M/s Sanket Trading Co., Pune V. DCIT Cir.-2, Pune

ITA 1210/PUN/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9773 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-06-2012
• Assessment Year: misc
• Appeal Filed On: 09-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINITA MENON
• Assessee Lawyers: S N DOSHI
• Keywords: Search and seizure; Block assessment
• Section: 142(1); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1210/PN/09 (BLOCK PERIOD 1996-97 TO 2002-03 (UPTO 11 .10.2001) M/S. SANKET TRADING COMPANY APPELLANT ADINATH SOCIETY, J-187 PUNE SATARA ROAD, PUNE-37 PAN : ACQPS5769N V. DY. COMMISSIONER OF INCOME-TAX RESPONDENT CIRCLE 2, PUNE APPELLANT BY : SHRI. S .N. DOSHI RESPONDENT BY : SMT. VINI TA MENON DATE OF HEARING : 18/10/1 2 DATE OF PRONOUNCEMENT : 20-11-12 O R D E R PER R.S. PADVEKAR, JM THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING T HE IMPUGNED ORDER OF THE LD CIT(A) - II, PUNE, DATED 17.9.2009 FOR TH E BLOCK PERIOD (UPTO 11.10.2001). THIS APPEAL IS ARISING OUT OF THE ASS ESSMENT ORDER PASSED U/S. 158BD R.W.S. 158BC OF THE I.T. ACT. THE ASSE SSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL : 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE THE CIT(A) HAS ERRED IN TREATING THE LOAN TRANSACTION OF RS. 10 LAKHS AN D PAYMENT OF INTEREST THEREON AS NON-GENUINE TRANSACTION EXCLUSIVELY AND MERELY RELYING UPON THE ALLEGED OBJECTIONABLE MODUS OPERANDI OF M/S. MA HESHWARI FINANCERS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) HAS ERRED IN OVERLOOKING THE FACT THAT THE LOAN TRANSAC TION AND INTEREST PAYMENT THEREON IS EFFECTED BY PAYEES CROSSED CHEQU ES AND NOTHING OBJECTIONABLE IS FOUND IN THESE TRANSACTIONS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) HAS IN NOT ALLOWING THE APPELLANT TO CROSS EXAMINE M/S. MA HESHWARI FINANCERS AND HAS CONCLUDED AGAINST THE APPELLANT UNILATERALL Y. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE ASSESSMENT OF UNDISCLOSED INCOME IS INVALID AS THE RELEVANT TR ANSACTIONS ARE RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. BANK ACCOUNTS AN D THESE DO NOT CONSTITUTE UNDISCLOSED INCOME WITHIN THE PROVISION S OF SECTION 158B(B) OF THE I.T. ACT 1961 2 ITA NO.1210/PN/09 SANKET TRADING CO., (B.P. 96-97 TO 02-03) 2. THE ASSESSEE HAS ALSO FILED AN APPLICATION SEEKI NG THE LEAVE OF THE TRIBUNAL TO RAISE THE FOLLOWING ADDITIONAL GROUNDS : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE BLOCK ASSESSMENT ORDER DATED 28/06/2006 PASSED BY THE ASSESSING OFFI CER U/S. 158BD R.W.S. 158BC IS INVALID AND BAD IN LAW ON THE FOLLO WING GROUNDS A. THE ORDER IS PASSED IN THE STATUS OF REGISTERED FIR M WHILE THE APPELLANT IS AN INDIVIDUAL. B. THE SATISFACTION NOTE IS NOT MADE NOR PROVIDED WITH THE SEIZED MATERIALS, IF ANY TO THE APPELLANT ALONG WITH THE N OTICE ISSUED U/S 158BD. C. NOTICE U/S 158BD IS ISSUED ON THE BASIS OF INFORMAT ION PROVIDED BY ASST. CIT (CENTRAL)CIRCLE 2(3) PUNE, WHO MAY NOT BE THE ASSESSING OFFICER OF THE SEARCHED PERSONS NAMELY M/ S. MAHESHWARI FINANCERS & RAJSHRI ENTERPRISES, ADONI, ANDHRA PRADESH. D. MERELY PASSING OF INFORMATION WITHOUT THEIR BEING S EIZED MATERIAL DOES NOT AMOUNT TO RECORDING OF SATISFACTI ON. E. MERE ENTRIES FOUND IN THE BOOKS OF M/S MAHESHWARI F INANCIERS AND ITS STATEMENT RECORDED OR THE OUTCOME OF ENQUI RIES BY THE INVESTIGATION DEPARTMENT IS NOT SUFFICIENT TO INVOK E THE PROVISIONS OF SEC 158BD. 3. ON THE ADMISSION OF THE ADDITIONAL GROUNDS, THE PARTIES WERE HEARD. IT IS SEEN THAT THE ADDITIONAL GROUNDS RAISED BY TH E ASSESSEE ARE IN THE NATURE OF LEGAL GROUNDS AND WE, ACCORDINGLY, ADMIT THE SAME FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. NATIONAL THERMAL POWER CO. LTD., 229 ITR 383. 4. THE FACTS WHICH REVEAL FROM THE RECORD ARE AS UN DER. THERE WAS A SEARCH AND SEIZURE ACTION U/S. 132 OF THE ACT IN TH E CASE OF M/S. RAJSHRI ENTERPRISES, PROPRIETOR SHRI RAMANLAL SHAH AND M/S. MAHESHWARI FINANCIERS, PROPRIETOR SHRI MAHENDRA SHAH AT ADONI, ANDHRA PRADESH. IT WAS ALLEGED THAT THE SAID CONCERNS WERE INVOLVED IN DEPOSITING THE UNACCOUNTED CASH IN THE ACCOUNTS OF HUF BY OPENING SERIES OF BANK ACCOUNTS IN THE NAMES OF DIFFERENT HUFS, KARTA OF W HICH WERE FAMILY MEMBERS AND FRIENDS. THE SAID PROCESS OF DEPOSIT O F CASH IN THE ACCOUNTS OF HUF STARTED IN 1989 AND CONTINUED TILL 1997-98. IT WAS REVEALED THAT TO BRING BACK UNACCOUNTED CASH BELONGING TO SHRI R AMANLAL SHAH FINANCE CONCERNS WERE OPENED IN ADONI BY RAMANLAL S HAH, WHO HAD HIS BANK A/C. IN PUNE IN THE BANK OF INDIA, BHAWANI PET H BRANCH, PUNE. LATER ON, ANOTHER CONCERN/PROPRIETORY FIRM WAS FLOATED UN DER THE NAME AND 3 ITA NO.1210/PN/09 SANKET TRADING CO., (B.P. 96-97 TO 02-03) STYLE OF M/S. MAHESHWARI FINANCERS AND THE NEPHEW O F SHRI RAMANLAL SHAH, SHRI MAHENDRA J. SHAH WAS SHOWN AS THE PROPRI ETOR OF THE SAID CONCERN. IN SUM AND SUBSTANCE, AS PER THE MODUS OPERANDI ADOPTED BY SHRI RAMANLAL SHAH AND SHRI MAHENDRA SHAH, THE CHEQ UES WERE ISSUED IN FAVOUR OF THE PUNE BASED CONCERNS AND INTEREST AT T HE RATE OF 18% WAS CHARGED TO THOSE CONCERNS. 5. WE NEED NOT GO INTO THE DETAILED FACTS IN RESPEC T OF SHR RAMANLAL SHAH AND SHRI MAHENDRA SHAH, BUT ON THE BASIS OF TH E ASSESSMENT FRAMED IN THOSE CASES, IN CONSEQUENCE OF THE SEARCH AND SEIZURE ACTION, THE PRESENT ASSESSEE WAS ISSUED NOTICE U/S. 158 BD ON 28.5.2004 REQUIRING HIM TO FILE THE RETURNS OF INCOME WITHIN 15 DAYS. SUBSEQUENTLY, NOTICE U/S. 142(1) WAS ISSUED AND ASSESSMENT OF THE ASSESSEE WAS COMPLETED DETERMINING THE TOTAL UNDISCLOSED INCOME FOR THE BLOCK PERIOD AT RS.13,83,449/- VIDE ORDER DATED 28.6.2006. 6. THE OBJECTION RAISED BY THE ASSESSEE IS THAT THE RE IS A SERIOUS LAPSE ON THE PART OF THE A.O WHO COMPLETED THE ASSESSMENT OF SHRI RAMANLAL SHAH AND SHRI MAHENDRA SHAH U/S. 153C TO RECORD THE SATISFACTION WHICH IS A MANDATORY REQUIREMENT U/S. 158BD OF THE ACT. THE BENCH HAS DIRECTED THE DEPARTMENT TO PRODUCE THE SATISFACTI ON NOTE PREPARED BY THE A.O. WHILE COMPLETING THE ASSESSMENT OF SHRI RA MANLAL SHAH AND SHRI MAHENDRA SHAH AT ADONI, ANDHRA PRADESH. THE LD. D. R. FILED THE COPY OF THE SATISFACTION NOTE ALONG WITH THE FORWARDING L ETTER BY THE ASTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2 (3), P UNE DATED 10.5.2004. THE LD. COUNSEL VEHEMENTLY ARGUED THAT THE LAW IS WELL SETTLED BY THE HONBLE SUPREME COURT THAT IF THE A.O IS DESIRING T O TAKE THE ACTION AGAINST A NON-SEARCH PERSON ON THE BASIS OF THE INC RIMINATING EVIDENCE FOUND IN THE COURSE OF SEARCH ACTION, THEN IT IS A MANDATORY REQUIREMENT THAT THE A.O COMPLETING THE ASSESSMENT OF THE SEA RCHED PERSON MUST RECORD THE SATISFACTION AND HE SHOULD FORWARD THE M ATERIAL ALONG WITH THE SATISFACTION NOTE TO THE A.O HAVING JURISDICTION OV ER THE NON-SEARCH PERSON TO LOOK INTO THE MATTER IF HE IS NOT THE A.O IN RESPECT OF THE NON- SEARCH PERSON. 7. THE LD COUNSEL REFERRED TO THE DOCUMENTS FILED B Y THE DEPARTMENT MORE PARTICULARLY, THE COPY OF FORWARDING LETTER BY THE ASSTT. COMMISSIONER OF INCOME TAX (CENTRAL CIR. 2(3) DATED 5.10.2004 TO THE ITO, WARD 2(1), PUNE. HE SUBMITS THAT EVEN IF THE FORWARDING LETTER IS 4 ITA NO.1210/PN/09 SANKET TRADING CO., (B.P. 96-97 TO 02-03) SIGNED BY THE CONCERNED A.O, BUT THE SATISFACTION N OTE IS NOT SIGNED AND IT CANNOT BE SAID THERE IS A COMPLIANCE OF THE MANDATO RY CONDITION AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MANISH MAHESHWARI 289 ITR 341. THE LD COUNSEL ALSO RELIED ON THE FOLLOWI NG DECISIONS : (1) SMT. KILASHO DEVI BURMAN & ORS.VS. CIT, 219 ITR 214 (SC) (2) CIT VS. DHANSUKHLAL J. GAJJAR 237 ITR 534 (GUJ) (3) BIBHUTI BHUSAN ROY VS. ITO & ORS., 111 ITR 84 (CAL) THE LD COUNSEL FURTHER SUBMITS THAT PRESUMING THAT THE A.O HAS RECORDED SATISFACTION AS CONTEMPLATED U/S. 158BD, BUT THE SA ME SHOULD HAVE BEEN BEFORE THE ASSESSMENT OF SEARCH PARTY HAS BEEN COM PLETED. IN THE PRESENT CASE, AS PER THE FORWARDING LETTER, THE SAT ISFACTION NOTE IS PRESUMED TO HAVE BEEN PREPARED ON 10/5/2004 WHEN T HE ASSESSMENT IN THE CASE OF THE SEARCHED PERSON ARE COMPLETED MUCH PRIOR TO THE SAID DATE. HE THEREFORE SUBMITTED THAT OTHERWISE ALSO, THE A.O HAS FAILED TO RECORD THE SATISFACTION AS THE SAME SHOULD HAVE BEE N RECORDED ON OR BEFORE 24.12.2003, WHEN THE BLOCK ASSESSMENTS OF TH E SEARCHED PERSONS WERE COMPLETED. WE HAVE ALSO HEARD THE LD. D.R. 8. THE SHORT ISSUE IN CONTROVERSY BEFORE US IS WHET HER THE A.O. WHO COMPLETED THE ASSESSMENT OF THE SEARCHED PERSON HAS RECORDED THE SATISFACTION AS ONE OF THE MANDATE OF SEC. 158 BD. SEC 158 BD READS AS UNDER : 158BD. WHERE THE ASSESSING OFFICER IS SATISFIED THAT ANY UNDISCLOSED INCOME BELONGS TO ANY PERSON, OTHER THAN THE PERSON WITH RESPECT TO WHOM SEARCH WAS MADE UNDER SECTION 132 OR WHOSE BOO KS OF ACCOUNT OR OTHER DOCUMENTS OR ANY ASSETS WERE REQUISITIONED UN DER SECTION 132A, THEN, THE BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ASSE TS SEIZED OR REQUISITIONED SHALL BE HANDED OVER TO THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH OTHER PERSON AND THAT ASSES SING OFFICER SHALL PROCEED [UNDER SECTION 158BC) AGAINST SUCH OTHER PE RSON AND THE PROVISIONS OF THIS CHAPTER SHALL APPLY ACCORDINGLY. SEC. 158 BD HAS COME FOR JUDICIAL SCRUTINY BEFORE T HE HONBLE SUPREME COURT IN THE CASE OF MANISH MAHESHWARI 289 ITR 34 1. THEIR LORDSHIPS HAVE HELD THAT IT IS ONE OF THE MANDATORY REQUIREM ENTS THAT THE A.O WHO COMPLETES THE ASSESSMENT IN THE CASE OF THE SEARCHE D PERSON, MUST RECORD SATISFACTION THAT ON THE BASIS OF INCRIMINAT ING MATERIAL FOUND DURING THE COURSE OF THE SEARCH, UNDISCLOSED INCOME OF THE OTHER PERSONS IS FOUND. THE A.O SHOULD FORWARD THE SATISFACTION NOTE TO THE A.O HAVING 5 ITA NO.1210/PN/09 SANKET TRADING CO., (B.P. 96-97 TO 02-03) THE JURISDICTION OVER THE SAID PERSON AGAINST WHOM THE INCRIMINATING MATERIAL IS FOUND IF HE IS NOT THE A.O OF SAID PER SON BUT RECORDING OF THE SATISFACTION IS MUST AND MANDATORY. 9. LET US EXAMINE THE CASES BEFORE US. THE LD. D.R . HAS PRODUCED THE XEROX COPIES OF THE FORWARDING LETTER BY THE AS STT. COMMISSIONER OF INCOME TAX (CENTRAL 2(3)), PUNE, WHO APPEARS TO BE THE ASSESSING OFFICER IN THE CASE OF MAHESHWARI FINANCIERS AFTER THE SEAR CH ACTION. ON THE PERUSAL OF THE FORWARDING LETTER, WE FIND THAT THE TRANSACTIONS ALLEGEDLY ENTERED INTO BY THE ASSESSEE ARE GIVEN. WE DO REPR ODUCE THE ENTIRE COVERING LETTER AS UNDER : NO.PN/ACIT. CC.2(3)/158BD/2004-05 OFFICE OF T HE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(3), PUNE DATE: 10/05/2004 TO THE I.T.O WARD 2(1) PUNE SIR/MADAM SUB: ACTION U/S. 158BD IN THE CASE OF SANKET TRAD ING CO. ADINAT SET J- 187, PUNE SATARA ROAD PUNE, FOR BLOCK ASSESSMENT YEARS 1996-97 TO 200 2-03 ----------------------------------------- ----------------- DURING THE COURSE OF SEARCH U/S. 132 CONDUCTED IN T HE CASE OF M/S.MAHESHWARI FINANCIERSI (A.P.) ON 11/10/2001, C ERTAIN LOAN TRANSACTIONS AS DETAILED BELOW WERE DETECTED IN RESPECT OF THE ABOV E ASSESSEE. FINANCIAL YEAR OPENI NG BALANCE ADVANCE PAID DURING THE YEAR INTEREST FOR THE YEAR REPAYMENT RECEIVED DURING THE YEAR CLOSING BALANCE 1995 - 1996 --- --- 91,500 591,500 1996 - 1997 591,500 --- 109,449 --- 1,001,500 1997 - 1998 1,001,500 181,250 --- 1,091 ,250 1998 - 1999 1,091,250 --- 197,903 197,903 1,091,250 1999 - 2000 1,091,250 --- 199,449 199,449 1,091,250 2000 - 2001 1,091,250 --- 140,552 641,802 590,000 2001 - 2002 590,000 --- --- -- 590,000 A DETAILED SATISFACTION NOTE FOR TAKING ACTION U/S . 158BD IS ENCLOSED HEREWITH. YOU ARE REQUESTED TO DO THE NEEDFUL IN T HE MATTER. YOURS FAITHFULLY SD/- (MRS. S.V. YEVALEKAR) ASSTST. COMMISSIONER OF INCOME TAX, (CENTRAL) CIRCLE 2(3), PUNE COPY TO: 1. THE ADDL.CIT, RANGE 2, PUNE 2. THE ADDL CIT CR 2 PUNE ACIT, CC2(3), PUNE 6 ITA NO.1210/PN/09 SANKET TRADING CO., (B.P. 96-97 TO 02-03) THE SAID COVERING LETTER IS ACCOMPANIED BY ONE SATI SFACTION NOTE. ON PAGE NO. 10, THERE IS NO SIGNATURE EXCEPT THE NAME OF THE A.O I.E. S.V. YEVALEKAR, ASSTT. COMMISSIONER OF INCOME TAX, (CENT RAL) CIRCLE 2(3), PUNE. IT IS CERTAINLY STRANGE THAT EVEN IF IT IS C LAIMED THAT THE SATISFACTION NOTE IS PREPARED BY THE CONCERNED A.O WHO COMPLETE D THE ASSESSMENT IN THE SEARCH CASES, BUT THE SATISFACTION NOTE DOES NO T BEAR THE SIGNATURE OF THE SAID A.O. THEN THE QUESTION COMES WHAT IS THE VALUE OF THE SATISFACTION NOTE WHICH HAS NOT BEEN SIGNED BY THE CONCERNED A.O OR OTHER OFFICER. THE ARGUMENT OF THE LD COUNSEL IS S UPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F SMT. KILASHO DEVI BURMAN & ORS.VS. CIT, (SUPRA). IN THE SAID CASE IS SUE OF THE VALIDITY OF THE ASSESSMENT ORDER WHICH HAS NOT BEEN SIGNED BY T HE A.O. WAS BEFORE THEIR LORDSHIPS. THEIR LORDSHIPS HELD THAT AN ASSES SMENT ORDER HAS TO BE SIGNED TO BE A VALID ASSESSMENT. THE SAME PRINCIPL ES CAN BE APPLIED TO THE SATISFACTION NOTE PREPARED BY THE A.O AS PER TH E FORWARDING LETTER DATED 10/5/2004. THE UNSIGNED SATISFACTION NOTE DOES NOT COMPLY WITH THE REQUIREMENT OF SEC. 158 BD. SATISFACTION NOTE IS NOT MERE FORMALITY BUT IT IS ONE OF THE LEGAL ORDER U/S. 158BD OF THE ACT. WE, THEREFORE, HOLD THAT THERE IS NO VALID SATISFACTION NOTE BY THE A.O WHILE COMPLETING THE ASSESSMENT OF M/S. MAHESWARI FINANCIERS. 10. LET US ACCEPT THE ARGUMENT OF THE LD. D.R. THAT AS THE COVERING LETTER IS SIGNED BY THE A.O AND HENCE, THE SATISFA CTION NOTE IS THE PART OF THE COVERING LETTER, BUT THE QUESTION COMES THAT A DMITTEDLY ON THE COVERING LETTER IS DATED 10.5.2004, THERE IS NO SIG NATURE OR DATE ON THE ALLEGED SATISFACTION NOTE, HENCE THE SAME IS TO BE PRESUMED TO BE PREPARED BY THE CONCERNED A.O ON 10.5.2004. ADMITT EDLY IN THE PRESENT CASE, THE BLOCK ASSESSMENT IN THE CASE OF M/S. MAH ESHWARY ENTERPRISES AND M/S. MAHESHWARY FINANCIERS, WHO WERE SUBJECTED TO SEARCH U/S. 132(1) OF THE ACT HAVE BEEN COMPLETED ON 24.12.2003 . AS PER THE MANDATE OF SEC. 158BD, THE A.O WHO COMPLETES THE AS SESSMENT OF THE SEARCHED PERSON, HAS TO RECORD THE SATISFACTION ON OR BEFORE COMPLETION OF THE ASSESSMENT U/S. 158C. ADMITTEDLY, IN THE PRESE NT CASE, THE ALLEGED SATISFACTION NOTE IS PREPARED AFTER THE GAP OF ALM OST 6 MONTHS. IN OUR OPINION, THE SAID SATISFACTION NOTE IS OTHERWISE AL SO NOT LEGALLY VALID. WE, THEREFORE, HOLD THAT AS THERE IS A SERIOUS LAPSE IN PREPARING THE SATISFACTION NOTE ON THE PART OF THE A.O., THE ASSE SSMENT PROCEEDINGS 7 ITA NO.1210/PN/09 SANKET TRADING CO., (B.P. 96-97 TO 02-03) INITIATED BY THE A.O AGAINST THE ASSESSEE IS BAD IN LAW AND WE HAVE TO QUASH THE SAME. WE ACCORDINGLY DO SO AND CANCEL TH E ASSESSMENT FRAMED BY THE A.O. U/S. 158 BD AGAINST THE ASSESSEE . AS THE ASSESSEE HAS SUCCEEDED ON ADDITIONAL GROUND, WE DO NOT CONSI DER TO GO INTO THE OTHER GROUNDS TAKEN ON MERITS AND WE KEEP THE SAID GROUNDS OPEN. 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20TH NOVEMBER 2012. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE, DATED THE 20TH NOVEMBER, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-II, PUNE 4. THE CIT(A) II, PUNE 5. THE D.R. B BENCH, PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE