Creative Co-Operative Credit Society Ltd. vs Amal Garg, Deputy Commissioner of Income Tax

@

Akil Abdul Hamid Kureshi, J.—The petitioner, a co-operative society has challenged a notice dated October 3, 2005, issued by the Deputy Commissioner of Income-tax, Vadodara, on various grounds. Such notice though carries the title of being issued under section 158BD of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in the body of the notice, it is stated as under:

"A search under section 132 of the Income-tax Act, 1961 has taken place at business, residential and other premises on August 13, 2002 in your case. Based on seized materials and other facts and as per the provisions of the Income-tax Act, assessment of the block period (as mentioned above) in your case has to be completed by following special procedure as laid down in Chapter XIV-B of the Income-tax Act. Therefore, you are hereby given a notice under section 158BC of the Income-tax Act to furnish a return in the prescribed Form No. 21:1 and verified and signed in accordance with the provisions of section 140 of the Income-tax Act setting forth your total income including the undisclosed income for the block period. The return of income including the undisclosed income may please be filed within 45 days of receipt of this notice."

The brief facts are that one Piyush Shroff HUF was subjected to search operations under section 132 of the Act on August 13, 2002. The proceedings under section 158BC of the Act were carried out and completed on August 3, 2004. Long time thereafter, the impugned notice came to be issued against the petitioner on the premise that during such proceedings under section 158BC of the Act the concerned authority was satisfied that undisclosed income belonged to the present petitioner and that, therefore, the proceedings under section 158BD were called for.

This action is challenged by the petitioner on various grounds. Firstly, that the notice itself demonstrates the total non-application of mind. It records that the search operation was carried in the case of the present petitioner and that, therefore, the petitioner should furnish a return under section 158BC of the Act. According to the petitioner, these are gross misstatements of facts. The second ground of challenge is that no satisfaction was recorded by the Assessing Officer of Piyush Shroff HUF before the assessment was completed and that, therefore, action against the petitioner under section 158BD of the Act cannot be taken. It was, lastly, contended that in any case, the action is rather belated. As noted, the proceedings against the searched person completed on August 3, 2004, and after more than a year, the impugned notice came to be issued.

In support of his contentions, the learned counsel for the petitioner placed reliance on the following decisions:

(i) Commissioner of Income Tax Vs. Mridula, Prop. Dhruv Fabrics, .

(ii) Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, ;

(iii) Chandrakantbhai Amratlal Thakkar Vs. Dy. CIT and Another, CREATIVE CO-OP. CREDIT SOCIETY V. AMAL GARG, DY. CIT (GUJ.) 599

(iv) Khandubhai Vasanji Desai and Others Vs. Deputy Commissioner of Income Tax, .

On the other hand the counsel for the Revenue drew our attention to the affidavit-in-reply in which it is stated that reference to search operations against the petitioner and the notice under section 158BC in the impugned notice dated October 3, 2005, were due to typographical errors. The notice was, in essence, under section 158BD of the Act. He further contended that the Assessing Officer had arrived at a satisfaction that undisclosed income found during the search belong to the present petitioner.

Having thus heard the learned counsel for the parties and having perused the documents on record, it emerges that in the notice itself, the petitioner has been referred to as a person who was subjected to search. He was, therefore, called upon to file the return as specified under section 158BC of the Act. Admittedly, the facts were to the contrary. Even if these are explained away as mere typographical errors, such major discrepancies would demonstrate a degree of non-application of mind at the end of a person signing such a notice. We are, however, of the opinion that the notice must fail on far more substantial grounds.

5.1 As laid down by the apex court in the case of Manish Maheshwari (supra), section 158BD of the Act provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person. The conditions precedent 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.

5.2 In the case of Chandrakantbhai Amratlal Thakkar (supra), this court observed as under (page 263 of 337 ITR):

"Section 158BD of the Act mandates that the Assessing Officer of the person with respect to whom search was made should be satisfied that any undisclosed income belongs to any person, other than the person with respect to whom the search was made under section 132 of the Act and it is after recording such satisfaction that the books of account, other documents or assets seized or requisitioned are required to be handed over to the Assessing Officer. In the present case, evidently no such satisfaction has been recorded by the Assessing Officer of the person with respect to whom the search was made, prior to handing over the documents referred to in the aforesaid communication. In the circumstances, the basic condition precedent for invoking section 158BD of the Act qua the petitioner has not been satisfied. In the aforesaid premises, in the absence of the basic requirement for invoking section 158BD of the Act being satisfied, respondent No. 2 lacked the jurisdiction to issue such notice and as such the impugned notice under section 158BD of the Act cannot be sustained."

5.3 In the case of Mridula, Prop. Dhruv Fabrics (supra), the Punjab and Haryana High Court held that the action contemplated under section 158BD of the Act against a third parson to a search is necessarily to be initiated during the block assessment proceedings of the searched person.

5.4 In the case of Padmini M. Nair Vs. Union of India and Others , this court observed that a mere note produced by the revenue cannot be seen as any recording of satisfaction as envisaged under section 158BD of the Act.

In the present case, the Revenue has not produced any evidence to show that the Assessing Officer of the searched person had arrived at a satisfaction during the course of such proceedings that the undisclosed income belong to the present petitioner. In the affidavit-in-reply also, all that is stated is that during the search against the Piyush Shroff HUF, certain incriminating documents were seized, on the basis of which the deponent of the affidavit-in-reply is satisfied that based on the material seized from the office of the "Karta" of HUF, undisclosed income belong to the present petitioner Co-operative Credit Society. Even in the affidavit-in-reply, it is nowhere stated that such satisfaction was arrived at during the course of proceedings under section 158BC of the Act and that such satisfaction was recorded by the Assessing Officer. Neither in the affidavit-in-reply nor through the documents this vital aspect emerges. The important precondition for action under section 158BD of the Act, therefore, having not been satisfied, the action must fail. On this ground, the impugned notice dated October 3, 2005 is quashed. Rule is made absolute. There shall be, however, no order as to costs.