Allahabad H.C : Assessing Officer can proceed under section 153A to find out source of income, even if seized goods were released for valid entry in stock books

High Court Of Allahabad

Savesh Kumar Agarwal Vs.Union Of India

Assessment Year : 2009-10

Section : 153C, 153A

Sunil Ambwani And K.N. Pandey, JJ.

Civil Misc. Writ Petition No. 692 Of 2011

November 25, 2011

JUGDMENT

1. We have heard Shri S. D. Singh, learned counsel for the petitioner. Shri Dhananjay Awasthi appears for the respondents.

2. The petitioner is engaged in the business of purchase and sale of jewellery, etc. In the regular course of business the petitioner dispatched 69.900 kg. of silver bullion to M/s R. M. Silver, Rajkot and M/s. Subh Enterprises at their addresses at Rajkot for manufacturing silver ornaments through M/s. Harish Kumar Laxman Kumar, 225, Kacha Ghasiram, Chandni Chowk, New Delhi. The entire consignment of the bullion was seized from the custody of petitioner’s courier by the Delhi Police.

3. The Deputy DIT (Inv), Unit-II (1), New Delhi, requisitioned the entire seized bullion by order dated June 17, 2008, under section 132A of the Income-tax Act, 1961 (“the Act”). Certain other courier service providers were also searched and seizures were carried out.

4. The petitioner applied for release of the bullion by making application dated July 3, 2008, under section 132B of the Act stating that the entire consignment was duly accounted for and recorded in his account books. He produced all the account books and final accounts for the period 2006-07, 2007-08 along with the stock register of 2008-09. The petitioner’s statement was recorded on August 18, 2008. On November 30, 2009, the petitioner’s assessing authority, namely, the Income-tax Officer, Unit-II (2), Bareilly, passed an order under section 132B, to release the entire quantity in favour of the petitioner, after examining his account books and all other relevant materials, and after recording findings that the silver bullion in question was part of the stock-in-trade, and was duly disclosed by the petitioner. The order has not been challenged and has attained finality. The entire seized silver bullion has been released to the petitioner.

5. On December 31, 2010, the assessment was completed under section 153B(1)(b) read with section 143(3) of the Act in the case of M/s. Harish Kumar Laxman Kumar, the courier, for the assessment year 2009-10 by Income-tax Officer Ward-III(2), Ahmedabad. He recorded all the facts and circumstances, and held that the silver bullion belongs to the petitioner. The assessment of M/s. Harish Kumar Laxman Kumar was converted at “Nil” income. He, however, referred the matter along with the satisfaction note dated February, 2009, under section 153C of the Act to the Assessing Officer of the petitioner.

6. On the receipt of the satisfaction note dated December 31, 2010, of the Income-tax Officer Ward III(2), Ahmedabad, the petitioner’s Assessing Officer, namely, Income-tax Officer, Ward-II(2), Bareilly, acting under the provisions of section 153C of the Act has initiated assessment proceedings for seven assessment years (the assessment years 2003-04 to 2009-10) by issuing separate orders directing the petitioner to file return on the prescribed form, directing further that no extension of time for filing the return under section 153C will be allowed.

7. By this writ petition the petitioner is challenging the initiation of the assessment proceedings against the petitioner under section 153A read with section 153B for the assessment years 2003-04 to 2009-10, vide notice dated March 30, 2011, issued by the Income-tax Officer Ward-II(2), Bareilly. The petitioner has also challenged the vires of section 153A and 153C of the Act as against the basic spirit and structure of the Income-tax Act, 1961, providing for mandatory assessment or reassessment for six previous assessment years in advance on discovery of any undisclosed income of an assessee.

8. In the counter-affidavit of Shri Amit Kumar Chaudhary, Income-tax Inspector, Commissioner of Income-tax, Office, Bareilly, it is stated in para. 6 as follows :

“6. That the contents of paragraphs 3, 4, 5, 6, 7, 8, 9 and 10 of the writ petition it is averred that the silver taken into custody under section 132A on June 17, 2008, which was found to be in possession of M/s. Harish Kumar and Laxman Kumar the assessment under section 153B(1)(b) read with section 143(3) for the assessment year 2009-10 on December 13, 2010. The petitioner was issued notices and on the basis of notices produced the books of account which were examined and it was found that the bullion was duly recorded in the stock register, hence was released but though the silver was found register but the petitioner could not explain the source of funds for purchasing the silver/bullion, hence notices were issued and since the assessment of the petitioner was completed under section 143A it is necessary to investigate the source of investment in purchasing of silver and the assessment should be completed under section 153C read with section 153A. Rest of the facts stated are paragraph denied.”

9. Before considering the submissions of learned counsel for the parties, it will be appropriate to quote the orders of the assessing authority of the petitioner dated November 30, 2009 ; the relevant portion of the order of the assessment of M/s. Harish Kumar Laxman Kumar for the assessment 2009-10 and the short satisfaction note as follows :

The assessment order of the petitioner under section 132B of the Act dated November 30, 2009

“Government of India

Department of Revenue

Office of the Income tax Officer-2(2) Bareilly

Name and address of the assessee

Shri Sarvesh Kumar Agarwal

Prop : Sarvesh
Jewellers, Sahukara,
Bareilly

Order under section 132B of the Income-tax Act, 1961

Dated : 30-11-2009

The assessee has moved an application under section 132B of the Income-tax Act, 1961, on July 30, 2008, before the undersigned stating that the silver bullion weighing 69.900 kgs was sent through the courier, viz., M/s Harish Kumar Laxmi Kumar 225, Kuncha Ghasi Ram, Chandini chowk, Delhi, for sending to M/s. R. M. Silver, Shilp complex, Mandir Chowk, Rajkot and M/s. Subh Enterprises. Ranchar Nagar, Bhan Nagar Road, Opp. Tinko Rajkot for manufacturing of silver ornaments. While sending the same by the aforesaid courier to the concerned parties the police party seized the same from Railway Station, Delhi along with goods relating to other parties also. Thereafter, the Assistant Director of Income-tax (Inv.), Unit-II(3), A. R. A. Centre, Jhandewalan Extension, New Delhi, requisitioned the same under section 132A of the Income-tax Act, 1961, from the Police Department. Now, the above silver bullion is under the possession of ADIT (Inv.), Unit II (3) A. R. A. Centre, Jhandewalan Extension, New Delhi. Meanwhile, a letter F. No. DDIT (Inv.) Unit II(1), New Delhi, was also forwarded to me for my report. The necessary report was accordingly submitted, vide this office letter of even No. dated January 29, 2009, to the Commissioner of Income-tax, Bareilly, wherein inquiries conducted in this case were also reported to him.

I have gone through the details of the application furnished by the assessee and have also perused the relevant books of account, i.e., stock register, ledger and cash book. The silver bullion mentioned above has been found duly recorded in the stock register and necessary verification has also been made from the ledger and the cash book. The statement of the assessee, i.e., Shri Savesh Kumar Agarwal, S/o Shri Vishnu Kumar Agarwal, resident of Sahukara, Bareilly, was recorded on August 18, 2008. The careful study of the statement of Shri Savesh Kumar Agarwal recorded on oath revealed nothing adverse. The assessee is a income-tax payer and is regularly assessed to tax for a number of years. Since the application under section 132B is well within time and seized goods as mentioned above are part of the stock-in-trade and all the requirements mentioned under the provisions of section 132B are fulfilled, the silver bullion as mentioned above is released. The order has been passed after obtaining the approval of the learned Commissioner of Income-tax, Bareilly, vide order under section 132B of the Income-tax Act, 1961, dated November 24, 2009, circulated endorsement F. No. CIT.BLY/132B/Ser.Jew./2009-10, dated November 24, 2009.

(O. N. Misra)

Income-tax Officer-2 (2)

Bareilly

Copy to the assessee.

(O. N. Misra)

Income-tax Officer-2 (2)

Bareilly.”

The relevant extract of the assessment order of M/s. Harish Kumar Laxman Kumar, the courier of the assessment year 2009-10 by Income-tax Officer, Ward-III (2), Ahmedabad, dated December 31, 2010.

“10. Considering the above facts, I am satisfied that the silver seized to the extent of 70.961 Kgs. from the employee of the assessee-firm belongs to M/s. Sarvesh Jewellers, Prop. Shri Sarvesh Kumar Agarwal, Shahukara, Bareilly, who is assessed to tax with PAN No. AETPA3062K Income-tax Officer, Ward 2(2), Bareilly. Since the above referred seized silver bullion belongs to M/s. Sarvesh Jewellers of Bareilly. So the information along with the satisfaction note, appraisal report and the seized documents/assets is being forwarded to the Income-tax Officer, Ward, 2(2), Bareilly, for necessary action under section 153C of the Income-tax Act. In view of the above, no additions has been made on account of the seized silver bullion in the case of the assessee.

Subject to the above discussion the income of the assessee is assessed at returned income of Rs. nil.

Assessed under section 153B(b) read with section 143(3) of the Income-tax Act, 1961. Give credit for prepaid taxes after due verification. This order is passed with the prior approval of the Joint CIT, Range-3, A’bad, conveyed, vide letter No. Jt. CIT/AR-3/HL/153A/ 2010-11, dated December 30, 2010.”

Satisfaction note for proceedings under section 153C of the Income-tax Act, 1961.

Search action under section 132A was carried out by the ADIT (INV), Unit II (I), New Delhi, on June 17, 2008, in the case of M/s. Harishkumar Laxmankumar, Ahmedabad, and seizure of the silver bullion was made.

The case was selected for compulsory scrutiny and six assessment years from 2003-04 to 2008-09 was also selected for scrutiny under section 153A(1) of the Income-tax Act. During the proceedings, the assessee was asked to prove the ownership of the above seized materials. The assessee, vide his written reply dated December 13, 2010, stated and proved that the seized silver bullion belongs to M/s. Sarvesh Jewellers Prop. of Shri Sarvesh Agarwal, Bareilly.

The ownership of consignment in the case of Shri Sarvesh Agrawal, Prop. of M/s. Sarvesh Jewellers, PAN-AETPA3062K had been confirmed by his Assessing Officer, i.e., Income-tax Officer, Ward. 2(2), Bareilly. Hence, this person is required to be assessed under section 153C of the Income-tax Act. Accordingly, the Income-tax Officer, Ward-2(2), Bareilly, is requested to proceed under section 153C of the Income-tax Act in the case of Shri Sarvesh Agarwal Prop. of M/s Sarvesh Jewellers, PAN-AETPA3062K.

(K.T. Pandya)

Income-tax Officer

Ward-3(2), Ahmedabad.

Dated 31/12/2010.”

10. Shri S. D. Singh, learned counsel for the petitioner, submits that there is no other material or evidence in any form that any undisclosed income was either received by or accrued to the petitioner during the assessment years 2003-04 to 2009-10. In the absence of any material there was no need or any justification to assess or reassess the petitioner for the earlier periods. All the disclosures made by the assessee have already been accepted by the assessing authority under section 143(1). Just because of the action under section 132 or 132A of the Act was initiated against his courier without any fresh material on record, the notice for assessments is ex facie, arbitrary and unreasonable.

11. Shri S. D. Singh further submits that the provisions of section 153A read with section 153C, in so far as they permit for the second assessment, which is already complete, is arbitrary, illegal, unless search and seizure operation under section 132 or section 132A, result into discovery of any undisclosed income, or any such material, which may justify assessments of last six years. The power conferred under section 153A read with section 153C for necessary assessments or reassessment for six years cannot be exercised mechanically without any material of undisclosed income. The notice has been given without any purpose. The exercise is mechanical, only to serve the statute.

12. Shri S. D. Singh submits that in the present case the petitioner’s Assessing Officer after going through the relevant books of account, including stock register, ledger and cash book found that the silver bullion is duly recorded in the register and necessary verifications were made. The petitioner’s statement was also recorded, which was carefully studied, and revealed nothing adverse. The petitioner is being assessed regularly for a number of years. On the satisfaction recorded by the petitioner’s Assessing Officer the entire bullion was released in his favour and thus in the circumstances the second assessment on the satisfaction note for proceeding under section 153C without disclosing any adverse material is wholly without jurisdiction. The court should not permit the mechanical exercise for needless assessments, just to subserve the provisions of law.

13. Shri Dhananjay Awasthi, on the other hand, submits that though the petitioner’s assessing authority did not find anything adverse and has allowed the application under section 132B and that nothing adverse was also reported in incomes’ assessment of the courier on December 31, 2010, the authorities were duty bound to record satisfaction note for proceedings under section 153C and that in the proceedings of the second assessment the petitioner will be required to prove the source of income for purchase and dispatch of the bullion, which was seized and released to him.

14. In Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341/159 Taxman 258 (SC) the Supreme Court held that the condition precedent for invoking a block assessment is that a search has been conducted under section 132, or documents or assets have been requisitioned under section 132A. These provisions would apply in the case of any person in respect of whom search has been carried out under section 132 or documents or assets have been requisitioned under section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person, the conditions precedents wherefor are : (i) satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 of the Act ; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person ; and (iii) the Assessing Officer has proceeded under section 158BC against such other person.

15. The conditions precedent for invoking the provisions of section 158BD, thus, are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under section 132A of the Act.

16. The Supreme Court further held that a taxing statute, as is well known, must be construed strictly and relied upon Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714; J. Srinivasa Rao v. Government of Andhra Pradesh [2006] 12 SCC 607 and Ispat Industries Ltd. v. Commisssioner of Customs [2006] 12 SCC 583 in holding that where law is clear and explicit, the only question that arises is whether the notice satisfies the requirement of the law. The notice should record satisfaction under section 158BD on the part of the Assessing Officer, on which he gets jurisdiction over the matter, to transfer the case to the Assessing Officer.

17. The Act has been amended introducing the provisions of section 153A, 153B, 153C and 153D. The requirement of law is the same as have been spelled out in Manish Maheshwari’s case (supra).

18. In the present case, all the requirements of section 153C having been complied with. After making assessment of the person in whose hands the goods were found, the satisfaction note was recorded and sent to the Assessing Officer of the petitioner.

19. In Manish Maheshwari’s case (supra) the Supreme Court observed that taxing statute must be construed strictly. The court, however, shall not interpret the statutory provisions in such a manner, which would create an additional physical burden on a person. In case of any doubt or dispute, construction is to be made in favour of the taxpayer and against the Revenue.

20. In the present case, we do not find anything wrong in the satisfaction note and the forwarding of the entire matter by the Income-tax Officer, Ward-III(2), Ahmedabad, to the Assessing Officer of the petitioner at Bareilly. All the requirements of section 153C were complied with by the Income-tax Officer, Ward-III(2), Ahmedabad. A search under section 132A was carried out and bullion was seized. The case was selected for compulsory scrutiny for six assessment years. The assessee established that the seized silver belongs to M/s. Sarvesh Jewellers, Bareilly the petitioner. The ownership and consignment of the petitioner was also confirmed by the Assessing Officer of the petitioner at Bareilly. The Income-tax Officer, Ward-III(2), Ahmedabad, did not commit any error in law, in recording the satisfaction note requesting the petitioner’s Assessing Officer to proceed under section 153C of the Income-tax Act.

21. After the assessment of the person in respect of whom search action was carried out is completed, the officer under section 153C, where he find that seized articles belong to some other person, has to forward a satisfaction note to the Assessing Officer on such person. The satisfaction in such case is in respect of the material and disclosures of the person with which the articles or assets are found and not in respect of the person to whom they belong.

22. The question which now calls for consideration is whether on receipt of satisfaction note, even if the assessing authority receiving satisfaction note has already examined account books, and has not found anything adverse against the assessee, and further seized goods have already been released in favour of the assessee, he is required to issue notice under section 153C of the Act to file returns for six years.

23. The Department has taken a stand that even if the books of account were examined by the Assessing Officer of the petitioner, and the bullion having found validly entered in the stock books was released under section 132B, still the Assessing Officer can proceed under section 153A and assess the petitioner to find out the source of income.

24. Where there is power to act in a particular manner, unless it is shown that power has been exercised without jurisdiction and lacks bona fide, the statutory notice given in exercise of such powers, may not be set aside by the court under article 226 of the Constitution of India. The argument that the second assessment for the same year and of the previous years will amount to duplication and will be needless exercise of power, overlooks the fact that such power actually exists and if there is any reason to believe, namely, the satisfaction of the assessing authority to examine the source of income, the court would not interfere to close such enquiry.

25. If there is power to do something under the Act, the action taken in the fiscal matters cannot be set aside in exercise of the writ jurisdiction on the ground that such power is to be exercised needlessly, without any purpose. The exercise of power in such case can only be challenged, if the power is being exercised with ulterior motive and mala fide intentions. It is not open for the petitioner to contend before the writ court that the exercise of power, which admittedly exists in the authority, will expose the petitioner to assessment for the same period on which assessing authority has already recorded satisfaction.

26. The writ petition is dismissed.

[Citation : 353 ITR 26]

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