD can be issued by the Assessing Officer in the case of the other person (other than the person who was searched) at any time.While repelling this contentionand putting at rest the apprehension saying that it is ill founded, the Gujarat High Court held that the notice under Section 158BD has to be issued within a reasonable period from the date of the search itself and it was pointed out, taking cue from Section 132(9A), that it should be done within 15 days of the seizure. The obvious implication is that the satisfaction that the income reflected in the seized material belongs to some person other than the person searched should also be reached within the aforesaid period of 15 days so that the same can be transmitted along with the books of account, documents etc. seized during the search.The period of 15 days has been amended to 60 days by the Finance act, 2002, w.e.f. 1st June, 2002.It is noteworthy that the amendment had come into force even during the tendency of the block assessment proceedings in the case of Manoj Aggarwal.However, even after the completion of the block assessment of Manoj Aggarwal on 29.08.2002, the Assessing Officer of the assessee took about b19 months to issue the notice under Section 158BD.The period of 60 days mentionedin section 132(9A) is actually for handing over the books of account etc. to the Assessing Officer having jurisdiction over the person who is a person other than the person searched and it actually starts from the date of search.The period was highlighted by the Gujarat High Court only to emphasise the speed and swiftness within which the proceedings should be taken against such persons.That object does not appear to have been achieved in the present case in view of the unreasonable delay in issuing the notice under Section 158BD not only after the date of completion of the block assessment of ManojAggarwal.Even if the period of 60 days is to be reckoned from 15.7.2003, the date on which the Assessing Officer of Radhey Shyam Bansal , there is a delay of almost 8 months before issue of the notice under Section 158BD.In such circumstances, we hold that the notice having been issued well beyond a reasonable period of time, the assessment made on the assessee is bad in law.
10.The above two findings of ours are sufficient to dispose of the appeals in favour of the assessee.Since no satisfaction has been recorded by the Assessing Officer having jurisdiction over Manoj Aggarwal, the condition precedent for invoking Section 158BD against Radhey Shaym Bansal has not been satisfied.The block assessment made on Radhey Shyam Bansal is therefore bad in law and is required to be cancelled.In addition, the notice under Section 158BD has been issued to the assessee Radhey Shyam Bansal well beyond a reasonable period of time reckoned either from the date of search (3.8.2000), or from the date of block assessment on Manoj Aggarwal (29.8.2002) or even from the date on which the Assessing officer of Manoj Aggarwal wrote a letter to the Assessing Officer of Radhey Shyam Bansal (15.7.2003).Thus even on the ground that there was no effective notice to the assessee within a reasonable period, the assessment requires to be vacated.For these reasons, we vacate the assessment made on Radhey Shyam Bansal on 31.3.2006 under Section 158BD read with Section 158BC of the Act.
11.In view of the above decisions of ours, it unnecessary to deal with the merits of the block assessment order and the addition made as commission for arranging accommodation entries.
12.The facts and the controversy in the cases of Manoj Bansal and Suresh Kumar Gupta are identical, except for the amounts of the addition made by the Assessing Officer.Therefore, our decision in the case of Radhey Shyam Bansal applies to these two cases also. Those assessments are also vacated.
13.In the result, all the three appeals are allowed with no order as to costs.
Order pronounced in the open court on the 24th day of August, 2007.