Case Law Details
IN THE ITAT MUMBAI BENCH ‘G’
Sanjeev R. Arora
Versus
Assistant Commissioner of Income-tax
IT(SS) Appeal NoS. 103 & 110 (Mum.) of 2004
[Block period 1-4-1989 to 21-12-1999]
July 25, 2012
ORDER
Vijay Pal Rao, Judicial Member – These cross appeals are directed against the order dated 22/12/2003 of CIT(A) arising from the assessment order passed under section 158 BD read with section 143(3) of the Income Tax Act for the block period from 1/4/1989 to 21/12/1999.
2. The assessee has raised the following grounds in this appeal:
1. The Assessing Officer erred in making additions based on conjectures and surmises or estimates and presumption not supported by any evidence, documents etc.
2. The Assessing Officer failed to appreciate that the undisclosed income under Chapter XIVB has to determined on the basis of the evidence documents, material and information found during the search and it has to be authentic, reliable and verifiable information.
3. The Assessing Officer erred in framing the assessment as it is regular assessment instead of the assessment procedures laid down U/s 158 BC and should have calculated Undisclosed Income as per section 158BB.
4. The Assessing Officer failed to appreciate that the documents seized from the place, where it is said to be seized from the possession of and are belonging to the assessee, is also the Registered office of the Companies, whose documents are seized and are supposed to keep the records at the registered office of the Companies. In the case the Assessing Officer erred in considering that the appellant has received income on the sales of the group companies.
5. The Assessing Officer failed to appreciate that the assessee stays in a joint family and the warrants for search were in the name of assessee’s brother and one of the group company. Nothing substantial in the form of cash, jewellary, investments were found at the time of search.
6. The Assessing Officer failed to appreciate that the assessee has declared brokerage Income and paid taxes, whenever it is received.
7. The Assessing Officer erred in considering and calculating the brokerage Income on sales at the rate, which is much higher than prevailing in the Market.
8. The Assessing Officer failed to appreciate that at the time of the search the assessee and his brother had declared Income of Rs. 10.00 Lakhs on the basis that they have not filed their Return of Income for last 2-3 years.
9. The Assessing Officer erred in considering the appellants income on mercantile basis, whereas the assessee has been following cash basis of Income.
3. The revenue has raised the following grounds:
(i) “On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the assessee has earned brokerage income of Rs.28,68,688/- on the sales recorded in the seized material aggregating to Rs.13,84,87,7541- and not by way of profits earned by the assessee as determined by the AO without appreciating the facts of the case.
(ii) On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.6,13,02l/- on account of undisclosed income recorded in one of the seized documents holding that the said amount is commission earned by the assessee and thereby ignoring the explicit provisions of section 132(4A) of the I.T. Act.”
3.1 Apart from the original grounds, the assessee has also raised additional grounds vide letters dated 3/5/2010 as well as 15/9/2011 as under:
3.2 Additional grounds raised on 3/5/2010:
1. In the facts and circumstances of the case and in law the learned A.O. erred in issuing notice under section 158BC read with section 158 BD of the Income Tax Act, 1961.
2. In the facts and circumstances of the case and in law the assessment order passed by the A.O. is arbitrary, without jurisdiction and ex-facie illegal.
3.3 Additional grounds raised on 15/9/2011:
1. In the facts and circumstances of the case and in law in absence of issuance of the notice and service thereof under section 143(2) within the prescribed time limit for the purpose of making assessment, the entire assessment made under section 158BC read with section 158BD of the Income Tax Act 1961 is vitiated.
2. In the facts and circumstances of the case and in law in absence of issuance of the notice and service thereof under section 143(2) within the prescribed time limit for the purpose of making assessment, the entire addition made under section 158BC read with section 158BD of the Income Tax Act 1961 requires to be deleted.
4. A search and seizure operation under section 132 of the Income Tax Act was conducted in the case of Mr. Mangat R, the own brother of the assessee and M/s Guru Synthetic Private Limited on 21/12/99 at the residential as well as business premises. During the course of search and seizure operation, statements of Mr. Mangat Arora as well as assessee were recorded. Apart from the statements, certain documents were also seized. A notice under section 158BD was issued on 11/5/2001 to the assessee. The assessee filed his block return on 22/6/2001 declaring its total undisclosed income at Rs. nil.
4.1 The Assessing Officer framed the block assessment under section 158BD read with section 143(3) of the Income Tax Act on 30/5/2003 whereby computing the total undisclosed income of the assessee at Rs. 1,71,86,170/-.
4.2 The assessee challenged the undisclosed income assessed by the Assessing Officer in the block assessment by filing an appeal before the CIT(A). The Commissioner of Income Tax(Appeals) sustained the addition of Rs. 28,68,688/- on account of brokerage income and deleted the addition to the extent of Rs. 1,36,63,074/-. Apart from this, an addition of Rs. 6,13,021/- on account of commission income was also deleted. Thus, the assessee as well as revenue are aggrieved by the impugned order of Commissioner of Income Tax(Appeals) and filed cross appeals before us.
5. We have heard the ld AR of the assessee as well as the learned DR and considered the relevant material on record on the additional grounds raised by the assessee. The learned A.R. of the assessee has submitted that in the case of Mr. Mangta Arora, the notice under section 158 BC was issued on 9/5/2001. The return of income for the block period was filed by Mr. Mangat Arora on 22/6/2001 and thereafter, notice under section 142 was issued to Mr. Mangat Arora on 4/12/2001 and the assessment of Mr. Mangat Arora was completed by the DCIT 8 (1) on 31/12/2001. He has referred the assessment order in case of Mr. Mangat Arora and submitted that the notice under section 158BD was issued to the assessee on 11/5/2001 by the ACIT 27 (1), which is prior to the assessment proceedings of Mr. Mangat Arora and therefore, the said notice under section 158BD was issued without any satisfaction recorded by the Assessing Officer having jurisdiction over Mr. Mangat Arora. He has referred the letter dated 24/8/2010 of DCIT 8 (1) and submitted that the Assessing Officer has stated that no satisfaction note is found available in the block assessment records in the case of the assessee; therefore, the notice under section 158 BD was issued without any satisfaction of the Assessing Officer that any undisclosed income belongs to the person other than the searched person and thereby handed over the books of account, documents or assets seized to the Assessing Officer having jurisdiction over such other person. The learned A.R of the assessee has submitted that the notice under section 158BD was issued without any such satisfaction of the Assessing Officer so recorded and any material, documents, books of accounts or assets handed over to the Assessing Officer having jurisdiction over the assessee.
5.1 The learned A.R. has forcefully contended that the assessment in case of Mr Mangat Arora was completed by the DCIT 8 (1)(1) whereas the notice under section 158 BD was issued to the assessee by ACIT 27 (1); therefore, in the absence of any satisfaction recorded by the Assessing Officer having jurisdiction over Mr Mangath Arora, the notice issued under section 158 BD is illegal and consequently the block assessment is null and void. He has relied upon the decision of Hon’ble Supreme Court in case of Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341 and submitted that the notice under section 158 BD is contrary to the provisions of law as well as the decision of Hon’ble Supreme Court and therefore is bad in law. The learned A.R. of the assessee has also relied upon the following decisions in support of his contention:
(i) Asstt. CIT v. M.N Rajaraman [2010] 5 ITR (Trib) 261 (Chennai)
(ii) CIT v. Anupam Sweets [2010] 321 ITR 485 (Delhi)
(iii) CIT v. Sunil Bhala [2011] 12 taxmann.com 188 (Delhi)
(iv) Kundubhai Vasanji Desai v. Dy. CIT [1999] 236 ITR 73
5.2 As regards the notice under section 143(2) is barred by limitation, the learned A.R. of the assessee has submitted that the assessee filed its return of income on 22/6/2001 whereas the notice under section 143(2) was issued on 9/5/2003 which is beyond the prescribed statutory period. The learned A.R. has further submitted that the non-issuance of notice within the period prescribed under the statute is not a procedural irregularity; but the same is non-curable illegality. In support of his contention, the learned A.R. of the assessee has relied upon the decision of Hon’ble Supreme Court in case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362 and submitted that the Hon’ble Supreme Court has held that the omission on the part of the assessing authority to issue notice under section 143 (2) can not be a procedural irregularity and is not curable. Thus, the Apex Court has held that the requirement of notice under section 143(2) cannot be dispensed with. The learned A.R than relied upon the decision of honourable Allahabad High Court in case of Virendra Dev Dixit v. Asstt. CIT [2011] 331 ITR 483 and submitted that the service of notice under section 143(2), within the prescribed period of time, is prerequisite for framing the block assessment under chapter XIV-B. The ld A.R of the assessee than relied upon the decision of honourable jurisdictional High Court in case of Commissioner of Wealth-tax v. HUF of H.H. Late J. M. Scindia [2008] 300 ITR 193 as well as in case of CIT v. Ms Mudra G Nanawati [IT Appeal No. 3475 of 2008, dated 21-7-2009] and submitted that the jurisdictional High Court has held that the Assessing Officer is bound by the mandate of provisions of section 143(2) and on failure, the order of assessment will be without jurisdiction and consequently will have to be set aside. The ld AR of the assessee has also relied upon the decision of honourable Punjab and Haryana High Court in case of CIT v. Avi-Oil India (P.) Ltd. [2010] 323 ITR 242 as well as decision of honourable Gujarat High Court in case of Dy. CIT v. Maxima Systems Ltd. [2012] 344 ITR 204 and submitted that it has been held that the assessment made in pursuant to the notice under section 143(2), which was served beyond the period of limitation prescribed by the provision of section 143 (2) of the Act was not a valid assessment.
5.3 Per contra, the ld DR has submitted that the decision of honourable Supreme Court in case of Manish Maheshwari (supra) is not applicable in the facts of the case in hand as the Assessing Officer having jurisdiction over the search party as well as the assessee is the same and therefore, there is no question of handing over of the seized material to the Assessing Officer of other person. He has further submitted that similarly, there is no question of recording the satisfaction in writing that the seized material belongs to other person. Initiation of the proceedings under section 158BD itself suggests that there was satisfaction of the Assessing Officer that some undisclosed income belongs to the person other than the searched person. The learned DR has further submitted that when the assessee himself has admitted and disclosed the undisclosed income in the statement recorded during the search operation, than there is no question of recording any satisfaction regarding undisclosed income belongs to the assessee. The ld DR has filed a letter dated 10/8/2011 of DCIT 8 (1), Mumbai and submitted that the Assessing Officer of Sri Mangat Arora as well as the assessee is the same and the notice under section 158 BC in case of Sri Mangat Arora and notice under section 158 BD in case of Sri Sanjeev Arora (the assessee) were issued by the DCIT 8 (1), Mumbai. The ld DR has further contended that the notices under section 158 BC and 158 BD as well as the block assessment in case of Sri Mangat Arora and the assessee have been completed by the same assessing authority -DCIT-8 (1), Mumbai. The learned DR has referred and relied upon the various decisions of this Tribunal on the point that when the same Assessing Officer is having jurisdiction over the searched person and the other person, then there is no need of recording any satisfaction and handing over the records to the other Assessing Officer having jurisdiction over the non-searched person.
5.4 The learned DR has thus submitted that even otherwise the additional ground raised by the assessee requires verification of certain facts and cannot be adjudicated without ascertaining the fact regarding the same Assessing Officer having jurisdiction over Mr Mangat Arora as well as assessee. Hence, the ld DR has submitted that this additional ground against the validity of notice under section 158 BD cannot be admitted at this stage when the assessee has not challenged the validity of notice under section 158 BD at the initial stage before the Assessing Officer.
5.5 As regards the notice under section 143(2) is barred by limitation, the learned DR has submitted that when the assessee has not raised any objection during the assessment proceedings regarding the validity of notice under section 143(2), then the assessee is precluded from raising such objection in view of section 292 BB of the I T Act. In support of his contention, he has relied upon the decision of honourable Punjab and Haryana High Court in case of CIT v. Panchvati Motors (P.) Ltd. [2011] 200 Taxman 136 and submitted that the honourable High Court has held that the provisions of section 143(2) is a regulatory in nature and therefore in view of section 292 BB, the assessee cannot raise an objection that the notice was not served upon him with in time limit prescribed under the provisions of the Act.
5.6 The learned DR has further submitted that as per the proviso to section 148, which has been inserted by the Finance Act 2006 with effect from 1/10/1991, if the notice under section 143(2) has been served after expiry of twelve-month specified in the proviso to section 143(2), such notice will be deemed to be a valid notice. The learned DR then referred section 158 BH and submitted that all other provisions of this Act shall apply to the assessment made under Chapter XIV.
5.7 The learned DR has contended that even otherwise the chapter XIV contemplates as procedure for assessment and therefore, section 143(2) is a procedural provision and irregular in service of notice will not render the assessment as nullity.
5.7 In rebuttal, the learned AR of the assessee has submitted that the decision of the honourable Punjab and Haryana High Court in the case of Panchvati Motors (P.) Ltd. (supra) is distinguishable on facts as the issue before the honourable High Court was non-service of notice under section 148 and not the limitation of notice under section 143(2).
6. We have considered the rival submissions of the parties as well as carefully perused the decisions relied upon by both the parties. As regards the validity of notice issued under section 158 BD, the assessee has contended that in the absence of satisfaction recorded by the Assessing Officer having jurisdiction over Mr. Mangat Arora, the notice issued under section 158BD to the assessee is invalid in view of the decision of honourable Supreme Court in case of Manish Maheshwari (supra). On the other hand, the ld DR has forcefully contended that the Assessing Officer, having jurisdiction over Mr. Mangat Arora as well as the assessee, is the same, who has issued notices under section 158BC as well as under section 158BD. Therefore, there is no requirement of recording of satisfaction by the Assessing Officer and handing over any record to the other Assessing Officer.
6.1 Since this issue has been raised for the time before us by the assessee and in order to decide the validity of notice issued under section of section 158, it is relevant to ascertain whether the Assessing Officer, having jurisdiction over the person searched and the other person, is one or two different officers. Therefore, it requires certain facts to be verified on this aspect and in the absence of the clarity of the facts; it is not possible to give a conclusive finding on this issue. Hence, we now take up the issue of validity of block assessment as the notice under section 143 (2) is beyond the period of limitation as prescribed under the proviso to section 143 (2).
6.2 There is no dispute on the fact that notice under section 143 (2) of I T Act was issued after the expiry of twelve-month from the date of filing of return by the assessee in response to notice under section 158 BD. In the case of Hotel Blue Moon (supra), the honourable Supreme Court had adjudicated an identical issue of validity of the block assessment as notice under section 143 (2) was issued after the prescribed time limit. The honourable Supreme Court has reproduced the 2 questions as raised before the honourable High Court as under:
‘1. Whether on the facts and in circumstances of the case the issuance of notice u/s 143(2) of the I T Act 1961 within the prescribed time limit for the purpose of making the assessment u/s 143(3) of the I T Ac t 1961 is mandatory ?
&
2. Whether, on the facts and in the circumstances of the case and in view of the undisputed findings arrived at by the Commissioner of Income Tax(Appeals) the additions made u/s 68 of the I T act, 1961 should be deleted or set aside ?”
The question number 1 is regarding the mandatory nature of notice under section 143 (2). The honourable apex court has held in para 15 as under:
“We may now revert back to section 158BC(b) which is the material provision which requires our consideration. Section 158BC(b) provides for enquiry and assessment. The said provision reads “that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, apply.” An analysis of this sub-section indicates that, after the return is filed, this clause enables the Assessing Officer to complete the assessment by following the procedure like issue of notice under section 143(2)/142 and complete the assessment under section 143(3). This section does not provide for accepting the return as provided under section 143(1)(a). The Assessing Officer has to complete the assessment under section 143(3) only. In case of default in not filing the return or not complying with the notice under section 143(2)/142, the Assessing Officer is authorized to complete the assessment ex parte under section 144. Clause (b) of section 158BC by referring to section 143(2) and (3) would appear to imply that the provisions of section 143(1) are excluded. But section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under section 143(2). However, if an assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that section 158BC(b) specifically refers to some of the provisions of the Act which require to be followed by the Assessing Officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This section even speaks of sub-sections which are to be followed by the Assessing Officer. Had the intention of the Legislature been to exclude the provisions of Chapter XIV of the Act, the Legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the Assessing Officer, if for any reason, repudiates the return filed by the assessee in response to notice under section 158BC(a), the Assessing Officer must necessarily issue notice under section 143(2) of the Act within the time prescribed in the proviso to section 143(2) of the Act. Where the Legislature intended to exclude certain provisions from the ambit of section 158BC(b) it has done so specifically. Thus, when section 158BC(b) specifically refers to applicability of the proviso thereto it cannot be excluded. We may also notice here itself that the clarification given by the Central Board of Direct Taxes in its Circular No. 717 dated August 14, 1995, has a binding effect on the Department, but not on the court. This circular clarifies the requirement of law in respect of service of notice under subsection (2) of section 143 of the Act. Accordingly, we conclude that even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice under section 143(2) of the Act. However, it is contended by Sri Shekhar, learned counsel for the Department that in view of the expression “so far as may be” in section 153BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this court in Dr. Partap Singh’s case [1985] 155 ITR 166. In this case, the court has observed that section 37(2) provides that “the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in section 165 has to be generally followed. The expression ‘so far as may be’ has always been construed to mean that those provisions may be generally followed to the extent possible”. The learned counsel for the respondent has brought to our notice the observations made by this court in the case of Maganlal v. Jaiswal Industries, Neemach [1989] 4 SCC 344 wherein this court while dealing with the scope and import of the expression “as far as practicable” has stated “without anything more the expression ‘as far as possible’ will mean that the manner provided in the Code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied.”
6.3 Thus, it has been held by the honourable Supreme Court that the failure on the part of the assessing authority to issue notice under section 143 (2) cannot be a procedural irregularity and is not curable. Therefore, the requirement of notice under section 143 (2) cannot be dispensed with.
6.4 Similarly, the honourable Allahabad High Court in case of Virendra Devi Dixit v. Asstt. CIT [2011] 331 ITR 483 by following the decision of honourable Supreme Court in case of Hotel Blue Moon (supra) has held in para 12 to 14 as under:
“12. From the aforesaid decision it emerges that the service of notice on the assessee under s. 143 (2) within the prescribed period of time is a pre-requisite for framing the block assessment under Chapter XIV-B of the Act. It is mandatory. Non-issuance of notice is not a mere procedural irregularity and the same is not curable. For the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of s. 158BC the provisions of s. 142 and sub-ss. (2) and (3) of s. 143 are applicable and no assessment could be made without issuing notice under s. 143(2) of the Act within the time specified. Where the AO in repudiation of the return filed under s. 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of s. 142 and sub-ss. (2) and (3) of s. 143.
13. Admittedly, in the present case, the notice under s. 143(2) has not been issued. The period of limitation has already expired and, therefore, such notice cannot be issued.
14. Thus, we are of the view that the remand of the case to the Assessing Officer to cure the defect by issuing a fresh notice is wholly unjustified. We are also of the view that the view of the Tribunal that the proviso of s. 143(2), which provides limitation for serving of the notice, does not apply to the block assessment under s. 158BC under Chapter XIV-B, is erroneous.
6.5 A similar view has also been taken by the honourable jurisdictional High Court in case of HUF of H.H Late J.M Scindia (supra) as well as in case of Ms Mudra G Nanawati (supra) as well as a series of decisions as relied upon by the learned A.R. of the assessee.
6.6 It has been held in the above cited decisions that the requirement of section 143 (2) cannot be dispensed with as it is mandatory and therefore, the notice under section 143 (2) issued after the expiry of prescribed period is an uncurable defect and consequently, the block assessment is erroneous and not sustainable.
6.7 As far as the amendment brought by introduction of 2nd proviso to section 148 as relied upon by the ld D.R, the said provision is applicable only where the return has been filed in pursuant to the proceedings under section 147 and no notice has been served under section 143 (2) within the period prescribed by the proviso to section 143 (2). Thus, the said proviso cannot be applied in the proceedings where the return has been filed in pursuant to the proceedings under section 158BD.
6.8 Even, the irregularity in proper service of notice which can be treated as curable under section 292B of the income tax act is only in the cases where the notice under section 143 (2) was issued properly and within the period of limitation and the assessee did not raise any objection regarding the service of the notice during the assessment proceedings and also participated in the assessment proceedings then at a later stage the assessee is precluded from raising such objection. Therefore, the provisions of section 292B are not applicable in the case where the Assessing Officer has not at all issued notice under section 143 (2) within the period as prescribed. Accordingly, we hold that the block assessment in the case in hand is without jurisdiction and consequently, the same is set aside.
6.9 Since we have set aside the block assessment being invalid; therefore, we do not propose to go into the merits of the issue of addition. Consequently the appeal filed by the revenue is liable to be dismissed.
7. In the result appeal filed by the assessee is allowed whereas the appeal filed by the revenue is dismissed.
