The DCIT, Central Circle-1, Visakhapatnam V. M/s K Koteswara Rao, Visakhapatnam

ITSSA 8/VIZ/2005

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 8939 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 08-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 31-01-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Validity of assessment; Block assessment
• Section: 131; 37; 132

Judgement Text

IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER IT(SS)A NO. 08/VIZAG/2005 BP: 1-4-1990 TO 24-1-2001 DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I, VISAKHAPATNAM VS. SRI K. KOTESWARA RAO, PROP.COLOUR INDIA, VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AFXPX 6569 E CO NO.26/VIZAG/2005 (ARISING OUT OF IT(SS)A NO. 08/VIZAG/2005) BP: 1-4-1990 TO 24-1-2001 DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-I, VISAKHAPATNAM VS. SRI K. KOTESWARA RAO, PROP.COLOUR INDIA, VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AFXPX 6569 E APPELLANT BY: SHRI SUBRATA SARKAR, CIT(DR) RESPONDENT BY: SHRI C. SUBRAMANYAM, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 27.10.2004 PASSED BY LD. CIT(A-1), VISAKHAPATNAM CH ALLENGING THE RELIEF GIVEN BY HIM AND IT RELATES TO THE BLOCK PERIOD END ING 24.1.2001. THE ASSESSEE HAS FILED CROSS OBJECTION RAISING CERTAIN LEGAL GROUNDS THEREIN. 2. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS THE PROPRIETOR OF A BUSINESS CONCERN NAMED M/S COLOUR IN DIA WHICH IS ENGAGED IN PAINTING CONTRACTS. THE REVENUE CARRIED OUT SEA RCH AND SEIZURE OPERATIONS IN THE RESIDENCE OF THE ASSESSEE ON 24.1 .2001 IN CONNECTION WITH IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 2 OF 8 THE WARRANT ISSUED IN THE NAME OF ANOTHER PERSON. CONSEQUENT THERETO, A NOTICE U/S 158BC WAS ISSUED TO THE ASSESSEE CALLING FOR A RETURN OF INCOME FOR THE BLOCK PERIOD ENDING ON 24.1.2001. THE ASSE SSEE ALSO FILED HIS BLOCK RETURN ON 15.5.2002 ADMITTING THE TOTAL UNDISCLOSED INCOME AT RS.12,50,000/-. THE ASSESSMENT WAS COMPLETED ON 31 .1.2003 BY DETERMINING THE TOTAL UNDISCLOSED INCOME AT RS.44,9 2,750/-. IN THE APPEAL PREFERRED BY THE ASSESSEE, THE LEARNED CIT(A) GRANT ED RELIEF TO THE EXTENT OF RS.31,87,414/- AND SUSTAINED THE BALANCE ADDITIO N OF RS.13,05,340/-. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), THE REVEN UE HAS FILED THIS APPEAL BEFORE US. 3. BEFORE LEARNED CIT(A) THE ASSESSEE QUESTIONE D THE VALIDITY OF FRAMING ASSESSMENT U/S 158BC OF THE ACT AS, ACCORDING TO TH E ASSESSEE, NO SEARCH WARRANT WAS ISSUED IN HIS NAME. HOWEVER, LEARNED C IT(A) HELD THE VALIDITY OF THE ASSESSMENT FRAMED U/S 158BC OF THE ACT. AGA INST THE SAID DECISION, THE ASSESSEE HAS FILED HIS CROSS OBJECTION. THE AS SESSEE HAS ALSO RAISED ONE MORE ADDITIONAL GROUND, I.E. THE ASSESSMENT FRAMED WITHOUT ISSUING NOTICE U/S 143(2) IS NULL AND VOID. 4. BEFORE PROCEEDING THE GROUNDS RAISED BY THE REVENUE ON MERITS, WE THINK IT PROPER TO ADDRESS THE LEGAL ISSUES URGED B Y THE ASSESSEE IN THE CROSS OBJECTION FILED BY HIM. WE SHALL FIRST TAKE UP THE ISSUE RELATING TO THE NOTICE TO BE ISSUED U/S 143(2) OF THE ACT. THE LEA RNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE DID NOT RECEIVE ANY NOTICE, WHICH IS REQUIRED TO BE ISSUED AS PER THE PROVISION S OF SEC 143(2) BEFORE FRAMING ANY ASSESSMENT U/S 143(3). BY PLACING RELI ANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF A.C.I.T VS. HOT EL BLUE MOON (2010) 229 CTR 219, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE BLOCK ASSESSMENT FRAMED IN THE INSTANT CASE, WITHOU T ISSUING A NOTICE U/S 143(2), IS NULL AND VOID. IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 3 OF 8 4.1 HOWEVER, THE LEARNED DEPARTMENTAL REPRESENT ATIVE PLACED BEFORE US A COPY OF THE ORDER SHEET MAINTAINED BY THE ASSES SING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HAS RECORDED O N 10-12-2002 THAT SRI D.PRASANNA KUMAR, A.R PRESENT IN RESPONSE TO NOTICE U/S 143(2) AND THE SAID A.R HAS ALSO SIGNED THE ORDER SHEET ON THAT DA TE. ACCORDINGLY LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE ABOV E SAID NOTING AMPLY SUGGEST THAT THE ASSESSING OFFICER HAS ISSUED NOTIC E U/S 143(2). 4.2 THOUGH THE LEARNED AUTHORISED REPRESENTATIV E SUBMITTED THAT THERE IS NO REFERENCE IN THE ORDER SHEET WITH REGARD TO T HE ISSUING OF ANY NOTICE U/S 143(2) OF THE ACT PRIOR TO 10.12.2002, YET WE A RE OF THE VIEW THAT THE NOTING MADE BY THE ASSESSING OFFICER ON 10.12.2002, WHICH WAS POINTED OUT BY LEARNED DEPARTMENTAL REPRESENTATIVE, SUGGEST THE SAID STATUTORY NOTICE WAS ISSUED TO THE ASSESSEE. THE DECISION RENDERED B Y THIS BENCH IN THE CASE OF M/S VIJAYALAKSHMI ENTERPRISES IN ITA NO.544/VIZA G/2009, WHICH IS RELIED UPON BY LEARNED AUTHORISED REPRESENTATIVE, IN OUR V IEW, IS NOT APPLICABLE TO THE FACTS OF THIS CASE. ACCORDINGLY, WE DISMISS TH IS LEGAL GROUND RAISED BY THE ASSESSEE. 5. THE NEXT LEGAL GROUND RAISED IN THE CROSS OB JECTION RELATES TO THE VALIDITY OF ASSESSMENT MADE IN THE HANDS OF THE ASS ESSEE U/S 158BC OF THE ACT. THE ASSESSEE CLAIMS THAT NO WARRANT OF SEARC H WAS ISSUED IN HIS NAME. THE LEARNED D.R FURNISHED A COPY OF WARRANT OF AUTHORIZATION ISSUED U/S 132 OF THE ACT. HENCE, WE THINK IT PROPER TO E XTRACT THE RELEVANT PORTIONS FROM THE WARRANT OF AUTHORIZATION ISSUED U /S 132 OF THE ACT, WHICH IS THE BASIS FOR FRAMING THE ASSESSMENT IN THE HAND S OF THE ASSESSEE U/S 158BC OF THE ACT. TO THE ADDITIONAL DIRECTOR OF INCOME TAX (INVESTIGATIO N) .. IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 4 OF 8 IF A SUMMONS UNDER SUB-SECTION (1) OF SECTION 37 OF THE INDIAN INCOME TAX ACT, 1922 OR UNDER SUB-SEC. (1) OF SEC. 131 OF THE I.T. ACT, 1961 OR A NOTICE UNDER SUB-SEC. (4 ) OF SEC. 22 OF THE INDIAN I.T.ACT, 1922 OR UNDER SUB-SEC. (1) OF SE CTION 142 OF THE I.T. ACT, 1961 AS ISSUED TO SRI POTLURI SUDHAKAR (NAME OF PERSON) TO PRODUCE OR CAUSE TO BE PRODUCED. SHRI POTLURI SUDHAKAR ARE/IS IN POSSESSION OF ANY MONEY, BULLION JEWELLERY OR OTHER VALUABLE ARTICLE OR THING AND SUCH MONEY, BULLION, JEWELLERY OR OTHER VALUABLE AR TICLE OR THINGS REPRESENT EITHER WHOLLY OR PARTLY INCOME OR PROPERT Y WHICH HAS NOT BEEN OR WOULD NOT BE DISCLOSED FOR THE PURPOSES OF THE INDIAN I.T. ACT 1922 OR THE INCOME TAX, 1961. AND WHEREAS I HAVE REASON TO SUSPECT THAT SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLES OR THINGS HAVE BEEN KEPT AND ARE TO BE FOUND IN RESIDENCE OF SRI K.KOTESWAR RAO M/S COLOUR INDIA A BLOCK, 4C, 4 TH FLOOR, SEA DOLL APARTMENTS, NEAR TAJ RESIDENCY HOTEL, VISAKHAPATNAM . (SPECIFY PARTICULARS OF THE BUILDING/PLACE/VESSEL/VEHICLE/AI RCRAFT). 5.1 WE ALSO EXTRACT BELOW THE RELEVANT PORTIONS OF THE PANCHANAMA, WHICH WAS RELIED UPON BY THE ASSESSEE: A) WARRANT IN THE CASE OF : SRI POTLURI S UDHAKAR B) WARRANT TO SEARCH : RESIDENCE OF S RI K.KOTESWARARAO (DETAILS & OWNERSHIP OF PLACE A BLOCK, 4/C SEA DOLL APTS., OF SEARCH) TELEPHONE NUMBER NOWROJI ROAD, M.R. P ETA. VISAKHAPATNAM-PH. 560298 5.2 NOW THE SUBMISSION OF THE ASSESSEE IS THAT THE WARRANT OF AUTHORIZATION WAS ISSUED TO A PERSON NAMED SRI POTL URI SUDHAKAR AND IN CONNECTION WITH THE SAID AUTHORIZATION, THE RESIDEN CE OF THE ASSESSEE WAS SEARCHED. ACCORDINGLY IT WAS CONTENDED ON BEHALF O F THE ASSESSEE THAT THERE WAS NO WARRANT OF AUTHORIZATION IN THE NAME O F THE ASSESSEE AND IN ITS ABSENCE, THE ASSESSMENT FRAMED U/S 158BC IS BAD IN LAW AND IS LIABLE TO BE QUASHED. IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 5 OF 8 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWE VER CONTENDED THAT THE ASSESSMENT FRAMED U/S 158BC IS VALID SINCE THE NAME OF THE ASSESSEE FINDS PLACE IN THE WARRANT OF AUTHORIZATION. HE FU RTHER SUBMITTED THAT THE ASSESSEE HEREIN AND THE PERSON SRI POTLURI SUDHAKAR ARE RELATED TO EACH OTHER IN THEIR RESPECTIVE BUSINESS ACTIVITIES AND I N THIS REGARD, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED A COPY OF LET TER DATED 8 TH OCTOBER, 2009 ISSUED BY THE ADDL. DIRECTOR OF INCOME TAX (INV .), UNIT III, VISAKHAPATNAM. IN THE SAID LETTER, THE ADDL D.I. HA D EXTRACTED THE SATISFACTION NOTE WRITTEN IN CONNECTION WITH THE SE ARCH IN THE HANDS OF SRI P.SUDHAKAR. IN THE SAID NOTE, IT IS MENTIONED THAT SHRI P.SUDHAKAR AND THE ASSESSEE HEREIN ARE RELATED TO EACH OTHER AS SUPPO RTING BIDDERS TO EACH OTHER IN ORDER TO ENABLE TO WIN THE PAINTING CONTR ACTS. BESIDES THE ABOVE, IT WAS ALSO STATED THAT THE ASSESSEE HEREIN IS ONE OF THE DIRECTORS OF A PRIVATE LIMITED COMPANY FLOATED BY SHRI P.SUDHAKAR. ACCORDINGLY LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DEPA RTMENT HAS CARRIED OUT SEARCH IN THE RESIDENCE OF THE ASSESSEE IN VIEW OF THEIR BUSINESS CONNECTIONS. 6.1 THE LEARNED D.R ALSO CONTENDED THAT IT IS B EYOND THE SCOPE AND POWERS OF THE TRIBUNAL TO DECIDE ON THE QUESTION OF THE LEGALITY OF SEARCH. IN SUPPORT OF HIS CONTENTIONS, THE LEARNED D.R RELIE D UPON THE DECISION RENDERED BY THIS BENCH IN THE CASE OF SMT. CHAGARLA MUDI VIJAYA KUMARI IN IT(SS)A NO.06/V/06. AT THIS JUNCTURE, IT IS IMPERA TIVE TO CLARIFY ABOUT THE ISSUE BEFORE US. THE ISSUE BEFORE US IS NOT, AS AS SUMED BY LEARNED D.R, ABOUT THE LEGALITY OF SEARCH, BUT ABOUT THE LEGALIT Y OF ASSESSMENT MADE U/S 158BC OF THE ACT. IT IS A WELL SETTLED PROPOSITION THAT A BLOCK ASSESSMENT U/S 158BC OF THE ACT CAN BE MADE ONLY IN THE HANDS OF A PERSON WHO WAS SEARCHED U/S 132 OF THE ACT. THE QUESTION BEFORE U S IS WHETHER THERE WAS A SEARCH IN THE HANDS OF THE ASSESSEE WHICH GAVE AU THORITY TO THE A.O TO IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 6 OF 8 FRAME ASSESSMENT U/S 158BC OF THE ACT AND AS A FAC T FINDING AUTHORITY, THE TRIBUNAL IS EMPOWERED TO ADDRESS THE SAME. 7. NOW LET US DISCUSS IN BRIEF THE LEGAL PROPOS ITIONS LAID DOWN IN THE CASE LAW RELIED UPON BY THE LEARNED A.R. (A) IN THE CASE OF DHIRAJ SURI VS.ADDL. CIT (2006 ) (98 ITD 187 (DEL)), IT HAS BEEN HELD THAT THE SEARCH U/S 132 IS PERSON SPECIFIC AND NOT PREMISES SPECIFIC. IN THAT CASE, THE SEARCH WARRANT WAS IN THE NAME OF THE ASSESSEES HUSBAND. THE BLOCK ASSESSMENT FR AMED IN THE HANDS OF THE ASSESSEE THEREIN WAS HELD TO BE VOID AB INITIO AS THERE WAS NO SEARCH WARRANT IN THE NAME OF THE ASSESSEE. (B) IN THE CASE OF A.C.I.T VS. VINOD GOEL (2008) ( 111 ITD 70 (ASR)), IT WAS HELD THAT FOR THE PURPOSES OF SECTION 132(1) , IT IS NOT NECESSARY THAT PLACE OR BUILDING SOUGHT TO BE SEARCHED MUST B ELONG TO THE ASSESSEE IN WHOSE NAME SEARCH WARRANT IS ISSUED. IN THE NAME OF THE ASSESSEE THEREIN, NO ACTION U/S 132 OR 132A HAD BEEN TAKEN AND THE REVENUE FRAMED ASSESSMENT U/S 158BC OF THE ACT ON T HE BASIS OF INCRIMINATING MATERIALS BELONGING TO THE ASSESSEE, FOUND DURING THE COURSE OF SEARCH. IT WAS HELD THAT THE ASSESSMENT COULD BE FRAMED ONLY U/S 158BD OF THE ACT AND NOT U/S 158BC. (C) IN THE CASE OF CIT V TIRUPATI OIL CORPORATION ( 2001)(248 ITR 194 (BOM)), THE REVENUE CARRIED OUT SEARCH OPERATION AT THE RESIDENCE OF PARTNER. THE REVENUE ISSUED NOTICE U/S 158BC OF TH E ACT TO THE PARTNERSHIP FIRM. IT WAS HELD THAT THE ASSESSING OFFICER COULD PROCEED ONLY U/S 158BD OF THE ACT TO FRAME ASSESSMENT IN THE HANDS OF THE PARTNER. (D) IN THE CASE OF CIT VS. PUSHPA RANI (2007) 289 ITR 328 (DELHI), THE HON'BLE HIGH COURT APPROVED THE DECISION OF THE TRIBUNAL THAT THE ASSESSING OFFICER COULD NOT INVOKE THE PROVISIONS O F SEC. 158BC FOR INITIATION OF BLOCK ASSESSMENT PROCEEDINGS AS THERE WERE NO SE ARCH WARRANT IN THE NAME OF ASSESSEE. IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 7 OF 8 8. NOW COMING TO THE FACTS OF THE INSTANT CASE, IT IS NOTICED THAT THE SEARCH WARRANT WAS ISSUED IN THE NAME OF POTLURI SU DHAKAR AND THE PLACE OF SEARCH WAS MENTIONED AS THE RESIDENCE OF THE ASSESS EE HEREIN. IN THE CASE OF DHIRAJ SURI, (SUPRA), IT HAS BEEN HELD THAT THE SEARCH IS PERSON SPECIFIC AND NOT PREMISES SPECIFIC. IT HAS ALSO BEEN HELD T HAT THE PREMISES SEARCHED NEED NOT BELONG TO THE ASSESSEE IN THE CAS E OF VINOD GOEL, (SUPRA). IN THE INSTANT CASE, THE RESIDENCE OF THE ASSESSEE WAS SUBJECTED TO SEARCH IN CONNECTION WITH THE WARRANT ISSUED IN SOME OTHER PERSONS NAME. THE REVENUE COULD NOT SHOW US THAT THERE WAS A SEPARATE WARRANT OF SEARCH IN THE NAME OF THE ASSESSEE ALSO. FURTHE R, ON A CAREFUL READING OF THE WARRANT OF SEARCH AND THE PACHANAMA, RELEVAN T PORTIONS OF WHICH WERE EXTRACTED (SUPRA), IT CAN ONLY BE UNDERSTOOD THAT THE WARRANT OF SEARCH WAS ISSUED ONLY IN THE NAME OF POTLURI SUDHA KAR AND NOT IN THE NAME OF THE ASSESSEE. IN VIEW OF THE LEGAL PROPOSIT IONS LAID DOWN IN THE ABOVE CITED CASES, IN OUR OPINION, THE WARRANT OF S EARCH ISSUED IN THE NAME OF POTLURI SUDHAKAR CANNOT BE INTERPRETED TO BE A W ARRANT IN THE NAME OF THE ASSESSEE, MERELY BECAUSE THE RESIDENCE OF THE A SSESSEE WAS SUBJECTED TO SEARCH. IN THIS KIND OF SITUATION, WE ARE OF THE VIEW THAT THE A.O COULD HAVE PROCEEDED ONLY U/S 158BD OF THE ACT IN THE HAN DS OF THE ASSESSEE. HENCE, IN THE ABSENCE OF WARRANT OF SEARCH, THE ASS ESSMENT FRAMED U/S 158BC OF THE ACT IN THE HANDS OF THE ASSESSEE IS LI ABLE TO BE QUASHED AND WE ORDER ACCORDINGLY. 9. SINCE WE HAVE QUASHED THE ASSESSMENT ON LEGA L GROUND, WE FIND IT NOT NECESSARY TO ADDRESS THE GROUNDS RAISED BY THE REVENUE ON MERITS OF THE ADDITION. 10. DURING THE COURSE OF HEARING, LEARNED D.R S UBMITTED THAT THE DEPARTMENT IS NOT UNDER AN OBLIGATION TO REFUND THE TAX PAID BY THE ASSESSEE ON THE INCOME OFFERED BY HIM VOLUNTARILY. IN SUPPORT THIS PROPOSITION, LEARNED D.R RELIED ON THE DECISION OF HON'BLE SUPREME COURT IT(SS)A NO.08 & CO 26 OF 05 K.KOTESWARA RAO-COLOUR INDIA VIZAG PAGE 8 OF 8 IN THE CASE OF CIT VS.SHELLY PRODUCTS AND ANOTHER ( 2003)(261 ITR 367 (S.C). THERE CANNOT BE ANY DISPUTE THAT THE ABOVE SAID SUBMISSION OF THE LEARNED D.R IS NOT AN ISSUE BEFORE US. HENCE WE DEC LINE TO INTERFERE WITH THIS MATTER AND LEAVE THE SAME TO THE WISDOM OF THE ASSESSING OFFICER TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE LAW. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 8 TH SEPTEMBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 08-09- 2010 COPY TO 1 THE DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 , 5 TH FLOOR, DIRECT TAX BUILDINGS, MVP COLONY, VISAKHAPATNAM 2 SRI K. KOTESWARA RAO, PROP. COLOUR INDIA, SEA DOLL APARTMENTS, OPP: TAJ RESIDENCY, VISAKHAPATNAM 3 4. THE CIT CENTRAL, HYDERABAD THE CIT(A)-I, VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM