HIGH COURT OF CHHATTISGARH
Naresh Chand Baid
Assistant Commissioner of Income-tax
IT APPEAL No. 55 of 2004†
October 17, 2011
Satish K. Agnihotri, J.
This instant appeal arises from the order dated 28.07.2004 passed in I.T. (SS) A No. 41/Nag/2000 by the Income Tax Appellate Tribunal (for short ‘the Tribunal’), Nagpur Bench, Nagpur, whereby the appeal filed by the appellant/department against the order dated 16.02.2000 passed by the Commissioner of Income Tax (Appeal) [for short ‘the CIT (A)], Raipur, was partly upheld.
2. The appeal was admitted on 20.08.2010 for hearing on the following substantial questions of law:
(i) Whether the warrant of authorization issued in the name of the firm enables authorities under the Act to conduct search in the premises of the partner and make an assessment under section 158 BC of the Act validly?
(ii) Whether on the facts and in the circumstances of the case and on a proper construction of section 64(2) of the Finance Act 1997 the appellant was precluded from making a declaration under the V.D.I.S. scheme 1997 in respect of the sum of Rs. 4,00,000/- as held by the Tribunal.
3. The facts, in brief, as projected by the appellant are that the appellant is a partner of the partnership firm namely M/s. Mahavir Construction Company, Dhamtari. A search and seizure operation was carried out in case of the partnership firm under section 132 of the Income Tax Act, 1961 (for short ‘the Act’) on 11.11.1997. A search was also initiated against the appellant. The appellant was called upon to furnish details about initial investment made in proprietary contract business called “Vinay Constructions Co.” from where he had gross contract receipt of Rs. 16,65,574/-. The appellant explained that the initial investment of Rs. 4,00,000/- was made by him which was declared under the provisions of the voluntary disclosure of Income Scheme, 1997 (for short ‘the Scheme, 1997) and certificate to that effect was issued by the Commissioner of Income Tax. The Assessing Officer (for short ‘the AO’) accepted the amount of initial investment, however, held that since a search was conducted in case of the appellant, therefore, as per section 64(2) of the Finance Act, 1997, he was debarred from making declaration. The AO further held that the declaration made by the appellant on 31.12.1997 was null and void as per the provisions of section 64(2) of the Scheme, 1997. Accordingly, a sum of Rs. 4,00,000/- was taken as taxable amount as undisclosed income of the appellant. Being aggrieved, the appellant filed an appeal before the CIT (A) wherein the CIT(A) held that the action of the AO was incorrect in bringing to tax the sum of Rs. 4,00,000/- and the same was liable to be deleted. However, the objection of the appellant regarding jurisdiction for making assessment was rejected on the ground that it had not been raised before the AO.
4. Against the order dated 16.02.2000 (Annexure A/2) passed by the CIT (A), the appellant as well as the respondent filed separate appeals before the Tribunal. The Tribunal held that the CIT (A) was not justified in allowing the claim of the assessee for immunity under the Scheme, 1997 and deleting the addition of Rs. 4,00,000/- made by the AO. As regards objection regarding jurisdiction for making assessment, it was held that it can only be challenged in writ proceedings and not in appeal.
5. Shri Shashank Dubey, learned senior counsel appearing with Shri Neelabh Dubey, learned Advocate for the appellant would submit that no warrant of authorization was issued in the name of the appellant which could lead to a valid search and then a valid assessment under section 158 BC of the Act. The Tribunal has erred in equating warrant of authorization issued in the name of the firm containing name of appellant as partner with a warrant of authorization issued in the name of the appellant. Further, there was no existence of any satisfaction of the concerned authority, which is a prerequisite for issue of warrant of authorization in the instant case. Shri Dubey would further submits that under the Scheme, 1997, the certificate issued by the Commissioner is final and confers immunity upon the declarant which the AO had no jurisdiction to dispute or doubt or ignore the same. He would next contend that the question of jurisdiction can be raised at any stage. In support of his contention, Shri Dubey relies on a decision of the Supreme Court in Manish Maheshwari v. Asstt. CIT  159 Taxman 258 (SC), Asstt. CIT. v. Hotel Blue Moon  188 Taxman 113 (SC), C.I.T. v. Smt. Vandana Verma  186 Taxman 88 (All.).
6. Shri Dubey would further contend that in the instant case, no notice under section 158 BC (a)(ii) of the Act was issued by the AO. The assessee filed return in form 2-B on 18.08.1989 for the block period as before the assessment order, no notice under section 143(2) of the Act, which is mandatory, was issued before making assessment on the return filed. The satisfaction with regard to the fact that undisclosed income belonging to the assessee was not recorded. There was no notice under section 158 BD before recording the satisfaction. Since there was no search carried out against the assessee individually, rejection of the declaration under the Scheme, 1997 was bad in law. The case of Anita Parekh is distinguishable as in case of Anita Parekh the Tribunal itself has recorded that warrant of authorization was issued in her name. In the instant case, there was no individual warrant in the name of the assessee. If the firm and partners had made any declaration under the Scheme, 1997, that would be barred since search was conducted against them as a person but that would not bar the assessee from making a declaration.
7. On the other hand, Shri Rajeev Shrivastava, learned counsel appearing with Shri Sameer Shrivastava, learned Advocate for the department would submit that the return of two years (1996-1997 and 1997-1998) were due from the assessee on the date of search i.e. 03.11.1997. The returns were filed by the assessee, after search, on 18.08.1999 declaring undisclosed income for the block period at nil. Assessment order was accordingly passed under the provisions of section 158 BC of the Act, 1961 declaring undisclosed income to the tune of Rs. 7,04,919/- . Shri Shrivastava would further submit that the assessee participated in the assessment proceeding initiated on the basis of warrant of authorization. The assessee may not be permitted to question the validity of the search proceedings in this appeal. In support of his contention, Shri Shrivastava would rely on a decision of this Court in Trilok Singh Dhillon v. CIT  332 ITR 185 (Chhattisgarh).
8. The Tribunal had already recorded the finding that in the search warrant, the name of the assessee was clearly mentioned. There is no requirement under law to issue separate search warrant in case of each and every assessee when combined search warrant has been issued in the name of all the assesses. In support of this contention, Shri Shrivastava would rely on a decision of this Court in Smt. Anita Parakh v. Commissioner of Income Tax.
9. He would next contend that even if it is assumed that the search was illegal, however, the material collected during the search cannot be ignored and the same can be used against the assessee in the assessment proceeding. In support of this contention, he would rely on a decision of the Supreme Court in Pooran Mal v. Director of Inspector  93 ITR 505 and State of Punjab v. Baldev Singh [Appeal (crl.) No-396 of 2010, dated 21-7-1999].
10. In respect of second question of law, Shri Shrivastava would submit that the issue is squarely covered by the decision of this Court in Smt. Anita Parakh5. In respect of the contention of the appellant/assessee that the assessment ought to have been done under section 158 BD of the Act, 1961, it is submitted that it was not applicable in the facts of the case as the warrant of authorization was issued in the name of the assessee. The provisions of section 158 BD is applicable only in case of those assesses, wherein search and assessment was not done on the basis of warrant of authorization. It is next contended that the appellant is estopped from raising a new ground in this appeal filed under section 260A of the Act, 1961. He relies on a decision of this Court in Durga Prasad Verma v. Union of India.
11. Now, we proceed to consider the rival submissions made by learned counsel for the parties.
12. Shri Dubey submitted that since there was no warrant of authorization issued in the name of the appellant individually, the entire proceeding on the basis of search based on warrant of authorization, is vitiated. Thus, the subsequent decision of assessment made by the AO, also stands vitiated. Since there was no valid search, the assessment order could not have been passed under section 158 BC of the Act. Contrary to the said submission, Shri Shrivastava contended that there may not be an individual warrant of authorization, however, the name of the assessee found place in the combined warrant of authorization and the assessee, after search, has declared undisclosed income for the block period. Thus, the order was rightly passed under section 158 BC of the Act.
13. Section 158 BC provides for procedure for block assessment and section 158 BD provides for assessment on the basis of undisclosed income of any other person, which reads as under:
“158-BC. Procedure for block assessment.-Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132-A, in the case of any person, then,-
(a) the Assessing Officer shall-
(i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;
(ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997 serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days,
as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of Section 142, setting forth his total income including the undisclosed income for the block period:
Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this Chapter:
Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;]
(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158-BB 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;
(c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;
(d) the assets seized under Section 132 or requisitioned under Section 132-A shall be dealt with in accordance with the provisions of Section 132-B. 158-BD. Undisclosed income of any other person.-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 132-A, 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 under Section 158- BC against such other person and the provisions of this Chapter shall apply accordingly.”
14. The Tribunal found that identical facts and circumstances had been decided by the Bench in the case of Smt. Anita Parekh, by its consolidated order dated 30.04.2009, wherein order of the CIT (A) upholding the action of the AO in denying immunity by the assessee under the Scheme, 1997, was upheld by the Tribunal. The cross objection of the assessee in respect of validity of the order under section 158 BC on the ground that no warrant of authorization was issued in the name of the assessee, was rejected.
15. In Manish Maheshwari, relied on by learned counsel for the appellant, the Supreme Court held as under:
“11. Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132-A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132 or documents or assets have been requisitioned under Section 132-A. Section 158-BD, however, provides for taking recourse to a block assessment in terms of Section 158-BC in respect of any other person, the conditions precedents wherefor are: (i) satisfaction must be recorded by the assessing officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) the books of accounts or other documents or assets seized or requisitioned had been handed over to the assessing officer having jurisdiction over such other person; and (iii) the assessing officer has proceeded under Section 158-BC against such other person.
12. The conditions precedent for invoking the provisions of Section 158-BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132-A of the Act.”
16. The Supreme Court, in Hotel Blue Moon, explained the provisions of section 158 BC and other provisions, as under:
“15. Section 158-B defines “undisclosed income”, and “block period” which are the two basic factors for framing the block assessments. Section 158-BA is an enabling section, empowering the assessing officer, to assess “undisclosed income” as a result of search initiated or requisition made after 30-6-1995, in accordance with the provisions of this Chapter and tax the same at the fixed rate specified in Section 113. Section 158-BB provides the methodology for computation of undisclosed income of the block period. Section 158-BC prescribes the procedure for making the block assessment of the searched person. Section 158-BD enables assessment of any person, other than the searched person.
19. Section 158-BC stipulates that the Chapter would have application where search has been effected under Section 132 or on requisition of books of accounts, other documents or assets under Section 132-A. By making the notice issued under this section mandatory, it makes such notice the very foundation for jurisdiction. Such notice under the section is required to be served on the person who is found to be having undisclosed income. The section itself prescribes the time-limit of 15 days for compliance. In respect of searches on or after 1-1-1997, the time-limit may be given up to 45 days instead of 15 days for compliance. Such notice is prescribed under Rule 12(1-A) which in turn prescribes Form 2-B for block return.
20. Section 158-BC(b) is a procedural provision for making a regular assessment applicable to block assessment as well. Section 158-BC(c) would require the assessing officer to compute the income as well as tax on completion of the proceedings to be made. Section 158-BC(d) would authorise the assessing officer to apply the assets seized in the same manner as are applied under Section 132-B.”
17. In Vandana Verma, the High Court of Allahabad held that warrant of authorization must be issued individually and if the same is not done, the assessment could not be made in individual capacity when the warrant was issued jointly.
18. In Trilok Singh Dhillon, this Court observed that it was not open to the assessee to question the legality and validity of the search and seizure proceedings during assessment proceedings before the AO, CIT (A) or the Tribunal.
19. In Anita Parakh, this Court held that there was a valid warrant of authorization issued in the name of the appellant. Thus, no question with regard to validity of the authorization of warrant existed for consideration. In respect of declaration of jewellery under the Scheme, 1997, it was found that the assessee was aware of the search and seizure operation carried out between the block period 11.11.1997 to 22.11.1997 and as such, it was rightly held that she could not take benefit of the Scheme, 1997.
20. In Pooran Mal, a Constitution Bench of the Supreme Court held that if the search and seizure were in contravention of the provisions of section 132 of the Act, still the material seized was liable to be used against the assessee in the assessment proceedings. The said ratio laid down was referred with approval by another Constitution Bench in Baldev Singh7.
21. In case of declaration under Scheme, 1997, the CIT (A) accepted the declaration and a certificate was issued accordingly. The CIT (A) held that the AO was not competent to hold such acceptance by the Commissioner as null and void. The CIT (A), accordingly held as under:
“3.2 On receipt of this clarification, the CIT on the basis of the facts verifiable from the records, having been satisfied that no search and seizure proceedings were initiated against the assessee, had given the certificate u/s 68(2) of the VDIS, 1997 vide No. 6574 dated 22.4.98. When once the Commissioner after having been satisfied with the correctness and lawfulness of the declaration made by the assessee under the VDIS,1997, had issued certificate under that scheme, the assessee (the declarant) will have to be given immunity proclaimed under that scheme, since as per provisions of VDIS, 1997 the declaration accepted by the CIT by issue of a certificate u/s. 68(2) of the Scheme was final and the AO was not, therefore, entitled to dispute or disbelieve the same to deny the immunity and to bring to tax the said declared sum, as undisclosed income within the ambit of Chapter XIV-B read with section 158 BB.”
22. Ultimately, the CIT (A), deleted the addition of Rs. 4 lacs made by the AO. The CIT (A) found that the notice under section 158 BC served on the assessee by the DCIT, Circle, Bhilai, was withdrawn vide letter dated 22.01.1999 on the ground that the case of the assessee was transferred to the office of the Assistant Commissioner of Income Tax, Circle Raipur and the notice issued by the DCIT, Circle Bhilai, was withdrawn. Thereafter, no notice was issued and as such, withdrawal of the notice on 22.01.1999 constituted dropping of the block assessment proceedings and once such block assessment proceedings had been withdrawn on 22.1.1999, the assessment under section 158 BC passed by the AO was set aside and the appeal was allowed. The department preferred an appeal before the Tribunal challenging the action of the CIT (A) on the ground that deleting the addition of Rs. 2,69,116/- made by the AO to the undisclosed income of the assessee for the assessment year 1996-97 and 1997-98 that the assessee had not filed returns for the said years before the date of search under section139(1). The department also challenged the action of the CIT (A) in deleting the addition of Rs. 37,800/- made by the AO for 7 months of assessment year 1998-99 on the same ground. The Tribunal, after having considered all the facts, came to the conclusion that the findings recorded by the CIT (A) and the decision taken thereafter, was just and proper. Accordingly, the said grounds were rejected.
23. The second challenge of the Department was in respect of the deletion of addition of Rs. 4 lacs made by the AO denying the immunity claimed by the assessee under the Scheme, 1997. This ground was allowed by the Tribunal on the ground that the assessee was not eligible for immunity benefit under the Scheme, 1997, as the assessee, in whose case search was conducted under section 132 of the Act, was not eligible for making a declaration of his undisclosed income in respect of any earlier years prior to the previous year in which the search had been initiated and this position was further clarified in the circular No. 753 issued on 10.06.1997.
24. There is no dispute that in the warrant of authorization for search, the name of the assessee was clearly stated and pursuant to the search conducted on 11.11.1997, it was found that a declaration of undisclosed income of Rs. 4 lacs was made by the appellant under the Scheme, 1997 on 13.12.1997, for which the there was no immunity to the appellant. Thus, the finding recorded by the Tribunal was strictly in accordance with law and the same cannot be held as perverse.
25. The contention of learned counsel for the appellant that warrant of authorization was not issued individually in the name of the assessee, thus, the case is distinguishable and the assessee was not prohibited from making any declaration of undisclosed income as the search itself conducted under section 132 of the Act was bad, does not merit acceptance. It is an admitted fact that the name of the assessee was in the warrant of authorization for search. The assessee participated and the articles found in the search could not have been ignored on the basis that no warrant of authorization was issued in the name of the assessee, individually. The appellant had not raised this objection in the course of search proceedings or immediately, thereafter.
26. We have considered the above aspects at length and we find that the Tribunal has rightly appreciated the facts, circumstances and the materials available on record. The finding of the Tribunal in allowing the appeal filed by the Department was just and proper. Thus, the first substantial question of law, raised herein, is answered affirmatively holding that the authorities were competent to conduct search in the premises of the partners of the firm when the names of all the partners were specifically mentioned in the warrant of authorization. The finding of the Tribunal in respect of declaration made under the Scheme, 1997 is also just and proper. Thus, the second substantial question of law, raised herein, is also answered in affirmative.
27. In view of the above, the appeal is dismissed.