Commissioner Of Income Tax-1,Ludhiana v. Ramesh Kumar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income Tax Appeal No. 171 of 2011Date of decision: 19.7.2011 Commissioner of Income Tax-1,Ludhiana --- Appellant Versus Ramesh Kumar, Proprietor M/s. R.S. Kundra Hosiery, Ludhiana --- Respondent CORAM:HON’BLE MR. JUSTICE ADARASH KUMAR GOELACTING CHIEF JUSTICEHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Rajesh Katoch, Standing Counselfor the appellant-revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-TaxAct, 1961 (for short “the Act”) has been filed by the Revenueagainst the order dated 25.06.2010, passed by the Income TaxAppellate Tribunal Chandigarh Bench ‘B’, Chandigarh (in short“the Tribunal”) in ITSS(A) No. 5/CHANDI/2010, for the blockperiod from 01.04.1998 to 05.02.2003. 2.The following substantial question of law has beenclaimed for determination of this Court: “Whether on the facts and in law, the Hon’bleIncome Tax Appellate Tribunal was justified inholding the recording of satisfaction u/s 158BD bythe Assessing Officer of the person searched andconsequent issuance and service of notice u/s158BD on 08.12.2005 was belated and beyond theperiod prescribed by law when the section 158BDread with section 158BE does not specify thatsatisfaction has to be recorded by the AssessingOfficer before completion of assessment u/s 158BCof the Income Tax Act, 1961.” 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee is anindividual who is carrying on business of manufacturing ofhosiery goods. On 05.02.2003, a search operation u/s 132 (1) ofthe Act was carried out at the residence of one S.K. Bhatia, ayarn dealer. During the course of the search, certain loosedocuments were seized which related to two businessconcerns of S.K. Bhatia viz. M/s. Swastik Trading Co., and M/sKavita International agencies. It was found that the entriesrecorded in those documents had not been incorporated inthe books of account of the aforesaid two concerns. It wasrevealed from the seized documents that the assessee hadmade purchases worth Rs. 7,44,900/- from M/s. Swastik Trading co. and of Rs. 2,24,000/- from M/s Kavita International Agencieson different dates during the financial years 2001-02 and 2002-03. 4.The Assessing officer, Central Circle II, Ludhianahaving jurisdiction over the cases of Bhatia group, onexamination of the matter sent his satisfaction u/s 158BD of theAct in the case of the present assessee for the block periodfrom 01.04.1998 to 05.02.2003 on 15.7.2005. The blockassessment in the case of Bhatia group of companies wascompleted on 30.3.2005. After service of relevant notice andcompletion of other legal formalities the undisclosed income ofthe assessee for the block period aforesaid was computed atRs. 8,81,830/-. Accordingly, the block assessment was finalizedat the aforesaid undisclosed income, vide order u/s 158BCread with section 158BD of the Act, on 18.12.2007. 5.The Commissioner of Income Tax (Appeals) [for short“the CIT(A)”], on an appeal being filed by the respondent-assessee observed vide order dated 27.1.2010 that assumptionof jurisdiction by the assessing officer u/s 158BD of the Act andthe proceedings initiated pursuant thereto were renderedinvalid and void as the block assessment orders in the case ofBhatia group of cases were passed on 30.3.2005 whereas thesatisfaction note in the case of the assessee was recorded on15.7.2005 as per assessment order. 6. The Tribunal on appeal carried by the Revenue,upheld the order passed by the CIT(A) and consequentlydismissed the appeal vide the order under appeal. 7. This is how the Revenue is in appeal before us. 5.The Commissioner of Income Tax (Appeals) [for short“the CIT(A)”], on an appeal being filed by the respondent-assessee observed vide order dated 27.1.2010 that assumptionof jurisdiction by the assessing officer u/s 158BD of the Act andthe proceedings initiated pursuant thereto were renderedinvalid and void as the block assessment orders in the case ofBhatia group of cases were passed on 30.3.2005 whereas thesatisfaction note in the case of the assessee was recorded on15.7.2005 as per assessment order. 6. The Tribunal on appeal carried by the Revenue,upheld the order passed by the CIT(A) and consequentlydismissed the appeal vide the order under appeal. 7. This is how the Revenue is in appeal before us. 8. The issue that arises for consideration in this appeal is,whether proceedings under Section 158BD of the Act would bevalid where satisfaction recorded in the case of the assessee isafter the block assessment proceedings under Section 158BCof the Act in the case of the searched person had alreadybeen finalized? 9. Learned counsel for the revenue did not dispute thatidentical issue came up for consideration before this court inCommissioner of Income Tax vs. Mridula, Prop. Dhruv Fabrics,(2011) 335 ITR 266 (P&H) which was decided against therevenue and the appeal was dismissed. After analyzing theprovisions u/s 158BD and 158BE of the Act, it was held asunder:- “According to plain reading of Section 158BD ibid,the assessing officer, while framing assessment of anassessee under Section 158BC of the Act againstwhom action has been taken under Section 132 or132A of the Act, is mandatorily required to recordsatisfaction before action can be initiated underSection 158BD of the Act against such other person.In other words, the satisfaction by the assessingofficer making assessment under Section 158BC of the Act, in the case of the person searched, thatthere is certain undisclosed income as a result ofexamination of seized material which belongs tosome other identified person, is essential forassuming jurisdiction under Section 158BD of the Act.The satisfaction required to be recorded is primafacie satisfaction and is not firm or conclusivesatisfaction at that stage. Section 158BE of the Act prescribes time limitfor framing of assessments under Section 158BC and158BD of the Act. The assessing officer of the personagainst whom action under Section 132 or 132A ofthe Act has been taken, is the assessing officer whoinitiates the proceedings under Section 158BD of theAct by recording satisfaction that any undisclosedincome belongs to such other person so as to takeaction under Section 158 BD of the Act against thatperson. The Act nowhere specifically prescribes anytime limit or limitation for initiation of proceedingsunder Section 158BD of the Act or for recording ofsatisfaction before taking action under thatprovision. The plain and reasonable constructionthat can be placed on the aforesaid provisionwould be that the recording of satisfaction for takingaction against any other person under Section158BD of the Act has to be between initiation of proceedings under section 158BC and beforecompletion of block assessment under Section158BC of the Act in the case of the person searched.It would, thus, mean that the action contemplatedunder Section 158BD of the Act against a third partyto a search, is necessarily to be during the course ofblock assessment proceedings under Section 158BCof the searched person. It cannot be after theconclusion of the same as there is no occasion foran assessing officer to examine the seized materialor documents of the searched person when theblock assessment proceedings have concluded andno other proceedings are pending before him. If anyother time limit is read in the provisions/statute, itshall lead to anomaly and would be arbitrary andunreasonable. It could not be read in the provisionthat where block assessment under Section 158 BCof the Act in the case of an assessee against whomaction under Section 132 or 132A of the Act hadbeen carried out is finalized, Revenue can takeaction at any time in the absence of any specificlimitation prescribed in the statute. A constructionwhich leads to such an anomaly should be avoided.10. In view of the above, no substantial question of lawas claimed by the Revenue arises and finding no merit in theappeal, the same is accordingly dismissed. Income Tax Appeal No. 171 of 2011 7 (AJAY KUMAR MITTAL) JUDGE July 19, 2011*rkmalik* (ADARASH KUMAR GOEL) ACTING CHIEF JUSTICE