RAJHANS BUILDERS V. DY. COMMISSIONER OF INCOME TAX

SCA/30788/2007

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The case involves Rajhans Builders, a firm engaged in civil construction, which challenged a notice issued by the Deputy Commissioner of Income Tax under section 153C of the Income Tax Act, 1961. The notice was based on unaccounted income admitted by the managing partner of Rajhans Builders during a search operation. The Income Tax Department conducted search operations on March 7, 2006, and subsequent disclosures led to the issuance of the notice for reassessment of income for six assessment years. The petitioner contended that the notice was issued without sufficient evidence and after the search operations were completed. The court, however, found that the satisfaction note and the materials on record justified the issuance of the notice and that the petitioner should first exhaust the statutory remedies before approaching the court.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 758477 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-05-2014
• Assessment Year: misc
• Other Referred Cases: CIT v. Calcutta Knitwears, CIT v. Vijaybhai N. Chandrani, CIT v. Chhabil Dass Agarwal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: MANISH SHAH
• Keywords: Assessment; Income Tax; Reassessment; Search and seizure; Unaccounted income
• Section: 153A; 153C; 12; 132(4); 140

Judgement Text

"C/SCA/30788/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 30788 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ RAJHANS BUILDERS....Petitioner(s) Versus DY. COMMISSIONER OF INCOME TAX & 1....Respondent(s) ================================================================ Appearance: MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 NOTICE SERVED BY DS for the Respondent(s) No. 2 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Page 1 of 11 C/SCA/30788/2007 JUDGMENT Date : 05/05/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Petitioner has challenged notice dated 1.8.2007 as at Annexure B to the petition issued by respondent No.1, Deputy Commissioner of Income Tax, under section 153C of the Income Tax Act,1961 (‘the Act’ for short). The petitioner has also challenged the reference made by the Assessing Officer on 31.7.07 to respondent No.2 the District Valuation Officer to opine on the valuation of certain immovable properties of the petitioner to ascertain the investment made by the petitioner in such properties. The petitioner is a firm engaged in the business of civil construction. The petitioner regularly files its return. Search operations were carried out by the Income Tax Department on 7.3.2006 in cases of Rajhans group of companies. Statement of one Shri Shivlal Jain, Managing Partner of M/s.Rajhans Builders was recorded under section 132(4) of the Act. In such statement, he admitted having earned unaccounted income of Rs.6 crores by the said group. Later on during the search of his locker, he revised the undisclosed income of the group to Rs.8.25 Page 2 of 11 C/SCA/30788/2007 JUDGMENT crores. On the basis of the materials collected and the documents found, respondent No.1 issued the impugned notice under section 153C of the Act in which it was stated as under: “A search u/s 132 of the I.T. Act was conducted in the case of Rajhans Group & others on 07/03/2006. Whereas I am satisfied that money / bullion / jewellery / other valuable articles or things and / or books of account / documents seized belongs to you. Therefore, your income of six assessment years immediately preceding the assessment year relevant to previous year in which the search was conducted i.e. from A.Y. 2000­01 to A.Y. 2005­06 is required to be assessed/reassessed in accordance with the provisions of section 15o3C of the Act. You are, therefore, required to furnish return of the company’s income u/s. 153A of the I.T.Act, 1961 for A.Y. 2000­01 being one out of the above six assessment years in respect of which you are assessable under the Income­Tax Act, 1961.The return should be filed in the appropriate form as prescribed in Rule 12 of the Income­Tax Rules, 1962. It should be duly verified and signed in accordance with the provisions of section 140 of the said Act and delivered at my office as mentioned above within FIFTEEN DAYS from the service of this notice.” It is this notice that the petitioner has challenged in he present petition. At our request, learned counsel for the Revenue had made available the satisfaction note recorded by respondent No.1 for issuing the impugned notice in which it is stated as under: Page 3 of 11 C/SCA/30788/2007 JUDGMENT “A search and seizure action under section 132(1) in the cases of Rajhans Group was carried out on 7/3/2006 by the investigation Wing of the Department. During the course of search and seizure operation, the statement of Shri Shivlal G. Jain, a Managing Partner in M/s.Rajhans Builders (R.F.) was recorded under section 132(4) of the Income Tax Act, 1961 wherein he admitted to have earned an unaccounted income of R. 6 crore in his group. Later, during the course of the search of his locker under section 132(1) he reaffirmed the admission of disclosure and revised the unaccounted income of his group concerns at Rs.8.25 crore. Subsequently, the assessee group i.e. Rajhans Group concerns and its individuals vide their letter dated 31/03/2006 addressed to the Asstt. Director of Income tax (Investigation) submitted the break­up of the disclosure made by him. The relevant extract of the letter is reproduced below: “In this connection and with reference to the survey conducted u/s.133A of the I.T.Act, 1961 at our all business places of our group project sites and search carried out u/s.132 of the I.T.Act, 1961 at our residences, we have to state as under: During the course of search conducted on dated 7th March, 2006 at our residences and survey conducted on dated 7th March 2006 at our all business places, certain loose papers/dairies and various other papers/documents were found. Covering all these loose paper/dairies & various other papers/documents total disclosure of Rs.825 crore has been made by our group covering the amount reflected therein. The break up of the disclosure statement given with this letter is made by us on behalf of all group concerns and individuals of the Rajhans Group.” Page 4 of 11 C/SCA/30788/2007 JUDGMENT From the break­up of disclosure filed by the assessee it can be seen that the partners had declared an amount of Rs.1,00,00,000/­ in the hands of M/s.Rajhans Builders (R.F.). It could be seen from the records that the assessee had undertaken six different projects under the banner of Rajhans Builders right from the period 1999­2000 which ended up in the year 2005/2006. Since the period of construction of different residential and commercial properties undertaken by the assessee stretched over a period of 6/7 years and, the disclosure of unaccounted income offered by the managers/partners of the assessee firm did not specify a particular assessment year to which such income pertained, and the fact that assessee firm has been carrying out its construction activities over a period of the last 5/6 years, and the disclosure of Rs.8.25 crore of unaccounted income under section 132(4) of the I.T.Act which includes the unaccounted income of Rs.1 crore was ;admittedly made by the assessee to cover all loose papers/diaries and various other papers documents, and in the light of the fact that no action under section 132/133A was taken place in the case of the assessee, and also taking into account the nature of business of constructions which involves the expenses/investment for along period, and in the absence of specific year of disclosure, I am satisfied that this is a fit case to issue notice u/s.153C of the I.T.Act.” Based on such satisfaction note and other materials on record, learned counsel for the petitioner vehemently contended that the satisfaction arrived at by the respondent was based on no evidence. Notice under section 153C of the Act, therefore, could not have been issued. He further contended that the satisfaction was recorded long after the search Page 5 of 11 C/SCA/30788/2007 JUDGMENT was over and the notice was issued thereafter. On the other hand, learned counsel Mrs.Bhatt for the Revenue opposed the petition contending that respondent No.1 after recording his satisfaction that on the basis of the documents seized during the search carried out against Rajhans Group of Companies, unaccounted income belonged to the assessee was unearthed, issued the impugned notice. At this stage, therefore, the court would not interfere. We are of the opinion that at this stage no interference is called for. Section 153C of the Act, as is well known, pertains to assessment of income of persons other than one who is subjected to search. Sub­section (1) of section 153C provides that where any Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belonged to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess Page 6 of 11 C/SCA/30788/2007 JUDGMENT income of such other person in accordance with the provisions of section 153A of the Act. Section 158BD of the Act makes similar provisions for block assessment of undisclosed income of persons other than the searched person. In context of section 158BD of the Act, the Apex Court in the case of CIT v. Calcutta Knitwears, 362 ITR 673 (SC) held and observed as under: “In the result, we hold that for the purpose of section 158BD of the Act a satisfaction note is sine quo non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following states: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; (b) along with the assessment proceedings under section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person.” Under the circumstances, the petitioner’s contention that notice under section 153C of the Act could not have been issued after search operations were over cannot be accepted. With respect to the validity of the notice itself, at this stage, we are not inclined to Page 7 of 11 C/SCA/30788/2007 JUDGMENT examine the same in view of the decisions of the Supreme Court in the case of CIT v. Vijaybhai N. Chandrani, 357 ITR 713 (SC) and in the case of CIT v. Chhabil Dass Agarwal, 357 ITR 357 (SC). The decision in the case of Vijaybhai N. Chandrani (supra) was rendered in the background of validity of notice under section 153C of the Act being challenged before the High Court. The High Court had quashed the notice on reaching to the conclusion that the documents seized by the Assessing Officer under section 132A did not belong to the assessee and therefore condition precedent for issuing notice under section 153C was not fulfilled. In this context, the Supreme Court held that the assessee could not have invoked the writ jurisdiction without first exhausting the alternative remedies provided under the Act and the High Court ought not to have entertained the writ petition. It was observed as under: “14. In our considered view, at the said stage of issuance of the notices under Section 153C, the assessee could have addressed his grievances and explained his stand to the Assessing Authority by filing an appropriate reply to the said notices instead of filing the Writ Petition impugning the said notices. It is settled law that when an alternate remedy is available to the aggrieved party, it must exhaust the same before approaching the Writ Court. In Bellary Steels & Alloys Ltd. v. CCT, (2009) 17 SCC 547, this Court had allowed the assessee therein to withdraw the original Writ Petition filed before the High Court as the said proceedings came to be filed against Page 8 of 11 C/SCA/30788/2007 JUDGMENT the show-cause notice and observed that the High Court should not have interfered in the matter as the Writ Petition was filed without even reply to the show cause notice. This Court further observed as follows: “3.…In the circumstances, we could have dismissed these civil appeals only on the ground of failure to exhaust statutory remedy, but for the fact that huge investments involving the large number of industries is in issue.” 15. We are fortified by the decision of this Court in Indo Asahi Glass Co. Ltd. v. ITO, (2002) 10 SCC 444, wherein the assessee had approached this Court against the judgment and order of the High Court which had dismissed the Writ Petition filed by the assessee wherein challenge was made to the show cause notice issued by the Assessing Authority on the ground that alternative remedy was available to the assessee. This Court concurred with the findings and conclusions reached by the High Court and dismissed the said appeal with the following observations: “5. This and the other facts cannot be taken up for consideration by this Court for the first time. In our opinion, the High Court was right in coming to the conclusion that it is appropriate for the appellants to file a reply to the show-cause notice and take whatever defence is open to them.” 16. In the present case, the assessee has invoked the Writ jurisdiction of the High Court at the first instance without first exhausting the alternate remedies provided under the Act. In our considered opinion, at the said stage of proceedings, the High Court ought not have entertained the Writ Petition and instead should have directed the assessee to file reply to the said notices and upon receipt of a decision from the Assessing Authority, if for any reason it is aggrieved by the said decision, to question the same before the forum provided under the Act.” In the case of Chhabil Dass Agrawal (supra), the Supreme Court had elaborately considered the Page 9 of 11 C/SCA/30788/2007 JUDGMENT advisability of entertaining a writ petition when alternative statutory remedies were available. It was observed as under: “19. Thus, while it can be said that this Court has recognized some exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, Titagarh Paper Mills case and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.” Under the circumstances, we are not inclined to entertain the writ petition in view of the availability of statutory remedies. Since we relegate the petitioners to remedies under the statute, at this stage, we express no opinion on the validity of the reference. It is clarified that it would be open for the petitioner to raise all contentions with respect to the validity of the notice under section 153C as well as the reference made to the DVO before the appropriate forum. Page 10 of 11 C/SCA/30788/2007 JUDGMENT With the above observations, the petition is disposed of. Interim relief is vacated. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn) Page 11 of 11 "