Delhi H.C : These petitions are preferred by different assessees questioning the issuance of notices by the AO under s. 158BD of the IT Act, 1961

High Court Of Delhi

Amity Hotels (P) Ltd. & Ors. vs. CIT & Ors.

Section 158BD

B.C. Patel, C.J. & Badar Durrez Ahmed, J.

Civil Writ Petn. Nos. 5759 of 2002, 5761 to 5763, 5768 to 5770, 6104, 6105, 6107, 6108, 6407 & 6423 to 6427 of 2002 and 3752 & 3756 of 2003

5th October, 2004

Counsel Appeared

Pawan Chaudhary, for the Petitioners : R.D. Jolly with S.C. Sharma & Ms. Rashmi Chopra, for the Respondents

JUDGMENT

B.C. Patel, C.J. :

These petitions are preferred by different assessees questioning the issuance of notices by the AO under s. 158BD of the IT Act, 1961 (hereinafter referred to as ‘the Act’). It transpires that, in accordance with the provisions contained in the Act, namely, under s. 132, the search and seizure operation was carried out in respect of M/s Bharat Lottery Agency and its proprietor, Shri Praveen Kumar Jolly, on 23rd June, 1999. It is also indicated in the petition that the residential premises of the said Shri Praveen Kumar Jolly was searched. It is in view of this search and seizure of the books of account, that a report was submitted by the raiding party. It transpires that on the basis of this appreciation report, action has been initiated against all these petitioners. Sec. 158BD, being relevant, is quoted hereunder :

“158BD. Undisclosed income of any other person—Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed under s. 158BC against such other person and the provisions of this Chapter shall apply accordingly.”

The AO, if he is satisfied that any undisclosed income belongs to any person other than the person in respect of whom the search was made under s. 132 or documents were requisitioned under s. 132A, then, such documents are to be handed over to the AO having jurisdiction for initiating proceedings under s. 158BC of the Act. In the instant case, it is submitted that there was the same AO who assessed all the petitioners.

So far as the procedure for block assessment is concerned, one will have to refer to s. 158BC of the Act. The relevant portion of s. 158BC is reproduced hereunder : “158BC. Where any search has been conducted under s. 132 or books of account, other documents or assets are requisitioned under s. 132A, in the case of any person, then,— (a) the AO shall,— (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1977, serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1977, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under cl. (i) of sub-s. (1) of s. 142, setting forth his total income including the undisclosed income for the block period : xxxx xxxx”

4. Reading the aforesaid provision, it is clear that in view of s. 132, a search must have been carried out or books of account or other documents or assets must have been requisitioned under s. 132A of the Act. Sec. 132 requires that the officer mentioned therein must have “reason to believe” that the person concerned, despite issuance of notice, has failed to produce or cause to be produced books of accounts or other documents as required by such summons or notice. We are not discussing the entire scheme of this section because, in our view, it is not necessary and the relevant part is that there must be “reason to believe” for initiating action under s. 132 of the Act.

Similarly, s. 132A of the Act requires that the officer mentioned therein, in consequence of information in his possession, must have “reason to believe” that the person has omitted or failed to produce or cause to be produced such books of account, etc. Just as in the case of s. 132, we are not discussing the entire section in detail, but we note that what is required is that there must be “reason to believe” for initiating action. After initiating action in consonance with s. 132 or 132A of the Act, the AO can follow the procedure laid down in s. 158BC of the Act for block assessment.

In the instant case, there was no question of there being any “reason to believe” that the present petitioners have warranted the officers to initiate action either under s. 132 or 132A of the Act. It is in view of this that s. 158BD calls upon the AO to be satisfied himself before initiating action. In our view, it is not necessary for the AO to record his satisfaction with regard to the person against whom the action has been initiated under s. 132 or s. 132A of the Act, but it is required only if action is taken against any other person other than the one covered by s. 132 or 132A of the Act.

It was submitted before us that, as stated in the affidavit-in-reply, the material was considered for initiating action. The relevant portion reads as under : “The assessee has acquired the following properties : 1/4th share in property located at 5/11 WEA Karol Bagh for a sum of Rs. 1,89,000. 1/10th share in property located at 9-B, Rajindra Park for a sum of Rs. 9,45,000.

The following issues with regard to the above need to be investigated : (i) Source of funds for making such purchases, whether the value of such properties have been disclosed at the prevailing market rate, whether any value addition has been made to such properties by way of fresh construction/ renovation and whether such property was commercially exploited to generate any income. (ii) On collating information available in the Appraisal Report along with information available in IT returns filed in regular course and looking at the larger picture in totality, it is noted that at least five different companies, owned by the Jolly family, including the assessee, are operating from the same address, i.e., 7B/8B, Rajindra Park, Pusa Road. However, all of them are claiming separate office and administrative expenses. The authenticity of such expenses needs to be verified and whether any duplicity, with regard to claim of such expenses, by each of such companies has to be looked into as in the past such cases were assessed by different AOs. (iii) A plethora of other information is also available from the seized record by way of papers filed with ROC, property tax papers, details about expenses incurred on construction-renovation, etc., which requires to be collated and compared with information available in the returns filed by the assessee in the past. Some of it is verifiable from the record of the Department but for the rest, an in- depth scrutiny is required to detect concealment. (iv) The issues discussed above need to be scrutinized moreso in the light of the fact that the case of the assessee-company has not been scrutinized in the last five years.

Keeping in view the above observations and preliminary examination of the seized record, proceedings under s.158BD of the IT Act are hereby initiated against the assessee-company, to carry out detailed investigation.”

Before us, the Appreciation Report prepared by the search party under s. 132 of the Act was also produced with various annexures for perusal. It is in view of this report, it appears that the AO initiated proceedings under s. 158BD of the Act. From the record, it appears from the Appreciation Report that in almost all the cases, what issues need to be investigated are indicated. Over and above, it is also indicated “some of it is verifiable from our record, but for the rest an in-depth scrutiny is required to detect concealment”. It is further said “keeping in view the above observations and preliminary examination of the seized record, proceedings under s. 158BD of the IT Act are hereby initiated against the assessee-company, to carry out detailed investigation”.

The satisfaction is required to be preceded by the investigation and not that the investigation is required to be preceded by the satisfaction. On behalf of the Revenue, our attention was drawn to a decision of the Division Bench of the Gujarat High Court in the case of Rushil Industries Ltd. vs. Harsh Prakash (2001) 166 CTR (Guj) 300 : (2001) 251 ITR 608 (Guj), wherein it is pointed out that satisfaction is not required to be recorded. However, it is in a different context and the Court has clearly indicated so. The Division Bench of the High Court at p. 613 has pointed out as under : “……..A bare reading of the provisions of s. 158BD (quoted above) would show that for taking action under the said section, the AO is merely required to be satisfied that the books of account or other documents or assets found in the search show undisclosed income of a person other than one against whom the search was conducted. Merely because no books of account or other documents or assets were found in the search against the two abovenamed persons, it cannot be said that no action for alleged undisclosed income was called for against the petitioner under s. 158BD…….” Thus, it is very clear that satisfaction is required and it cannot be said that proceedings can be initiated without such satisfaction. Although, this satisfaction may be on the basis of material which is seized not from the noticee, but from the other assessee and against a person in respect of whom action was taken under s. 132 or 132A of the Act. The Court further pointed out at p. 614 as under : “……This disclosure in the search operations against the two abovenamed persons was a relevant material for forming of an opinion and satisfaction that the petitioner has not truly disclosed his income and the action under s. 158BD was, therefore, called for.” A similar view is taken in a subsequent decision in the case of Priya Blue Industries (P) Ltd. vs. Jt. CIT (2001) 166 CTR (Guj) 306 : (2001) 251 ITR 615 (Guj) which has followed the decision which we have discussed hereinabove.

In the present case, there is nothing to indicate that the AO could have formed an opinion and could have arrived at a satisfaction that the petitioner has not truly disclosed his income. As we indicated earlier, that the appreciation report clearly reveals that the AO was called upon to look into it with regard to several entries and the AO in his noting has clearly indicated that it requires further investigation, in-depth scrutiny and there is nothing to indicate he has recorded in writing that he was satisfied about the action required to be initiated. The AO has come out with the version in para 4 of the affidavit-in-reply that “there is no requirement under provisions of s. 158BD for recording ‘reasons to believe’ before issuing notice under the said section.” Thus, it is very clear that there was no satisfaction. Even it is not stated in affidavit-in-reply that the AO was satisfied and hence issued notice. On the contrary, it reveals that, to arrive at a satisfaction, notice was issued and that is clear from the affidavit of AO. It may be noted that the property which is referred for initiating proceedings has already been disclosed in the return of income.

In view of what is stated hereinabove, this Court is of the opinion that the proceedings are not in accordance with law and, therefore, are required to be quashed. However, it goes without saying that if there is any material, the Department can take action in accordance with law. The writ petitions are disposed of accordingly.

[Citation : 272 ITR 75]

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