CIT V. RAM SINGH( DISMISSED ON 5.2.2013)

ITA/551/2010

AI Insights

The case involves five appeals by the Commissioner of Income Tax-II, Ludhiana against Ram Singh and others, concerning the validity of assessments made under Section 158 BC of the Income Tax Act, 1961. The core issue was the legality of the search and subsequent assessments conducted on the respondents, who were alleged to be in possession of undisclosed income. The Income Tax Appellate Tribunal had earlier set aside the assessments, ruling them void ab initio due to the absence of proper authorization for the search warrants issued against the respondents. The High Court of Punjab and Haryana upheld this decision, emphasizing that the assessments should have been conducted under Section 158 BD, which applies when no search warrant is issued against the assessee but materials are found during the search of another person.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 765653 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 05-02-2013
• Assessment Year: misc
• Other Referred Cases: Promain Ltd. vs. DCIT, Ajit Jain Vs. Union of India and others, Dr. Nalini Mahajan Vs. Director, Income Tax (Investigation) and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RADHIKA SURI
• Assessee Lawyers: SAVITA SAXENA
• Keywords: Block assessment; Jurisdiction; Search warrant; Undisclosed income; Void ab initio
• Section: 132(1); 158 BD; 158(BC)

Judgement Text

"ITA.No.551 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 1. ITA.No.551 of 2010 Date of Decision:05.2.2013 Commissioner of Income Tax-II, Ludhiana --Appellant Vs. Ram Singh --Respondent 2. ITA No.599 of 2010 Date of Decision 05.2.2013 Commissioner of Income Tax-II, Ludhiana --Appellant Vs. Gurdeep Singh --Respondent 3. ITA No.604 of 2010 Date of Decision 05.2.2013 Commissioner of Income Tax-II, Ludhiana --Appellant Vs. Amarjit Singh --Respondent 4. ITA No.664 of 2010 Date of Decision 05.2.2013 Commissioner of Income Tax-II, Ludhiana --Appellant Vs. Gurmail Singh --Respondent ITA.No.551 of 2010 2 5. ITA No.665 of 2010 Date of Decision 05.2.2013 Commissioner of Income Tax-II, Ludhiana --Appellant Vs. Dalip Singh --Respondent CORAM:HON'BLE MR. JUSTICE A.K.SIKRI, CHIEF JUSTICE HON'BLE MR. JUSTICE RAKESH KUMAR JAIN JUDGE Present: Ms.Savita Saxena, Advocate, for the appellant/revenue Ms.Radhika Suri,Advocate, for the respondent-assessees A.K.SIKRI, CJ: (Oral) By this judgment, we shall be disposing of five appeals i.e. ITA No.551 of 2010 titled as Commissioner of Income Tax-II, Ludhiana Vs. Ram Singh; ITA No.559 of 2010 titled as Commissioner of Income Tax-II, Ludhiana Vs. Gurdeep Singh; ITA No.604 of 2010 titled as Commissioner of Income Tax-II, Ludhiana Vs. Amarjit Singh; ITA No.664 of 2010 titled as Commissioner of Income Tax-II, Ludhiana Vs. Gurmail Singh and ITA No. 665 of 2010 titled as Commissioner of Income Tax-II, Ludhiana Vs. Dalip Singh, which arise out of the common orders passed by the learned Income Tax Appellate Tribunal, dated 28.11.2008. Common questions of law were framed on 08.2.2012 while admitting these appeals which are as under:- ITA.No.551 of 2010 3 “1. Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in cancelling the assessments by holding that the assumption of jurisdiction by issuance of notice under Section 158 BC was invalid and void-ab-initio ? 2. Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in cancelling the assessment by holding that the assumption of jurisdiction by issuance of notice under Section 158 158BC was invalid and void ab-initio though the jurisdiction over the person (Lal Singh) in whose case search warrant was issued and the other person (the assessee under consideration) in whose case warrant was not issued vested with thesame assessing officer ?.” These questions of law have arisen on the basis of information received from some person to the effect that Prem Jain and Rattan Jain, residents of village Malerkotla are big property dealers of the town and have given various moveable and immovable assets disproportionate to their known sources of income and income declared to the Income Tax Department. Statement of the informer was recorded which also revealed that these two brothers had kept their account books with Lal Singh resident of Malerkotla. On that basis, Additional Director of Income Tax (Investigation) recorded his satisfaction for searching the premises of Prem Jain, Rattan Jain, Ram Singh, Lal Singh and Gurcharan Singh big property dealers resident of Railway Road, Malerkotla and issued warrant of authorization under Section 132 (1) of the Income Tax. Premises of the aforesaid persons were searched, wherein as per ITA.No.551 of 2010 4 revenue, many incriminating documents and material were found and was seized. During search of premises of Lal Singh, same incriminating documents were found which pertained to the respondents/assessees herein who are the sons of Lal Singh. On the basis of that material, notices were issued to Lal Singh as well as assessees herein (sons of Lal Singh) under Section 158 BC of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for 01.4.1985 and 05.10.1985 and ultimately, they filed their returns and declared undisclosed income. The Assessing Officer thereafter carried out the assessment. The returns filed by these persons were not accepted. Many additions were made on various accounts as is clear from the assessment order. However, having regard to the nature of question of law involved, it is not necessary to take note of the nature of these additions. Suffice to state that because of these additions of amount treated as undisclosed income, appellants preferred separate appeals (five in number) before the Income Tax Appellate Tribunal. Main contention of learned counsel for the appellants was that the entire assessment proceedings were without jurisdiction and void ab-initio for the reason that there was no authorization for issuing search warrants against them and in these circumstances, there could not have been any proper assessment against them under Section 158 BC of the Act. It was submitted that in such circumstances, block assessment, if any, could have been only under section 158 BD of the ITA.No.551 of 2010 5 Act but the procedure for carrying out the assessment in that manner, which was mandatory in nature, was not followed. Learned Tribunal has found force in the aforesaid submission of the learned counsel for the appellants and it is for this reason that the Tribunal while accepting the appeals of these assessees, have set aside the order of Additional Director of Income Tax treating the same as invalid and void ab-initio. The admitted facts which emerge from the record are that there is no authorization of search or search warrants under Sections 132 (i) of the Act in respect of these assessees. No doubt, while searching the premises of their father Lal Singh, some documents and other material which were not belonging to the assessees were seized and on that basis, there could be block assessment. However, in such a situation when there was no authorization in respect of these assessees, it is the provisions of Section 158 BD of the Act which would be attracted and not the provisions of 158 BC. The Tribunal has rightly pointed out that jurisdiction to assess the undisclosed income for the block period under Chapter XIV-B vests in the Assessing Officer by virtue of the provisions of Section 158BA in a case where a search under Section 132 is initiated after 30.6.1995. Again, in term of Section 158 BC, a notice under that Section can be issued where any search has been conducted under Section 132 of the Act. However, assessment is to be carried out in respect of undisclosed income of other person i.e. a person in whose ITA.No.551 of 2010 6 case, there was no search made under Section 132 of the Act, the provisions of Section 158 BD are to be invoked. These provisions are reproduced below:- “Section 158BD of the Income Tax Act, 1961, authorises the Department to asses a person other than the searched person based on materials recovered during search. No independent notice is contemplated under the section because it only givens jurisdiction to the Assessing Officer to assess a person other than the searched person based on materials gathered during search. The procedure for assessment of a person other than the searched person under Section 158 BD is the same procedure contained in Section 158 BC. Since no notice is prescribed under Section 158 BD, which is required is to issue an intimation about the initiation of proceedings under Section 158BD by the officer, and then to call for return in Form 2 B prescribed under rule 12 (1) (a) of the Income Tax Rules,162, for assessment under Section 158 BC”. These provisions categorically mention that in that eventuality, the Assessing Officer has to proceed under Section 158 BC against such other person and the provisions of this chapter are applicable accordingly. In the present case, however, the assessment against the assessees was not under Section 158 BD of the Act but they were issued notices under Section 158 BC and the assessment order was passed under that provisions. In the absence of any search warrants in respect of these assessees under Section 132 (1) of the Act, assessment could not have been under Section 158 BC of the Act. Such an assessment without authorization is void ab-initio. The ITA.No.551 of 2010 7 Trubunal has referred to the judgment of the Special Bench in the case of Promain Ltd. vs. DCIT, 95 ITD 489, Delhi Special Bench in this behalf. No issue remains resintegra and law has been settled by various judgments of the High Courts as well. In the case of Ajit Jain Vs. Union of India and others 242 ITR 302, the High Court dealt with the precise issue in the manner as under:- “Since the search in the present case had taken place on January 11,1996, in accordance with the said provisions, an ex parte block assessment for the assessment years 1986-87 to 1996-97 was made on January 31,1997,creating a total demand of ` 50,13,204/- on the petitioner in his status as individual. As the title of the said Chapter suggests these are special provisions for assessment of search cases and, therefore, a search under Section 132 is a pre- requisite for invoking the provisions of the said Chapter. It is axiomatic that search under section 132 , as contemplated in the Chapter has to be a valid search. An illegal search is no search and as a necessary corollary in such a case, Chapter XIV-B would have no application. Since in the instant case, we have come to the conclusion that the search conducted on January 11,1996, was without jurisdiction and was thus void ab initio, the imminent consequence would be that the provisions of Chapter XIV-B cannot be invoked against the petitioner, pursuant to the said search of his room at Chennai. Consequently, the block assessment order dated January 31,1997, cannot be sustained. We accordingly quash the same”. This judgment was upheld by the Supreme Court in the case of Union of India Vs.Ajit Jain and another, 260 ITR 80. To the same effect is another judgment of Delhi High Court in the case of Dr. Nalini Mahajan Vs. Director, Income Tax (Investigation) and others 257 ITR 123. ITA.No.551 of 2010 8 Thus, we answer both the questions in the affirmative i.e. in favour of the assessees and against the revenue. As a result, these appeals are hereby dismissed. (A.K.SIKRI) CHIEFJUSTICE 05.2.2013 (RAKESH KUMAR JAIN ) rr JUDGE "