Full Judgment Text
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CASE NO.:
Appeal (civil) 924 of 2007
PETITIONER:
Manish Maheshwari
RESPONDENT:
Asstt. Commissioner of Income Tax & Anr
DATE OF JUDGMENT: 23/02/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
WITH
CIVIL APPEAL NO. 925 OF 2007
[Arising out of SLP (Civil) No.9751 of 2005]
M/s Indore Construction (Pvt.) Ltd. \005Appellant
Versus
Commissioner of Income Tax \005Respondent
S.B. SINHA, J :
Leave granted.
Interpretation of the provision Section 158BC of the Income Tax Act,
1961 (for short, ’the Act’) is in question in these appeals which arise out of
judgments and orders dated 28.09.2004 and 14.03.2005 passed by a Division
Bench of the Indore Bench of the Madhya Pradesh High Court in I.T.A. Nos.
60 and 105 of 1999.
Before embarking on legal issues, we may notice the fact of matter
from Civil Appeal arising out of Special Leave Petition (Civil) No.9751 of
2005.
The assessee ’M/s Indore Construction Company (Pvt.) Ltd.’ (for
short, ’the Company’) is a company registered and incorporated under the
Companies Act, 1956 (for short, ’the Act’). One Shri Rameshwar
Maheshwari is of one of its Directors. Shri Maheshwari, apart from being a
Director of the said Company, is also a tax consultant. A search was
conducted, as contemplated under Section 132 of the Act, in the premises of
the said Maheshwari and his wife Smt. Lalita Devi on 21.11.1995. Several
incriminating documents relating to the business of the Company were
seized. A proceeding was initiated against the Company purported to be
under Section 158BC of the Act. The order of assessment was passed on
29.11.1996. The Tribunal in an appeal preferred by the assessee
thereagainst opined that the Assessing Officer had no jurisdiction to proceed
against the assessee for making the block assessments in terms of Chapter
XIV-B of the Act, as no search was conducted in terms of Section 132 of
the Act, stating :
"28. Perusal of the assessment order would go to reveal
that the A.O. did not do so. Instead of determining the
undisclosed income on the basis of the materials seized
from the residence of the Co’s Director, he embarked
upon a roving enquiry in respect of completed
assessments by referring three apartments to the
Valuation Cell ’to ascertain the correct investment made
by the assessee’ and on receipt of the reports of the
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Valuation Cell proceeded to compute the income u/s 69
as unexplained investment, adding thereto further
undisclosed profit earned on sale of flats. To our mind,
what the A.O. did is beyond the scope of sec. 158BD.
No addition can be made in any of the assessment year of
the block period regarding which no material or
information is available with the A.O. In a case, where
any material or information is found during search, the
A.O. has to co-relate such material/information with
regard to the regular assessment which have already been
completed. At the cost of repetition we may state that
Chapter XIV-B does not authorize the A.O. to review the
assessment competed unless and until there is any direct
or indirect or clinching evidence to indicate that the
assessee has withheld or had not disclosed any income.
No additions can be made merely on the basis of
presumption or hypothesis. This is what the A.O. had
actual done."
An appeal preferred by the respondent herein before the High Court,
as noticed hereinbefore, thereagainst under Section 260-A of the Act, has
been allowed, holding that the Assessing Officer had the requisite
jurisdiction in terms of Section 158BD of the Act read with Section 2(31)
thereof. The Block Assessment Period is 1987-88 to 1995-96. The search
was conducted on 21.11.1995, wherefor a warrant of authorization was
issued on 15.10.1995 in the following terms :
"If a summons under sub-section (1) of section 131
of the Income Tax Act, 1961 or under sub section (1) of
section 142 of the Income Tax Act, 1961 is issued to Shri
Rameshwar R. Maheshwari, Smt. Lalita Devi.
To produce, or cause to be produced, books of
accounts or other documents of the institution or relevant
proceedings under the Income Tax Act, 1961 he would
not produce or cause to be produced, such books of
accounts or other documents as required.
Shri Rameshwar H. Maheswari, Smt. Lalita Devi.
any person is in possession of any money, bullion,
jewellery or other valuable article or things and such
money, bullion, jewellery or other valuable article or
things represents either wholly or partly income or
property which has not been, or would not be disclosed
for the purposes of the Indian Income Tax Act, 1922 or
the Income Tax Act, 1961."
We may also notice that purported compliance of Section 158BD was
sought to be made by issuing a notice to the Company on 06.02.1996, which
is as under :
"To
Indore Construction Co. Pvt. Ltd.
380, Jawahar Marg,
Indore
In pursuance of provisions of the section 158BC of
the Income Tax 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 individual
/ HUF / Firm / Company / AOP / Body of
individual/local authority are assessable for the block
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period mentioned in Section 158B(a) of the Income Tax
Act, 1961.
The return should be in the prescribed form 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 Section 140 of the Income Tax Act,
1961.
(Search was conducted in the month of Nov. 95)."
A Company registered and incorporated under the Act is indisputably
a ’person’ within the meaning of Section 2(31) of the Act. Block period is
defined in Section 158B(a) contained in Chapter XIV-B, to mean :
"(a) "block period" means the previous years relevant
to ten assessment years preceding the previous
year in which the search was conducted under
section 132 or any requisition was made under
section 132A, and includes, in the previous year in
which such search was conducted or requisition
made, the period up to the date of the
commencement of such search or, as the case may
be, the date of such requisition;"
Chapter XIV-B provides for ’Special Procedure for Assessment of
Search Cases’. How a search would be conducted is provided for in Section
132 of the Act; Clause (a) of sub-section (1) whereof reads as under :
"132. Search and seizure
(1) Where the Director General or Director or
the Chief Commissioner or Commissioner or any such
Joint Director or Joint Commissioner as may be
empowered in this behalf by the Board, in consequence
of information in his possession, has reason to believe
that -
(a) any person to whom a summons under sub-section
(1) of section 37 of the Indian Income Tax Act, 1922 (11
of 1922), or under sub-section (1) of section 131 of this
Act, or a notice under sub-section (4) of section 22 of the
Indian Income-tax Act, 1922, or under sub-section (1) of
Section 142 of this Act was issued to produce, or cause to
be produce , any books of account or other documents
has omitted or failed to produce, or cause to be produced,
such books of account or other documents as required by
such summons or notice, or";
the officer specified therein so authorized would be entitled to exercise its
powers stated therein.
Sub-section 1A of Section 132 of the Act empowers the Chief
Commissioner or Commissioner to authorize an officer to take action under
any of the clauses referred thereto. A presumption is raised under sub-
section 4A of Section 132 of the Act in the following terms :
"(4A). Where any books of account, other documents,
money, bullion, jewellery or other valuable article or
thing are or is found in the possession or control of any
person in the course of a search, it may be presumed \026
(i) that such books of account, other
documents, money, bullion, jewellery or other valuable
article or thing belong or belongs to such person;
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(ii) that the contents of such books of account
and other documents are true; and
(iii) that the signature and every other part of
such books of account and other documents which
purport to be in the handwriting of any particular person
or which may reasonably be assumed to have been signed
by, or to be in the handwriting of, any particular person,
are in that person’s handwriting, and in the case of a
document stamped, executed or attested, that it was duly
stamped and executed or attested by the person by whom
it purports to have been so executed or attested."
Search and seizure is to be made in terms of Rule 112 of the Income
Tax Rules, 1962. For the purpose of invoking the said provision, special
procedure for assessment is laid down in Chapter XIV-B, the conditions
precedent wherefor as laid down must be satisfied. Sections 158BC and
158BD read as under :
"158BC. 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 132A, in the case
of any person, then :-
(a) the Assessing Officer shall \026
(i) in respect of search initiated or books of
accounts 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
accounts 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 (1) 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 158BB and the
provisions of section 142, sub-sections (2) and (3)
of section 143 and section 144 shall, so far as may
be, apply;
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(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 132A shall be retained to the extent
necessary and the provisions of section 132B shall
apply subject to such modifications as may be
necessary and the references to "regular
assessment" or "reassessment" in section 132B
shall be construed as references to "block
assessment".
"158BD. Undisclosed income of any other person \026
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
132A, 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 against
such other person and the provisions of this Chapter shall
apply accordingly."
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 132A. The said provision would apply in the
case of any person in respect of whom search has been carried out under
Section 132A or documents or assets have been requisitioned under Section
132A. Section 158BD, however, provides for taking recourse to a block
assessment in terms of Section 158BC 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 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.
The conditions precedent for invoking the provisions of Section
158BD, 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 132A of the Act.
A taxing statute, as is well-known, must be construed strictly. In
Sneh Enterprises v. Commissioner of Customs, New Delhi [(2006) 7 SCC
714], it was held :
"While dealing with a taxing provision, the
principle of ’Strict Interpretation’ should be applied. The
Court shall not interpret the statutory provision in such a
manner which would create an additional fiscal burden
on a person. It would never be done by invoking the
provisions of another Act, which are not attracted. It is
also trite that while two interpretations are possible, the
Court ordinarily would interpret the provisions in favour
of a tax-payer and against the Revenue."
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Yet again in J. Srinivasa Rao v. Govt. of A.P. & Another [2006 (13)
SCALE 27], it was held :
"In a case of doubt or dispute, it is well-settled,
construction has to be made in favour of the taxpayer and
against the Revenue."
In M/s. Ispat Industries Ltd. v. Commissioner of Customs,
Mumbai [JT 2006 (12) SC 379 : 2006 (9) SCALE 652], this Court
opined:
"In our opinion if there are two possible
interpretations of a rule, one which subserves the
object of a provision in the parent statute and the
other which does not, we have to adopt the former,
because adopting the latter will make the rule ultra
vires the Act."
Law in this regard is clear and explicit. The only question which
arises for our consideration is as to whether the notice dated 06.02.1996
satisfies the requirements of Section 158BD of the Act. The said notice does
not record any satisfaction on the part of the Assessing Officer. Documents
and other assets recovered during search had not been handed over to the
Assessing Officer having jurisdiction in the matter.
No proceeding under Section 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 XIVB 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 the assessee. Audited accounts
for a period of ten years may have to be reopened.
A large number of decisions of various High Courts have been cited at
the bar. We would, at the outset, refer to a decision of the Gujarat High
Court in Khandubhai Vasanji Desai and Others v. Deputy Commissioner of
Income-Tax and Another [(1999) 236 ITR 73]. Therein, it was clearly
held :
"This provision indicates that where the Assessing
Officer who is seized of the matter and has jurisdiction
over the person other than the person with respect to
whom search was made under s. 132 or whose books of
account or other documents or any assets were
requisitioned under s. 132A, he shall proceed against
such other person as per the provisions of Chapter XIV-B
which would mean that on such satisfaction being
reached that any undisclosed income belongs to such
other person, he must proceed to serve a notice to such
other person as per the provisions of s. 158BC of the Act.
If the Assessing Officer who is seized of the matter
against the raided person reaches such satisfaction that
any undisclosed income belongs to such other person
over whom he has no jurisdiction, then, in that event, he
has to transmit the material to the Assessing Officer
having jurisdiction over such other person and in such
cases the Assessing Officer who has jurisdiction will
proceed against such other person by issuing the requisite
notice contemplated by s. 158BC of the Act. "
Similar view has been taken by the Gujarat High Court in Rushil
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Industries Ltd. v. Harsh Prakash [(2001) 251 ITR 608], Priya Blue
Industries P. Ltd. v. Joint Commissioner of Income-Tax [(2001) 251 ITR
615], Premjibhai and Sons v. Joint Commissioner of Income-Tax [(2001)
251 ITR 625], and by Kerala High Court in Commissioner of Income-Tax v.
Deep Arts [(2005) 274 ITR 571], Commissioner of Income-Tax v. Don
Bosco Card Centre [(2006) 205 CTR 500] and by Madhya Pradesh High
Court in Commissioner of Income-Tax v. Smt. Maya Chotrani [(2007) 288
ITR 175].
We may, however, notice that Mr. A.K. Chitale, relied upon a
decision of the Delhi High Court in Commissioner of Income Tax v. Pushpa
Rani [(2005) 193 CIR (Del) 256] wherein a Division Bench of the said Court
held :
"\005The Tribunal on the material placed before it, arrived
at a conclusion that there were no search warrants in the
name of the assessees and hence it accepted the
contention of the learned counsel that the proceedings
initiated under s. 158BC in the cases of the assesses were
ab initio void and without jurisdiction. The learned
counsel for the Department was unable to furnish any
clarification and stated before the Tribunal that the facts
stated by the assesses regarding non-issuance of the
search warrant in the case of the two ladies were correct.
It is in view of this that the Tribunal has held that unless
a search warrant is issued, the Assessing Officer cannot
invoke the provisions of s. 158BC for initiation of block
assessment proceedings under Chapter XIV-B.
However, so far as the bank locker is concerned, it is
submitted that the officer was armed with the search
warrant and, therefore, whatever the property was found,
namely, jewellery, money and bonds, etc., the assesses
ought to have assessed and the Tribunal ought not to
have interfered with the order made by the CIT (A)."
We are of the opinion that the said decision has no application in the
instant case.
As the Assessing Officer has not recorded its satisfaction, which is
mandatory; nor has it transferred the case to the Assessing Officer having
jurisdiction over the matter, we are of the opinion that the impugned
judgments of the High Court cannot be sustained, which are set aside
accordingly. The appeals are allowed. However, in the facts and
circumstances of the case, there shall be no order as to costs.