Ramachandran Nair, J v. Based On Information Received About Unaccounted Income

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN THURSDAY, THE 29TH DAY OF MARCH 2012/9TH CHAITHRA 1934 ITA.No. 982 of 2009 ( ) ----------------------- ITA.138/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: ---------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: -------------- M/S.BIMBIS CREAMS AND BAKES, KOCHI, ERNAKULAM. BY ADV. SRI.T.M.SREEDHARAN (SR.) BY ADV. SRI.V.P.NARAYANAN BY ADV. SMT.BOBY M.SEKHAR BY ADV. SMT.NISHA JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29-03-2012, ALONG WITH ITA. 1369/2009, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: ANNEXURE A: COPY OF ASSESSMENT ORDER DT.29.5.2003 FOR THE BLOCK PERIODFROM 1.4.1988 TO 10.3.1999. ANNEXURE B: COPY OF ORDER DT.28.9.2004 OF THE COMMISSIONER OF INCOMETAX(APPEALS). ANNEXURE C: COPY OF ORDER DT.9.5.2008 OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH IN ITA NO.138/COCH/2004. ANNEXURE D: TRUE COPY OF REPORT OF THE COMMISSIONER OF INCOME TAXDT.23.1.2012. ANNEXURE R1(a): TRUE COPY OF NOTICE NO.PAN/UIR B.304/1W2 DATED29.5.2001 ISSUED BY THE DEPUTY COMMISSIONER (INVESTIGATION) OF INCOMETAX, CIRCLE-2, DIVISION-1, ERNAKULAM. TRUE COPY P.S. TO JUDGE C.R.C.N.RAMACHANDRAN NAIR, &K.VINOD CHANDRAN, JJ..................................................................... I.T. Appeal Nos.982 & 1369 of 2009....................................................................Dated this the 29[th] day of March, 2012. JUDGMENT Ramachandran Nair, J. Both the appeals filed by the Revenue are against common orderissued by the Tribunal cancelling a block assessment completed againstthe respondent under Section 158BD of the Income Tax Act(hereinafter called “the Act”) on the ground that the Assessing Officerbefore issuing notice for assessment did not record reasons and that theassessment is also barred by limitation. We have heard Senior counselSri.P.K.R.Menon appearing for the Revenue and Senior counselSri.T.M.Sreedharan appearing for the respondent. 2. First question to be considered is whether the Tribunal wasjustified in cancelling the block assessment confirmed in first appealfor the reason that Assessing Officer has not recorded reasons forissuance of notice for assessment under Section 158BD of the IncomeTax Act (hereinafter called “the Act”). We notice that the Tribunal ITA 982&1369/09 held in favour of the assessee following their order in appeal in the caseof M/s.Panchajanyam Management Agencies case wherein also similarissue arose for consideration. However, Senior counsel appearing forthe Revenue referred to the judgment of this court inCOMMISSIONER OF INCOME TAX VS. PANCHAJANYAMMANAGEMENT AGENCIES & SERVICES reported in (2011) 333ITR 281 wherein this court reversing the order of the Tribunal held thatrecording of reasons under Section 158BD is only for transferring filefrom one officer to another officer which happens when the officersearching an assessee does not have jurisdiction over the otherassessee in respect of whose undisclosed income particulars andevidence are found in the course of search justifying assessment underSection 158BD of the Act. Just going by our decision wherein wereversed the Tribunal's order relied on by them in issuing the impugnedorder we should allow this appeal on this ground by vacating the orderof the Tribunal. However, for the sake of completeness, we proceed toconsider the appeals with reference to the facts of these cases also. 3. Based on information received about unaccounted income ITA 982&1369/09 3. Based on information received about unaccounted income ITA 982&1369/09 earned by a group of concerns basically controlled by one Sri.AbdulGafoor, the department conducted search on 10.3.1999 by issuingseparate search warrants in the name of Bimbis Group of concerns byspecifically authorising search in Bimbis Fast Food, Bimbis Ice Cream,Khaiber Hayath (Sadya) and Lala Fast Food. Under separate searchwarrant the residential premises of Sri.Abdul Gafoor, the personcontrolling the group of business concerns, was also searched on thevery same date. However, it may be noticed that no search warrant wasissued in the name of the respondent-assessee which is a partnershipfirm wherein 95% of the shares were held by Mrs.Souda Gafoor, wifeof Sri.Abdul Gafoor, who is the real owner of the entire businessgroup. One Sri.P.K.Moideen, the only other partner, has only 5%shares in the respondent-firm. No search warrant was issued in thename of the respondent or in the name of both the partners namely,Mrs.Souda Gafoor and Sri.P.K.Moideen. However, since evidenceregarding business and earning of unaccounted income by therespondent-firm were found in the course of search in the residentialand business premises of Sri.Abdul Gafoor, the husband of Mrs.Souda ITA 982&1369/09 Gafoor holding 95% of the shares of the respondent-firm, notice wasissued under Section 158BD against the respondent-firm based onmaterials gathered in search in the business and residential premises ofthe respondent-firm's managing partner's husband. It so happened thatsince the business premises and the residence of Sri.Abdul Gafoor andhis wife Mrs.Souda Gafoor who is the managing partner of therespondent-assessee were one and the same, the Assessing Officer whohas jurisdiction to assess the searched assessees was the same officerwho has jurisdiction to assess the respondent-firm as well. So much so,there was no scope for transfer of file from one Assessing Officerhaving jurisdiction over the searched assessee to another AssessingOfficer for assessment under Section 158BD as both the searchedassessee and the assessee in respect of whom details of suppressedincome were received, were assessable by the same Assessing Officer.Under our orders, the Commissioner of Income Tax has filed a detailedstatement explaining the reason why there was no transfer of file andthe assessment both under Section 158BC against the searchedassessees and under Section 158BD against the respondent were ITA 982&1369/09 completed by the same officer having jurisdiction over both theassessees falling within same Circle. Going by our judgment, whenthe same Assessing Officer has jurisdiction to assess the searchedassessee under Section 158BC and the other assessee under Section158BD whose undisclosed income is also found in the course of suchsearch, there is no necessity for the Assessing Officer to recordsatisfaction as required under Section 158BD because there is notransfer of file from one officer to another. Following our abovejudgment, we allow the appeal on this issue by setting aside the orderof the Tribunal and uphold the assessment under Section 158BD. 4. The next question to be considered is limitation claimed by theassessee and accepted by the Tribunal. Counsel for the assessee reliedon decision of the Punjab and Haryana High Court inCOMMISSIONER OF INCOME TAX Vs. PARVEEN FABRICS (P)LTD. reported in (2011) 198 TAXMAN 463 wherein the Punjab HighCourt held that simultaneous with Section 158BC-assessment initiatedagainst the searched assessee, the department should proceed againstthe other assessees for assessment under Section 158BD. We are ITA 982&1369/09 4. The next question to be considered is limitation claimed by theassessee and accepted by the Tribunal. Counsel for the assessee reliedon decision of the Punjab and Haryana High Court inCOMMISSIONER OF INCOME TAX Vs. PARVEEN FABRICS (P)LTD. reported in (2011) 198 TAXMAN 463 wherein the Punjab HighCourt held that simultaneous with Section 158BC-assessment initiatedagainst the searched assessee, the department should proceed againstthe other assessees for assessment under Section 158BD. We are ITA 982&1369/09 unable to accept this contention because the limitation provided underSection 158BE is for completion of assessment both under Section158BC and under Section 158BD. While Section 158BE(1) deals withlimitation for completion of assessment under Section 158BC, Section158BE(2) provides for limitation for completion of assessment underSection 158BD. Under clause (b) of Section 158BE(2) time forcompletion of assessment under Section 158BC is two years from theend of the month in which notice under this Chapter was served on theperson other than the searched assessee. What is clear from Section158BD is that when a proceeding for assessment is initiated againstany person other than the searched assessee based on materials receivedduring search, such assessment also has to be completed under ChapterXIVB by issuing notice under Section 158BC. In this case admittedlythe assessments of the searched assessees under Section 158BC werecompleted within time and though the assessments were cancelled bythe Tribunal on technical grounds, we have vide judgment in I.T.A.No.1201/2009 and connected cases dated 10.1.2012 allowed thedepartment appeals and restored the appeal back to the Tribunal to ITA 982&1369/09 decide the matter on merit. The assessees in those cases have nodispute that the assessments of the searched assessees completed underSection 158BC were barred by limitation. However, limitation israised only by the respondent-assessee which also forms part of groupof concerns in as much as 95% of the shares of the respondent-firm areheld by none other than the wife of the person controlling the businessof all concerns within the group, on the ground that there is delay ininitiation of proceedings under Section 158BD. 5. We notice that the assessment of the searched assessees in thesame group were completed on 29.3.2001 which was admittedly withinthe period of limitation prescribed. However, only after completion ofassessment of the said assessees, notice was issued under Section158BD on the respondent-assessee on 29.5.2001. The assessment1 wascompleted on the respondent-assessee on 29.5.2003 which is withintwo years from the end of the month in which notice under Section158BD was issued to the respondent-assessee as provided underSection 158BE(2)(b) of the Act. So much so, the assessment underSection 158BD is well within the statutory period with reference to ITA 982&1369/09 date of issuance of notice under Section 158BD. 5. We notice that the assessment of the searched assessees in thesame group were completed on 29.3.2001 which was admittedly withinthe period of limitation prescribed. However, only after completion ofassessment of the said assessees, notice was issued under Section158BD on the respondent-assessee on 29.5.2001. The assessment1 wascompleted on the respondent-assessee on 29.5.2003 which is withintwo years from the end of the month in which notice under Section158BD was issued to the respondent-assessee as provided underSection 158BE(2)(b) of the Act. So much so, the assessment underSection 158BD is well within the statutory period with reference to ITA 982&1369/09 date of issuance of notice under Section 158BD. 6. Relying on the decision in PANCHAJANYAMMANAGEMENT AGENCIES case Senior counsel for the respondent-assessee submitted that the Assessing Officer was bound to initiatesimultaneous proceedings under Section 158BD against therespondent-assessee i.e. along with Section 158BC assessmentsinitiated against the group of concerns searched by the department.Senior counsel for the Revenue submitted that there is no time limitprescribed under the Act for issuance of notice under Section 158BDand according to him, the Assessing Officer has to first complete theassessment that gets time barred first and then proceed to makeassessment under Section 158BD later. Besides finding force in thiscontention, we also feel that it is only on completion of assessmentunder Section 158BC on the searched assessee the Assessing Officercan conclude that the remaining income in respect of which detailswere collected during search could be assessed in the hands of otherassessees. In fact, bifurcation of income relating to searched assesseesand income relating to others will be clear only after determining the ITA 982&1369/09 income of the searched assessees. So much so, in our view, a prudentofficer should first complete assessment under Section 158BC onsearched assessees and thereafter based on the materials available,proceed for assessment under Section 158BD against other assesseesabout whom details were obtained in the course of search. In theabsence of any provision in the Act requiring the department to issuenotice under Section 158BD within a time frame, we do not think thecourt can prescribe any time limit. At the maximum we can declarean assessment arbitrary, if assessment is not initiated within areasonable time which is not the case here because assessment wasinitiated under Section 158BD within two months from completion ofassessment under Section 158BC against searched assessees which wasmade within time. So much so, we hold that the assessment underSection 158BD was initiated within a reasonable time and the same wascompleted within the statutory period of 2 years as contemplated underSection 158BE(2)(b) of the Act. We, therefore, allow the appeal onthis issue as well by reversing the order of the Tribunal and by holdingthat the assessment completed on the respondent under Section 158BD is well within time. In view of the findings above, we set aside theorders of the Tribunal and restore the appeals back to the files of theTribunal with direction to the Tribunal to hear and dispose of theappeals along with the appeals of the group of concerns remanded byus vide judgment above referred. C.N.RAMACHANDRAN NAIRJudge K.VINOD CHANDRANJudge pms