* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: November 26, 2014
+ ITA No. 339/2002
COMMISSIONER OF INCOME TAX, NEW DELHI ..... Appellant
Through: Mr.Akash Vajpai , Advocate
Versus
M/S. MANJU FINANCE CORPORATION, NEW DELHI
..... Respondent
Through:
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V.KAMESWAR RAO
SANJIV KHANNA, J. (Oral)
1. This appeal by the revenue under Section 260-A of the Income
Tax Act, 1961 (`Act', in short) impugns the order dated 15.04.2002
passed by the Income Tax Appellate Tribunal (Tribunal, in short)
annulling and setting aside block assessment proceedings under Section
158BD of the Act. The block assessment period involved is 01.04.1986
to 29.08.1996.
2. By order dated 01.02.2005, the following substantial question of
law was framed:
"Whether in the facts and circumstances of the case,
non-issuance of notice under Section 158BD of the
Income Tax Act, 1961 would vitiate the proceedings
initiated under Section 158BC of the Act?"
ITA No.339/2002 Page 1 of 8
3. The respondent assessee is a firm originally constituted on
01.03.1990 and had been filing their returns of income from the address
X-49, Loha Mandi, Naraina Phase-2, New Delhi. On 29.08.1996 search
and seizure operations under Section 132(1) of the Act were conducted
at E-49, Naraina Vihar, New Delhi at the residence of Nem Chand
Gupta, an individual. During the course of search, books of accounts
namely a journal, a cash book and a ledger belonging to the respondent
assessee were found and seized. At this stage, we may record that the
grounds of appeal wrongly record and state that search and seizure
operations were carried out at the premises of the assessee. This fact
does not borne and is contrary to the assertion made in the assessment
order. Subsequently, the jurisdiction of the respondent assessee was
transferred to DCIT, Special Range 13 in exercise of power and order
under Section 127 of the Act. The said order is dated 20.02.1997.
Thereupon, the Deputy Commissioner of Income Tax Special Range 13,
New Delhi, issued notice under Section 158BC of the Act dated
06.03.1997 which was duly served on the respondent assessee and return
of income for block period was filed in Form No. 2B on 17.04.1997.
Block assessment order was passed on 29.08.1997 assessing undisclosed
income for the block period at Rs.67,95,370/-.
4. The block assessment order was made subject matter of challenge
ITA No.339/2002 Page 2 of 8
before the Income Tax Appellate Tribunal and as noted above the block
assessment order stands annulled. The reasons given by the Tribunal for
annulling the block assessment are to be substantially found in paragraph
No.11 of the impugned order, which for the sake of convenience is
reproduced below:-
"11. Regarding the jurisdiction, this is undisputed fact that
no search was conducted on the assessee, neither any
warrant of search was issued in the name of assessee nor
any Panchnama was prepared in the name of the assessee.
Therefore, no proceedings can be taken against the
assessee u/s 158BC. The search was conducted on one
Shri Nem Chand Gupta on 29.8.1996 and proceedings u/s
158BC were taken against that assessee. Some papers
related to the assessee were found during the course of
search made on Shri Nem Chand Gupta. Those books of
accounts had papers were seized and notice u/s 158BC
was issued to the assessee and the assessee was asked to
file the return for the block period. The notices u/s 143(2)
and 142(2) along with questionair were issued to the
assessee. A specific query was raised during the course of
hearing by the Bench to the learned DR that whether any
notice u/s 158BD was issued or not, it was fairly admitted
that no notice u/s 158BD was issued. However, it was
categorically stated that there is no material difference
between the notice u/s 158BD and notice u/s 158BC. As we
have already stated that assessee deserved to succeed on
ITA No.339/2002 Page 3 of 8
this issue because the provisions of sections 158BC and
158BD are separate and distinct. The proceedings u/s
158BC can be initiated only on the assessee on whom the
search was conducted and proceedings u/s 158BD are to
be initiated where the concerned AO has received an
information or intimation from Assessing Officer of the
person on whom the search was conducted. No such
material was brought on record that whether any
intimation or information were received by the AO from
the Assessing Officer of Shri Nem Chand Gupta, on whom
the search was conducted. Therefore, it cannot be stated
that there is no material difference between section 158BD
and section 158BC. The defect also cannot be cured by
section 292B, as both the sections are separate and
distinct because the proceedings under both the sections
are entirely different."
(emphasis supplied)
4. We have reservations on the findings with regard to issue of notice
issued under Section 158BC instead of Section 158BD of the Act.
Possibly, question of prejudice due to mention of wrong provision etc.
may arise. The facts were noted in the assessment order which
specifically records that the search was not conducted in the case of
respondent assessee but books of accounts i.e. journal, cash book and
ledger of the respondent assessee were found in the search. Thus
reference was to Section 158BD of the Act. However, the respondent
ITA No.339/2002 Page 4 of 8
assessee is entitled to succeed in view of the specific finding given by
the Tribunal in the aforesaid paragraph that no material was brought on
record whether any intimation or information was received by the
Assessing Officer of the respondent assessee from the Assessing Officer
of Nem Chand Gupta i.e. the person on whom search was conducted.
Accordingly, the finding of the Tribunal was that the Assessing Officer
of Nem Chand Gupta had not given any intimation or information to the
Assessing Officer of the respondent assessee. On the said aspect, Section
158BD of the Act is clear and stipulates as a pre-condition that the
Assessing Officer of the person searched must record his satisfaction that
any undisclosed income belongs to a third person i.e. the person other
than the person who was searched or whose documents, account books
or assets were requisitioned. Thereafter he should handover the said
documents to the Assessing Officer of the third person. We would
assume in the present case that the Assessing Officer of the person
searched and the Assessing Officer of the respondent assessee were the
same as there is an order under Section 127 of the Act. However, this
would not mean that the Assessing Officer of the person searched should
not have recorded the satisfaction before notice was issued under Section
158BD read with Section 158BC of the Act. The requirement of Section
158BD is that the Assessing Officer of the person searched or against
ITA No.339/2002 Page 5 of 8
whom an order under Section 132A of the Act has been passed, should
be satisfied that any undisclosed income belongs to a third person. This
is the statutory mandate and a jurisdictional prerequisite before
proceedings under Section 158BD of the Act are initiated. Violation of
the said requisite and mandatory requirement would result in annulment
of assessment under Section 158BD read with Section 158BC of the Act.
The aforesaid dictum and ratio stands commandingly and conclusively
affirmed by the Supreme Court in Commissioner of Income Tax vs.
Calcutta Knitwears, Ludhiana [2014] 362 ITR 673 (SC), in the
following words:-
"39. 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.
XXXX
41. We would certainly say that before initiating
proceedings under Section 158BD of the Act, the assessing
ITA No.339/2002 Page 6 of 8
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."
(emphasis supplied)
5. In order to be absolutely sure as to the factual position, we had
called upon counsel for the Revenue to examine the original records and
ascertain whether satisfaction note of the Assessing Officer of the person
searched is available. The appeal was accordingly adjourned. Learned
counsel for the Revenue states that he has examined the original records
ITA No.339/2002 Page 7 of 8
and no satisfaction note recorded by the Assessing Officer of the person
searched is available. In these circumstances and in view of authoritative
pronouncement of the Supreme Court in Calcutta Knitwears (supra), we
have to hold that the block assessment proceedings initiated under
Section 158BD read with Section 158BC of the Act were bad and
contrary to law. The question of law is accordingly answered in favour
of the respondent assessee and against the appellant Revenue. The appeal
is disposed of. There will be no order as to costs.
(SANJIV KHANNA)
JUDGE
(V.KAMESWAR RAO)
JUDGE
NOVEMBER 26, 2014
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ITA No.339/2002 Page 8 of 8
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