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TMI Blog2013 (9) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax (Appeals) ought to have noticed that the Act does not specify any time limit for issue of notice and the issue of notice was legally correct. 4. The learned Commissioner of Income Tax (Appeals) has erred in holding that the total investment in the purchase of shops was Rs. 12,25,000/- as reported by ADIT(Inv.) and not Rs. 14,32,500/- quantified by the Assessing Officer. The learned Commissioner of Income Tax (Appeals) ought to have noticed that the Assessing Officer has considered the payments made in 3 transactions and all the transactions are combined. 3. The facts relating to the case are stated in brief. The assessee herein is the proprietor a business concern named M/s. C.K. Mathew & Sons, which is engaged in footwear business in Ernakulam. The Department carried out search and seizure operations in the case of M/s. Giri Pai Jewellery, Ernakulam and its partners Shri Sundaresa Pai on 18-04-2002. During the course of search, the copies of first pages of two agreements were found out. From the said agreements it was noticed that the assessee herein had paid money to Shri Sundaresa Pai & others towards purchase of shops in a shopping complex. The first agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Shri C.M. Nigam in which he admitted that, in fact, he had paid Rs.12,25,000/- in cash for purchase of shop premies. Shri Nigam also did not record this payment in his books of accounts. Hence, the Assessing officer, of Shri C M Nigam may be directed to initiate necessary action to tax the sum of Rs.12,25,000/- being his unaccounted income. A report along with its annexures prepared by the ADIT (Inv-I), Ernakulam is forwarded herewith." The copy of report given by ADIT(Inv) was not produced before us. However, the Ld CIT(A) has extracted the conclusions of ADIT as under in para 1.3 of his order:- "As per the P & L Account as on 31.3.2001 his net profit in the business was only Rs.1,42,192/-. Since the sale price of the ground floor property as per the sale deed executed and registered with Joint Sub-Registrar, Ernakulam is only Rs.73,700/-, it was the clear intention of Shri C.M. Nigam to suppress the sale price. Since Shri Nigam Mathew did not record the said payment of Rs.12,25,000/- in his books of accounts, and since he had admitted that the said payment is made in cash and is earned out of his business, the entire sum of Rs.12,25,000/- is his unaccounted income for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer determined the total amount of investments made by the assessee as under: (a) Shop purchased on 31-05-2001 : Rs. 4,75,000/- (b) Value of shop as per agreement dated 16-11-2001 : Rs. 3,37,500/- (c) Value of shop as per agreement dated 30-03-2001 : Rs. 6,20,000/- Total : Rs.14,32,500/- The Assessing Officer gave credit of Rs. 2,73,700/-, i.e., Rs.73,700/- recorded in the books of accounts and Rs.2,00,000/- loan taken from Shri Sunny. Accordingly, the AO determined the balance amount of investment at Rs. 11,58,800/- 9. In the regular return of income filed for the assessment year 2002-03, the assessee had declared additional income of Rs.5.00 lakhs. While completing the said assessment u/s. 143(3) of the Act on 21-02-2005, the Assessing Officer assessed the above said amount of Rs. 5.00 lakhs on a protective basis as he felt that the same is assessable as "undisclosed income" of the assessee for the block period. Accordingly, the Assessing Officer treated the amount of Rs. 5.00 lakhs offered by the assessee in his regular return of income for 2002-03, as undisclosed income of the assessee and gave set off of the same against the balance amount of investment of Rs. 11,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re handed over, that to by the ADIT.... So even though investment came to notice of department no satisfaction note appears to have been recorded by the AO of the party searched. Further, though the investment did come to notice of the Department there is no reference to it being "undisclosed income". 3.5 Thus, in my opinion, the material seized was such that it did not belong to the appellant alone but to the searched party as well and that no conclusions about undisclosed income of the appellant could be drawn by the AO of the party searched. In the circumstances it did not perhaps warrant action under section 158BD but perhaps under other sections of the IT Act. In my opinion, in view of the facts as above as well as Supreme Court decision, the proceedings under section 158BD are legally not tenable in this case." 12. It is seen that the Ld CIT(A) has taken the view that:- (a) The document found during the course of search belonged to both the assessee and the searched party. Hence no conclusion about "undisclosed income" of the assessee could be drawn by the AO of the searched party. (b) No satisfaction has been recorded by the AO of the searched party. The satisfaction rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 account 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 158BC against such other person." Accordingly, the Ld A.R submitted that the satisfaction of "the Assessing officer of the party searched" is mandatory for initiating proceedings u/s 158BD of the Act. Accordingly, he contended that the satisfaction of the ADIT/JDIT/JCIT is not contemplated u/s 158BD of the Act, even if they could be considered as assessing officers as per sec. 2(7) of the Act. He further submitted that the provisions of statute must be strictly as held by the Hon'ble Supreme Court in the case of Sneh Enterprises Vs. Commissioner of Customs (2006) 7 SCC 714, 721;(2006) 7 RC 531. He also submitted that where two views are possible, the view in favour of the assessee should be taken (Ispat Industries Ltd V Commissioner of Customs (2006) 12 JT 370; (2006) 7 RC 546). 15. We have heard the rival contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er materials or information as are available with the Assessing Officer and relatable to such evidence. Any income not relatable to the evidence found as a result of search can be assessed in the regular assessment only. 16. If the assessing officer is satisfied that any undisclosed income noticed from the evidences belongs to any person, other than the person with respect to whom search was made u/s 132, then as per the provisions of sec. 158BD of the Act he shall hand over the books of account, other documents etc. to the assessing officer having jurisdiction to such other person and that AO shall proceed u/s 158BC against such other person. At this stage, we feel it pertinent to extract below the observations made by the Hon'ble Kerala High Court with regard to the scope of provisions of sec.158BD of the Act in the case of CIT Vs. Dr. T.M. Kuriachan (ITA No.12 of 2011 dated March 5, 2012):- "Chapter XIV-B provides for special procedure for assessment of search case. The provision provides for assessment for block period pursuant to search made under section 132 or based on requisition of accounts or documents under section 132A of the Act. The provisions for assessment of undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee who is not searched but in respect of whose undisclosed income evidence is gathered. In fact, it is absolutely left to the Officer to whom the file is transferred under Section 158BD to consider the transferred evidence and materials and to decide whether to proceed with assessment against that assessee under section 158BC or not. So much so, the satisfaction for transferring a file by one Officer to another is only prima facie satisfaction on jurisdiction and on identifying the Assessing Officer, who has the jurisdiction over the other assessee, the materials and evidence collected in search or requisition are transferred. The satisfaction for initiation and completion of assessment under section 158BD is obviously that of the Assessing Officer to whom transfer is made by the Officer who conducted search." Having discussed so, the High Court followed the decision of the Supreme Court in Manish Maheshwari (supra), where in it was held that if satisfaction is not recorded by the Assessing Officer for transferring the file under section 158BD, the assessment made under Section 158BC is invalid. Subsequently, the revenue has filed a review petition before the High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), distinguishing the decision of Hon'ble Supreme Court in the case of Manish Maheshwari (supra) has held that the satisfaction is not required to be recorded if the assessments of both the assessees one under s. 158BC and the other under s. 158BD were completed by the same AO. (d) As per the decision of Hon'ble jurisidictional High Court, the requirement of compliance with mandatory condition of "recording of satisfaction" prescribed by Hon'ble Supreme Court can be dispensed with if the AO is the same for both the assessees, i.e., the person who was searched and the other person, meaning thereby, the condition of "recording of satisfaction" would depend upon the facts and circumstances surrounding the case. (e) The Assessing officer of the searched person should first satisfy himself that the undisclosed income found in the evidences does not belong to the searched person and then only, he would be in a position to record satisfaction that it belongs to some other person. (f) Section 158BD proceeds on the presumption that the AO of the searched person has found out the existence of undisclosed income of some other person for the first time. Hence, it is provided that he shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of law that the provisions of Act should be interpreted in a manner which achieves the purpose of enacting the said provision, i.e., the interpretation should aim to fulfil the intention of the parliament. The intention of the parliament in enacting provisions of sec. 158BD is to assess the undisclosed income of any person, other than the person searched, if the same is found during the course of search. At the cost of repetition, we extract below the observations made by the Hon'ble jurisdictional Kerala High Court in the case of Dr. T.M. Kuriachan:- "In fact, what section 158BD says is that when the evidence collected in search of an assessee revealed undisclosed income of another assessee, who is not searched, the material or evidence so received can be the basis of making assessment under section 158BC of the assessee who is not searched." The satisfaction of the Assessing officer of the searched person, in our view, would be mandatory, if the undisclosed income of such other person is found out by him for the first time and further the said materials were not confronted with such other person. The obvious reason, in such kind of situation, could be that the block asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to have been established in this case. 22. In our view, what is more important is the assumption of jurisdiction, i.e., the Assessing officer, before proceeding to assess the undisclosed income, should assume the jurisdiction over the said person in a proper and legally permitted way. There is no dispute in the instant case that the assessing officer of the assessee herein has assumed jurisdiction in a proper manner by issuing notice u/s 158B r.w.s. 158BC of the Act. Accordingly, in our view, the assessment framed by the AO u/s 158BD r.w.s. 158BC of the Act cannot be find fault with, in view of the peculiar facts and circumstances of the instant case, which were discussed in the preceding paragraphs. Accordingly, we set aside the order of Ld CIT(A) on this issue and hold that the notice issued u/s 158BD was legally tenable. 23. The Ld. CIT(A) in para 3.3 of his order has also observed that the Assessing Officer did not given any explanation for the delay in initiation of proceedings u/s. 158BD of the Act. The Ld CIT(A) has noticed that the notice u/s 158BD has been issued after expiry of about 27 months from the date of search. The Revenue has challenged the said observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion on this issue. We also noticed that the Ld. CIT(A) has made a sweeping observation with regard to the issue of notice u/s 158BD of the Act, without examining the details of date of completion of assessments u/s. 158BC of the Act in the hands of searched persons. Under these circumstances, we have to hold that the Ld CIT(A) has made the impugned observations without any basis and hence we have no other option but to set aside the said observations made by the Ld. CIT(A) on this issue. 26. The Ld. CIT(A) has also considered the merits of addition and has held that no addition is warranted on merits for the following reasons: (a) The books of accounts maintained by the assessee were not called for by the ADIT to ascertain whether the payments recorded in the agreement were duly accounted for or not by the date of the search. (b) The assessee has shown that he has duly accounted for the payments made for purchase of shops, which were shown in the agreements. (c) The assessee has been maintaining books of accounts in the ordinary course of business and the said fact is corroborated by regular filing of sales tax returns. (d) The assessment for the assessment year 2002-03 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before sales tax authorities does not prove that transactions of Rs. 9 lakhs had been recorded in regular books of account before the search. But in my view, production of ST returns does provide circumstantial evidence showing the existence of books which has not been refuted. So it cannot be concluded that the books did not exist at the time of search at Giripai." 27. On merits of the issue, the contention of the assessee is that he had withdrawn funds from his business for making the payments as shown in the agreements and further the said withdrawals have been duly recorded in his business books. The Ld A.R invited our attention to the copies of Capital account to show that there were withdrawals. The Ld A.R submitted that the Assessing officer was not justified in rejecting the said withdrawals only for the reason that the assessee did not state in the narration that they were withdrawn for giving advance for purchase of shops. He further submitted that the assessee had offered additional income of Rs.5.00 lakhs in his regular return of income filed for the assessment year 2002-03 and another sum of Rs.2.50 lakhs was offered in the assessment made u/s 143(3) r.w.s. 147 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermine the undisclosed income of the assessee. 30. The assessee invited our attention to the capital account of the assessee, as available in his business books, to substantiate his contention that the amount given by him as per the agreements were duly accounted for. We notice that the AO did not examine the said claim of the assessee on the reasoning that the assessee did not state the purpose of withdrawal in the narration. In our view, the examination of the said claim is very vital in order to determine the quantum of "undisclosed income" and it may not be proper to reject the said claim for the reason that the specific purpose of withdrawal was not given in the narration. Further, in our view, the veracity of claim of the assessee with regard to the withdrawals can be ascertained by examining the cash book only and not through the Capital Account. A person can withdraw money only if cash balance is available in the books of account. A cursory look of the Capital account shows that the assessee, besides making withdrawals, has also introduced like amounts into his capital account. The purpose of introduction of fresh funds in the business books and the sources thereof needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined the quantum of investment of Rs.14,32,500/- by adopting the value of proposed investment to be made in purchase of shops. Hence, the Ld CIT(A) has observed that the "Proposed purchase consideration" adopted by the AO cannot be considered as "Undisclosed income" of the assessee. We agree with the said observation made by Ld CIT(A). For the purpose of determining the "Undisclosed income", the amount actually spent by the assessee should be considered and not the value of proposed investment. Hence the AO was not right in adopting the value of Rs.3,37,500/- and Rs.6,20,000/- for the shops proposed to be purchased as per the agreements. 34. In our view, following amounts shown in the agreements and that was agreed to by the assessee are relevant. (a) Purchase of shop for Rs.4,75,000/-, which was registered for a value of Rs.73,700/-. (b) The payments made as per the first agreement - Rs.7,50,000/- (c) The payments made as per the second agreement - Rs.2,50,000/-. The Ld CIT(A) has observed that there is an overlap of Rs.2,50,000/- (item (c) supra) between the amounts of Rs.7,50,000/- and Rs.4,75,000/- stated in (a) and (b) supra. However, the AO did not have an occasion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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