The Commissioner Of Income Tax-Iii,Ludhiana v. M/S. Fashion Fabricsludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 553 of 2010Date of decision: 6.12.2010 The Commissioner of Income Tax-III,Ludhiana --- Appellant Versus M/s. Fashion FabricsLudhiana --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Denesh Goyal, Standing Counselfor the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the Revenue against theorder dated 31.12.2009, passed by the Income Tax Appellate TribunalChandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in IT (SS)No. 25/CHANDI/2009, relating to the block period from 1.4.1996 to5.2.2003. The following substantial question of law has been claimedby the Revenue for determination of this Court: “Whether on the facts and in the circumstances of thecase, the Hon’ble ITAT is justified in holding that therecording of satisfaction u/s 158BD of I.T. Act, by theAssessing Officer of the person searched and consequentissuance of notice u/s 158BD on 27.4.2006, was belatedand beyond the period prescribed by law when the section158BD of I.T Act does not specify any period within whichthe notice is required to be issued.” The facts, in brief, necessary for adjudication, as narratedin the appeal are that during the course of a search operation underSection 132 of the Act, carried out at the premises of Sh. S.K. Bhatiaand M/s. Swastik Trading Company on 5.2.2003, certain incriminatingdocuments pertaining to the present assessee were seized. As aresult, the Assessing Officer issued notice under Section 158BC(c)read with Section 158BD to the assessee in response to which theassessee filed return for the block period from 1.4.1996 to 5.2.2003declaring its income as ‘nil’. The assessment under the provisionsaforesaid was completed and undisclosed income of the assesseewas computed at Rs. 7,38,770/-, vide order dated 29.5.2008. TheCommissioner of Income-tax (Appeals) {in short “the CIT(A)”}, onappeal preferred by the assessee vide order dated 13.8.2009 held thatthe notice under reference issued by the Assessing Officer and thesubsequent proceedings were invalid and void. The Tribunal upheldthe order of the CIT(A) and dismissed the appeal of the Revenue videthe order under appeal. We have heard learned counsel for the appellant and have perused the record. The issue for consideration in this case is, whether thesatisfaction under Section 158BD of the Act, required for initiatingaction against the assessee on the basis of the person searched is tobe recorded during the course of block assessment proceedings of thesearched person or not. The issue is no longer res integra. This Court in Income Tax Appeal No. 591 of 2009 (Commissioner of Income Tax,Ludhiana vs. Mridula, Prop. M/s. Dhruv Fabrics, Ludhiana),decided on 20.7.2010, came to consider the aforesaid issueelaborately. This Court after analyzing the relevant provisions in the abovequoted case, held as under: “According to plain reading of Section 158BD ibid, theassessing officer, while framing assessment of anassessee under Section 158BC of the Act against whomaction has been taken under Section 132 or 132A of theAct, is mandatorily required to record satisfaction beforeaction can be initiated under Section 158BD of the Actagainst such other person. In other words, the satisfactionby the assessing officer making assessment under Section158BC of the Act, in the case of the person searched, thatthere is certain undisclosed income as a result ofexamination of seized material which belongs to someother identified person, is essential for assumingjurisdiction under Section 158BD of the Act. Thesatisfaction required to be recorded is prima facie satisfaction and is not firm or conclusive satisfaction at thatstage. satisfaction and is not firm or conclusive satisfaction at thatstage. Section 158BE of the Act prescribes time limit forframing of assessments under Section 158BC and158BD of the Act. The assessing officer of the personagainst whom action under Section 132 or 132A of the Acthas been taken, is the assessing officer who initiates theproceedings under Section 158BD of the Act by recordingsatisfaction that any undisclosed income belongs to suchother person so as to take action under Section 158 BD ofthe Act against that person. The Act nowhere specificallyprescribes any time limit or limitation for initiation ofproceedings under Section 158BD of the Act or forrecording of satisfaction before taking action under thatprovision. The plain and reasonable construction that canbe placed on the aforesaid provision would be that therecording of satisfaction for taking action against any otherperson under Section 158BD of the Act has to be betweeninitiation of proceedings under section 158BC and beforecompletion of block assessment under Section 158BC ofthe Act in the case of the person searched. It would, thus,mean that the action contemplated under Section 158BDof the Act against a third party to a search, is necessarilyto be during the course of block assessment proceedingsunder Section 158BC of the searched person. It cannot beafter the conclusion of the same as there is no occasionfor an assessing officer to examine the seized material or documents of the searched person when the blockassessment proceedings have concluded and no otherproceedings are pending before him. If any other time limitis read in the provisions/statute, it shall lead to anomalyand would be arbitrary and unreasonable. It could not beread in the provision that where block assessment underSection 158BC of the Act in the case of an assesseeagainst whom action under Section 132 or 132A of the Acthad been carried out is finalized, Revenue can take actionat any time in the absence of any specific limitationprescribed in the statute. A construction which leads tosuch an anomaly should be avoided.” Admittedly, in the present case the block assessment orderhad been passed in the case of Sh. S.K. Bhatia on 31.3.2005 at totalundisclosed income of Rs. 3,16,70,287/- and M/s. Swastik TradingCompany on 31.3.2005 at an undisclosed income of Rs.14,35,57,465/-. The satisfaction recorded for initiating theproceedings under Section 158BD of the Act by the assessing officerafter the searched person was communicated by the assessing officerIn-charge of the assessee on 3.3.2006 and notice under Section158BC read with Section 158BD of the Act was issued on 27.4.2006.The learned counsel for the Revenue could not show that satisfactionfor taking action against the assessee had been recorded prior to31.3.2005 i.e. the passing of the block assessment in the case of thesearched person. In such a situation, the proceedings initiated againstthe assessee under Section 158BD could not be held to be valid. TheTribunal was, thus, right in holding that the proceedings of the block assessment pursuant to the notice issued under Section 158BD were invalid and void. No fault can, thus, be found in the approach of the Tribunal. In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE December 6, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE