Itta/499/2010 Of Commissioner Of Income Tax-Vi v. Pindi Kamalamma

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN I.T.T.A.No.499 OF 2010 01.10.2010 Between: Commissioner of Income Tax-VI AND …Appellant Pindi Kamalamma …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE RAMESH RANGANATHAN Income Tax Tribunal Appeal No.499 OF 2010 JUDGMENT (Per Hon’ble Sri Justice V.V.S.Rao): This appeal by the revenue through the Commissioner of IncomeTax-VI, Hyderabad, is against the order, dated 25.05.2007, of theIncome Tax Appellate Tribunal (ITAT) in Appeal I.T.(S.S.)A.No.71/Hyd/2005. The appeal is in relation to block assessmentproceedings under Section 158BD of the Income Tax Act, 1961 (theAct, for brevity) for the period 1986-1987 to 1996-1997 in respect of therespondent assessee. The brief fact of the matter is as follows. The officials of IncomeTax Department carried out search and seizure operation underSection 132 of the Act in the premises of Mr.Aditya Builders,Hyderabad. It was found that assessee along with fifteen othersexecuted General Power of Attorney in favour of Sri C.Subhan Reddyin respect of land admeasuring Acs.15.20 guntas in survey Nos.25 and58. The purchaser admitted that he paid an amount of Rs.81 lakhs asconsideration for the land over and above consideration mentioned inregistered document. As the lands were owned by sixteen persons,each individual has one-sixteenth share i.e., Rs.5,32,895/-. As theassessee did not file any return for 1995-1996, the year of transaction,proceedings were initiated under Section 158BD and notice dated13.05.1997 was issued thereunder. The assessee did not respond. Therefore, the Deputy Commissioner of Income Tax, Circle-9(1)completed assessment under Section 144 of the Act determining theundisclosed income of Rs.3,83,225/-. Aggrieved by the same,assessee filed appeal before learned Tribunal. By order, dated18.06.2003, made in I.T.A.Nos.32, 33 and 34/Hyderabad/2002, theappeal was allowed, the matter was set aside and remanded to AO forde novo assessment. Thereafter, the matter was taken up from time totime. The assessee appeared along with representative and opposedthe assessment for the block period inter alia on the ground that theproceedings under Section 158BD of the Act cannot be initiated basedon the information gathered from Sri C.Subhan Reddy obtained during search and seizure operations.Rejecting the same, by order dated 31.03.2005, the DeputyCommissioner completed the assessment determining the tax andinterest payable thereon proposing to take up penalty proceedingsseparately. The same was assailed before the learned Tribunal. Before the learned Tribunal, it was inter alia contended thatproper satisfaction was not recorded during the course of searchoperations, that the assessee evaded payment of tax, and therefore,the proceedings are unsustainable. Accepting the same, the learnedTribunal allowed the appeal and set aside the addition towardsundisclosed income, observing as follows. Sri C.Subhan Reddy obtained during search and seizure operations.Rejecting the same, by order dated 31.03.2005, the DeputyCommissioner completed the assessment determining the tax andinterest payable thereon proposing to take up penalty proceedingsseparately. The same was assailed before the learned Tribunal. Before the learned Tribunal, it was inter alia contended thatproper satisfaction was not recorded during the course of searchoperations, that the assessee evaded payment of tax, and therefore,the proceedings are unsustainable. Accepting the same, the learnedTribunal allowed the appeal and set aside the addition towardsundisclosed income, observing as follows. The question that arises for consideration is whether therecan be any undisclosed income in the hands of the presentassessees. Admittedly, the search was carried out on 5-8-1996 in the business premises of M/s.Aditya Builders. TheAO found that 16 persons including the present assesseesexecuted General Power of Attorney in favour of SriC.Subhan Reddy for sale of land consisting of 15 Ac.20guntas. It appears, Sri Subhan Reddy admitted that he paid anamount of Rs.81 lakhs for acquiring the above said land. Theabove said consideration was also recorded in the registereddocument. The claim of the assessees before the lowerauthorities was that they received Rs.1,00,000/- each towardssale consideration in respect of their share of the land.However, the statement recorded from Sri Subhan Reddyshows that they received Rs.5,00,000/- in total. It is not indispute that no seized material was referred to in the orders ofthe lower authorities. For the purpose of completing blockassessment, the lower authorities are bound to record afinding how the undisclosed income is relatable to materialseized during the course of search operation or informationcollected subsequently which is relatable to the seizedmaterial. The AO proceeded on the basis of the statementrecorded during the re-assessment proceedings on 23-3-2005. We find that the apex Court, in the case of ManishMaheswari v ACIT and another, 289 ITR 311, found that for the purpose of making an assessment under Section 158BD,the officer who is in charge of search operation has to recorda satisfaction that the material found during the course ofsearch is relatable to the person and thereafter transfer thematerial to the concerned Assessing Officer for the purposeof proceeding under Section 158BD of the Income Tax Act. Inthe absence of any such satisfaction, which is mandatory, theapex Court held that the entire proceedings would be invalid. Learned senior standing counsel for IT Department does notdispute the ratio laid down in Manish Maheshwari v AssistantCommissioner of Income Tax[[1]]. The said case deals withinterpretation of Section 158BC. After referring to various provisions ofthe Act, Supreme Court observed as under (para 11 of SCC). Condition precedent for invoking a block assessment isthat a search has been conducted under Section 132, ordocuments or assets have been requisitioned under Section132-A. The said provision would apply in the case of anyperson in respect of whom search has been carried out underSection 132 or documents or assets have been requisitionedunder Section 132-A. Section 158-BD, however, provides fortaking recourse to a block assessment in terms of Section158-BC in respect of any other person, the conditionsprecedents wherefor are: (i) satisfaction must be recorded bythe assessing officer that any undisclosed income belongs toany person, other than the person with respect to whomsearch was made under Section 132 of the Act; (ii) the booksof accounts or other documents or assets seized orrequisitioned had been handed over to the assessing officerhaving jurisdiction over such other person; and (iii) theassessing officer has proceeded under Section 158-BCagainst such other person. While dealing with the condition precedent for invoking theprovisions of Section 158BD, their Lordships held that, “the aboveconditions are required to be satisfied before the provisions of the saidChapter are applied in relation to any person other than the personwhose terms has been searched or whose documents and otherassets had been requisitioned under Section 132A of the Act”. Whilereiterating that taxing statute must be construed strictly, the apex Courtfurther observed (paras 16 and 17 of SCC). Law in this regard is clear and explicit. The onlyquestion which arises for our consideration is as to whetherthe notice dated 6-2-1996 satisfies the requirements ofSection 158-BD of the Act. The said notice does not recordany satisfaction on the part of the assessing officer.Documents and other assets recovered during search hadnot been handed over to the assessing officer havingjurisdiction in the matter. … No proceeding under Section 158-BC had been initiated. There is, thus, a patent non-applicationof mind. A prescribed form had been utilised. Even the statusof the assessee had not been specified. It had only beenmentioned that the search was conducted in the month of November 1995. No other information had been furnished.The provisions contained in Chapter XIV-B are drastic innature. It has draconian consequences. Such a proceedingcan be initiated, it would bear repetition to state, only if a raid isconducted. When the provisions are attracted, legalpresumptions are raised against the assessee. The burdenshifts on the assessee. Audited accounts for a period of tenyears may have to be reopened. The Tribunal followed the binding precedent while dismissingappeal of revenue, and therefore, no question of law would arise in thisappeal. The appeal, therefore, is dismissed. No costs. __________________ (V.V.S.RAO, J) 01.10.2010Pln ______________________________ (RAMESH RANGANATHAN, J) [1](2007) 3 SCC 794