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St. Mary’s Educational Society Versus DCIT, Circle-1, Kakinada

2017 (10) TMI 379 - ITAT VISAKHAPATNAM

Validity of issue of notice u/s 158 BD - issue of notice after 9 years and 9 months of completion of assessments of searched party - Held that:- In this case the Notice under section 158 BD was issued after 9 years and 9 months of completion of Block assessment in the case of searched person. Even if the time limit is considered after the rendering the decision of the Hon’ble ITAT the AO took more than 1 year four months from the date of the order of the tribunal. However the time limit has to b .....

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he decision cited. Therefore we hold that notice issued u/s 158BD is beyond the time limit prescribed under the act and the same cannot be valid. Accordingly we quash the notice issued u/s 158BD of the Act and annul the assessment made u/s 158BD, and allow the appeal of the assessee. - I.T. (SS) A. No. 2/Vizag/2014, I.T. (SS) A. No. 3/Vizag/2014 - Dated:- 6-10-2017 - Shri V. Durga Rao, Judicial Member And Shri D. S. Sunder Singh, Accountant Member Appellant by : Shri G.V.N. Hari, AR Respondent b .....

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The assessee is educational society in the name and style of Saint Mary s Educational Society registered with Registrar of Cooperative Societies and the educational institutions are being operated in the name and style of Saint Mary s College of Education and Saint Mary s Model High School . A search u/s 132 of the Act was carried out on 29.1.1999 in the premises of Saint Mary s College Education as well as the residential premises of members of the society including Sri K. Raj Kumar, member of .....

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filed the return of income for the block period in the name of Saint Mary s Educational Society on 02.08.1999 and the assessment order u/s 143(3) r.w.s. 158BC of the Act was passed on 30.01.2001 in the name of Saint Mary s College of Education and assessed the income for the block period at ₹ 99,86,408/-. The assessee went on appeal before the CIT(A) objecting the assessment made in the name of Saint Mary s College of Education instead of Saint Mary s Educational Society , since Saint Mary .....

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nd 7.1 of the Ld. CIT(A) s order in the case of Saint Mary s College of Education. 7. With regard to the assessment made in the hands of the appellant, it may be seen that the appellant is only one of the wings of the Society, namely, St. Mary s Educational Society which is the only legal entity by virtue of its being registered under the provisions of Societies Registration Act, 1860. While completing the assessment, the Assessing Officer has disregarded the fact of existence of the Society and .....

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that the appellant college is being run under the ownership and management of the Society has been clearly brought out for the information of the Assessing Officer. Further, the following evidences were produced for my perusal in support of the above contentions:- (a) Memorandum of Association of the Society duly registered under the Societies Registration Act, wherein clause No.3 thereof speaks of the objectives and aims thereof which include the establishment of schools, colleges and training .....

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esh. 7.1 From the above documentary evidences, it is very clear that the appellant college is nothing but a wing/extension of St. Mary s Educational Society. It is pleaded that all the above documentary evidences were produced before the Assessing Officer as well, however, the same were not considered by the Assessing Officer and the A.O., has treated the appellant college as a AOP. As could be seen from the documentary evidences listed above, which were perused by me, it is very clear that the .....

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nnulled the assessment passed by the A.O. and confirmed the order of the Ld.CIT(A). For ready reference, we extract the relevant paragraph of the assessment order. 5. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on records. From a careful perusal of statement of Mr K Raj Kumar recorded by the search party during the course of search or thereafter which are available at page 214 to 228, we find that it was brought to the no .....

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rty in support of these contentions. Despite of all these facts, the notice u/s 158BC was issued in the name of the assessee i.e., St Mary's College of Education. Though the notice was issued in the name of the assessee i.e., St Mary s College of Education but the block return was filed by the St. Mary s Educational Society, declaring a nil return on the ground that the entire receipts/income of the society is exempted from Income Tax Act u/s 10(22) of the IT Act. Along with the return, a le .....

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wing of the society, who has got exemption u/s 10(22) of the Act, no asst. can be framed in the hands of the wings or a branch of the society. We therefore, find ourselves are in agreement with the order of the CIT(A) who has rightly held that the assessment in the hands of the assessee cannot be framed. Accordingly, the block assessment in the hands of the assessee deserves to be annulled. We therefore, confirm the order of the CIT(A) annulling the assessment. Since the assessment has been annu .....

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grieved by the order of the A.O., the assessee went on appeal before the CIT(A) and challenged the validity of issue of notice u/s 158BD of the Act after 11 ½ years from the date of the search. The CIT(A) has upheld the notice observing that there is no mandatory time limit fixed for issue of notice u/s 158 BD of the Act. For the sake of convenience and clarity we extract the relevant paragraph of the Ld. CIT(A) as under: 5.3 I have considered the submissions made. I find that the AO has .....

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k assessments in the hands of Sri K. Rajkumar and M/s. St. Mary's College of Education were completed separately. However, the assessee-society filed the return of income admitting NIL income and claimed exemption u/s. 10(22)/10(23C) of the Act on 02.08.1999. Since no warrant u/s. 132 was issued in the name of the assessee-society, as per the provisions of section 158BD, the assessee society falls under the category of "any other person", where the assessing officer is satisfied th .....

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e limit prescribed for any proceedings being initiated under the provisions of section 158BD of the Act. As such, the notice u/s.158BD has rightly issued in the assessee's case, which is valid as per law. As such, the notice u/s.158BD has rightly issued in the assessee's case which is valid as per law. The case laws relied upon by the assessee are distinguishable from the facts and circumstances of the assessee's case. 5.4 I find that the initial proceedings were initiated u/s.158BC .....

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erials seized during the search operation show undisclosed income relating to 'any other person' other than the person in respect of whom search was made u/s.132 of the I.T. Act. As the search warrant is not in the name of the assessee-society, (which was not in dispute), the assessee-society would fall in the category of 'any other person'. Certain incriminating materials have been seized relating to the assessee-society during the search and in relation thereto certain disclosu .....

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ulled. It was held that the St. Mary's College of Education, though a wing of the society is not the same entity as the assessee society. In view of such a legal position upheld by the Hon'ble ITAT the argument raised by the AR is not tenable and is liable for rejected. 5.6 The AR also argued that the satisfaction recorded for issue of notice u/s.158BD was done after the completion of block assessment and as a result the impugned assessment has to be declared invalid. It was also contend .....

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ately u/s.158BD. As a result of the order of the Hon'ble ITAT annulling the block assessment order passed in the name of St. Mary's College of Education, there was sufficient cause existing with the AO to proceed u/s.158BD to issue notice to the assessee-society. Such a notice has been issued within reasonable time of the passing of the order of the Hon'ble ITAT. Further, a careful and plain reading of section 158BD would show that there is no mandate or time limit fixed for issue of .....

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re the Tribunal. Appearing for the assessee, the Ld. A.R. argued that in this case the search was conducted on 29.01.1999 and the notice u/s 158BD of the Act was issued on 15.11.2010 i.e. after the 11 ½ years of conducting the search and the issue of notice is not valid in this case. The Ld. A.R. further argued that even if it is presumed that the proceedings u/s 158BC of the Act were completed after the pronouncement of the order of the ITAT, the assessing officer has taken more than 1 y .....

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idered to be not contemporaneous for the assessment proceedings and argued that notice issued in the assessee s case is beyond the time limit mentioned in the Income Tax and required to be quashed. 7. On the other hand, the Ld. D.R. relied on the orders of the lower authorities. 8. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. In this case, search u/s 132 of the Act was carried out on 29.01.1999 and the assessments .....

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u/s 132 of the Act was executed and in the case of 158BD of the Act., 2 years from the end of the month in which the notice u/s 158BD of the Act was issued. For ready reference, we reproduce section 158BE of the Act which places time limit for completion of block assessment as under: Time limit for completion of block assessment. 158BE [(1) The order under section 158BC shall be passed- (a) within one year from the end of the month in which the last of the authorizations for search under section .....

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unt or other documents or any assets are requisitioned on or after the 1st day of January, 1997. (2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be- a) one year from the end of the month in which the notice under the Chapter was served on such other person 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 Ja .....

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the assessments u/s 158BC of the Act was completed i.e. searched persons on 30.01.2001 and the A.O. had issued the notice u/s 158BD of the Act on 15.10.2010 after 9 years 9 months of completion of assessments u/s 158BC. Hon ble Punjab and Haryana High court [2012] 20 taxmann.com 575 (Punjab & Haryana) held that notice under section 158 BD necessarily has to be initiated before completion of the Block assessments. For ready reference we reproduce relevant part of the Hon ble High court order .....

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specifically prescribes any time limit or limitation for initiation of proceedings under section 158BD of the Act or for recording of satisfaction before taking action under that provision. The plain and reasonable construction that can be placed on the aforesaid provision would be that the recording of satisfaction for taking action against any other person under section 158BD of the Act has to be between initiation of proceedings under section 158BC and before completion of block assessment u .....

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ve concluded and no other proceedings are pending before him. If any other time limit is read in the provisions/statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment under section 158BC of the Act in the case of an assessee against whom action under section 132 or 132A of the Act had been carried out is finalized, the Revenue can take action at any time in the absence of any specific limitation prescribed in t .....

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nreasonable and cannot be considered to be contemporaneous to the assessment proceedings. Even after pronouncement of the order by the Hon ble ITAT, Visakhapatnam, the notice u/s 158BD of the Act was issued after 1 year 4 months. Hon ble Delhi High Court in Bharat Bhushan Jain and other (supra) held that recording of satisfaction after more than 1 year a cannot be considered to be contemporaneous to assessment proceedings. For ready reference, we extract the relevant paragraph of the Hon ble Del .....

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