THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 06.03.2014
+ ITA 902/2007
RAGHAV BAHL ... Appellant
versus
COMMISSIONER OF INCOME TAX CENTRAL REVENUE
BUILDING ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr M.S. Syali, Sr. Adv. with Mr Maayank Nagi,
Ms Husnal Syali Nagi.
For the Respondent : Mr Rohit Madan, Adv. with
Mr P.Roy Choudhry, Mr Akash Vajpai.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This is an appeal under section 260A of the Income-tax Act, 1961
which has been preferred by the assessee against the order passed by the
Income Tax Appellate Tribunal in IT (SS) Appeal No. 106/2006 decided on
31.10.2006 in respect of the block period 1.4.1991 to 03.08.2000. The only
question of law which arises for our consideration in this appeal is as
under:-
"Whether the assessing officer is bound to record satisfaction
within the meaning of section 158BD of the Income-tax Act,
1961 during the process of assessment of the person searched
under section 158BC of the said Act?"
2. With the consent of the parties the above question of law is taken up
for hearing straightway.
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3. There was a search conducted in respect of one Mr Manoj Aggarwal
on 03.08.2000. The block assessment pursuant to the said search was
concluded in respect of the searched person (Mr Manoj Aggarwal) under
section 158BC on 29.08.2002. It would be relevant to point out at this
juncture itself that the terminal date for concluding the block assessment in
respect of the searched person under section 158BE(1)(b) was 30.08.2002.
4. Insofar as the present assessee is concerned, the assessing officer of
the searched person (i.e. Mr Manoj Aggarwal) recorded his satisfaction in
terms of section 158BD on 07.10.2003 and a notice under section 158BC
read with section 158BD was issued to the present assessee on the same
date i.e. on 07.10.2003. That notice was however served on the assessee on
30.9.2004. The block assessment in respect of the appellant/assessee was
concluded on 31.10.2005. The Commissioner of Income-tax (Appeals)
rejected the appellant's appeal on 03.02.2006 and the Income Tax Appellate
Tribunal rejected the appellant's further appeal on 31.10.2006. It is against
that order that the present appeal under section 260A has been filed. It is
evident from the above stated facts that the satisfaction under section
158BD was recorded on 07.10.2003 which was beyond the time stipulated
for completing the block assessment of the searched person. We have
already indicated above that the stipulated time under section 158BE (1)
expired, in respect of the searched person, on 30.08.2002.
5. Mr Syali, the learned senior counsel appearing on behalf of the
appellant/assessee drew our attention to a decision of the Punjab & Haryana
High Court in CIT v. Mridula: (2011) 335 ITR 266 (P&H). In that
ITA 902/2007 Page 2 of 8
decision it was clearly held that the action contemplated under section
158BD of the said Act against a third party to a search, was necessarily to
be initiated during the course of the block assessment proceedings under
section 158BC of the searched person. If the ratio of that decision were to
be applied to the facts of the present case, the initiation of action under
section 158BC insofar as the present appeal is concerned ought to have
been done latest by 29.08.2002 the date on which the block assessment in
respect of the searched person was concluded under section 158BC.
6. The relevant observations of the Punjab & Haryana High Court in
this regard are set out in paragraph 7 of the decision which reads as under:-
"7. Section 158BE of the Act prescribes the time limit for
framing of assessments under sections 158BC and
158BD of the Act. The Assessing Officer of the person
against whom action under section 132 or 132A of the
Act has been taken, is the Assessing Officer who initiates
the proceedings under section 158BD of the Act by
recording satisfaction that any undisclosed income
belongs to such other person so as to take action under
section 158BD of the Act against that person. The Act
nowhere specifically prescribes any time limit or
limitation for initiation of proceedings under section
158BD of the Act or for recording of satisfaction before
taking action under that provision. The plain and
reasonable construction that can be placed on the
aforesaid provision would be that the recording of
satisfaction for taking action against any other person
under section 158BD of the Act has to be between
initiation of proceedings under section 158BC and before
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completion of block assessment under section 158BC of
the Act in the case of the person searched. It would, thus,
means that the action contemplated under section 158BD
of the Act against a third party to a search, is necessarily
to be during the course of block assessment proceedings
under section 158BC of the searched person. It cannot be
after the conclusion of the same as there is no occasion
for an Assessing Officer to examine the seized material
or documents of the searched person when the block
assessment proceedings have concluded and no other
proceedings are pending before him. If any other time
limit is read in the provisions/statute, it shall lead to
anomaly and would be arbitrary and unreasonable. It
could not be read in the provision that where block
assessment under section 158BC of the Act in the case of
an assessee against whom action under section 132 or
132A of the Act had been carried out is finalized, the
Revenue can take action at any time in the absence of any
specific limitation prescribed in the statute. A
construction which leads to such an anomaly should be
avoided."
7. A similar issue came up for consideration before a Division Bench of
this court in the case of CIT v. UmeshChandra Gupta: ITA 2055/2010
which was decided on 06.02.2014. Paragraphs 4,5,6 and 7 of the said
decision are relevant and they are as under:-
"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
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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
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
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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 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-
ITA 902/2007 Page 6 of 8
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. The sum and substance of the decision of the Division Bench of this
court in Umesh Chandra Gupta (supra) is that the jurisdiction to issue the
notice under section 158BD and the consequent time period prescribed
under section 158BE in respect of third parties gets defined within the two
years' time period given to the assessing officer of the searched person
under section 158BE (1) of the said Act. The difference between the
decision of the Division Bench of this court and the decision of the High
Court of Punjab & Haryana is that the terminal date as per the decision of
Division Bench of this Court would be the end of the two-year period
prescribed in section 158BE (1) whereas the terminal date as contemplated
by the Punjab & Haryana High Court would be the date on which the block
assessment is completed in respect of the searched person and that date may
be prior to the terminal date stipulated in section 158BE(1) of the said Act.
ITA 902/2007 Page 7 of 8
9. We have heard the learned counsel for the parties on these aspects
and we find that the issues raised in the present case are entirely covered by
the decision of Division Bench of this court by which we are bound.
Consequently, following the decision in Umesh Chandra Gupta (supra)
the question of law is answered in favour of the assessee by holding that the
assessing officer is bound to record the satisfaction within the meaning of
section 158BD of the Income-tax Act, 1961 within the two-year time period
stipulated in section 158BE(1) of the said Act.
10. In the present case since the satisfaction was recorded beyond that
period, the assessment proceedings are without jurisdiction. Consequently,
the impugned order passed by the Income Tax Appellate Tribunal and, in
fact, the assessment proceedings are quashed/set aside. We make it clear
that, because of the view we have taken on the question of law, we have not
examined the merits of the matter.
11. The appeal is allowed as above but, with no order as to costs.
BADAR DURREZ AHMED, ACJ
SIDDHARTH MRIDUL, J
MARCH 06, 2014
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