* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 06.02.2014
+ ITA 2055/2010
CIT ..... Appellant
Through: Sh. Balbir Singh, Sr. Standing
Counsel with Sh. Rupender Sinhmar and Sh.
Abhishek Singh Baghel, Advocates.
versus
UMESH CHANDRA GUPTA ..... Respondent
Through: Nemo.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE RAJIV SHAKDHER
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. The Revenue claims to be aggrieved by an order of the ITAT
(hereafter referred to as "the Tribunal") dated 20.11.2009. The
Tribunal, by the impugned order, rejected the Revenue's appeal.
2. A search was carried-out in the premises of Manoj Aggarwal on
03.08.2000; he was issued with notice under Section 158BC pursuant
to which he filed revised return for the block period 1991-92 to 2001-
ITA 2055/2010 Page 1
02. The assessment in his case (hereafter referred to as "the main
assessee") was completed on 29.08.2002. On 14.07.2003, apparently
the Assessing Officer (AO) in the present case dealing with the
respondents' assessments - was supplied with information by the
DCIT Central Circle-3. The assessee was concededly a third party and
not the subject of search and seizure under Section 132. The notice
was issued even later, on 14.10.2004. Apparently, the notice was
served with some difficulty on 14.06.2005 to the assessee under
Section 158BD. Thereafter, the assessment was completed on
30.06.2007 and an addition to the tune of `1.09 crores was sought to
be made. The assessee appealed to the CIT on diverse grounds,
including inter alia, that the notice issued under Section 158BD to
him was beyond the time prescribed. The first appeal succeeded
before the CIT (Appeals). The Revenue unsuccessfully appealed to the
Tribunal.
3. The CIT (Appeals) accepted the assessee's appeal inter alia
holding as follows:
"XXXXXX XXXXXX XXXXXX
On the basis of the above facts and circumstances,
it is held that the communication dated 14.7.2003 by the
AO holding jurisdiction over Major Aggarwal cannot be
constructed to be the satisfaction as required by the
provisions of Sec. 158BD. This letter was written after
the completion of the Block Assessment of Shri Manoj
Aggarwal. Therefore, this cannot be treated as a valid
satisfaction, in the light of the judicial pronouncements
discussed above.
Secondly, it is seen that the notice u/s 158BD was
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issued on 14.6.2005 which is approximately 34 months
after the framing of the assessment of Shri Manoj
Aggarwal which was made on 29.8.2002. Therefore, it
cannot be said that the notice was issued within
reasonable time. Hence, in the light of the case laws as
discussed above, it is held that the notice u.s. 158BD
was issued well beyond a reasonable period of time.
Since, the above finding are sufficient to dispose
of the appeal in favour of the appellant, it is
unnecessary to deal with the merits of block assessment
and additions made therein on account of cash allegedly
found to have been recorded against the name of the
appellant.
In the result, the appeal is allowed."
4. It is urged on behalf of the revenue that the finding in the
impugned order in effect mandates a period of limitation, and fetters
the discretion of the AO who deals with their party's case when in fact
no such period of limitation was prescribed for. Learned counsel
relied upon Section 158BE to suggest that the period of limitation
prescribed for completion of block assessment of such third parties
commences only from the issuance of notice and ends two years from
the end of the month from which such notice is served. So viewed,
submitted counsel, the period of limitation in this case was in fact
ended much after the assessment was actually completed in 2007.
5. Learned counsel also sought to make distinction between the
time limit prescribed for completion of assessment in the case of
searched persons which he stated, is governed by Section 158BE(1)
and contrasted the phraseology adopted by that provision with that in
ITA 2055/2010 Page 3
Section 158BE(2). He also relied upon Section 124 to argue that the
jurisdiction of the AO can be questioned only in very limited
circumstances and that the present case did not constitute one such
exception.
6. This Court has considered the submissions. The assessment in
this case, of the person searched, was completed on 29.08.2002. The
drift of reasoning of the CIT (Appeals) and the Tribunal appears to be
that if the AO who deals with the assessment of third parties, like
the assessee in this case were to record his satisfaction, based upon
the materials he goes by in the case of assessee over whom he has
jurisdiction, such satisfaction is to be recorded during the course of
assessment proceedings of the person searched. In other words, the
jurisdiction to issue notice itself under Section 158BD and the
consequent time period prescribed under Section 158BE in respect of
third parties would get defined within the two year time period given
to the AO under Section 158BE(1).
7. This Court finds that such reasoning is sound for the simple
reason that if the disjoined interpretation of Section 158BE suggested
by the revenue were to be adopted, startling and perhaps unintended
consequences would ensue. The period of limitation in respect of the
primary individual, i.e. the searched person is controlled by Section
158BE(1) which is subject to well-defined exceptions under
Explanation (1) to that provision. If the Revenue's logic were to
prevail, while the authority to carry-out assessment in the case of third
parties itself stems-out of a search conducted of the searched person,
the AO (of the searched person) would be left free with untrammelled
ITA 2055/2010 Page 4
discretion to take-up the materials which he deems to be incriminating
and forward to the concerned AO (of the third party) at his will and
pleasure. Surely, such a startling and far-reaching consequence was
not intended. The third reason why this Court rejects the Revenue is
that the dissection of Section158BE in the manner suggested would
mean that Section 158BE(2) would stand on its own without any
period of limitation. Instead of this, the approach of the Tribunal
appears to have been to hold the AO (of the searched person) who
primarily possessed jurisdiction over the subject matter, including the
jurisdiction to record a satisfaction that the third party also had to file
block assessment and was subject to such notice under Section
158BD, to complete the assessment and also to record satisfaction
within the basic period of two years. This interpretation, in the opinion
of the Court, not only furthers the intention of the Parliament, but also
sub-serves the larger public interest in that it places reasonable fetters
upon the jurisdiction of the concerned AO who might otherwise be
left with uncontrolled discretion in such matters. Fourthly, Section
158BE expressly states that the satisfaction is to be recorded by the
AO with respect to the need to issue notice to the third party before he
hands-over possession of books and assets seized or requisitioned, to
the AO of such third party. This too clearly has a reference to the
primary jurisdiction of the AO of the searched person and the
consequential limitation placed upon him to complete assessment
within the period of two years spelt-out under Section 158BE.
8. For the above reasons, this Court holds that there is no
substantial question of law which arises for consideration. The appeal
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is accordingly dismissed.
S. RAVINDRA BHAT
(JUDGE)
RAJIV SHAKDHER
(JUDGE)
FEBRUARY 6, 2014/ajk
ITA 2055/2010 Page 6
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