Ita/55/2015 Of Commissioner Of Income Tax Gurgaon v. Anupam Nagalia

IN THE HIGH COURT OF PUNJAB AND HARYANAATCHANDIGARH ITA No.585 of 201Date of decision:January 06, 2016 Commissioner of Income lax, Gurgaon ....- Appel Shri Anupam Nagalhi .... Responde CORAM: HON’BLE MR. JUSTICEK AJAY KUMAR MITTALHON’BLE MRS. JUSTICEK RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see thejudgment? 2. To be referred to the Reporters or not?YES3. Whether the judgment should be reported 1n the Digest Present: Mr. Tejinder K.Joshi, Advocate for the appellant.| Mr. C.S.Aggarwal, Advocate with Mr. Prakash Kumar and_|Mr. Ashim Aggarwal, Advocates for the respondent. | Ajay Kumar Mittal,J. l.This appeal has been filed by the appellant-revenue underSection 260A of the Income Tax Act, 1961 (in short, “the Act’) againstthe order dated 11.7.2014, Annexure A.3 passed by the Income Tax ITA No.55 of 2015 Appellate Tribunal, Bench ‘A’, New Delhi (in short, “the Tribunal’’) inITCSS) No.36/Del/2010 for the block period 1.4.1997 to 8.5.2003,claiming following substantial questions of law:- "1. Whether 1n the facts and circumstances of the case, thelearned ITAT has erred in law in dismissing the appeal ofthe revenue on the ground that proceedings under section1SSBD in the case of assessee have been initiated on thebasis of satisfaction made from the seized materials foundas a result of search conducted on the assessee and thus theproceedings under section 158BD were not valid? 2. Whether in the facts and circumstances of the case, thelearned I'TAT has erred in law by not appreciating that thname of the assessee was not appearing in the searchwarrant executed on 8.5.2003 at his residence (which wascontaining name of Vatika Group of entities namely M/sVatika Landbase Pvt. Limited, S/Shri Anil Bhalla, GauravBhalla and Gautam Bhalla) and thus the assessee has notbeen covered under section 132(1) of the IT Act, 1961? 3. Whether in the facts and circumstances of the case, thelearned ITAT has erred in law by not appreciating thatproceedings under section 158BD have been initiated 1n thecase of assessee on the basis of satisfaction made tromseized material found as a result of search conducted in thecases of the entities of Vatika Group?” D A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. A search and seizure operation was conducted at the residence of the respondent-assessee - ITA No.55 of 2015 Jurisdiction over Vatika group of companies recorded satisfaction 1n thecase of the assessee and notice under section ISSBD of the Act was1ssued to the assessee on 31.5.2005. The assessee filed his return undersection I58BD of the Act declaring nil income. The copy of thesatisfaction note was provided to the assessee. Undisclosed income of=1,89,53,900/- was assessed under section IS8BD read with section15X8BC of the Act on the basis of documents seized from the assessee'residence by the Assessing Officer vide order dated 21.5.2007,Annexure A.|. The assessee filed appeal before the Commissioner ofIncome Tax (Appeals) [CIT(A)]. It was pleaded by the assessee thathis case should have been assessed under Section 158BC of the Actand not under Section 1SSBD of the Act as he had been covered underSection 132(1) of the Act and proceedings under section 158BC of theAct had become barred by limitation on 31.5.2005. Even theundisclosed income assessed by the Assessing Officer was based on thedocuments seized from his own residence during the search and seizureoperation. Thus, the Assessing Officer was not having jurisdiction toassess his case under section I58BD of the Act. In the remand reportbefore the CIT(A), 1t was submitted by the Assessing Officer that theassessee had complied with the notice under section 158BD of the Act, The assessee did not raise any objection on the issue of blockassessment under sections 158BD or I58BC of the Act and had onlyobjected to the initiation of proceedings under section I158BD of th The assessee did not raise any objection on the issue of blockassessment under sections 158BD or I58BC of the Act and had onlyobjected to the initiation of proceedings under section I158BD of th ITA No.55 of 2015Adated 14.6.2010, Annexure A.2 held that proceedings initiated undersection 158BD of the Act were not legal as the assessee was coveredunder section 132(1) of the Act and should have been assessed undersection 158BC and not under Section 158BD of the Act. Aggrieved bythe order, the department filed appeal before the Tribunal. It waspleaded by the department that the name of the assessee was notappearing in the search warrant under section 132(1) of the Act. Thesearch warrant was issued in the name of M/s Vatika Landhbase PvtLimited, S/Shri Anil Bhalla, Gaurav Bhalla and Gautam Bhalla. Theassessee submitted that once the search team entered his premises, hewas covered under section 132(1) of the Act and thus proceedingsshould have been initiated under section 15S8BC of the Act. Theassessee also questioned the merit of the satisfaction note. TheTribunal vide order dated 11.7.2014, Annexure A.3 dismissed theappeal filed by the department holding that the assessee had objected tothe validity of the proceedings before the Assessing Officer. TheTribunal relied upon the observation of the learned CIT(A) that thesatisfaction note had been framed on the basis of documents found andseized from the assessee whereas according to the appellant-revenue, torecord satisfaction under section 1S58BD of the Act, these documentcould not form the basis. Hence the instant appeal by the revenue. 3.We have heard learned counsel for the parties. ITA No.55 of 2015 673 dealing with the issue regarding recording of satisfaction note forpurposes of Section 158BD of the Act had remanded the case to theTribunal. Further, this Court while examining identical issue in ITANo.591 of 2009 decided on 10.4.2015 (CIT 1, Ludhiana vs. MridulaProp. M/s Dhruyv Fabrics, Ludhiana)remanded the matter to theTribunal.4.On the other hand, learned counsel for the assessee-respondent submitted that the satisfaction note was not recorded till27.1.2006 as it was not produced when it was asked for. Thesatisfaction note dated 31.5.2005, 1f any, was antedated. No explanationhad been tendered by the revenue for not producing the allegedsatisfaction note earlier. Reliance was placed upon judgment of theApex Court 1n|State ofAndhra Pradesh vs. M.Ramakishtaiah & Co.,(1994) 93 STC 406. It was urged that presumption was that nosatisfaction had ever been recorded by the revenue. It was further urgedthat infact the alleged satisfaction note was recorded on 27.1.2006 bythe Assessing Officer of the person having jurisdiction over theassessee and not of the searched person which 1s sine qua nonforassumption ofjurisdiction under Section 158BD of the Act. 6.In|Calcutta Knitwears Limited'scase (supra), the Apex ITA No.55 of 2015 Jurisdiction over such other person. [The satisfaction note could bprepared at either of the following stages :(a) at the time of oralongwith the initiation of proceedings against the person againstwhom search was conducted under Section 158BC of the Act; (b)alongwith the assessment proceedings under section 158BC of the Act;and (c) immediately after the assessment proceedings are completedunder Section 158BC of the Act of the person against whom search wasconducted. It was observed thus:- 6.In|Calcutta Knitwears Limited'scase (supra), the Apex ITA No.55 of 2015 Jurisdiction over such other person. [The satisfaction note could bprepared at either of the following stages :(a) at the time of oralongwith the initiation of proceedings against the person againstwhom search was conducted under Section 158BC of the Act; (b)alongwith the assessment proceedings under section 158BC of the Act;and (c) immediately after the assessment proceedings are completedunder Section 158BC of the Act of the person against whom search wasconducted. It was observed thus:- “41. We would certainly say that before initiating proceedingsunder.Section 1SSBDof the Act, the assessing officer who has|initiated proceedings for completion of the assessments underSection 1S58Bot the Act should be satisfied that there is anlundisclosed income which has been traced out when a personwas searched underSection 1] or the books of accounts wererequisitioned under Section 132Aoft the Act. This 1s incontrast to the provisions ofSection 148ot the Act whererecording of reasons in writing are a sine qua non. UnderSection 158BDthe existence of cogent and demonstrativematerial 1s germane to the assessing officers’ satisfaction inconcluding that the seized documents belong to a person otherthan the searched person 1s necessary for initiation of actionunderSection 1S8BD. The bare reading of the provisionindicates that the satisfaction note could be prepared by theassessing officer either at the time of initiating proceedings forcompletion of assessment of a searched person under Section1LS8Sof the Act or during the stage of the assessmentproceedings. It does not mean that after completion of theassessment, the assessing officer cannot prepare thesatisfaction note to the effect that there exists income taxbelonging to any person other than the searched person in respect of whom a search was made underSection 132OTrequisition of books of accounts were made underSection1L3Bof the Act. The language of the provision is clear andunambiguous. The legislature has not imposed any embargoon the assessing officer in respect of the stage of proceedingsduring which the satisfaction 1s to be reached and recorded inrespect of the person other than the searched person. 42. Further,Section 158BE(2)(b)only provides for the periodof limitation for completion of block assessment undersectionLS8SBin case of the person other than the searched person astwo years from the end of the month 1n which the notice underthis Chapter was served on such other person in respect ofsearch carried on after 01.01.1997. The said section doesneither provides for nor imposes any restrictions or conditionson the period of limitation for preparation the satisfaction noteunder|Section 1SSBDand consequent issuance of notice to theother person. 43. In the lead case, the assessing officer had prepared asatisfaction note on 15.07.2005 though the assessmentproceedings in the case of a searched person, namely, S.K,Bhatia were completed on 30.03.2005. As we have alreadynoticed, the Tribunal and the High Court are of the opinionthat since the satisfaction note was prepared after theproceedings were completed by the assessing officer underSection 1SSBCof the Act which 1s contrary to the provisionsof|Section |1S5Sread withSection I58BE(2)(b)andtherefore, have dismissed the case of the Revenue. In ourconsidered opinion, the reasoning of the learned Judges of theHigh Court 1s contrary to the plain and simple languageemployed by the legislature under|Section 1SSBDof the Actwhich clearly provides adequate flexibility to the assessingofficer for recording the satisfaction note after the completionof proceedings in respect of the searched person underSection1SSBC. Further, the interpretation placed by the Courts below by reading into the plain language ofSection IS58BE(2)(bsuch as to extend the period of limitation to recording ofsatisfaction note would run counter to the avowed object ofintroduction of Chapter to provide for cost- effective, efficientand expeditious completion of search assessments andavoiding or reducing long drawn proceedings. 44. In the result, we hold that for the purpose of|Section1SSBDof the Act a satisfaction note 1s sine qua non and mustbe prepared by the assessing officer before he transmits therecords to the other assessing officer who has jurisdiction oversuch other person. The satisfaction note could be prepared ateither of the following stages: (a) at the time of or along with the initiation of proceedingsagainst the searched person underSection 158BCof the Act;(b) along with the assessment proceedings under |Section1SSBCof the Act; and (c) immediately after the assessmentproceedings are completed under,Section 1S8BCot the Act ofthe searched person. 45. We are informed by Shri Santosh Krishan, who 1sappearing in seven of the appeals that the assessing officer hadnot recorded the satisfaction note as required under|Section1SSBDof the Act, therefore, the Tribunal and the High Courtwere justified in setting aside the orders of assessment and theorders passed by the first appellate authority. We do not intendto examine the aforesaid contention canvassed by the learnedcounsel since we are remanding the matters to the High Courtfor consideration of the individual cases herein in light of theobservations made by us on the scope and _ possibinterpretation ofSection 1SSBDot the Act. 46. With these observations, the appeals are disposed of. Thematters are remanded to the respective High Courts fordeciding the matters afresh after affording an opportunity ofhearing to the parties.Ordered accordingly.” Ty.This Court 1n Mridula Prop. M/s Dhgruy Fabrics, Ludhiana'scase (supra) following the judgment of the Apex Court inCalcuttaknitwears Limited'scase (supra) recorded thus:- “10. Mr. Mittal and Mr. Jain, learned counsel appearing onbehalf of the respondents in these appeals rightly agreed that inview of the judgment of the Supreme Court the AssessingOfficer was entitled to record his satisfaction even after theassessment proceedings were completed underSection 1S5S8of the Act of the searched person. They, however, contendedthat the satisfaction must be recorded not at any time after theassessment proceedings are completed undersection 1S8BCofthe Act of the searched person but immediately thereafter, 11. The question that falls for our consideration, therefore, 1sthe meaning of the words “immediately after" 1n the judgment,The Supreme Court did not specify any outer limit. In our view,the words indicate that the satisfaction note must be prepared assoon as practicably possible and without undue delay after theassessment proceedings are completed undersection 1S58Softhe Act of the searched person. This must necessarily dependupon the facts of each case. We do not read the words"immediately after" to mean something as drastic or rigid as thevery next moment or even the very next day or even week afterthe completion of the assessment proceedings under section158 BC of the searched person. The error in the respondent'ssubmission 1s in reading the words "immediately after" sorigidly arisen on account of considering them in isolationinstead of reading the judgment as a whole. For instance, inparagraph 43, the Supreme Court observed:- KSection 1SSBDof the Act which clearly provides adequateflexibility to the assessing officer for recording theSatisfaction note after the completion of proceedings inrespect of the searched person under Section 158BC"(emphasis supplied). KSection 1SSBDof the Act which clearly provides adequateflexibility to the assessing officer for recording theSatisfaction note after the completion of proceedings inrespect of the searched person under Section 158BC"(emphasis supplied). 12. It 1s neither possible nor necessary to have any strictformula in this regard. For instance, there may be cases whereafter the assessment proceedings are completed undersection158-BCof the Act of the searched person, the Assessing Officeris indisposed for some reason such as on the ground of health,It would not be unreasonable if the satisfaction 1s recorded soonafter he recovers. The Assessing Officer may have enormousburden of work upon completing the assessment proceedingsunderSection 158-BCof the Act. It would be permissible 1f hetook some time after completing such pending work to preparethe satisfaction note. Each case must be judged upon its ownfacts. 13. Our view 1s supported by the judgment of a Division Benchof this Court dated 14.02.2011 1n Income Tax Appeal No. 147of 2010Commissioner of Income Tax, Faridabad v. M/s OmParkashand sons. The Division Bench held as under::- "LT. cecccsecssssssseeseeee AS regards delay in issuing notice tothe assessee, we find merit in the contention that it was acase which involved a huge fraud of tax evasion wherebusiness of searched person was to give accommodationentries resulting in tax evasion to the extent of Rs.132Crores in total, spread over the cases of various assesses 1nall over India. The coordination by the assessing officer ofthe searched person was time consuming aftair. In thesecircumstances, delay cannot be held to be unreasonableand cannot be held to vitiate the assessment. No doubtonce satisfaction 1s formed during block assessment ofsearched person, action must be promptly taken assubmitted on behalf of the assessee and as held by theGujarat High Court in Khandubhai Vasanji Desai andothers Vs. DCIT and another (1999) 236 ITR 73. Whetheror not action was prompt depends upon circumstances ofeach case." 14. In the present case, the notices were issued to about 70 persons on the documents seized from the Bhatia Group. TheAssessing Officer, therefore, had to take action against the 70persons on account of the same search operation underSection132of the Act. He could not possibly do so the same day oreven by the next day. The paperwork in such cases 1s itselfenormous. Moreover, this presumably was not the only workthat the Assessing Officer had. A period of three and a halfmonths in the facts of this case was entirely reasonable. Therespondent is in any event not preyudiced on account of thesatisfaction having been prepared thereafter, In these circumstances, the appellant having taken three and ahalf months to record his satisfaction cannot be held to beunreasonable. 15. The appellant contended that the satisfaction was recordedon 15.07.2005. If that 1s established, as held earlier, it issufficient compliance with the provisions ofSection 158-BDofthe Act. The respondents, however, contended that there wasnever any satisfaction recorded at all. The orders of theAssessment Officer and of C.I.T. (Appeals) refer to thesatisfaction note of 15.07.2005. The issue as to whether thesame 1S genuine as contended by the appellant or fabricated andfalse as contended by the respondents may be considered by theTribunal. 16. All the appeals are accordingly allowed. The question oflaw 1s answered in favour of the appellant. The appeals arerestored to the file of the ITAT and shall be decided on-meritsby the Tribunal. There shall be no order as to costs.” 8 8In the present case, the Tribunal being a final fact findingauthority had not recorded any finding with regard to the recording ofsatisfaction note on 31.5.2005. Further, nothing was observed whetherthe satisfaction note dated 31.5.2005, if any, produced by the revenue ITA No.55 of 2015 16. All the appeals are accordingly allowed. The question oflaw 1s answered in favour of the appellant. The appeals arerestored to the file of the ITAT and shall be decided on-meritsby the Tribunal. There shall be no order as to costs.” 8 8In the present case, the Tribunal being a final fact findingauthority had not recorded any finding with regard to the recording ofsatisfaction note on 31.5.2005. Further, nothing was observed whetherthe satisfaction note dated 31.5.2005, if any, produced by the revenue ITA No.55 of 2015 was antedated or not. In such circumstances, the matter requires to beremanded to the I[ribunal to examine it afresh and record a reasonbased finding. It shall be open to the parties to raise all the pointsbefore the Tribunal who shall adjudicate the matter expeditiously. Thesubstantial questions of law are answered accordingly. The appealstands disposed of, (Ajay Kumar Mittal)Judge January U6, 20167* 7 CRay] Rahul Garg)Judge