SECRETARY PAHAR GANJ GRAH NIRM V. DY COMMISSIONER OF I I JAIPUR

ITA/46/2005

AI Insights

The case involves appeals by Shri Iqbal Ali Khan and Shri Banwari Lal Vijay against the order of the Income Tax Appellate Tribunal, which had reversed the CIT (Appeals) decision in favor of the appellants. The core issue was the legality of the proceedings initiated under Section 158BD of the Income Tax Act following a search and seizure operation at the premises of M/s Pahar Gunj Grah Nirman Sahakari Samiti Ltd., a cooperative society. The Tribunal had assessed undisclosed income in the hands of the society and its officials, which the appellants contested, arguing that the proceedings were not validly initiated against them.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 726248 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 07-02-2017
• Assessment Year: misc
• Other Referred Cases: CIT Vs. G.B.H. Exporters, CIT v. Smt Anusuya Devi, CIT Vs. Tirupati Oil Corporation, New Delhi Auto Vs. Joint CIT, Lalji Haridas Vs. Income Tax officer & another
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SAMEER JAIN; ANUROOP SINGHI
• Assessee Lawyers: N M RANKA; NK JAIN
• Keywords: Block assessment; Income tax appeal; Jurisdiction; Search and seizure; Undisclosed income
• Section: 132; 133A; 158BD

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.46/2005. Shri Iqbal Ali Khan, Secretary, M/s Pahar Gunj Grah Nirman Sahakari Samiti Ltd., A registered cooperative Society, 326, Sanjay Market, Jaipur. ----Appellant Versus The Deputy Commissioner of Income Tax, Central Circle 2, Now Assistant Commissioner of Income Tax, Central Circle 2, New Central Revenue Building, Statue Circle, Bhagwan Das Road, Jaipur. ----Respondent Connected With D.B.INCOME TAX APPEAL No.53/2005. Shri Banwari Lal Vijay, President, M/s Pahar Gunj Grah Nirman Sahakari Samiti Ltd., A registered cooperative Society, 326, Sanjay Market, Jaipur. ----Appellant Versus The Deputy Commissioner of Income Tax, Central Circle 2, Now Assistant Commissioner of Income Tax, Central Circle 2, New Central Revenue Building, Statue Circle, Bhagwan Das Road, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. N.M. Ranka, Senior Counsel with Mr. N.K. Jain For Respondent(s) : Mr. Sameer Jain and Mr. Anuroop Singhi. _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Judgment Per Hon’ble Jhaveri, J. 07/02/2017 (2 of 16) [ITA-46/2005] 1. By way of these appeals, the appellants assessees have challenged the judgment and order of the Tribunal whereby the Tribunal has reversed the order of the CIT (Appeals) and quashed the proceedings passed in favour of the society as well as both President and Secretary. 2. Brief facts of the case are that search and seizure operations under section 132 of the Income Tax Act were carried out at the office premises of the appellant. It was a case where survey under Section 133A was converted into search. During the course of search various papers/ documents/ accounts etc. were found and seized and on examination of the same, certain undisclosed income belonging to the assessee was required to be taxed and, therefore, action under section 158BD of the Income Tax Act was taken. 3. Counsel for the appellants has contended that though the society has challenged the order by way of Tax Appeal No.51/2005 wherein a Division Bench of this Court (comprising of Hon’ble Mr. Justice R.M. Lodha and Hon’ble Mr. Justice R.S. Chauhan) by dated 15.02.2007 passed the following order: “Upon perusal of the Tribunal's Order, we find that in paragraph 34, the Tribunal has deleted the total income assessed in the hands of the appellant society in the block return as well as regular return. In the backdrop of this finding, the assessee cannot be said to be aggrieved by the order of Income Tax Appellate Tribunal. This appeal, therefore, does not deserve to be entertained and it is disposed of accordingly.” (3 of 16) [ITA-46/2005] 3.1 On the same day i.e. 15.02.2007, the same Bench has passed the following order in the case of the assessee also in Tax Appeal No.46/2005: “During the course of motion hearing, the Senior Advocate for the assessee submitted that the revenue did not file any appeal challenging the finding of CIT (Appeals) with regard to proceedings U/s. 158 BD. The counsel for the respondent on the other hand submits that in fact cross appeal was filed by the revenue against the order of CIT (Appeals). In these circumstances, we direct the appellant to place on record the copy of memo of appeal (ITSSA No. 129/JP/2003), said to have been filed by the revenue. Stand over to 20.2.2007.” 3.2. After considering the aforesaid orders, the same Bench on 09.03.2007 has passed the following order: “Pursuant to our order dated 15th February, 2007, the appellant has placed on record the copy of memo of appeal (ITSSA No.129/JP/2003) filed by the revenue. A perusal thereof shows that the revenue did not challenge in that appeal the finding of CIT (Appeals) with regard to proceedings u./s 158BD of the Income Tax Act, 1961. However, the counsel for the revenue contends that the question relating to addition of Rs.60.00 lacs in the hands of the present appellant was a matter of remand and the present appellant agitated the issue concerning addition of Rs.60.00 lacs before the Assessing Officer. The counsel for the revenue submitted that pursuant to the remand order, the Assessing Officer passed the order of assessment on 28th November, 2005. The said order came to be challenged in appeal and the Commissioner of Income Tax (Appeals) has also disposed of appeal on 29th January, 2007. The counsel for the revenue prays for time to place on record the order of Assessing Officer dated 28th (4 of 16) [ITA-46/2005] November, 2005 and the order of Appellate Authority dated 29th January, 2007. As prayed stand over to 10th May, 2007.” 4. After considering all the materials on record the same Bench admitted the appeal of the appellants vide order dated 28.05.2007 and following substantial questions of law were framed: “i) Whether the Tribunal had material and was right in law in holding that the total income assessed in the hands of the society in the block return as well as regular return is to be assessed in the hands of Shri Khan and Shri Vijay at the ratio 51% and 49% respectively? ii) Whether the Income Tax Appellate Tribunal was right in law in going into the correctness of the finding recorded by C.I.T. (A) that initiation of proceedings under Section 158 BD was without jurisdiction when the said finding was not challenged by the revenue in the appeal? iii)Whether in view of the subsequent assessment order dated 26th November, 2005 and the appeal order dated 29th January, 2007, the correctness of the order passed by the Income Tax Appellate Tribunal on 21st October, 2004 should not be examined in the appeal?” 5. Counsel for the appellants Mr. Ranka, senior counsel, has take us to the order or CIT (Appeals) wherein in para 5 and 6 it has been held as under: 5. I have carefully considered rival submissions. I find that the only income assessed in the hands of the appellant is 50% income computed by him in the case of M/s Paharganj Grih Nirman Sahakari (5 of 16) [ITA-46/2005] Samiti Ltd. The proceeding against the appellant has been made u/s 158BD of the Act. The provisions of sec. 158BD required to be analysed for which these provisions are reproduced 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 books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other 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 such other person and the provisions of this Chapter shall apply accordingly”. 6. From the perusal of the provisions of this section, it is clear that this section can be invoked when the AO is satisfied that the undisclosed income belongs to any person other than the person in respect of whom search was made. In the present case, 1d AO has assessed the income of the society in its own hand on substantive basis. Therefore, there cannot be any satisfaction for which income can belong to any other person. Therefore, in the scheme of block assessment and for invoking the provisions of sec. 158BD any satisfaction was not with the AO to initiate proceedings in the case of the appellant. Further on merits also, I have already held that no evidence was found during the course of search established that any amount over and above recorded in the books of accounts were taken by the society in transactions relating to dealing in immovable properties. On this ground, the addition in the case of Samiti has been deleted by a detailed order in appeal No.425/01-02. Therefore, in view of these facts and circumstances of the case, the addition in the present case is also deleted.” 6. Mr. Ranka, senior counsel, has raised the issue-wise (6 of 16) [ITA-46/2005] submissions as follows: Issue No.1. 6.1. The issue as to notice under Section 158 BD is invalid and bad having rendered against the Revenue and became final which was not challenged. This issue on merits is of academic interest and need not be decided. In support of his submission he has relied on the decision of this Court in the case of CIT Vs. G.B.H. Exporters (2004) 271 ITR 545 (Raj.), wherein it has been held as under: “11. The penalty imposed under Section 271(1)(c) of the Act, 1961, upon the assessee was set aside by the Tribunal on two grounds. On first ground, no doubt, the Tribunal has been pleased to refer two questions of law for opinion of this Court, but on second point no question has been referred and that part of the judgment of the Tribunal has attained finality.” 14. It is high time where the Courts are to be very cautious, careful and considered that its valuable and precious time is not wasted or consumed in deciding the matters of academic nature. The decision given on these two questions either way will not have any bearing or effects on the ultimate result to which the Court subordinate or the Tribunal reached, meaning thereby even if the case of the Revenue is accepted, still it will not result in grant of relief in its favour. Even if these two questions of law are answered in favour of the Revenue we are satisfied that it will not result in revival of the order of the AO which has been confirmed by the CIT(A) i.e., the penalty of Rs. 1,68,000 and the consequential liability of payment thereof upon the assessee. 16. Their Lordships of the Hon'ble Supreme Court in the case of CIT v. Smt Anusuya Devi [1968]68ITR750(SC) observed that the High Court may only answer a question referred to it by the Tribunal. It is however (7 of 16) [ITA-46/2005] not bound to answer a question merely because it is raised and referred. The High Court may decline to answer a question of fact or a question of law which is purely an academic or has no bearing on the dispute between the parties or, though referred by the Tribunal, does not arise out of its order. It may also decline to answer a question arising out of the order of the Tribunal, if it is unnecessary or irrelevant or is not calculated to dispose of the real issue between the taxpayer and the Department. Their Lordships of the Hon'ble Supreme Court further observed that at the hearing of a reference pursuant to an order calling upon the Tribunal to state a case, the High Court is not bound to answer the question without considering whether it arises out of the order of the Tribunal, whether it is a question of law, or whether it is an academic, unnecessary or irrelevant. Power to reframe a question may be exercised by the Court to clarify some obscurity in the question referred, or to pinpoint the real issue between the taxpayer and the Department or for similar other reasons; it cannot be exercised for reopening an enquiry on questions of fact and law which is closed by the order of the Tribunal . 21. We are in agreement with the contention of Shri Ranka appearing for the assessee that it is not mandatory for this Court when once it is made that it may not proceed to answer the question or questions stated in the reference and to decide it though the same may be of purely academic interest and unnecessary to decide the real controversy. In view of the findings recorded by the Tribunal in para No. 25 of its judgment dt. 27th March, 1996, which have not been challenged by the Revenue the answer to question Nos. 1 and 2 will not change the result of the case. “ 6.2. Therefore, he has submitted that in the last alternate, it is apparent that the finding is in the case of Co-operative Society and not independently in the hands of the appellants. The (8 of 16) [ITA-46/2005] addition on merits was deleted by CIT (Appeals) and, hence, no reasonable opportunity was given by the Tribunal to the appellants to explain their position on view points on merits and material found on search. The society and the appellants are different persons and, therefore, it is violative of principles of natural justice and such finding deserves to be reversed. Issue No.2: 7. It is contended that the search at society was made on 16.02.2000 wherein the appellant was not present and he was not examined. The Assessing Officer issued notice to the society on 16.02.2000 and completed assessment on 28.02.2002 adding income substantively. Notice under section 158BD was issued to the appellants on 16.01.2001. The appellants found the same to be lacking jurisdiction. No return was filed. On the basis of the society, addition was made protectively at the hands of the appellants at 50% on 30.01.2003. It is contended that the only material produced before the Assessing Officer was copy of partnership deed of B.R. Properties dated 07.05.1993 and another deed dated 03.02.1990. No activities, transactions, income, bank account, books of accounts or proof of existence of the firm were produced before the assessing officer. The assessing Officer itself gave up the sharing ratio in the deed and assessed equally. In case of income of a firm which is treated to be a person under section 2(31) of the Income Tax Act, notice under Section 158BD should have been addressed to the firm and served on the firm. No action was taken against the firm, therefore, notice to the (9 of 16) [ITA-46/2005] appellants is illegal and bad. In support of his submissions, he has relied upon the decision of the Bombay High Court in the case of CIT Vs. Tirupati Oil Corporation- (2001)248 ITR 194 wherein it has been observed as under: “The Tribunal in appeal, however, rightly came to the conclusion that under the Income Tax Act, a registered firm is a taxable unit and if the Assessing Officer wanted to proceed under Chapter XIV-B of the Income Tax Act with regard to the undisclosed income of the partner for the purposes of making block assessment on the assessee-firm, then the Assessing Officer was required to invoke Section 158BD which has not been done in the present case and, therefore, the block assessment made on the firm without following the procedure under Section 158BD was bad in law. We do not find any error of law in the judgment of the Tribunal. No substantial question of law, in any event, arises. Hence, the appeal is dismissed.” 7.2. He has further contended that satisfaction is not an empty formality. It should be objective supported by material on which a reasonable person well instructed in law can come to definite conclusion. It cannot be subjective. Clear conclusion has to be arrived at that good grounds exist for income of the third person. Satisfaction has to be found on reasonableness and not capricious and not product of imagination or speculation. The satisfaction must reflect the rational connection with or relevant bearing between the material available and undisclosed income of the third person. The rational connection postulates and requires satisfaction of the Assessing Officer that the third person has (10 of 16) [ITA-46/2005] undisclosed income on the basis of evidence and material before him. The material itself should not be vague, indefinite, distinct or remote. In the instant case, there was no valid foundation for so called ‘satisfaction’. Assessing Officer itself gave up the stand and assessed income substantively in the hands of the society. 8. Mr. Ranka has further contended that the revenue preferred appeals before the Tribunal but not being aggrieved against the finding of notice under Section 158BD to be bad. It was neither challenged nor any grounds were raised. He has relied upon the decision of Delhi High Court in the case of CIT Vs. Anupam Sweets- (2010) 321 ITR 485 (Del.) wherein it has been observed as under: “In this behalf the Tribunal vide the impugned order noted that it is a settled legal position that, recording of satisfaction by the Assessing Officer, having jurisdiction of the searched person, that some undisclosed income belongs to a person other than a searched person, is mandatory before proceedings under Section 158BD can be initiated against such other person. In this case, after going through the records the Tribunal came to the conclusion that the letter dated 14th August, 2002 predicated on which the proceedings under Section 158BD of the said Act had been initiated by the Assessing Officer of the assessee did not show that he was satisfied that the investment had been made by the assessee. The Tribunal further went on to note that as a matter of fact the Assessing Officer of the said M/s Chintpurni Constructions Pvt. Ltd. had vide the assessment completed by him on the 28th September, 2001, already added on substantive basis the sum of Rs 11.53 lakh to the assessment of the said M/s Chintpurni Constructions Pvt. Ltd., and (11 of 16) [ITA-46/2005] from that action of the Assessing Officer it could be clearly inferred that the said Assessing Officer was satisfied that the investment did not belong to some other person. Therefore, the Tribunal came to the conclusion that the satisfaction, as mandated under Section 158BD of the said Act, was not recorded. Therefore, the proceedings under Section 158BD/158BC, insofar as the respondent assessee was concerned, were without jurisdiction.” 8.1. He has further relied upon the decision in the case of New Delhi Auto Vs. Joint CIT- (2008) 300 ITR 83 (Del.) wherein it has been observed as under: “We are of the opinion that the law laid down by the Supreme Court is clearly applicable to the facts of the present case regarding issuing of a proper notice to the assessed for initiating block assessment proceedings. The notice dated 26th October, 1998 issued to the assessed is as vague (if not more) than the notice issued in Manish Maheshwari. Such a vague notice, as held by the Supreme Court shows 'a patent non-application of mind.' It has been pointed out by the Supreme Court that the consequences arising out of invoking the provisions of Chapter XIV-B of the Act are drastic and draconian. The accounts of the assessed may be re- opened for ten years and not only a legal presumption is raised against the assessed but the burden shifts on the assessed to show that it did not have any undisclosed income. Under these circumstances it is quite clear that the Revenue should not exercise its powers in a mechanical power but should be circumspect while taking action under the provisions of Chapter XIV- B of the Act. That has not happened in so far as the present case is concerned and, Therefore, we have not hesitation in giving a finding in favor of the assessee.” (12 of 16) [ITA-46/2005] Issue No.3 9. It is submitted that this issue is at the behest of revenue and hence is of no effect. 10. Counsel for the respondent-revenue Mr. Jain and Mr. Singhi have contended that by substantive and protective assessment, the society has also been benefited and, thus, it is a camouflage. In that view of the matter, in view of the fact that the Tribunal has made protective assessment in case of society and these are very substantive, therefore, the appeals deserve to be dismissed. He has relied upon the Constitutional Bench decision of the Supreme Court in the case of Lalji Haridas Vs. Income Tax officer & another- (1961) 43 ITR 387, wherein the Constitution Bench of the Supreme Court, has held as under: “8. That takes us to the appeal preferred by Chhotalal. As we have already mentioned Chhotalal is a resident of Bombay and respondent No. 1 is the Fourth Income-tax Officer, Ward G, at Bombay. It is common ground that respondent No. I had at the relevant time jurisdiction under the Act to assessee the appellant, Chhotalal. As ex parte order was passed against the appellant for the assessment year 1952-53, on March 30, 1957, by the Seventh Income-tax Officer, Ward G, Bombay, on the finding that the remittances in question constituted the income of the appellant from undisclosed business and other source during the assessment year. This ex parte order was challenged by the appellant by preferring an appeal before the Appellate Assistant Commissioner. The appellate authority allowed the appellant's appeal and set aside the ex parte order on the ground that there was no service of notice on the appellant as required by law. The matter (13 of 16) [ITA-46/2005] was accordingly remitted to the Income-tax Officer for a fresh assessment. Thereupon the impugned notice was served on the appellant under section 34 of the Act on February 25, 1959. 9. The main argument which is urged by Mr. Nambiar in support of this appeal is that respondent No. 1, the Income-tax Officer, who has issued the impugned notice, has no jurisdiction to assess the appellant for the income in question, because he contends that even according to respondent No. 1 the said proposed assessment would be in the nature of a precautionary or protective assessment, and Mr. Nambiar's case is that this concept of a precautionary or protective assessment is not recognized by the Act and as such any attempt to levy such assessment would be illegal. In support of this argument Mr. Nambiar strongly relied on the finding recorded against the appellant's brother, Lalji, in the ex parte assessment order which had originally been passed against him. It is no doubt true that the said ex parte order had held that Lalji was liable to pay the tax on the amount of income in question; but the said order has been subsequently set aside, and, as we have already seen, fresh proceedings against Lalji have been commenced at Jamnagar. Mr. Nambiar also relied on the admission made by the respondent in his statement of the case before this court, and he contended that the respondent himself seems to concede that the assessment proposed to be made against the appellant is no more than precautionary. It is true that paragraph 3 of the statement avers that \"steps are being taken against the appellant for taxation of income in his hands only as a precautionary measures against the eventuality of its being finally held that the income is not liable to be taxed in his brothers hands\", and it was added that \"the appellants contention that such a procedure is not warranted under the Act is entirely untenable\"; but in appreciating the effect of this statement it would be necessary to consider the other relevant statements made by the respondent in his statement of the case. In paragraph 4, for instance, it is (14 of 16) [ITA-46/2005] added that until the question of liability to pay tax in respect of the income in question is finally determined it may not be possible to safely predicate that it is the income of one and not of the other, and the respondents case appears to be that in such circumstances protective assessment have to be made so that the income may not escape taxation altogether. In other words, the respondents case clearly is that the notices issued against the two brothers by their respective Income-tax Officers are intended to determine who is responsible to pay tax for the income in question; now though Mr. Nambiar wanted to argue that protective or precautionary assessment of tax is not justified by any of the provisions of the Act he did not seriously contest the position that at the initial state it would be open to the income-tax authorities to determine by proper proceedings who is in fact responsible for the payment of tax, and that is all that is being done at the present stage. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr. Nambiar would be justified in resisting the enquiry which is proposed to be held by respondent No. 1 in pursuance of the impugned notice issued by him against the appellant. Under these circumstances we do not propose to deal with the point of law sought to be raised by Mr. Nambiar. “ 11. We have heard learned counsel for both the parties. 12. We will first consider question no.2 whether the Income Tax Appellate Tribunal was right in law in going into the correctness of the finding recorded by C.I.T. (A) that initiation of (15 of 16) [ITA-46/2005] proceedings under Section 158 BD was without jurisdiction when the said finding was not challenged by the revenue in the appeal. 12.1. From the record, it seems that the finding arrived at in para 5 and 6 of the CIT (Appeals), reproduced herein above, was not challenged. Assuming but without admitting, even if the same was challenged, the same was not reversed by the Tribunal in its order. In that view of the matter, in our view, unless the finding of the CIT (Appeals) was held to be bad in law and reversed by the Tribunal in appeal, the consequential order is erroneous and the same could not have been done in appeal preferred by both the sides. The Tribunal has to quash and set aside the conclusion arrived at by the CIT (Appeals) holding that the proceedings under Section 158BD is bad in law which is never reversed by the Tribunal. 13. In that view of the matter, unless the basic finding is held to be valid, the consequential order, in our opinion, is bad in law. Therefore, the issue no.2 is answered in favour of the assessee and against the department. 14. On the first issue, Whether the Tribunal had material and was right in law in holding that the total income assessed in the hands of the society in the block return as well as regular return is to be assessed in the hands of Shri Khan and Shri Vijay at the ratio 51% and 49% respectively, since there was no notice served under section 158 BC, in that view of the matter also the assessee could not have been assessed under section 158BD of the Act. Therefore, the issue no.1 is answered in favour of the (16 of 16) [ITA-46/2005] assessee and against the department. 15. Issue no.3 is not required to be answered. 16. Therefore, both the appeals deserve to be allowed and the same are allowed. A copy of this judgment be placed in each of the file. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. bblm "