TMI Blog2008 (3) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... t that there was no undisclosed income within the meaning of s. 158B(b) of the Act. 2. On the facts and circumstances of the case, the learned CIT(A) has erred in upholding the action of the Dy. CIT in invoking the provisions of s. 158BD of the Act without recording the finding that there is undisclosed income within the meaning of s. 158B(b) of the Act. 3. On the facts and circumstances of the case the learned CIT(A) has erred in rejecting the contention of the appellant that the notice issued under s. 158BC of the Act is bad in the eye of law as the time given for filing the return was less than the statutory period prescribed under the provisions of the Act and consequently all the proceedings thereafter are null and void and liable to be quashed. 4. On the facts and circumstances of the case, the learned CIT(A) has erred in upholding the action of the Dy. CIT in invoking the provisions of s. 158BD of the Act on the basis of a statement of Mr. Manoj Aggarwal, despite the fact that no incriminating document was found during the course of the search. Further, the notice under s. 158BD issued by the learned AO is totally bad in law, illegal and void ab initio as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng proceedings under s. 158BD is concerned, the AO held that undisclosed income belonging to the assessee was detected during the course of search of Shri Manoj Aggarwal. It was also held that the transactions between M/s NITS Softtech Ltd. and assessee were not genuine and related to bogus accommodation entries. On this basis, the initiation of proceedings under s. 158BD against the assessee was justified by the AO. 3.6 In the appeal filed against the order of AO, the assessee again challenged the validity of the proceedings taken under s. 158BD against it. In this regard several grounds were taken by it before the learned CIT(A). 3.7 The learned CIT(A), did not find force in the submissions of the assessee and dismissed the grounds taken by the assessee by observing as under : 8. I have examined all the facts and circumstances of the case carefully. Under s. 158BD of the Act the AO should be satisfied that any undisclosed income belonging to a person other than the one who is covered under s. 132 has been detected. The facts unearthed in the case of Sri Manoj Agarwal as mentioned in detail in his case (supra) are so incriminating that nothing more is required to be sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The contract notes, bills, etc., found from the premises of the searched persons related to transactions entered into by the assessee with M/s NITS Softtech Ltd. Firstly, these transactions were duly recorded in the books of account of the assessee who was regularly assessed to tax and secondly no other evidence was found to co-relate these bills, etc. for establishing that the assessee was earning undisclosed income. It is to be pointed out that no search was conducted in the premises of M/s NITS Softtech Ltd. 6.1 In the case of CIT vs. Ravi Kant Jain (supra), Hon'ble Delhi High Court has held that block assessment order under Chapter XIV-B can be made only on the basis of document or material found during the course of search. Similar view has been taken by the Hon'ble Delhi High Court in the case of CIT vs. Jupiter Builders (P) Ltd. (supra); in the case of CIT vs. Manoj Jain (supra); and in the case of Amity Hotels (P) Ltd. vs. CIT (2004) 192 CTR (Del) 607: (2005) 272 ITR 75(Del). In the case of CIT vs. Arman Sheikh (supra), Hon'ble Gauhati High Court has held that if the transactions were reflected in the bank account of the assessee and duly reflecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dy. CIT (1998) 150 CTR (Guj) 577 : (1999) 236 ITR 73 (Guj); (2) Order of Tribunal Chandigarh Bench in the case of Anil Kumar, Jagadhari Ors. vs. Asstt. CIT [(IT(SS)A No. 19/Chd/2005 dt. 29th June, 2007]; and (3) Order of the Tribunal Delhi Bench 'I' rendered in IT(SS)A No. 135/Del/2005 and IT(SS)A No. 140/Del/2005 in the case of Ajit Singh (HUF). 7.1 He also placed reliance on the order of the Tribunal Delhi Bench in the case of R.S. Bansal vs. Asstt. CIT rendered in IT(SS)A No. 12/Del/2007. 7.2 The submission of the learned counsel for the assessee was that in the case of Manoj Aggarwal, the block assessment was completed under s. 158BC on 29th Aug., 2002 and on 26th Nov., 2002 the AO of the assessee i.e. Dy. CIT Central Cir. III, New Delhi, issued a notice under s. 158BD to the assessee. In this regard the contention of the learned counsel for the assessee was that as held by the Hon'ble Supreme Court in the case of Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97: (2007) 289 ITR 341(SC), for initiating action under s. 158BD, two things are required'(1) That the AO of the person in whose case search is conducted should record his satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Chandigarh Bench of the Tribunal in the case of Anil Kumar Jagadhari Ors. vs. Asstt. CIT (supra) and by Delhi Bench of the Tribunal in the case of Ajit Singh (supra) and thereafter by Delhi Bench of the Tribunal in the case of Radhey Shaym Bansal (supra). 7.5.3 The Chandigarh Bench of the Tribunal in the case of Anil Kumar Jagadhari (supra), examined the relevant provisions of IT Act in detail and considered several decisions including the decision of Hon'ble Gauhati High Court in the case of CIT vs. Arman Sheikh (supra) and the decision of Hon'ble Supreme Court of India in the case of Manish Maheshwari (supra) and has made a detailed discussion in paras 25 and 26 of its order. The concluding observations of the Bench are as under : 26. We can examine this from another angle also. The authorized officer who carries out a search under s. 132 or makes a requisition under s. 132A is required to hand over the books of account or other documents, materials seized under s. 132(1) or requisition under s. 132A to the AO of the person who is referred to in cls. (a), (b) or (c) of s. 132(1) of the Act i.e. the person who has been put to search or a requisition under s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seized or requisitioned to the AO having jurisdiction over such 'other person'. Such an AO, after receipt of the material referred above, shall proceed to issue notice under s. 158BD r/w s. 158BC requiring such person to file return of income for block period of undisclosed income belonging to such 'other person'. Now a second situation could also be visualized. In this situation, after having initiated the proceedings of assessment under Chapter XIV-B in the case of a person put to search under s. 132 or a requisition under s. 132A, the AO in the course such assessment examines the material and evidence found as a result of search and makes enquiries relatable to such evidence and acquires a satisfaction that an undisclosed income belongs to a person other than the person with respect to whom search was made under s. 132 or a requisition under s. 132A was made. Again at this stage, the AO is competent to proceed against such other person by issuing notice under s. 158BD r/w s. 158BC of the Act after recording the necessary satisfaction. Similarly if the person so identified is not within the jurisdiction of the said AO, then the AO after recording the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 158. 7.5.5 The Delhi Bench of the Tribunal in the case of Ajit Singh (supra) has reproduced paras 23 to 39 of Anil Kumar Jagadhari (supra) and has followed the findings of the Bench on this issue by observing as under : 8. In the above background, we now come back to the facts of the present case. In the instant case the salient facts (under) which assessment under s. 132(1) took place on one Shri Mangal Singh on 18th Dec., 1997, as a consequence of which assessment under s. 158BD on the said person was made by Dy. CIT, Inv. Circle, Gurgaon on 26th Feb., 1999, the satisfaction contemplated under s. 158BD to rope in the assessee to the provisions of s. XIV-B in the present case has been canvassed by the Revenue to be recorded in 2001 by the AO of the impugned assessee. Clearly, the said satisfaction is much after the date of assessment of undisclosed income in the case of person searched i.e. Shri Mangal Singh, and hence the satisfaction so recorded is belated having regard to the reasoning elaborated by the Tribunal in the case of Anil Kumar, Jagadhri Ors. (supra). The assessment in the case of Mangal Singh under s. 158BC has been completed on 26th Feb., 1999 wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 132(9A) as it stood at the relevant time, the authorized officer who conducted the search against a person has to hand over the books of account, documents and assets seized to the ITO having jurisdiction over the person to whom the books of accounts, documents and assets seized relate, within 15 days of the seizure and thereafter the AO is required to serve notice on such person to whom the books of account etc, relate requiring him to furnish a block return under s. 158BC. The Gujarat High Court was concerned with the constitutional validity of s. 158BD of the Act and one of the contentions was expressed in the form of an apprehension that a notice under s. 158BD can be issued by the AO in the case of the other person (other than the person who was searched) any time. While repelling this contention and putting at rest the apprehension saying that it is ill-founded, the Gujarat High Court held that the notice under s. 158BD has to be issued within a reasonable period from the date of the search itself and it was pointed out taking cue from s. 132(9A), that it should be done within 15 days of the seizure. The obvious implication is that the satisfaction that the income refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 213 CTR (SC) 425: (2007) 295 ITR 466(SC), the decision of co-ordinate Bench has to be followed. 7.5.8 Hence, respectfully following the aforesaid decision of Tribunal in the case of R.S. Bansal (supra), we hold that in this case also the notice issued after the expiry of period of 60 days from the date of passing of the assessment order in the case of person searched i.e. Manoj Aggarwal, was beyond a reasonable period and hence, such notice was not validly issued. Consequently, the jurisdiction assumed on the basis of such invalid notice and assessment made on that basis does not have legal legs to stand and therefore the same is liable to be quashed on this ground itself. 8. In the result, ground Nos. 1 and 4 taken by the assessee are allowed and assessment order passed under s. 158BD is quashed on these grounds. 9. Ground No. 2 : In ground No. 2 of the cross-objection, assessee has challenged the validity of notice issued under s. 158BD. For doing so, learned counsel for the assessee has raised several legal pleas including the plea that since no satisfaction was recorded in the notice issued under s. 158BD, the entire assessment is bad in the eye of law and the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany on 6th Feb., 1996. This notice has been reproduced in the judgment of the Hon'ble Supreme Court and is as under : To Indore Construction Co. (P) Ltd. 380, Jawahar Marg, Indore. In pursuance of the provisions of s. 158BC of the IT Act, 1961, you are requested to prepare a true and correct return of your total income including the undisclosed income in respect of which you as an individual/HUF/firm/company/AOP/body of individuals/local authority are assessable for the block period mentioned in s. 158B(a) of the IT Act, 1961. The return should be in the prescribed Form No. 2B and be delivered in this office within 16 days of service of this notice duly verified and signed in accordance with the provisions of s. 140 of the IT Act, 1961. (Search was conducted in the month of November, 1995). 9.1.2 The Hon'ble Supreme Court after considering the provisions of ss. 158BC and 158BD held that the notice dt. 6th Feb., 1996 did not record any satisfaction on the part of the AO. This observation of the Hon'ble Court is as under : Law in this regard is clear and explicit. The only question which arises for our consideration is as to wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded over to the AO having jurisdiction in the matter. No proceeding under s. 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November, 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on to the assessee. Audited accounts for a period of ten years may have to be reopened. 19. 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 assessee for initiating block assessment proceedings. The notice dt. 26th Oct., 1998 issued to the assessee is a vague (if not more) than the notice issued in Manish Maheshwari (supra). Such a vague notice, as held by the Supreme Court shows a patent non-appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Arun Kumar Ors. vs. UOI Ors. (2006) 205 CTR (SC) 193: (2006) 286 ITR 89(SC) in the context of jurisdictional fact held that issuance of notice dt. 24th Aug., 2001 is bad in law. This decision of Chandigarh Bench of the Tribunal has been followed by the Tribunal, Delhi Bench in the case of Ajit Singh (supra) and thereafter in the case of Radhey Shyam Bansal (supra). 9.3 So far as the present case is concerned, the notice issued under s. 158BD had been filed by the assessee and is available at p. 1 of the paper book. This notice is as under : Notice under s. 158BC r/w s. 158BD of the IT Act, 1961 Office of the Dy. CIT Central Circle-3, New Delhi. Dt. 26th Nov., 2002 To, The Principal Officer, M/s CSL Securities (P) Ltd., 36, Sant Nagar, East of Kailash, New Delhi-110065. Sir, In pursuance of the provisions of s. 158BC r/w s. 158BD of the IT Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of the block period as defined in s. 158B(a) of the IT Act, 1961 i.e. from previous year ending 31st March, 1991 to previous year e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee has availed the period of more than 15 days time for filing the return which was considered to be a valid return by the AO and assessment was also made on the basis of such return. This ground is therefore rejected. 11. In view of our findings recorded while deciding ground Nos. 1, 2 and 4, as above, the assessment order passed under s. 158BD is liable to be quashed and we do so accordingly. 12. Ground No. 5 : This ground relates to the levy of surcharge on the amount of tax. Since we have quashed the assessment by declaring the notice invalid, this issue need not to be adjudicated. 13. In the result, assessee's cross-objection is allowed. ITA No. 475/Del/2003 (Revenue's appeal) : 14. The Department has taken only one effective ground in its appeal to challenge the order of the learned CIT(A) which is as under : On the facts and circumstances of the case, the learned CIT(A) has erred in holding that the income of ₹ 2,47,31,304 is to be assessed in the case of NITS and not in the hands of the assessee. 15. Although after allowing the grounds taken in the cross-objection and after quashing the assessment order we are not required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a registered company whose identity is well established. It is duly incorporated and its managing director is identifiable. Therefore, if the income is to be assessed it is to be assessed in the hands of NITS. 17. The learned Departmental Representative has submitted detailed reasons to support the order of the AO. However, on going through entire material on record and on considering the merits of the case, we do not find any scope to interfere in the order of the learned CIT(A), firstly, because no incriminating material was found during the course of search against the assessee to justify the addition; secondly, all the transactions, on the basis of which the addition has been made, were duly disclosed by the assessee; and thirdly, addition on the basis of statement of third party cannot be justified. For supporting the order of the learned CIT(A) we can also place reliance on the orders of Hon'ble Delhi High Court in the cases of Ravi Kant Jain (supra), Jupiter Builders (supra) and decision of Hon'ble Punjab Haryana High Court in the case of Jeeta Khan (supra). In view of the above, the ground taken in the appeal of the Department is dismissed. 18. In the re ..... 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