Narvirsinh Parmar vs Asstt. CIT

Sonia Gokani, J.—This petition is preferred under Article 226/227 of the Constitution of India challenging the action of respondent of issuance of second notice under the provision of section 158BD of the Income Tax Act, 1961 ("the Act" for short) in the following factual background.

The petitioner, legal heir of late Ramaben Zala, has challenged the proceedings initiated by the respondent, after the search and seizure operation carried out in connection with one Shri Krishnakumar R. Parmar. Shri Krishnakumar Parmar who was the owner of the land bearing survey No. 27/1/1 admeasuring 19,280 sq. mtrs. had obtained the permission for construction of residential building. He also entered into an agreement for development of building with M/s. Parmar Builders & Developers; a formal agreement was entered into on 8-4-1996. In such background when search was conducted at the business and residential premises of Shri Krishnakumar Parmar on 17-7-2002, Smt. Ramaben Zala purchased development rights from Shri Krishnakumar Parmar. Loose papers were seized from Shri Krishnakumar Parmar and under section 158BC, proceedings were initiated against Shri Krishnakumar Parmar. The proceedings under section 158BD were undertaken against Smt. Ramaben Zala for alleged undisclosed income depicted from such documents concerning her.

In the notice under section 158BC issued against Shri K. Parmar, certain additions made by the assessing officer determining total undisclosed income at Rs. 80 lakhs (rounded off) which came to be confirmed by the Commissioner (Appeals). The Tribunal allowed the searched persons (Krishnakumars) appeal when such findings of both Revenue authorities were challenged before it. This was further carried to the High Court in Tax Appeal Nos. 1195 and 1196 of 2008 [CIT v. Krishnakumar R. Parmar, decided on 19-1-2009-- Ed.] by the Revenue aggrieved by such decision of Tribunal in favour of assessee; this Court after detailed discussion of various aspects, chose not to entertain the appeals of the Revenue.

It would be profitable to reproduce some of the findings of this Court :

"19. The basic facts in these appeals are same as those discussed hereinabove, except that the assessee herein is in the business of development and construction of projects. Search under section 132 was carried out at the office premises of the assessee and three other sister-concerns on 17-7-2002 wherein various documents and books of accounts were seized, marked as BS1 to BS56 as per Panchanama dt. 17-7-2003. Return of income was filed by the assessee on 24-4-2003 declaring undisclosed income at nil, in response to notice under section 158B of the Act. Assessment was completed on 30-7-2004, determining total undisclosed income at Rs. 36,84,145. At the time of assessment under section 158BC of the Act, the additions for undisclosed profit of Rs. 11,11,045 on sale of flats and Rs. 25,73,100 on account of initial investment in business, were made. The assessee went in appeal before the Commissioner (Appeals), challenging the above addition for undisclosed profit made on account of undisclosed initial investment in business and sale of flats. The Commissioner (Appeals) restricted the addition of Rs. 11,11,045 to Rs. 5,06,134 made on account of undisclosed profit and deleted the addition of Rs. 25,73,100 made on account of undisclosed initial investment in business. Aggrieved by the order of the Commissioner (Appeals) dt. 28-2-2005 both the assessee and the Revenue filed appeals before the Tribunal. In its appeal, the Revenue raised the ground that the deletion of the addition of Rs. 25,73,100, as made by the Commissioner (Appeals), is bad in law as the assessing officer has made the above additions on the ground that the papers found in the search conducted in the premises of the owner of the land, with whom the assessee entered into development agreement disclosed that the assessee had made payment @ Rs. 175, per sq. mtr. to the owner. The case of the assessee was that he had not made any payment in excess of Rs. 175.

The findings of the Tribunal on this issue have already been reproduced hereinabove. At the risk of repetition, it may be stated that the Tribunal after carefully considering all the evidence on record arrived at a finding that there was no material to prove that the owner had been paid any amount in excess of Rs. 125 per sq. mtr. Similarly, in the present appeal as well the Tribunal has found that there is nothing on record to show that the assessee paid an amount of Rs. 50 per sq. mtr. over and above Rs. 125 per sq. mtr. to the owner and, therefore, the addition of Rs. 25,73,100 has rightly been deleted. For the same reasons, there is no justification in interfering with the order dt. 31-10-2006 made by the Tribunal. As no question of law, leave alone any substantial question of law, proposed or otherwise, arises for the consideration of this Court, the appeal stands dismissed."

The Revenue had also challenged such judgment and order of the High Court by way of Special Leave to Appeal (Civil) Nos. 11368-11369 of 2009 before the Apex Court which dismissed such petition on 1-10-2009.

It appears that pursuant to such action of search and seizure undertaken qua Shri Krishnakumar Parmar, proceedings under section 158BD were initiated against Smt. Ramaben Zala, the mother of the present petitioner on 9-12-2004. On receipt of such a notice on 10-12-2004 by the heirs of late Smt. Ramaben, they objected to such notice on the ground of maintainability of such proceedings in wake of Ramaben having passed away long ago, as also on merit as well. No heed was paid to the contents of such reply to the first notice by the concerned officer who made additions in the assessment order passed. Aggrieved heir of Smt. Ramaben challenged the same before the Commissioner (Appeals) and there also, one of the main grounds raised was of maintainability of such notice. Such appeal of the petitioner herein when was pending before the Commissioner (Appeals), the Department issued the second notice under section 158BD on 15-10-2007, asking the petitioner to file return for the block assessment. It was contended that on having realised that the first notice issued under section 158BD would fail, to save the period of limitation, second such notice has been issued once again. This was challenged by the petitioner by giving complete details of proceedings. By then, Commissioner (Appeals) held in favour of the assessee and no further challenge was made to the Tribunal. It had been contended by the petitioner herein that the Department though on one hand had accepted the decision of Commissioner (Appeals), act of issuance of second notice was surely invalid under the law.

In the present petition, it is averred therefore, that the assessment order passed when was challenged before the Commissioner (Appeals) on merit and it is concluded against the Department. Instead of challenging the same before the Tribunal, the Department has chosen to once again issue the notice under section 158BD of the Act. Such action on part of the Department deserves intervention. It is also contended that the proceedings under section 158BC initiated against Shri Krishnakumar Parmar resulted into appeal of the Department being dismissed right upto the Apex Court. Moreover, it is contended inter alia that the proceedings undertaken by the Department against the present petitioner are based on the very basis which has not been sustained by all the authorities including the Apex Court in case of the searched person and therefore also, order of assessment passed pursuant to such second notice must be quashed.

On issuance of the rule, the Department has filed affidavit in reply denying all the averments made in the petition. It is not in dispute that pursuant to the operation of search and seizure undertaken under section 132 of the Act, the loose papers found and seized from the residence of Shri Krishnakumar Parmar had led to initiate proceedings under section 158BD. First such notice came to be served on 9-12-2004. It is also contended in the said affidavit that the assessment order passed under section 158BD determined and disclosed income of Rs. 80 lakhs (rounded off). Commissioner (Appeals) allowed the appeal and deleted the addition, however, the Department chose not to file the appeal against the order of Commissioner (Appeals) on the ground that notice under section 158BD issued on 9-12-2004 and served on 10-12-2004 was received by one Shri K.P. Parmar and the assessee had expired long back and therefore, there was a need to initiate fresh proceedings. Such notice freshly issued therefore, was served upon Shri Narvirsinh Parmar, legal heir of late Ramaben Zala, present petitioner on 17-10-2007 since the proceedings were getting barred by limitation on 31-10-2009. It is also contended that it is not correct on the part of the assessee to contend that action under section 1583D is initiated twice as there were potent reasons on record for the assessing officer to once again issue such notice. There is no bar under the law for issuance of fresh notice and the fresh proceedings have been disposed of vide order dt. 30-10-2009, against which the petitioner has already preferred appeal before the Commissioner (Appeals) on 30-11-2009 and hence, this petition according to the respondent deserves no consideration in the present form.

We have heard learned senior counsel Shri J.P. Shah for the petitioner and learned counsel Shri Sudhir Mehta for the Department and with their assistance examined the materials on record. Both the sides very fervently put forth their rival contentions.

At the outset, the law on the subject needs some reference. This Court in case of Dy. CIT v. Lalitkumar M. Patel (2014) 222 Taxman 96 (Guj)(Mag), examined the scope of proceedings under sections. 158BD and 158BC of the Act in the following manner :

"9. At the outset the law on the subject requires discussion.

"Firstly taking up the relevant provision of the Income Tax Act, section 158BD which reads thus :

158BD. Undisclosed income of any other person.--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 under section 158BC against such other person and the provisions of this chapter shall apply accordingly."

Section 158BC provides thus :

"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--

(i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30-6-1997, 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 account 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 (i) 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, section 144 and section 145 shall, so far as may be, apply;

(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 dealt with in accordance with the provisions of section 132B.

The assessing officer is authorised under section 158BD provision when he finds any undisclosed income emerging from record in case of the person who is not searched, while carrying out the search to transfer entire material to the assessing officer having jurisdiction over such person, on recording his satisfaction.

The Apex Court in the case of Manish Maheshwari v. Asstt. CIT & Anr. (supra) had examined the provisions of section 158BD of the Income Tax Act where the premises of a director of a company and his wife were searched under section 132 of the Income Tax Act and the question came of carrying out block assessment in relation to the company. The Court held that the assessing officer had to satisfy essentially two requirements : (i) record his satisfaction that any undisclosed income belonged to the company, and (ii) handover the books of accounts and other documents and assets seized to the assessing officer having jurisdiction against the company. Relevant findings of the Apex Court on the subject need to be noted as under :

The condition precedent for invoking 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 wherefore 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."

Reverting back to the facts, it needs to be mentioned that the factum of the proceedings initiated in case of Shri Krishnakumar Parmar (searched person) under section 158BC pursuant to the action of search and seizure under section 132 of the Act having resulted against the Revenue right upto the Apex Court is not disputed. In case of Shri Krishnakumar Parmar, as could be noticed that during the course of search, three loose paper files were found and as purchase was made to development rights by late Smt. Ramaben Zala, proceedings were initiated against the late mother of the present petitioner by issuance of notice under section 158BD of the Act. Such notice was issued on 9-12-2004 and was served on 10-12-2004 which was admittedly received by the heir of Smt. Ramaben. The stand was taken from the beginning by the petitioner that late mother of the petitioner Ramaben Zala had already expired and, therefore, such proceedings qua Ramaben Zala could not have continued. The assessing officer however, chose to ignore such valid contention and proceeded ahead to make certain additions. This was when carried before Commissioner (Appeals), on merit it held in favour of the assessee and the additions made by the assessing officer had been deleted. Instead of challenging such order of Commissioner (Appeals) before the Tribunal, once again a fresh notice had been issued by the Revenue under section 158BD of the Act. The order of assessment also came to be passed in such freshly initiated proceedings on 30-10-2009, Petitioner also challenged such order before the Commissioner (Appeals). Simultaneously, challenge is made to such second notice in the present petition.

It is fervently contended before us that having realised that on account of the issue of death of Smt. Ramaben Zala right at the time of issuance of notice, raised by the heir of Smt. Ramaben, the assessing officer could not have continued such proceedings, second notice is issued. Commissioner (Appeals) though has decided the matter on merit, in favour of the petitioner in the proceedings of the first notice, on the aspect of death of concerned person, the proceedings had not been dropped. We notice that in the affidavit in reply filed before us, the Revenue has taken a stand and has agreed that to save the period of limitation of two years and instead of preferring any appeal before the Tribunal against the order of Commissioner (Appeals), it has chosen to issue notice under section 158BD of the Act.

No limitation is placed on number of times the notice to be issued under section 158BD of the Act upon the person other than the searched person in whose case the assessing officer satisfies himself to initiate proceedings under section 158BD on the ground that undisclosed income belongs to such person. It is true that reference of such fetter of number of notices is absent in the provision itself, however, that by itself cannot be the ground to permit notice more than once on the identical set of facts and material. When from the very inception, a specific contention was raised for and on behalf of the heirs of late Smt. Ramaben Zala, who had died long ago, the assessing officer ought to have taken note of such contention seriously and could not have proceeded to frame assessment under section 158BD of the Act, as has been done in the present case. We notice that Commissioner (Appeals) though decided on merit in favour of the assessee, it chose not to opine on such contention of validity, except briefly touching the said issue of death of Smt. Ramaben Zala. The second notice which has been issued in such a background, according to us though in stricto sensu without reference to the content thereof, could not have been said to be invalid; however, in a given set of circumstances and for the reasons to be recorded hereinafter, also we may not permit the same to be proceeded with.

We note at the cost of reiteration that proceedings under section 158BC of the Act against the searched person resulted into the assessing officer determining the undisclosed income at Rs. 3.37 crores (rounded off) by making certain additions. As noted above, the Commissioner (Appeals) confirmed some of the additions to the tune of Rs. 2.26 crores (rounded off) and deleted the others. Both the sides when challenged such decision of Commissioner (Appeals) before the Tribunal, the Tribunal vide its order dt. 7-12-2007 had allowed the appeal of Shri Krishnakumar Parmar and dismissed the appeal filed by the Revenue on very carefully examining the material on record.

14.1 When this was carried before this Court in the form of tax appeals, while dismissing the said appeals of the Revenue, this Court held that none of the grounds of undisclosed profits made on account of initial investment in business and sale of flats could be upheld by the Court. Before the Apex Court also, the result was again against the Revenue as the Apex Court chose to dismiss such petition.

We notice that on the identical grounds of unaccounted initial investment and undisclosed profit on sale of flats revealed from the seized material, the second notice under section 158BD is issued against the present petitioner. Although the same has resulted into the assessing officer having made certain additions on the ground of undisclosed income having been proved, the petitioner has challenged the said assessment dt. 30-1-2009 before the Commissioner (Appeals), we see no reason to allow continuation of such second round of litigation particularly, when in case of Shri Krishnakumar Parmar, the proceedings initiated for block period under section 158BC have resulted into deletion of additions made on the very ground of undisclosed income. This Court and the Apex Court having confirmed such decision of the Tribunal, on identical set of facts and the background taking the very base of loose papers found during search, when such second notice under section 158BD has been issued, we are of the firm opinion that relegating the petitioner to the jurisdiction of the Commissioner (Appeals) would surely not only not serve the purpose but that would defeat the very cause of justice. Incidentally, it is needed to mention that subsequent order of assessment under section 158BD impugned in the present petition has been passed on 30-1-2009. This Court in the case of searched person dismissed Revenues appeals on 19-1-2009 and this fact was brought to the notice of assessing officer who on the ground of Department preferring SLP did not heed to that vital fact. Under no circumstances, the very foundational facts and materials, not sustained in case of the searched person, be permitted to be used in case of person other than searched person for the alleged undisclosed income and thereby allowing continuation of such proceedings. Thus, on cumulative examination of the entire gamut of facts, petition of the present petitioner deserves to be allowed.

The impugned order dt. 30-10-2009 passed for the block assessment pursuant to the second notice under section 158BD of the Act by the assessing officer and all consequential proceedings are hereby quashed.

Petition is disposed of with no order as to costs. Rule made absolute to above extent.