The Commissioner Of Income Tax v. M/S Intercontinental Trading &Investment Co.ltd

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 04.01.2013 +ITA 193/2004 THE COMMISSIONER OF INCOME TAX ...Appellant versus M/S INTERCONTINENTAL TRADING &INVESTMENT CO.LTD....RespondentAdvocates who appeared in this case:For the Appellant: Mr Sanjeev Sabharwal, Adv.For the Respondent: Mr C.S. Aggarwal, Sr. Adv. withMr Prakash Kumar, Adv.CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE V.K. JAIN JUDGMENT BADAR DURREZ AHMED, J 1.This is an appeal under Section 260A of the Income Tax Act, 1961(hereinafter referred to as the said ‘Act’) against the order of the Income Tax Appellate Tribunal, New Delhi, dated 11.09.2003, passed in ITA(SS) No. 110/Delhi/2002 in respect of the block period 01.04.1986 to02.11.1996. 2.The appellant/revenue has proposed the following questions assubstantial questions of law:- (a) Whether the learned I.T.A.T. was correct in law in holding thatAssessing Officer has wrongly assumed jurisdiction under theprovision of Section 158BD of the Income Tax Act?Assessing Officer has wrongly assumed jurisdiction under theprovision of Section 158BD of the Income Tax Act? (b)Whether the I.T.A.T. was correct in law in deleting the additionmade by the Assessing officer by treating the claim of theassessee regarding receipt of service charges as income fromhouse property?made by the Assessing officer by treating the claim of theassessee regarding receipt of service charges as income fromhouse property? (c) WhethertheI.T.A.T.wascorrectinlawindeletingdisallowance of expenses with regards to earning of servicecharges made by the Assessing Officer by treating the servicecharges as income from house property?disallowance of expenses with regards to earning of servicecharges made by the Assessing Officer by treating the servicecharges as income from house property? (d)Whether the I.T.A.T. was correct in law in deleting addition ofRs. 17,17,263/- on account of enhancement of Notional AnnualLetting Value?Rs. 17,17,263/- on account of enhancement of Notional AnnualLetting Value? (e) Whether the I.T.A.T. was correct in law in allowing theassessee to set off the loss amounting to Rs. 1,76,52,477/- onsale of shares?”assessee to set off the loss amounting to Rs. 1,76,52,477/- onsale of shares?” 3.Before we examine as to whether any of these questions arise for consideration and/or are substantial question of law, it would benecessary to set out the facts. 4.A search under Section 132 of the said Act was conducted inrespect of the Mody Group of cases.Particularly, on 22.11.1996 thepremises of M/s Hindustan Development Corporation Limited which wasa Mody group company was being searched.On that date books of accounts of the respondent assessee were also found and seized.The details of the seized books of accounts are as under:- “Details of seized books of accounts: 1. Ledger-F.Y. 1994-95 2. Cash Book- F.Y. 1994-95 3. Ledger F.Y. 1995-95 4. Cash Book- F.Y. 1995-96 5. Ledger- F.Y. 1996-97 6. Cash Book- F.Y. 1996-97 (written upto 9.11.96)” 5.Thereafter, inter alia, a communication dated 28.10.1997 was issued by the Assessing Officer in respect of the Mody Group of cases who was the Assistant Commissioner of Income-tax Circle XXV Calcutta, to the Assessing Officer of the respondent/assessee at New Delhi. The said communication is as under:- “Sub: Search & Seizure- Mody Group of cases – Seized bookof accounts- regarding. Ref: Your Letter No. DCIT/SR-32/97-98/495 dated 21.10.97. Kindly refer to the above. In consultation of the records it is ascertained that during thecourse of search u/s 132(1) of the I.T. Act, 1961 in the case ofM/sHindustanDevelopmentCorporationLtd.of15-,Barakhamba Road, 7[th]Floor, Hansalaya, New Delhi followingbooks of accounts and other documents pertaining to yourassessee namely M/s Inter Continental Trading & InvestmentCo. Ltd. were seized and they are lying in my custody. Details of seized books of accounts: 1. Ledger-F.Y. 1994-95 2. Cash Book- F.Y. 1994-95 3. Ledger F.Y. 1995-95 4. Cash Book- F.Y. 1995-96 Delhi. The said communication is as under:- “Sub: Search & Seizure- Mody Group of cases – Seized bookof accounts- regarding. Ref: Your Letter No. DCIT/SR-32/97-98/495 dated 21.10.97. Kindly refer to the above. In consultation of the records it is ascertained that during thecourse of search u/s 132(1) of the I.T. Act, 1961 in the case ofM/sHindustanDevelopmentCorporationLtd.of15-,Barakhamba Road, 7[th]Floor, Hansalaya, New Delhi followingbooks of accounts and other documents pertaining to yourassessee namely M/s Inter Continental Trading & InvestmentCo. Ltd. were seized and they are lying in my custody. Details of seized books of accounts: 1. Ledger-F.Y. 1994-95 2. Cash Book- F.Y. 1994-95 3. Ledger F.Y. 1995-95 4. Cash Book- F.Y. 1995-96 5. Ledger- F.Y. 1996-97 6. Cash Book- F.Y. 1996-97 (written upto 9.11.96) Since you are having the jurisdiction over the assessee M/sInter Continental Trading & Investment Co. Ltd. and as such itis proposed that necessary proceedings may kindly be adoptedagainst the aforesaid assessee in accordance with the provisionsof Chapter- XIV-B read with section 158 BD of the I.T. Act,1961. In this regard it may be pointed out that the inspectorattached with me cannot be spared at this moment for thepurpose of transmitting the seized materials to your honour dueto the fact that he has been assigned with so many enquires andinvestigation works in relation to certain cases where blockassessments are to be barred by limitation on 30.11.1997 andthereby I would request you to kindly depute your officials fortaking delivery of the seized books of accounts and otherdocuments as specified above from my custody and oblige. Yours faithfully,Sd/-(G.C. Pandit)ACIT, CC-XXV, Calcutta” 6.Subsequent thereto, a note dated 21.01.1998 was prepared and that note reads as under:- “Vide correspondence received from DCIT, Spl. Range 15,New Delhi and ADIT (Inv.) Calcutta, it has been noticed that asearch operation u/s 132 of the I.T. Act was conducted in ModyGroup of companies at Calcutta on 21.11.96. The search wasalso conducted in the office of M/s HDCL, a company of ModyGroup on 21.11.96 at 15, Hansalaya, Barakhamba Road, NewDelhi which in books of account of M/s Inter Continental Trading & Investment Co. Ltd. were also seized.Even thecorrespondence received from ADI (Inv.) Calcutta and DCIT,SI. Range-15, New Delhi is noticed that certain transactions ofshares were done by the assessee M/s Intercontinental Trading& Investment Co. Ltd. In these circumstances notice u/s 158BC read with section158BD of the I.T. Act may be issued to the assessee calling forthe return in form No. 2B for the Block period asstt. Year 1987-88 to 2.11.1996. Submitted Pl issue.Sd/- (D.C.I.T)” 7.On the same date that is on 21.01.1998 a notice under Section158BD read with Section 158BC of the said Act was issued to therespondent/assessee.In response to the said notice, the respondent /assessee filed its return on 16.09.1998 and indicated its undisclosedincome to be Nil.Thereafter, the assessment was completed on29.01.1999 and an assessment order was passed on that date holding thatthe respondent/assessee had undisclosed income of Rs. 3,31,20,258/- inthe said block period. Being aggrieved by the said Assessment Order, therespondent/assessee preferred an appeal before the Tribunal being ITA(SS) 9/Delhi/99. By virtue of an order dated 21.02.2000, the assessmentorder dated 29.01.1999 was set aside by the Tribunal and the matter was restored to the Assessing Officer for fresh orders. The Tribunal had, interalia, taken the view that a complete verification had not been done and areasonable opportunity had also not given to the respondent / assessee. restored to the Assessing Officer for fresh orders. The Tribunal had, interalia, taken the view that a complete verification had not been done and areasonable opportunity had also not given to the respondent / assessee. 8.Thereafter, an appeal was filed before the Delhi High Court underSection 260A by the respondent / assessee. This court did not ‘admit’ theappeal. However, it directed that the findings / observations of theTribunal in the order dated 21.02.2000 would not be taken into accountby the Assessing Officer at the time of the fresh assessment. The HighCourt order dated 21.08.2001 reads as under:- “Heard.Since the Tribunal has directed fresh assessment bysetting aside the assessment, we do not find any scope forinterference in the appeal.However, it is made clear that theparties shall be free to place such material as would be necessaryfor the purpose of assessment pursuant to the direction given bythe Tribunal.While making the assessment, the AssessingOfficer shall not be influenced by any observation made by theTribunal since the Tribunal itself has observed that theobservations are not findings.It is, however, made celar thatthey should not be treated as guidelines and an independentapplication of mind has to be done by the Assessing Officer. Itgoes without saying that the assessee shall be free to take the-plea about nonapplicability of Section 158 BC and BD of theAct.Appeal stands disposed of.” (Underlining added) 9.Thereafter, the Assessing Officer passed a fresh assessment orderon 28.03.2002, three days prior to the assessment getting time barred on31.03.2002.The Assessing Officer, once again, determined theundisclosed income of the assessee to be Rs. 3,31,20,258/- as computedin the original order dated 29.01.1999. 10.Being aggrieved by the said assessment order dated 28.03.2002,the respondent/assessee preferred an appeal before the Tribunal beingITA(SS) 110/Delhi/2002. By an order dated 11.09.2003, the Tribunal setaside the said assessment order. The Tribunal, inter alia, held as under:- “6.1We have also found, as it has not been disputed that allthe transactions entered by the assessee, in the course ofbusiness, had been found duly recorded in its books of accountmaintainedintheregularcourseestablishingthatanytransaction entered into by the assessee had either been notrecorded by it in the books of account or was meant not to berecorded. In our opinion, as such, the initiation of proceedingson the assessee, on the basis of the books of accountsmaintained by it, by itself could not be held to be legal, validand proper basis. All what we find, from the communication ofthe learned Assessing Officer, having jurisdiction over theMody Groupofcases,to theassessingofficer havingjurisdiction over the assessment of the assessee, that the booksof account of the assessee found and seized have merely beenforwarded to him. In our considered opinion, mere forwardingof such books of accounts by itself is insufficient to concludethat the learned Assessing Officer, having jurisdiction over theMody Group of cases was “satisfied” that any undisclosedincome was found or detected as a result of search, on the basis of which, proceedings u/s 158BD of the Income Tax Act couldhave been initiated against the assessee.” xxxxxxxxxxxxxxx of which, proceedings u/s 158BD of the Income Tax Act couldhave been initiated against the assessee.” xxxxxxxxxxxxxxx “7.2Further, we find that as a result of search conducted onMody Group of cases, as no incriminating material had beenfound and the proceedings had been initiated by invoking theprovisions of Section 158BD of the I.T. Act, the presentassessment made is entirely unsustainable. In fact no adversematerial what so ever has been brought to our notice. On thebasis of which it could be held that as a result of searchconducted on Mody Group of cases, any undisclosed income ofthe assessee was detected or found. It is seen from the recordthat all what had been seized as a result of search conducted onMody Group of cases, is the regular books of account of theassessee company for the financial years 1994-95, 1995-96 and1997-97 (up to 21[st]November, 1996) and no more suchmaterial was either found or gathered before either initiating theproceedings or framing the assessments on the bais of which itcould be held there was an undisclosed income.” 11.The revenue is aggrieved by the said decision of the Tribunal. The first issue that is sought to be raised by the appellant/revenue is that theTribunal was not correct in law in holding that the Assessing Officer hadwrongly assumed jurisdiction under the provisions of section 158BD ofthe Income Tax Act, 1961. We feel that the Tribunal has correctly cometo this conclusion particularly in view of the Supreme Court decision inthe case of Manish Maheshwari v. A.C.I.T:(2007) 3 SCC 794. In that decision the question before the Supreme Court was whether the notice issued to the assessee therein satisfied the requirements of Section 158BD of the Act or not? Section 158BD of the said Act reads as under:- “158-BD. Undisclosed income of any other person.—Where theassessing officer is satisfied that any undisclosed income belongs toany person, other than the person with respect to whom search wasmade under Section 132 or whose books of account or otherdocuments or any assets were requisitioned under Section 132-A,then, the books of account, other documents or assets seized orrequisitioned shall be handed over to the assessing officer havingjurisdiction over such other person and that assessing officer shallproceed against such other person and the provisions of this Chaptershall apply accordingly.” 12.The Supreme Court considered the said provision and held as under:- “11. Condition precedent for invoking a block assessment is that asearch has been conducted under Section 132, or documents orassets have been requisitioned under Section 132-A. The saidprovision would apply in the case of any person in respect ofwhom search has been carried out under Section 132 or documentsor assets have been requisitioned under Section 132-A. Section158-BD, however, provides for taking recourse to a blockassessment in terms of Section 158-BC in respect of any otherperson, the conditions precedents wherefor are: (i) satisfactionmust be recorded by the assessing officer that any undisclosedincome belongs to any person, other than the person with respect towhom search was made under Section 132 of the Act; (ii) thebooks of accounts or other documents or assets seized orrequisitioned had been handed over to the assessing officer havingjurisdiction over such other person; and (iii) the assessing officerhas proceeded under Section 158-BC against such other person. 12. The conditions precedent for invoking the provisions ofSection 158-BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any personother than the person whose premises had been searched or whosedocuments and other assets had been requisitioned under Section132-A of the Act.” (Underlining added) 12. The conditions precedent for invoking the provisions ofSection 158-BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any personother than the person whose premises had been searched or whosedocuments and other assets had been requisitioned under Section132-A of the Act.” (Underlining added) 13.In the said decision the Supreme Court also noted that a taxingstatute must be construed strictly. For this, the Supreme Court referred toan earlier decision in the case of Sneh Enterprises v. Commissioner ofCustoms: (2006) 7 SCC 714.In the facts of the case before it, theSupreme Court observed that the law was clear and explicit and that theonly question which arose for their consideration was whether the noticedated 06.02.1996 satisfied the requirement of Section 158BD of the saidAct. The Supreme Court observed that the said notice did not record anysatisfaction on the part of the Assessing Officer for assuming jurisdictionu/s 158BD of the said Act.And, as the Assessing Officer had notrecorded his satisfaction, which was a mandatory requirement, the noticedid not comply with the requirement of Section 158BD of the Act andtherefore recourse to block assessment in terms of Section 158 BC couldnot be undertaken. 14.The same is the position in the present case. We have already setout the communication dated 28.10.1997 from the Assessing Officer ofthe searched person to the Assessing Officer of the respondent / assessee.There is no recording of any satisfaction that any undisclosed incomebelongstotherespondent/assessee.Thecommunicationdated28.10.1997 merely indicates that books of accounts pertaining to therespondent assessee/assessees were seized and were lying in the custodyof the Assessing Officer in respect of the Mody Group of cases.It wasfurther indicated in the communication that since the Assessing Officer atNew Delhi had jurisdiction over the respondent/assessee, it was proposedthat necessary proceedings may be adopted against the respondent /assessee in accordance with the provisions of chapter XIVB of the saidAct. There is no satisfaction recorded by the said Assessing Officer ofthe Mody Group of companies that any undisclosed income belonged tothe respondent/assessee.As such the very first mandatory conditionprecedentforassumingjurisdictionunderSection158BDandsubsequently under Section 158 BC has not been satisfied. This failingon its own would render the entire proceedings to be without jurisdiction.This is apart from the fact that the Tribunal has, even on merits, held in favour of the respondent / assessee on the basis of fidings of fact. Thepoint in issue stands squarely cover by the decision of the Supreme Courtin the case of Manish Maheshwari (supra) as indicated above.Therefore, the decision of the Tribunal cannot be faulted. No substantialquestion of law arises for our consideration. 15.The appeal is dismissed. BADAR DURREZ AHMED, JV.K. JAIN, JJANUARY 04, 2013kb