Nivedita M. Makwana vs P.M. Shukla

R.H. Shukla, J.—The present petitions have been filed by the petitioners challenging the impugned notice at Annex. A dated 17-6-1998, on the basis of the fact that the petitioner is a partner of the firm Vikas Shipping Corporation as the search was carried out in the premises of the firm.

It is contended that one M/s Vikas Shipping Corporation was a partnership firm engaged in the business of shipping and the search of the premises of the said partnership firm was carried out on 19-12-1997, and on the basis thereof, pursuant to the report made by Addl. Director of IT, Bhavnagar, the impugned notice in exercise of power u/s 158BD of the Income Tax Act, 1961, has been issued, which is challenged in the present petitions.

Affidavit-in-reply has been filed by the Asstt. CIT and thereafter, further affidavit has been filed. As the impugned notice Annex. A and the affidavit submitted by learned senior standing Counsel Mr. Manish R. Bhatt appearing for the revenue, is stated to be common for all the matters which is not in dispute, the same has been treated as having been filed in each matter and, therefore, no separate affidavit has been filed in the connected matters.

Heard learned senior Counsel Mr. S.N. Soparkar for the petitioners and Mr. Manish R. Bhatt, learned senior Counsel for the revenue.

The main contention that has been raised is with regard to invocation of the provision of Section 158BD and the fulfilment of the condition precedent before resorting to or invoking such provision. Mr. S.N. Soparkar, learned senior Counsel has submitted that it clearly transpires from Annex. A the impugned notice that report has been submitted by Addl. Director of IT, Bhavnagar, and on the basis thereof, merely because the petitioner is a partner of the firm, provision has been invoked resorting to Section 158BD. He has, therefore, strenuously submitted that before resorting to this provision, the authority, i.e., Asstt. Commissioner himself has not reached that satisfaction which is a mandatory requirement of law. Learned senior Counsel Mr. Soparkar has also submitted that for reaching at such satisfaction, other condition precedent is required to be fulfilled like any other material, books of accounts, etc., could have been gathered or found during the search on the basis of which perhaps such a satisfaction could have been reached. Therefore, learned senior Counsel Mr. Soparkar has submitted that as no material/books of accounts have been seized on the basis of which such satisfaction could have been reached, the power could not have been resorted qua the partner (petitioner). Mr. Soparkar has also submitted that it is not even reflected that any such satisfaction has been reached in the impugned order. Therefore, learned senior Counsel Mr. Soparkar has submitted that the impugned notices deserve to be quashed and set aside and the present petitions may be allowed.

Mr. Soparkar has further submitted that for computation of undisclosed income of the block period, the provision is made u/s 158BB and referring to these provisions of Sections 158BB and 158BD, he has strenuously submitted that subject to fulfilment of this condition provided in the statute, the powers can be exercised. In support of his submissions, he referred to and relied upon the judgment of the Hon''ble Apex Court in the case of Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, wherein the Apex Court has observed that:

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 u/s 132A of the Act.

Mr. Soparkar has also referred to the judgment of the Division Bench of this court in Special Civil Appln. No. 9763 of 2000 (Coram: Hon''ble Mr. Justice D.A. Mehta and Hon''ble Mr. Justice H.B. Antani) dated 18-6-2008 reported as Jayantilal Damjibhai Soni and Ors. v. Director of Investigation and Anr. (2008) 9 DTR (Guj) 249.

Learned advocate Mr. Manish Bhatt for the revenue has referred to the affidavit-in-reply and also at Annex. A the impugned notices and submitted that Addl. Director of IT, Bhavnagar, has prepared a report and on the basis of such report, the case is covered u/s 158BD as a partner of the firm is his own satisfaction. There is no dispute with regard to the partnership and the petitioner was a partner in the firm. He has further submitted that further affidavit has also been filed that satisfaction was recorded by himself and, therefore, there is a compliance with the requirement of law that he himself should reach the satisfaction relying on the report submitted to him. Mr. Bhatt has, therefore, strenuously submitted that there is no error of jurisdiction and, therefore, at this stage, the court may not exercise its extraordinary powers under Article 226 and, therefore, may not quash and set aside the impugned notices.

In view of this rival submission, it is required to be considered whether the impugned notice requires to be quashed and set aside. For that purpose, the submissions made by learned senior advocate Mr. S.N. Soparkar as regards the compliance of the provision of law, i.e. Sections 158BB and 158BD are required to be seen in light of the observations made by the Apex Court in the judgment of Manish Maheshwari v. Asstt. CIT and Anr. (supra). The submission that there is no independent satisfaction reached which is the main basis or the bone of contention is required to be appreciated. Referring to Annex. A which according to learned senior Counsel Mr. S.N. Soparkar cannot be said to be a decision of the Deputy Commissioner himself and has merely relied upon the report of the Addl. Director of IT, Bhavnagar; whereas according to learned advocate Mr. Manish R. Bhatt, it is his independent satisfaction (arrived on the basis of the report), is required to be closely scrutinized.

Even if for the sake of argument, this submission made by learned senior standing Counsel Mr. Manish R. Bhatt is accepted that Annex. A fulfils the requirement of law so far as the satisfaction which is required to be recorded by the authority, even then it falls short of the other criteria or the requirements which are required to be fulfilled as laid down by the law. A close look at the provision of Section 158BD would make it clear that before this provision can be invoked, there has to be a satisfaction arrived at as per Section 158BD and for that purpose, when it is attracted and applied in relation to any person, other than the person whose premises has been searched like in the present case the partner of the firm, there has to be some material, document or other assets which forms the foundation or the basis of arriving at such satisfaction regarding invocation of Section 158BD for the block assessment for the undisclosed income of any other person. Undisputedly, no further material has been found or recovered during the search at the premises of the firm which is also not reflected in the impugned notice or even the affidavit filed. Therefore, in absence of any (sic.) material or books of account on the basis of which the satisfaction as contemplated under law could be arrived at by the authority is admittedly, not seized during the search of the premises of the firm. Therefore, in absence of any such additional material or books of account or evidence, there is no premise or foundation for arriving at the satisfaction in compliance with the mandatory provision of law.

The requirement of law which is held to be mandatory cannot be said to have been fulfilled. The Apex Court in the case of Manish Maheshwari v. Asstt. CIT and Anr. (supra) has further observed that:

As the assessing officer has not recorded his satisfaction which is mandatory.

Therefore, in light of this clear observation referring to this very provision on the issue, we are of the opinion that the impugned notice deserves to be quashed and set aside for non-fulfilment of the mandatory conditions precedent before invocation or resorting to such provision. Therefore, the impugned notice dated 16-7-1998 at Annex. A is hereby quashed and set aside. All the petitions stand allowed. Rule is made absolute.

Registry is directed to place a copy of this judgment in each connected matters.