Creative Co-Operative Credit Society Limited v. Amal Garg-Dy.commissioner Of Income Tax

C/SCA/22417/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 22417 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ CREATIVE CO-OPERATIVE CREDIT SOCIETY LIMITED....Petitioner(s) Versus AMAL GARG-DY.COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR KETAN H SHAH, ADVOCATE for the Petitioner(s) No. 1MR RK PATEL, ADVOCATE for the Petitioner(s) No. 1 MR KM PARIKH, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI andHONOURABLE MS JUSTICE SONIA GOKANI Date : 26/02/2014 ORAL JUDGMENT(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner, a cooperative society, has challenged a notice dated October 03, 2005 issued by the Deputy Commissioner of Income-tax, Vadodara, on various grounds. Such notice though carries the title of being issued under section 158BD of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), in the body of the notice, it is stated as under : “A search u/s, 132 of the Income-tax Act, 1961 has taken place at business, residential and other premises on 13.08.2002 in your case. Based on seized materials and other facts and as per Provisions of Income-tax Act, assessment of block period (as mentioned above) in your case has to be completed by following special procedure as laid down in Chapter-XIV-B of the Income-tax Act. Therefore, you are hereby given a notice U/S.158BC of the Income-tax Act to furnish a return in the prescribed Form C/SCA/22417/2005 JUDGMENT No.21:1 and verified and signed in accordance with the provisions of Section 140 of the I.T. Act setting forth your total income including the undisclosed income for the block period. The return of income including undisclosed income may please be filed within 45 days of receipt of this notice.” C/SCA/22417/2005 JUDGMENT No.21:1 and verified and signed in accordance with the provisions of Section 140 of the I.T. Act setting forth your total income including the undisclosed income for the block period. The return of income including undisclosed income may please be filed within 45 days of receipt of this notice.” 2. The brief facts are that one Piyush Shroff HUF was subjected to search operations under section 132 of the Act on August 13, 2002. The proceedings under section 158BC of the Act were carried out and completed on August 03, 2004. Long time thereafter, the impugned notice came to be issued against the petitioner on the premise that during such proceedings under section 158BC of the Act, the concerned authority was satisfied that undisclosed income belonged to the present petitioner and that, therefore, the proceedings under section 158BD were called for.was subjected to search operations under section 132 of the Act on August 13, 2002. The proceedings under section 158BC of the Act were carried out and completed on August 03, 2004. Long time thereafter, the impugned notice came to be issued against the petitioner on the premise that during such proceedings under section 158BC of the Act, the concerned authority was satisfied that undisclosed income belonged to the present petitioner and that, therefore, the proceedings under section 158BD were called for. 3. This action is challenged by the petitioner on various grounds. Firstly, that the notice itself demonstrates total non-application of mind. It various grounds. Firstly, that the notice itself demonstrates total non-application of mind. It records that the search operation was carried in case of the present petitioner and that, therefore, the petitioner should furnish a return under section 158BC of the Act. According to the petitioner, these are gross misstatements of facts. The second ground of challenge is that no satisfaction was recorded by the Assessing Officer of Piyush Shroff HUF before the assessment was completed and that, therefore, action against the petitioner under section 158BD of the Act cannot be taken. It was lastly contended that in any case, the action is rather belated. As noted, the proceedings against the searched person completed on August 03, 2004 and after more than a year, the impugned notice came to be issued. 4. In support of his contentions, the learned counsel for the petitioner placed reliance on the following decisions :counsel for the petitioner placed reliance on the following decisions : (i) Commissioner of Income-tax v. Mridula, Prop. Dhruv Fabrics, reported in (2012) 20 taxmann.com 575 (Punj. & Har.). (ii)Manish Maheshwari v. Assistant Commissioner of Income-tax, reported in (2007) 159 TAXMAN 258 (SC). (iii)Chandrakantbhai Amratlal Thakkar v. Deputy Commissioner of Income-tax, reported in (2012) 20 taxmann.com 395 (Guj.).Commissioner of Income-tax, reported in (2012) 20 taxmann.com 395 (Guj.). (iv)KandubhaiVasanjiDesaiv.Deputy Commissioner of Income-tax, reported in (1999) 236 ITR 73 (Gujarat).Commissioner of Income-tax, reported in (1999) 236 ITR 73 (Gujarat). 5. On the other hand the counsel for the Revenue drew our attention to the affidavit-in-reply in which it is stated that reference to search operations against the petitioner and the notice under section 158BC in the impugned notice dated operations against the petitioner and the notice under section 158BC in the impugned notice dated October 03, 2005, were due to typographical errors. The notice was, in essence, under section 158BD of the Act. He further contended that the Assessing Officer had arrived at a satisfaction errors. The notice was, in essence, under section 158BD of the Act. He further contended that the Assessing Officer had arrived at a satisfaction 5. On the other hand the counsel for the Revenue drew our attention to the affidavit-in-reply in which it is stated that reference to search operations against the petitioner and the notice under section 158BC in the impugned notice dated operations against the petitioner and the notice under section 158BC in the impugned notice dated October 03, 2005, were due to typographical errors. The notice was, in essence, under section 158BD of the Act. He further contended that the Assessing Officer had arrived at a satisfaction errors. The notice was, in essence, under section 158BD of the Act. He further contended that the Assessing Officer had arrived at a satisfaction that undisclosed income found during the search belong to the present petitioner. 6. Having thus heard the learned counsel for the parties and having perused the documents on record, it emerges that in the notice itself, the petitioner has been referred to as a person who was subjected to search. He was, therefore, called upon to file return as specified under section 158BC of the Act. Admittedly, the facts were to the contrary. Even if these are explained away as mere typographical errors, such major discrepancies would demonstrate a degree of non-application of mind at the end of a person signing such a notice. We are, however, of the opinion that the notice must fail on far more substantial grounds. 6.1As laid down by the Apex Court in the case of Manish Maheshwari (supra), section 158BD of the Act provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person. The conditions precedent of Manish Maheshwari (supra), section 158BD of the Act provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person. The conditions precedent 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 account 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 158BC against such other person. 6.2In the case of Chandrakantbhai Amratlal Thakkar (supra), this Court observed as under: “13.Section 158BD of the Act mandates that the Assessing Officer of the person with respect to whom search was made should be satisfied that any undisclosed income belongs to any person, other than the person with respect to whom the search was made under section 132 of the Act and it is after recording such satisfaction that the books of account, other documents or assets seized or requisitioned are required to be handed over to the Assessing Officer. In the present case, evidently no such satisfaction has been recorded by the Assessing Officer of the person with respect to whom the search was made, prior to handing over the documents referred to in the aforesaid search was made, prior to handing over the documents referred to in the aforesaid communication. In the circumstances, the basic condition precedent for invoking section 158BD of the Act qua the petitioner basic condition precedent for invoking section 158BD of the Act qua the petitioner has not been satisfied. In the aforesaid premises, in the absence of the basic requirement for invoking section 158BD of the Act being satisfied, the respondent No.2 lacked the jurisdiction to issue such notice the Act being satisfied, the respondent No.2 and as such the impugned notice under section 158BD of the Act cannot be sustained.” 6.3In the case of Mridula, Prop. Dhruv Fabrics (supra), the Punjab and Haryana High Court held that the action contemplated under section basic condition precedent for invoking section 158BD of the Act qua the petitioner has not been satisfied. In the aforesaid premises, in the absence of the basic requirement for invoking section 158BD of the Act being satisfied, the respondent No.2 lacked the jurisdiction to issue such notice the Act being satisfied, the respondent No.2 and as such the impugned notice under section 158BD of the Act cannot be sustained.” 6.3In the case of Mridula, Prop. Dhruv Fabrics (supra), the Punjab and Haryana High Court held that the action contemplated under section 158BD of the Act against a third parson to a search is necessarily to be initiated during the block assessment proceedings of the searched person. 6.4In the case of Padmini M. Nair v. Union of India, reported in (2013) 215 TAXMAN 49 (Guj.), this Court observed that a mere note produced by the revenue cannot be seen as any recording of satisfaction as envisaged under section 158BD of the Act.India, reported in (2013) 215 TAXMAN 49 (Guj.), this Court observed that a mere note produced by the revenue cannot be seen as any recording of satisfaction as envisaged under section 158BD of the Act. 7. In the present case, the Revenue has not produced any evidence to show that the Assessing Officer of the searched person had arrived at a satisfaction during the course of such proceedings that the undisclosed income belong to the present petitioner. In the affidavit-in-reply also, all that is stated is that during the search against the Piyush Shroff HUF, certain incriminating documents were seized, on the basis of which the deponent of the affidavit-in-reply is satisfied that based on the material seized Aakar C/SCA/22417/2005 JUDGMENT from the office of the 'Karta' of HUF, undisclosed income belong to the present petitioner-Cooperative Credit Society. Even in the affidavit-in-reply, it is nowhere stated that such satisfaction was arrived at during the course of proceedings under section 158BC of the Act and that such satisfaction was recorded by the Assessing Officer. Neither in the affidavit-in-reply nor through the documents this vital aspect emerges. The important pre-condition for action under section 158BD of the Act, therefore, having not been satisfied, the action must fail. On this ground, the impugned notice dated October 03, 2005 is quashed. Rule is made absolute. There shall be, however, no order as to costs. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.)