Delhi High Court
Commissioner Of Income Tax vs Late Sh. Raj Pal Bhatia on 29 November, 2010
Author: A.K.Sikri
REPORTABLE
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ {ITA 276 of 2009}
{ITA 302 of 2009}
{ITA 396 of 2009}
% Judgment Reserved on: 17.09.2010
Judgment Delivered on:29.11.2010
(1) ITA 276 of 2009
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through : Ms. Rashmi Chopra,
Advocate
VERSUS
LATE SH. RAJ PAL BHATIA . . .RESPONDENT
Through: Mr. C.S. Aggarwal, Sr.
Advocate with Mr. Prakash
Kumar, Advocate
(2) ITA 302 of 2009
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through : Ms. Rashmi Chopra,
Advocate
VERSUS
LATE SH. OM PRAKASH BHATIA . . .RESPONDENT
Through: Mr. C.S. Aggarwal, Sr.
Advocate with Mr. Prakash
Kumar, Advocate
(3) ITA 396 of 2009
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through : Ms. Rashmi Chopra,
Advocate
VERSUS
HAKIM RAI BHATIA . . .RESPONDENT
ITA 276 of 2009,ITA 302 of 2009,ITA 396 of 2009 Page 1 of 13
Through: Mr. C.S. Aggarwal, Sr.
Advocate with Mr. Prakash
Kumar, Advocate
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE MANMOHAN SINGH
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI,J.
1. All these appeals arise out of the common order dated 11th July,
2008 passed by the Income-Tax Appellate Tribunal thereby allowing
three appeals of the assessees/respondents and deleting the
additions made by the Assessing Officer. The respondents were the
brothers and two of them passed away during the pendency of the
Income Tax proceedings. Their spouses were impleaded in their place
in their capacity as the legal heirs. These brothers were the joint
owners of property bearing no. 112, Golf Link, New Delhi, which was
sold to Sh. Sunil Charla and his wife Smt. Sureksha Charla. The
additions in the income of these three brothers were made qua Block
Assessment proceedings on the premise that consideration of the
said property was under-stated in the sale deed executed by these
assessees in favour of the aforesaid two purchasers. According to the
Department, the actual price received was ` 6.5 crores, the
consideration shown in the sale deed was only ` 1.40 crores. The
additions made by the Assessing Officer in their respective
assessment were sustained by the CIT (A), however, the Income-Tax
Tribunal has deleted the same.
2. The Tribunal in the impugned order has correctly stated the
facts under which the Block Assessment proceedings were initiated
by the Assessing Officer in respect of these assessees and aforesaid
additions made. Therefore, in so far as facts of these cases are
concerned, one can safely rely upon the Tribunal‟s order without any
fear of contradiction. We are, therefore, referring these facts from the
said order.
3. A search was conducted under Section 132 (1) of the Income
Tax Act at the residential premises of Shri Sunil Charla and others
at 4, Malka Ganj, Delhi. During the course of search statement of
Smt. Surksha Charla, wife of Shri Sunil Charla, a co-owner in the
property at House No. 112, Golf Links, New Delhi was recorded.
Shri Sunil Charla, Smt. Surksha Charla and Shri Sunil Charla HUF
have purchased a house property at No. 112, Golf Links, New Delhi
from the co-owners. In her statement dated 24.09.2002 Smt.
Surksha stated as under:-
"Q.6 Please give the details of your all immovable
properties in your name or in which you have share
and in the name of your family member.
Ans. House No.4 Malka Ganj is family property and
other property bearing No. 112, Golf Links is joint
name i.e. me and my husband Shri Sunil Charla,
which is also residential house.
Q.7 when was this property at Golf Link was
purchased and from whom.
Ans. It was purchased roughly three years back in
Dec., 99 from Sh. Bhatia‟s family of three brothers
namely Shri O.P. Bhatia, R.P. Bhatia and H.R.
Bhatia.
Q.8. What was the purchase consideration of this
properties at Golf Link.
Ans. Aprox. 5 to 6 crores and cheque payment of `
1.40 crore was paid by us. The balance was paid in
cash".
4. Smt. Surksha Charla thereafter filed a letter dated 26.09.2002
addressed to the Addl. Director of Income Tax (Inv.) Unit-II, New
Delhi retracted her statement recorded during search on 24.09.2002.
The DDI (Inv.)-II, New Delhi thereafter issued summons under section
131 to Smt. Surksha Charla. Her statement was recorded by DDIT
(Inv.) on 01.11.2002.
5. The Assessing Officer considered that since buyers have paid
sum over and above that stated in the sale deed, to that extent the
amount is also received by the sellers (appellants herein). Since
sellers have understated the value of property sold, action under
Section 158 BD ought to be taken in the hands of the sellers of the
property. Accordingly notices under Section 158 BC read with Section
158 BD were issued to the assessees. The Assessing Officer held that
the assessee was confronted with the statement of Smt. Surksha
Charla stating that property No. 112, Gold Link, New Delhi was
purchased for ` 6 crores by them and hence the sale consideration of
` 6.5 crores was received over and above the stated consideration.
The assessee contended that the property was sold for only the
stated consideration as mentioned in the sale deed. It was duly
registered and in respect of which capital gain was offered for
taxation. The assessee also submitted that Smt. Surksha Charla had
already denied receipt of any cash consideration. The other co-
owners who are also the purchaser of the property had also denied
involvement of any cash consideration in the deal.
6. The assessee also contended that an opportunity to cross-
examine the persons whose statement sought to be relied upon, be
granted. The assessing Officer concluded that the property which
was valued at ` 120 lacs on 1.4.1981 would not have been sold after
20 years for a consideration of ` 135 lacs only whereas the rates of
property have increased manifold during these 20 years. In her
statement Smt. Surksha Charla, a co-purchaser had admitted having
purchased the property for over ` 6 crores. The property bulletins are
showing the market rate of Golf Links at ` 80,000/- per sq. yard
during financial year 1999-2000. The addition was made in the block
assessment of Charla family on the basis of these facts and additions
have been confirmed by the learned CIT (A). The assessing officer
therefore, adopted the consideration over and above the declared
one at ` 6.5 crores, which was equally divided amongst three
appellants and additions were made accordingly.
7. The learned CIT (A) held that Smt. Surksha Charla had given
graphic details about the transaction of the property that was the first
version given by one of the co-owners of the property. There was no
duress while recording the statement and no pressure was exerted.
The statement was not "extracted" from Smt. Charla. An admission
is the best evidence against a person making such admission. It can
be retracted but cogent reason must come forward to justify such
retraction. The retraction after 2 days if she had been doctored to
retract is not a genuine one and cannot be lent any credence. The
learned CIT (A) held that since he has upheld the addition made in
the case of purchasers, the action of the Assessing Officer is to be
confirmed.
8. The Tribunal, however, has deleted the aforesaid addition
taking a view that the very provisions of section 158 BD of the Act
invoked by the Assessing Officer and initiating Block Assessment
proceedings itself was illegal. He was thus of the view that the entire
assessment proceedings were without jurisdiction. The precise
reasoning in support of the aforesaid conclusion can be found in para
8 of the impugned order which reads as follows:-
"8. We have carefully considered the relevant facts,
arguments advanced and the case laws cited. In
the present case, the Assessing Officer has sought
to invoke provisions of Section 158 BD so as to
compute the undisclosed income of the persons
other than the persons searched. The pre-requisite
for invoking the provisions of Section 158 BD is that
where the Assessing Officer of the searched person
is satisfied that undisclosed income belongs to
person other than the person search, the books of
accounts or other documents or assets seized shall
be handed over to the assessing Officer having
jurisdiction over such other person and the
Assessing Officer of such other person shall
proceed under Section 158 BC against such other
person and then the provision of Chapter XIVB shall
apply. However, in the present case it is seen that
no books of accounts or other documents or assets
pertaining to person other than person searched
were found or seized. Thus there was no question
of handing over such material to the Assessing
Officer of the person other than the person
searched. It was only the statement of Smt.
Surksha Charla recorded during the course of
search is considered to the material for exercising
jurisdiction under Section 158 BD. In our opinion,
the statement of Smt. Surksha Charla cannot be
considered as "Books of accounts or other
documents or assets" and hence, the Assessing
Officer could not have invoked the provisions of
section 158 BD read with section 158 BC to frame
the assessment for block period as per Chapter XIV-
B. Though satisfaction note is not made available
to us, the Assessing Officer proceeded with the fact
that in view of the statement of Smt. Surksha
Charla, action under Section 158 BD was taken.
Notice under section 158 BD was issued on
9.5.2003. First statement of Smt. Surksha Charla
was recorded on 24.09.2002 which was retracted
by her on 26.09.2002 and was also further clarified
by her, while deposing before the DDIT (Inv.) on
1.11.2002. No other books of accounts or other
documents or assets pertaining to these assessees
were found during the course of search. We,
therefore, hold that the Assessing Officer could not
have validly initiated proceedings under Section
158 Bd. This could have been a matter of regular
assessment but not atleast under the provisions of
Chapter XIV-B of the Act. The provisions are not
invoked in accordance with law and consequently
the entire assessment proceedings under Chapter
XIV- B being illegal and without jurisdiction are to
be cancelled. We hold so."
9. As the Tribunal quashed the assessment proceedings itself, it
did not go into the other issues. However, one material observation
made by the Tribunal is that though proceedings were based on the
statement of Smt. Surksha Charla, an unrelated party to the
assessees, she was not produced for cross examination by the
assessees even when specific request was made by the assessees in
this behalf. On this basis, additional reason given by the Tribunal is
that such a statement of Smt. Suraksha Charla without affording an
opportunity of cross examination, could not be admitted in evidence.
10. We heard in detail the submission of learned counsel for the
parties on admission. It is to be borne in mind that in the instant
case premises of the assesses were not searched. The search was in
fact carried out at the premises of Smt. & Shri Charla. It is on the
basis of the said statement of Smt. Charla recorded during the said
search operation that proceedings were initiated against the
assessees herein under Section 158 BD of the Act. Law provides for
block assessment in case of the assessee whose premises are
searched under Section 158 BA of the Act. It can be done when some
material during the said search is seized by the Income Tax
authorities from which it is found that there was some undisclosed
income which is found as a result of search of the persons whose
premises was searched. When the block assessment proceedings are
to be initiated against the persons whose premises are searched,
procedure for that is provided under Section 158 BC of the Act.
However, if during the search carried out at the premises of one
person, some documents/material is found or asset seized etc. on the
basis of which the Assessing Officer is satisfied that any undisclosed
income belongs to a third person i.e. a person other than one whose
premises were searched under Section 132 of the Act, the procedure
for carrying out block assessment in that eventuality is provided
under Section 158 BD of the Act. It was for this reason that in the
case of these assessees provisions of Section 158 BD of the Act were
invoked. Section 158 BD of the Act reads as under:-
"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 according".
11. It clearly emerges from the reading of this provision that before
invoking the provisions of Section 158 BD of the Act, the Assessing
Officer of the person searched u/s 132 (1) must satisfy himself that
some undisclosed income belongs to a person other than the persons
with respect to whom search was made under Section 132 (1) of the
Act. Such satisfaction must be based on the material found in the
course of search. In the absence of any such satisfaction (which is to
be recorded in writing) the concerned Assessing Officer does not get
any jurisdiction to assess that other person by invoking the section
158 BD of the Act. Further, the satisfaction of the Assessing Officer
has to be in respect of the following aspects:-
i) there should be "undisclosed income" within the
meaning of section 158 (b) referable to the assets
or books/documents found seized/requisitioned;
ii) there should a finding by the Assessing Officer
that there was undisclosed income in such assets
or books of account or documents of the searched
person;
iii) and that such undisclosed income belonged to
the person other than the one searched.
12. In the present case, admittedly, during the search carried out
at the premises of Mr. & Mrs. Charla, no books of accounts or other
documents or other assets pertaining to the assessees herein was
found or seized. The entire foundation of the block assessment
under Section 158 BD of the Act, in so far assessees are concerned,
was the statement of Smt. Suraksha Charla recorded during the
course of search.
13. The Tribunal has held that this statement could not be treated
"books of accounts or other documents or assets" which only could
be the basis for invoking the provision of Section 158 BD of the Act.
Admittedly, statement of Mrs. Charla is neither „books of accounts‟
or „assets‟. The question, therefore, is as to whether this statement
can be treated as „other documents‟. Prima facie, it is difficult to
accept this proposition. Statement was not the document which was
found during search. In fact this was the document which came to
be created during the search as the statement was recorded at the
time of search. Therefore, it cannot be said that the statement was
„seized‟ during the search and thus, would not qualify the expression
"document" having been seized during the search. In such a
scenario, proper course of action was reassessment u/s 147 read
with section 148 of the Act.
14. Learned counsel for the Revenue relied upon the judgment of
the Supreme Court in the case of CIT Vs. Mukundray K. Shah, 290
ITR 433. However, that was a case where during the search
conducted in the premises of a company under Section 132 of the
Act, apart from cash or jewellery, a diary belonging to the assessee
was seized. The proceedings against the assessee under Section
158 BD of the Act originated on the basis of the said diary. This
diary which belonged to the assessee was clearly a "document"
seized during the search and on this basis the Supreme Court held
that the proceedings initiated against the assessee were valid.
15. In the case of Smt. Chitra Devi Vs. CIT decided by Jodhpur
Bench of Income Tax Appellate Tribunal, reported in 77 TTJ 430, it is
held that statement recorded under Section 132 (4) of the Act during
the search is no evidence as contemplated under section 158BD of
the Act and on that basis no valid proceedings in Chapter XIV-B of
the Act could be initiated.
16. However, it is not even necessary to decide this aspect
authoritatively in these appeals, inasmuch as, order of the Tribunal
warrants to be sustained because of the following reason.
17. The Assessing Officer before issuing notice under Section 158
BD of the Act did not record any satisfaction which is a mandatory
requirement as per the said provision. The Tribunal has returned
categorical finding to this effect which could not been shaken. We
have already reproduced the language of Section 158BD of the Act.
It requires that the Assessing Officer is has to be satisfied that any
undisclosed income belongs to any third person, i.e. the person
whose premises are searched. It cannot be disputed that the
recording of "satisfaction" is necessary precondition and, is a must in
order to safeguard the otherwise abuse of power and it is inbuilt
under the provisions of Section 158 BD of the Income-Tax Act. Such
a satisfaction has to be in writing. Since in the discharge of the
official function, where a statute requires the satisfaction to be
reached, the same can be arrived at only when the same are
recorded by recording such reasons on which satisfaction has been
arrived at.
18. In the present case no such note of satisfaction could be
produced before the Tribunal. This aspect is conclusively determined
by the Supreme Court in the case of Manish Maheshwari Vs. ACIT,
289 ITR 341 wherein it is held as under:-
"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 where
for are : (i) Satisfaction must be recorded by the AO
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
AO having jurisdiction over such other person; and
(iii) The AO 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 Chapter XIV-B
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."
19. We may also add that this Court in the case of Amity Hotels
(P) Ltd. reported 272 ITR 75, has also held that the reasons must
be recorded by the Assessing Officer having jurisdiction over the
assessee who had been searched before issuing the notice u/s 158
BD of the Act. The aforesaid view has been reiterated by this Court
in the case of CIT Vs. Karan Engg. P. Ltd. and Janki Exports
International Vs. UOI, 193 CTR 730.
20. We, therefore, of the opinion that no substantial question of law
arises and accordingly these appeals are dismissed in limini.
(A.K. SIKRI)
JUDGE
(MANMOHAN SINGH)
JUDGE
NOVEMBER 29, 2010
Skb
