High Court Of Punjab & Haryana
CIT vs. Calcutta Knitwears
Block Periods : 1-4-1996 To 31-3-2002
Section : 158BD
Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.
IT Appeal No. 154 Of 2010
July 20, 2010
Ajay Kumar Mittal, J.- In this appeal filed under section 260A of the Income-tax Act, 1961 (in short “the Act”), at the instance of the Revenue, it has been submitted that the following substantial questions of law arise in this appeal for the consideration of this court, from the order of the Income-tax Appellate Tribunal, Chandigarh Bench, “B”, Chandigarh (for short “the Tribunal”), passed on April 23, 2009, in I.T./S.S. No. 20/CHD/ 2008 for the block period April 1, 1996, to March 31, 2002 :
“1. Whether, on the facts and in law, the hon’ble Income-tax Appellate Tribunal was justified in holding the recording of satisfaction under section 158BD by the Assessing Officer of the person searched and consequent issuance of notice under section 158BD on February 10, 2006, was belated and beyond the period prescribed by law when section 158BD read with section 158BE does not specify that satisfaction has to be recorded by the Assessing Officer before completion of assessment under section 158BC of the Income-tax Act, 1961, and no time limit has been provided for issue of notice under section 158BD of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the hon’ble Income-tax Appellate Tribunal is right in law in dismissing the appeal of the Department and not adjudicating the appeal on the merits ?”
2. Briefly, the facts may be noticed. The assessee is a firm engaged in manufacturing hosiery goods in the name and style of “M/s. Calcutta Knitwears.” On March 8, 2006, the assessee filed its return for the block period April 1, 1996, to March 5, 2002, declaring its income as nil. Search operations under section 132 of the Act were carried out in two premises of the Bhatia group, namely, M/s. Swastic Trading Co. and M/s. Kavita International Co. on February 5, 2003. During the search operation, some incriminating documents pertaining to the assessee-firm were found. The Assessing Officer accordingly issued notice under section 158BD of the Act on February 10, 2006, on the assessee which was served on it on February 14, 2006. The assessment was, thereafter, completed under section 158BC read with section 158BD of the Act on February 8, 2008. The Assessing Officer did not accept the position mentioned in the return and finalized the assessment after making the additions of Rs. 16,05,744 on account of unexplained investment and Rs. 5,71,172 of profit element. Feeling dissatisfied, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals-II) (in short “the CIT(A)”). The appellate authority, vide order dated August 27, 2008, accepted the submissions made on behalf of the assessee and deleted the additions made by the Assessing Officer.
3. The Revenue thereafter preferred an appeal before the Tribunal whereby the assessee also filed cross-objections. The Tribunal, vide order dated April 23, 2009, allowed the cross-objections of the assessee but dismissed the appeal of the Revenue as having been rendered infructuous in view of the fact that the assessment stood cancelled after the cross-objections were allowed. While doing so, in so far as the validity of issuance of notice under section 158BD is concerned, the Tribunal has unequivocal terms observed that the realistic position in the case of the present assessee was in pari materia to the case of CIT v. Mridula, Prop. Dhruv Fabrics 335 ITR 266 (P&H) and, therefore, for the instant case as well the same view would prevail. As regards the second limb, the time limit for recording satisfaction and initiation of action in consequence thereof as well, the Tribunal again took cognizance of the fact that in the case of Mridula also, the recording of such satisfaction beyond the period of limitation provided under section 158BE(1) rendered the issuance of notice under section 158BD as belated and invalid. The Tribunal, thus, followed the ratio of the judgment in that case and, consequently, held the notice under section 158BD issued on February 10, 2006, to the present assessee as invalid and the assumption of jurisdiction by the Assessing Officer to make the impugned block assessment as invalid and void. To put in plain words, the assessment framed in the case was, thus, cancelled as lacking in jurisdiction. Hence, this appeal.
4. The provisions of sections 158BD and 158BE came up for consideration by this court in CIT v. Mridula, Prop. Dhruv Fabrics (I.T.A. No. 591 of 2009), (  335 ITR 266 (P&H)) wherein it was held as under (page 270) :
“Section 158BD was inserted in Chapter XIV-B by the Finance Act, 1995, with effect from July 1, 1995. The aforesaid provision is made applicable when the following conditions are fulfilled :
(a) there should be undisclosed income within the meaning of section 158B(b) which relates to the assets or books/documents found and seized/requisitioned;
(b) the Assessing Officer should record a finding that there was undisclosed income in such assets or books of account or documents of the searched person which belonged to the person other than the one searched.
According to the plain reading of section 158BD ibid, the Assessing Officer, while framing assessment of an assessee under section 158BC of the Act against whom action has been taken under section 132 or 132A of the Act, is mandatorily required to record satisfaction before action can be initiated under section 158BD of the Act against such other person. In other words, the satisfaction by the Assessing Officer making assessment under section 158BC of the Act, in the case of the person searched, that there is certain undisclosed income as a result of examination of the seized material which belongs to some other identified person, is essential for assuming jurisdiction under section 158BD of the Act. The satisfaction required to be recorded is prima facie satisfaction and is not firm or conclusive satisfaction at that stage.
Section 158BE of the Act prescribes time limit for framing of assessments under sections 158BC and 158BD of the Act. The Assessing Officer of the person against whom action under section 132 or 132A of the Act has been taken, is the Assessing Officer who initiates the proceedings under section 158BD of the Act by recording satisfaction that any undisclosed income belongs to such other person so as to take action under section 158BD of the Act against that person. The Act nowhere specifically prescribes any time limit or limitation for initiation of proceedings under section 158BD of the Act or for recording of satisfaction before taking action under that provision. The plain and reasonable construction that can be placed on the aforesaid provision would be that the recording of satisfaction for taking action against any other person under section 158BD of the Act has to be between initiation of proceedings under section 158BC and before completion of block assessment under section 158BC of the Act in the case of the person searched. It, would, thus, mean that the action contemplated under section 158BD of the Act against a third party to a search, is necessarily to be during the course of block assessment proceedings under section 158BC of the searched person. It cannot be after the conclusion of the same as there is no occasion for an Assessing Officer to examine the seized material or documents of the searched person when the block assessment proceedings have concluded and no other proceedings are pending before him. If any other time limit is read in the provisions/statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment under section 158BC of the Act in the case of an assessee against whom action under section 132 or 132A of the Act had been carried out is finalised, the Revenue can take action at any time in the absence of any specific limitation prescribed in the statute. A construction which leads to such an anomaly should be avoided.”
5. It is not disputed that the premises of the S.K. Bhatia and group were searched on February 5, 2003, and block assessment under section 158BC was framed on March 30, 2005. The satisfaction as contemplated under section 158BD in the case of the assessee was recorded on July 15, 2005, as observed by the Assessing Officer of the person searched, i.e., the Assistant Commissioner of Income-tax, Central Circle-II, Ludhiana, and notice was issued on February 10, 2006. Since the block assessment in the case of the S. K. Bhatia group under section 158BC of the Act was framed on March 30, 2005, whereas the satisfaction as contemplated under section 158BD in the case of the present assessee was recorded on July 15, 2005, thus, the proceedings were bad in law.
6. In view of the above, the substantial questions of law claimed by the Revenue are answered against the Revenue and finding no merit in the appeal, the same is accordingly dismissed.
[Citation : 338 ITR 239]