TMI Blog2007 (2) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings were initiated on receiving the direction from the CIT(A) whereas originally, on examining the facts of the case, the learned Assessing Officer had accepted the contentions of the appellant and did not initiate the proceedings against the appellant under section 158BD. Accordingly, the assessment be held null and void" On merits also, assessee has raised the grounds, however, it was pronounced in the Court that if the appellant fails on ground No. 1, then only there is a necessity of adjudication on the grounds raised in respect of merits of the case as reproduced below:- "(3) The learned CIT(A) erred in confirming the addition the addition of Rs. 35,00,000 and Rs. 1,01,000. (4) The learned CIT(A) failed to appreciate that- (i) The loose papers allegedly indicating the payments in cash of Rs. 36,01,000 were found at the premises of Shri Purandare and not in the appellant's premises and hence, the presumption under section 132(4A) could not be used against the appellant." 2. After having the preliminary discussion in respect of the adjudication of the grounds raised, we have thought it correct and proper to first adjudicate upon the legal issue as raised in gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has forwarded the copy of the statement as well as copies of the seized materials to assessee for his comments. The assessee has requested for cross examination of Shri M.K. Purandhare. After this discussion on merits/factual background of the case, the Assessing Officer has also mentioned vide para 2.4 that the assessee has objected the initiation of proceedings under section 158BD against him. It was challenged before the Assessing Officer that no satisfaction was recorded by the Assessing Officer in the case of the assessee. It has also been contested that the revenue was not satisfied about tl1e payment made to the assessee and due to this reason, the other concerned Assessing Officer has disallowed the claim of the said sum of Rs. 35,00,000 in the hands of the said company LBCPL. Relevant para 2.4 in this regard is reproduced from the impugned order of the Assessing Officer: "2.4 The assessee has also objected to the proceedings under section 158BD. According to assessee, the proceedings under section 158BD can be initiated on the satisfaction of the Assessing Officer and in the case of assessee, the Assessing Officer was satisfied that payment was not made to him and acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has also mentioned that the said loose paper was dated 15-12-1995 and on the basis of the said information, the Assessing Officer has assumed jurisdiction as prescribed under section 158BD, read with section 158BC. Resultantly, CIT(A) has upheld the action of the Assessing Officer. 4.1 Ld. CIT(A) has also discussed the objection of assumption of jurisdiction based upon a direction the other CIT(A) in the case of M/s. LBCPL. In this regard, it was mentioned that the said CIT(A) had merely expressed his view point which was in the nature of an information attracting the attention of concerned Assessing Officer. From the reasons recorded by the Assessing Officer, it was clear that he has applied his mind to the facts of the case and thereafter came to the conclusion that the appellant was having undisclosed income as mentioned in those loose papers seized from the premises of Mr. M.K. Purandhare, therefore, the proceedings have been rightly initiated in the case of the assessee under section 158BD, expressed by Ld. CIT(A). 4.2 There was an objection about the time lack for initiation of proceeding under section 158BD and in this regard, from the side of the assessee, a rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly mentioned that the proceedings under section 158BD were initiated on the basis of the intimation received from the office of CIT(A)-I, Pune, during the course of appeal proceedings in the case of M/s. LBCPL. On page 244, there was a letter from the assessee addressed to the Assessing Officer wherein, the assessee has demanded "satisfaction recorded by the assessee". Next is the page 245 of paper book containing a notice under section 158BD dated 8-4-2003 wherein vide para 3, it was intimated by the ACIT, Circle 3, Pune that the CIT(A) during the course of appellate proceedings in the case of LBCPL had recorded the statement on oath and intimated the office to initiate proceedings under section 158BD of Income-tax Act. On the basis of those notices correspondence, Ld. A.R. Mr. Pathak has stressed that the Assessing Officer has initiated the proceedings under section 158BD only on the basis of the direction of Ld. CIT(A) who was deciding an appeal of an another company which had already been sold by the assessee, namely M/s. LBCPL. According to him, now the situation is that on one hand, the Assessing Officer had made an addition of Rs. 35 lakhs by disallowance of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first appellate authority has wide power which also includes the power of enhancement, which means the order of Assessing Officer merges with the order of CIT(A). Since this is the procedural aspect of completion of assessment proceedings so it was within the powers of Ld. CIT(A) to intimate the Assessing Officer to take necessary remedial action. However, he is of the view that by default, the said remedial action had not been taken in the case of an assessee or even in the case of an another assessee, by the revenue department. The Assessing Officer has so many ways of recording his satisfaction where he has reason to believe that an undisclosed income is to be taxed in the hands of a particular assessee. The said belief of the Assessing Officer can be based upon any information came to his notice either on his own investigation or by any other agency or any superior authority i.e., CIT(A) as in this case. He has relied upon the decision in the case of Premjibhai Sons v. Jt. CIT [2001] 251 ITR 625 (Guj.), Rushil Industries Ltd v. Harsh Prakash [2001] 251 ITR 608 (Guj.), Priya Blue Industries (P.) Ltd. v. Jt. CIT [2001] 251 ITR 615 (Guj.) and Nilesh R. Shah v. Asstt. CIT [2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter arriving at a conclusion that the payment of Rs. 35 lakhs had been made to Mr. Lunawat, the appellant, and an action under section 158BD as well as under section 148 (protectively), was proposed. Thereafter, referring Explanation 3 to section 153, he has argued that where by an order any income is excluded from the total income of one person and held to be the income of another person, then an assessment of such income on such other person be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. Therefore, the action of the Assessing Officer was also within the purview of this Explanation. 6.2 Ld. CIT DR has also argued on the point of limitation that sometimes, the revenue department require enough time more than the reasonable, time due to the pending investigation or examination of the seized material. To arrive at the right conclusion, a revenue officer is expected to cover all the issues, causing delay in issuance of notice. Ld. CIT DR has argued that this is not the case of the assessee that because of the said inordinate delay, the revenue officers have forgotten some vital fact and erred in arriving at the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Chowdhary v. Addl. CIT [1998] 234 ITR 865, wherein the Hon'ble Court has observed that the appeal, reference or revision or any other proceedings before a Court must relate to an assessee in question or not any direction or assessment made in appeal, reference or revision in the case of any person or in a proceedings in which the assessee in question is not a party, he has concluded. 8. We have heard the pleadings of both the sides at length. The orders of the authorities below have been carefully perused in the light of the material placed before us and the precedents cited. Facts as stated herein-above are not much in dispute because the issue raised before us is purely a legal issue pertaining to the assumption of jurisdiction by the Assessing Officer while issuing notice under section 158BD of Income-tax Act. Also, we have to decide whether tinder the present set of facts and circumstances of the case, the concerned Assessing Officer has assumed the jurisdiction as prescribed or he has been allegedly instructed by an appellate authority for the issuance of notice under section 158BD of Income-tax Act. And also we have to examine whether the first Assessing Officer having t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily the Assessing Officer having jurisdiction over such person about whom the satisfaction is reached, though he is an another person other than the person whose premises has been raided, yet, the said other person has undisclosed income. Before we proceed to further interpret this section, we are expected to be guided by a maxim "A verbis legis non est recedendum" i.e., a literal construction of a law is not to be departed from. The general principle for interpretation of taxing statute is that the statute has to be strictly construed. The well-established rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY and LORD SIMONDS, means; "The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words". In a classic passage LORD CAIRNS stated the principle thus "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however appare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on received to this office from CIT(A)-I, Pune, during the course of appeal proceedings in the case of M/s. LBCPL. An another letter dated 8-4-2003 is also placed on record wherein the concerned revenue officer has informed that the CIT(A)-I, Pune, during the course of appeal proceedings in the case of M/s. LBCPL had recorded the statement of the assessee on oath and intimated the office to initiate proceedings under section 158BD of Income-tax Act. From the contents of all those correspondence, it emerges that the concerned officer was guided by Ld. CIT(A), who was hearing an appeal of a company namely M/s. LBCPL. However, Ld. CIT DR Mr. Sunilkumar Mishra has argued that the said CIT(A) has not directed for initiation of the proceedings under section 158BD but simply intimated to adopt a legal recourse, hence the action thereafter could not be termed as illegal or out of jurisdiction. To examine the veracity and the correctness of this argument of Ld. CIT DR, we have perused para 4.4 of the impugned order of Ld. CIT(A), which has already been reproduced hereinabove, and have found that the Ld. CIT(A) has directed the Assessing Officer in unequivocal terms to communicate those obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain issues raised to him in the cross examination. He has again denied the receipt of Rs. 35lakhs in cash from Shri Purandare, The assessee-company has also filed its submissions on 29-7-2002 regarding unrecorded cash consideration of Rs. 35 lakhs paid to Shri Lunawat and Mrs. Nahar. Both these rival submissions are duly considered. Further as the expenditure is claimed by the assessee-company, onus to prove the same squarely lies on the assessee-company. As the assessee-company has not produced any further evidence in support of the expenditure and the recipient Shri Jayant Lunawat has categorically denied the receipt and also in the light of the fact that the paper relating to expenditure is neither conclusive nor contents of such seized paper were confirmed to be correct by Shri Jayant Lunawat, therefore, the claim of expenditure of Rs. 35 lakhs is not proved to be genuine, hence disallowed as unexplained expenditure under section 69C of the Income-tax Act, 1961 for assessment year 1996-97." So the only meaning can be drawn from the above para that the investigation officer who had the control over the seized material has reached to the conclusion that the impugned seized p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on over that other person. Revenue has not established in this case, though repeatedly asked during the course of hearing that whether any such procedure was adopted; but failed to place on record any such information. There is no such material or correspondence placed before us, through which the revenue department could have established that the Assessing Officer in possession of the seized material has recorded his satisfaction and thereafter, handed over all the documents and seized material to the Assessing Officer having the jurisdiction over such other person. Therefore, a serious question has been raised from the side of the Ld. AR Mr. Pathak, and he was right in raising this doubt; that the concerned Assessing Officer has resumed the jurisdiction which was not provided in the statute. On this count as well, the entire proceedings as initiated under section 158BD appears to be void and against the statute. 12. Though we have pronounced our decision in above paras, holding that the impugned order passed by invoking section 158BD was void ab initio, but before we part with, we are briefly considering t he case laws cited from the either side. Ld. AR has cited Khandubhai Vas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aled that the Commissioner was having a view that a particular amount was to be assessed but the ITO has expressed the opinion that it should not be assessed but followed the instructions in obedience to the directions of the Commissioner by assumption of jurisdiction under section 148 which was quashed being bad in law due to non-satisfaction of the condition, precedent. An another decision of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) (FB) has also been cited in support of the argument that in case of change of opinion, the initiation of reassessment proceedings were bad in law. The Hon'ble Court has observed that a statute conferring a statutory power may be held to be ultra vires-Article 14, the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionally should be favoured. In that event it was herd that by empowerment of section 147, the ITO may exercise his jurisdiction for initiation of proceedings for re-assessment not upon a mere change of opinion, the same may be held to be unconstitutional, observed by the Hon'ble Court. The ratio laid down in this precedent can support the argument of Ld. AR because as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to D. In view of the above, it is held that the impugned assessments were illegal and void ab initio. Accordingly, the impugned assessments are hereby cancelled." 13. We have also examined few case laws cited by Mr. Sunilkumar Mishra. Ld. CIT D.R. in support of his argument that the proceedings under section 158BD can be taken if the Assessing Officer is satisfied that on account of a search operation, an undisclosed income is to be assessed in the hands of an another person, citation was Rushil Industries Ltd. v. Harsh Prakash [2001] 251 ITR 608 (Guj.). There is no doubt about this proposition that section 158BD definitely requires a satisfaction of the Assessing Officer that the books of account or any other document found in the search showed undisclosed income of the person other than the one against whom the search was conducted. The observation of the Hon'ble Court was that the disclosure in the search operation against the two persons was a relevant material for forming an opinion and satisfaction that the said other person had not truly disclosed its income, hence the action under section 158BD was held as justified. In that appeal as well, the stress was given by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that if the concerned Assessing Officer was satisfied that the undisclosed income pertained to such other person then there was no requirement in section 158BD of affording opportunity of hearing to a party before recording satisfaction. In our humble opinion, since the statute do not provide of affording an opportunity of hearing, therefore, the recording of satisfaction cannot be challenged being not a quasi-judicial order but simply an administrative order but the essence is that the presence of a satisfaction of such an officer who is in control of the material is a must. An another decision was cited by Mr. Mishra i.e., Sakthivel Bankers v. Asstt. Commissioner [2002] 255 ITR 144 (Mad.), however, the issue involved was slightly different and based upon the facts of those cases, the Hon'ble Court has arrived at the conclusion that the notices issued by the Assessing Officer to whom the records of the person against whom notices had been issued, had been transferred, were perfectly valid and the application of the provision of Chapter XIV-B was equally held as valid. The only decision which is left for our consideration as finally cited by Ld. CIT DR is the decision of H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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