THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 04.01.2013
+ ITA 193/2004
THE COMMISSIONER OF INCOME TAX ... Appellant
versus
M/S INTERCONTINENTAL TRADING &
INVESTMENT CO.LTD. ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Sanjeev Sabharwal, Adv.
For the Respondent : Mr C.S. Aggarwal, Sr. Adv. with
Mr Prakash Kumar, Adv.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE V.K. JAIN
JUDGMENT
BADAR DURREZ AHMED, J
1. This is an appeal under Section 260A of the Income Tax Act, 1961
(hereinafter referred to as the said `Act') against the order of the Income
Tax Appellate Tribunal, New Delhi, dated 11.09.2003, passed in ITA
(SS) No. 110/Delhi/2002 in respect of the block period 01.04.1986 to
02.11.1996.
2. The appellant/revenue has proposed the following questions as
substantial questions of law:-
ITA 193.2004 Page 1 of 12
(a) Whether the learned I.T.A.T. was correct in law in holding that
Assessing Officer has wrongly assumed jurisdiction under the
provision of Section 158BD of the Income Tax Act?
(b) Whether the I.T.A.T. was correct in law in deleting the addition
made by the Assessing officer by treating the claim of the
assessee regarding receipt of service charges as income from
house property?
(c) Whether the I.T.A.T. was correct in law in deleting
disallowance of expenses with regards to earning of service
charges made by the Assessing Officer by treating the service
charges as income from house property?
(d) Whether the I.T.A.T. was correct in law in deleting addition of
Rs. 17,17,263/- on account of enhancement of Notional Annual
Letting Value?
(e) Whether the I.T.A.T. was correct in law in allowing the
assessee to set off the loss amounting to Rs. 1,76,52,477/- on
sale of shares?"
3. Before we examine as to whether any of these questions arise for
consideration and/or are substantial question of law, it would be
necessary to set out the facts.
4. A search under Section 132 of the said Act was conducted in
respect of the Mody Group of cases. Particularly, on 22.11.1996 the
premises of M/s Hindustan Development Corporation Limited which was
a Mody group company was being searched. On that date books of
ITA 193.2004 Page 2 of 12
accounts of the respondent assessee were also found and seized. The
details of the seized books of accounts are as under:-
"Details of seized books of accounts:
1. Ledger-F.Y. 1994-95
2. Cash Book- F.Y. 1994-95
3. Ledger F.Y. 1995-95
4. Cash Book- F.Y. 1995-96
5. Ledger- F.Y. 1996-97
6. Cash Book- F.Y. 1996-97 (written upto 9.11.96)"
5. Thereafter, inter alia, a communication dated 28.10.1997 was
issued by the Assessing Officer in respect of the Mody Group of cases
who was the Assistant Commissioner of Income-tax Circle XXV
Calcutta, to the Assessing Officer of the respondent/assessee at New
Delhi. The said communication is as under:-
"Sub: Search & Seizure- Mody Group of cases Seized book
of accounts- regarding.
Ref: Your Letter No. DCIT/SR-32/97-98/495 dated 21.10.97.
Kindly refer to the above.
In consultation of the records it is ascertained that during the
course of search u/s 132(1) of the I.T. Act, 1961 in the case of
M/s Hindustan Development Corporation Ltd. of 15-,
Barakhamba Road, 7th Floor, Hansalaya, New Delhi following
books of accounts and other documents pertaining to your
assessee namely M/s Inter Continental Trading & Investment
Co. Ltd. were seized and they are lying in my custody.
Details of seized books of accounts:
ITA 193.2004 Page 3 of 12
1. Ledger-F.Y. 1994-95
2. Cash Book- F.Y. 1994-95
3. Ledger F.Y. 1995-95
4. Cash Book- F.Y. 1995-96
5. Ledger- F.Y. 1996-97
6. Cash Book- F.Y. 1996-97 (written upto 9.11.96)
Since you are having the jurisdiction over the assessee M/s
Inter Continental Trading & Investment Co. Ltd. and as such it
is proposed that necessary proceedings may kindly be adopted
against the aforesaid assessee in accordance with the provisions
of Chapter- XIV-B read with section 158 BD of the I.T. Act,
1961. In this regard it may be pointed out that the inspector
attached with me cannot be spared at this moment for the
purpose of transmitting the seized materials to your honour due
to the fact that he has been assigned with so many enquires and
investigation works in relation to certain cases where block
assessments are to be barred by limitation on 30.11.1997 and
thereby I would request you to kindly depute your officials for
taking delivery of the seized books of accounts and other
documents as specified above from my custody and oblige.
Yours faithfully,
Sd/-
(G.C. Pandit)
ACIT, CC-XXV, Calcutta"
6. Subsequent thereto, a note dated 21.01.1998 was prepared and that
note reads as under:-
"Vide correspondence received from DCIT, Spl. Range 15,
New Delhi and ADIT (Inv.) Calcutta, it has been noticed that a
search operation u/s 132 of the I.T. Act was conducted in Mody
Group of companies at Calcutta on 21.11.96. The search was
also conducted in the office of M/s HDCL, a company of Mody
Group on 21.11.96 at 15, Hansalaya, Barakhamba Road, New
Delhi which in books of account of M/s Inter Continental
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Trading & Investment Co. Ltd. were also seized. Even the
correspondence received from ADI (Inv.) Calcutta and DCIT,
SI. Range-15, New Delhi is noticed that certain transactions of
shares were done by the assessee M/s Intercontinental Trading
& Investment Co. Ltd.
In these circumstances notice u/s 158BC read with section
158BD of the I.T. Act may be issued to the assessee calling for
the return in form No. 2B for the Block period asstt. Year 1987-
88 to 2.11.1996.
Submitted Pl issue.
Sd/-
(D.C.I.T)"
7. On the same date that is on 21.01.1998 a notice under Section
158BD read with Section 158BC of the said Act was issued to the
respondent/assessee. In response to the said notice, the respondent /
assessee filed its return on 16.09.1998 and indicated its undisclosed
income to be Nil. Thereafter, the assessment was completed on
29.01.1999 and an assessment order was passed on that date holding that
the respondent/assessee had undisclosed income of Rs. 3,31,20,258/- in
the said block period. Being aggrieved by the said Assessment Order, the
respondent/assessee preferred an appeal before the Tribunal being ITA
(SS) 9/Delhi/99. By virtue of an order dated 21.02.2000, the assessment
order dated 29.01.1999 was set aside by the Tribunal and the matter was
ITA 193.2004 Page 5 of 12
restored to the Assessing Officer for fresh orders. The Tribunal had, inter
alia, taken the view that a complete verification had not been done and a
reasonable opportunity had also not given to the respondent / assessee.
8. Thereafter, an appeal was filed before the Delhi High Court under
Section 260A by the respondent / assessee. This court did not `admit' the
appeal. However, it directed that the findings / observations of the
Tribunal in the order dated 21.02.2000 would not be taken into account
by the Assessing Officer at the time of the fresh assessment. The High
Court order dated 21.08.2001 reads as under:-
"Heard. Since the Tribunal has directed fresh assessment by
setting aside the assessment, we do not find any scope for
interference in the appeal. However, it is made clear that the
parties shall be free to place such material as would be necessary
for the purpose of assessment pursuant to the direction given by
the Tribunal. While making the assessment, the Assessing
Officer shall not be influenced by any observation made by the
Tribunal since the Tribunal itself has observed that the
observations are not findings. It is, however, made celar that
they should not be treated as guidelines and an independent
application of mind has to be done by the Assessing Officer. It
goes without saying that the assessee shall be free to take the
plea about non-applicability of Section 158 BC and BD of the
Act.
Appeal stands disposed of."
(Underlining added)
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9. Thereafter, the Assessing Officer passed a fresh assessment order
on 28.03.2002, three days prior to the assessment getting time barred on
31.03.2002. The Assessing Officer, once again, determined the
undisclosed income of the assessee to be Rs. 3,31,20,258/- as computed
in the original order dated 29.01.1999.
10. Being aggrieved by the said assessment order dated 28.03.2002,
the respondent/assessee preferred an appeal before the Tribunal being
ITA(SS) 110/Delhi/2002. By an order dated 11.09.2003, the Tribunal set
aside the said assessment order. The Tribunal, inter alia, held as under:-
"6.1 We have also found, as it has not been disputed that all
the transactions entered by the assessee, in the course of
business, had been found duly recorded in its books of account
maintained in the regular course establishing that any
transaction entered into by the assessee had either been not
recorded by it in the books of account or was meant not to be
recorded. In our opinion, as such, the initiation of proceedings
on the assessee, on the basis of the books of accounts
maintained by it, by itself could not be held to be legal, valid
and proper basis. All what we find, from the communication of
the learned Assessing Officer, having jurisdiction over the
Mody Group of cases, to the assessing officer having
jurisdiction over the assessment of the assessee, that the books
of account of the assessee found and seized have merely been
forwarded to him. In our considered opinion, mere forwarding
of such books of accounts by itself is insufficient to conclude
that the learned Assessing Officer, having jurisdiction over the
Mody Group of cases was "satisfied" that any undisclosed
income was found or detected as a result of search, on the basis
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of which, proceedings u/s 158BD of the Income Tax Act could
have been initiated against the assessee."
xxx xxx xxx xxx xxx
"7.2 Further, we find that as a result of search conducted on
Mody Group of cases, as no incriminating material had been
found and the proceedings had been initiated by invoking the
provisions of Section 158BD of the I.T. Act, the present
assessment made is entirely unsustainable. In fact no adverse
material what so ever has been brought to our notice. On the
basis of which it could be held that as a result of search
conducted on Mody Group of cases, any undisclosed income of
the assessee was detected or found. It is seen from the record
that all what had been seized as a result of search conducted on
Mody Group of cases, is the regular books of account of the
assessee company for the financial years 1994-95, 1995-96 and
1997-97 (up to 21st November, 1996) and no more such
material was either found or gathered before either initiating the
proceedings or framing the assessments on the bais of which it
could be held there was an undisclosed income."
11. The revenue is aggrieved by the said decision of the Tribunal. The
first issue that is sought to be raised by the appellant/revenue is that the
Tribunal was not correct in law in holding that the Assessing Officer had
wrongly assumed jurisdiction under the provisions of section 158BD of
the Income Tax Act, 1961. We feel that the Tribunal has correctly come
to this conclusion particularly in view of the Supreme Court decision in
the case of Manish Maheshwari v. A.C.I.T: (2007) 3 SCC 794. In that
decision the question before the Supreme Court was whether the notice
ITA 193.2004 Page 8 of 12
issued to the assessee therein satisfied the requirements of Section 158
BD of the Act or not? Section 158BD of the said Act reads as under:-
"158-BD. Undisclosed income of any other person.--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 or whose books of account or other
documents or any assets were requisitioned under Section 132-A,
then, the books of account, 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 this Chapter
shall apply accordingly."
12. The Supreme Court considered the said provision and held as
under:-
"11. Condition precedent for invoking a block assessment is that a
search has been conducted under Section 132, or documents or
assets have been requisitioned under Section 132-A. The said
provision would apply in the case of any person in respect of
whom search has been carried out under Section 132 or documents
or assets have been requisitioned under Section 132-A. Section
158-BD, however, provides for taking recourse to a block
assessment in terms of Section 158-BC in respect of any other
person, the conditions precedents wherefor are: (i) satisfaction
must be recorded by the assessing officer that any undisclosed
income belongs to any person, other than the person with respect to
whom search was made under Section 132 of the Act; (ii) the
books of accounts or other documents or assets seized or
requisitioned had been handed over to the assessing officer having
jurisdiction over such other person; and (iii) the assessing officer
has proceeded under Section 158-BC against such other person.
12. The conditions precedent for invoking the provisions of
Section 158-BD, thus, are required to be satisfied before the
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provisions of the said chapter are applied in relation to any person
other than the person whose premises had been searched or whose
documents and other assets had been requisitioned under Section
132-A of the Act."
(Underlining added)
13. In the said decision the Supreme Court also noted that a taxing
statute must be construed strictly. For this, the Supreme Court referred to
an earlier decision in the case of Sneh Enterprises v. Commissioner of
Customs: (2006) 7 SCC 714. In the facts of the case before it, the
Supreme Court observed that the law was clear and explicit and that the
only question which arose for their consideration was whether the notice
dated 06.02.1996 satisfied the requirement of Section 158BD of the said
Act. The Supreme Court observed that the said notice did not record any
satisfaction on the part of the Assessing Officer for assuming jurisdiction
u/s 158BD of the said Act. And, as the Assessing Officer had not
recorded his satisfaction, which was a mandatory requirement, the notice
did not comply with the requirement of Section 158BD of the Act and
therefore recourse to block assessment in terms of Section 158 BC could
not be undertaken.
ITA 193.2004 Page 10 of 12
14. The same is the position in the present case. We have already set
out the communication dated 28.10.1997 from the Assessing Officer of
the searched person to the Assessing Officer of the respondent / assessee.
There is no recording of any satisfaction that any undisclosed income
belongs to the respondent/assessee. The communication dated
28.10.1997 merely indicates that books of accounts pertaining to the
respondent assessee/assessees were seized and were lying in the custody
of the Assessing Officer in respect of the Mody Group of cases. It was
further indicated in the communication that since the Assessing Officer at
New Delhi had jurisdiction over the respondent/assessee, it was proposed
that necessary proceedings may be adopted against the respondent /
assessee in accordance with the provisions of chapter XIVB of the said
Act. There is no satisfaction recorded by the said Assessing Officer of
the Mody Group of companies that any undisclosed income belonged to
the respondent/assessee. As such the very first mandatory condition
precedent for assuming jurisdiction under Section 158BD and
subsequently under Section 158 BC has not been satisfied. This failing
on its own would render the entire proceedings to be without jurisdiction.
This is apart from the fact that the Tribunal has, even on merits, held in
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favour of the respondent / assessee on the basis of fidings of fact. The
point in issue stands squarely cover by the decision of the Supreme Court
in the case of Manish Maheshwari (supra) as indicated above.
Therefore, the decision of the Tribunal cannot be faulted. No substantial
question of law arises for our consideration.
15. The appeal is dismissed.
BADAR DURREZ AHMED, J
V.K. JAIN, J
JANUARY 04, 2013
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