Delhi High Court
The Commissioner Of Income Tax ??? ... vs R.K. Mittal on 25 March, 2011
Author: M. L. Mehta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ I.T.As. No.1277/2007, 572/2008 and 928/2008
Order reserved on: 02.02.2011
% Date of Decision: 25.03.2011
ITA No.1277/2007
The Commissioner of Income Tax - XIII .... Appellant
Through: Mr.Sanjeev Sabharwal and
Ms.Suruchi Aggarwal, Sr. Standing
Counsel
Versus
M/s.Mittal Consul & Co. .... Respondent
Through: Mr.C.S. Aggarwal, Sr. Advocate
with Mr.Prakash Kumar, Advocate
AND
ITA No.572/2008
The Commissioner of Income Tax - VI .... Appellant
Through: Mr.Sanjeev Sabharwal and
Ms.Suruchi Aggarwal, Sr. Standing
Counsel
Versus
Tushar Stock & Share Brokers (Pvt.) Ltd. .... Respondent
Through: Mr.C.S. Aggarwal, Sr. Advocate
with Mr.Prakash Kumar, Advocate
AND
I.T.As. No.1277/2007, 572/2008 and 928/2008 Page 1 of 30
ITA No.928/2008
The Commissioner of Income Tax - XIII .... Appellant
Through: Mr.Sanjeev Sabharwal and
Ms.Suruchi Aggarwal, Sr. Standing
Counsel
Versus
R.K. Mittal .... Respondent
Through: Mr.C.S. Aggarwal, Sr. Advocate
with Mr.Prakash Kumar, Advocate
CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA
1. Whether reporters of Local papers may be Yes.
allowed to see the judgment?
2. To be referred to the reporter or not? Yes.
3. Whether the judgment should be reported Yes.
in the Digest?
M.L. Mehta, J.
*
1. By this common judgment we propose to dispose of the
aforesaid three appeals, arising out of separate orders dated
30th May, 2005 and 31st October, 2007 of the Income Tax
Appellate Tribunal (hereinafter, referred to as ‗the Tribunal').
All these three appeals are interrelated. The
respondents/assessees were assessed separately for the block
periods. Vide common order dated 3rd December, 2004, their
appeals against the orders of the Assessment Officers were
rejected by the Commissioner of Income Tax (Appeals)
[hereinafter, referred to as ‗CIT(A)']. The assessees filed
separate appeals before the Tribunal. Vide the impugned
order dated 30th May, 2005, the Tribunal allowed the appeal
of the assessee M/s Mittal Consul & Company (hereinafter,
referred to as ‗MCC') which is under challenge in ITA No.
1277/2007. Similarly vide separate orders dated 31st October,
2007, the Tribunal also allowed the appeal of the assessee
M/s.Tushar Stock and Share Brokers (Pvt.) Ltd. (in short
―Tushar‖) which is under challenge in ITA No. 572/2008 and
the appeal of R.K. Mittal (hereinafter, referred to as ‗Mittal')
which is under challenge in ITA No.928/2008.
2. A raid was conducted on assessee Tushar by the Enforcement
Directorate (hereinafter, for short ‗ED'), which lead to
discovery of cash as well as other documents relating to all
the respondents/assessees. Relevant proceedings were
initiated by the Department against the respondents. Since
the impugned order of the Tribunal dated 30th May, 2005 (in
case of MCC) came to be passed prior in time and was also
relied upon by the Tribunal in their subsequent impugned
orders of 31st October, 2007 with respect to the other
respondents/assessees (Tushar and Mittal), we can safely rely
upon the facts as noted by the Tribunal in its impugned order
of 30th May, 2005 and also by the CIT(A) in its order dated 3rd
December, 2004 without any fear of contradiction. We,
therefore, refer to the facts from the said orders.
3. Search and seizure operation was conducted by ED in the
premises of Tushar on 12th December, 1995. During the
course of search, thirty cheque books as well as cash worth
`2,41,000/- were found besides other documents. A notice
under Section 132A of the Income Tax Act (hereinafter,
referred to as ‗the Act') was issued requisitioning the cash
and other documents which were seized by the ED at the time
of search. During the course of search, statement of Mittal,
Director of Tushar and partner of MCC was recorded by the
ED. Mittal had stated that the cheque books found and
seized during the course of search, either belonged to his
clients, he being a Chartered Accountant, or to the
company/firms in which his relatives/friends were
directors/partners. The MCC was also found to be operating
from the premises of M/s Tushar which was searched by the
ED. Cash of `2,41,000/- was seized by ED from two persons,
namely, Shri Vimal Verma and Shri Vinod Kumar, who were
present in the premises at the time of search. These persons
claimed ownership of the cash. A notice under Section 158BC
was issued by the Joint Commissioner Income Tax, Special
Range (hereinafter, referred to as ‗JCIT') to Tushar on 8th
April, 1997. It may be noted here that in the case of Tushar,
the JCIT was the Assessing Officer. In response to this notice,
Tushar filed return declaring NIL undisclosed income. The
JCIT did not consider the said cash at the hands of Tushar and
also did not draw any adverse inference in this regard. With
regard to seized thirty cheque books (in fact 27 as there was
repetition of three), the Income Tax Department wrote a
number of letters to ED for sending copies of seized
documents. Even the JCIT wrote a few letters for sending
seized documents and since they were not received, JCIT
proceeded with investigation in respect of twenty seven bank
accounts by writing to different banks asking for copies of
those accounts, account opening forms, names and addresses
of the introducers and copies of cheques issued. Based on the
information received, it was noted that substantial cash
deposits made in these bank accounts from time to time were
immediately withdrawn. Tushar was asked to explain the
source of deposits. Mittal had claimed that these cheque
books belonged to his clients who had given the same to him
for completing the accounts and Income Tax Returns. This he
had confirmed vide letter dated 15th January, 1999 and also in
his statement recorded on 21st February, 1999. He was
required to produce the account holders physically as well as
furnish confirmation/affidavits along with PAN/GIR number
and Income Tax jurisdiction. Mittal produced confirmation in
respect of some of the bank accounts, but despite offering he
could not produce the bank account holders, except two,
namely, Gigo Thomas and Ramesh Chander. It was found
that out of twenty seven bank accounts only seven were of
existing companies/concerns. The genuineness of these
accounts was accepted. Out of the remaining twenty,
affidavits of only four individual account holders were
produced. Even out of those four, two affidavits of Ramesh
Chander were found to be full of inconsistencies from his
statement. To the same effect was the statement of Gigo
Thomas, who was also found to be unreliable. Hence, the
money invested in their accounts was considered as not
belonging to them. However, Mittal produced copy of client
register and copies of return acknowledgments in respect of
some individuals. Neither of these two documents was found
to be reliable in the absence of supporting books of accounts.
Based on this, the aggregate deposits were treated as
unaccounted investment of either of the assessee. Since
Mittal had himself owned the seized cheque books in respect
of all the above account holders claiming them to be his
clients, the investments in these deposits was opined to be in
the hands of MCC on substantive basis. However, to protect
the interests of the Revenue, the said amount was also
treated as undisclosed income of Tushar and Mittal on
protective basis. This amount of undisclosed income was
calculated to be `86,07,403/-.
4. A diary was also seized from the residential premises of Shri
A.S. Aneja, Director of Tushar. It contained following
entries:-
―Rs.5,10,000/- share application
Rs.4,00,000/- Advance against property 31.3.1994
Rs.4,00,000/- advance against property 31.3.1995
Rs.13,10,000/-―
5. The plea taken by Tushar before the JCIT with regard to this
diary that it was rough sheet and jottings, was rejected by the
JCIT and he proceeded to treat this amount of `13,10,000/- as
undisclosed income of Tushar for the block period 1.4.1986 to
20.1.1997.
6. In its return for the block period filed in response to notice
under Section 158 BC, Tushar had debited some amounts
towards telephone expenses, petrol car expenses or car
insurance for the present block year. The JCIT added 1/10th of
these expenses as income for the block period, thereby
making a total income of `7,83,351/-. Tushar had also given
details of additions in share capital/ application money of
some shareholders of the block period as under :
Assessment Year 1995-96 Rs.1,02,11,000/-
Assessment Year 1996-97 Rs.1,65,02,000/-
(i) Confirmations in respect of shareholders along with
their PAN/GIR numbers were furnished, but, in respect
of some confirmations, either jurisdiction was not stated
properly or it was not stated at all. The details of such
persons are as under:
A.Y. 1995-96 Amount
(i) Naewatia Consultants P. Ltd. 1,80,000
(ii) Busy Traders & Finance P. Ltd. 1,00,000
Total 2,80,000
A.Y. 1995-96 Amount
(i) M/s.Aneja & Sons 3,00,000
(ii) Paramjeet Kumar 18,000
Total 3,18,000
(ii) Since no confirmation was filed in respect of above
persons nor they were produced, therefore the
aforesaid amounts were treated as undisclosed income
of the assessee/Tushar for the block period under
Section 68.
(iii) Furthermore, confirmations from various persons were
furnished in respect share capital/application money of
Rs.2,11,000/- for assessment year 1995-96 and
Rs.2,71,000/- and for assessment year 1996-97. Thus
the total additions which were made were worked out is
as under:
A.Y. 1995-96 Amount
(i) On account of jurisdiction not stated. 2,80,000
(ii) On account of confirmations not filed 2,11,000
Amount
A.Y. 1995-96
(i) On account of jurisdiction not stated. 3,18,000
(ii) On account of confirmations not filed 2,71,000
10,80,000
7. The JCIT informed the concerned Income Tax Officer of MCC
and Mittal about the search operation and of recovered cash
and cheque books. Based on this, ACIT (Assessing Officer of
MCC & Mittal) issued notices to MCC and Mittal under
Section 158 BD of the Act. In response thereto, both MCC
and Mittal filed their returns for the block period of 1/4/1986
to 10/1/1997.
8. In the proceedings initiated by ACIT (Assessing Officer)
against MCC and Mittal under Section 158BD, both these
respondents/assessees contended that the proceedings were
not valid because there had been no search or seizure under
Section 132 and no books of accounts or other documents
relating to them were either requisitioned from ED or handed
over to ACIT under Section 132A. Contentions were also
raised that the proceedings initiated under Section 158BD of
the Act were not valid inasmuch no satisfaction was recorded
by the Assessing Officer of Tushar that undisclosed income
belonged to MCC or Mittal as was contemplated under
Section 158BD. These contentions were rejected holding that
proper requisition was made under Section 132A by the
Investigating Wing of the Income Tax Department and that
notices under Section 158BD were validly and legally issued
to the assessees as per the conditions mentioned therein.
ACIT also made inquiries in respect of the bank accounts as
intimated by JCIT. ACIT in both the cases recorded that
Mr.Mittal was asked to give the details of the account holders
and file their affidavits, but, he could neither produce them
nor give the details of the account holders or their identities
in respect of the said 20 account holders. Though Mittal had
been claiming the accounts to be of his clients, he could
neither produce them in person nor file their confirmations.
He, however, produced one client register and the income tax
return acknowledgment in respect of some individuals, but
since these were not supported by the books of accounts,
were not relied upon by the ACIT. ACIT found that in respect
of eight account holders, the addresses were shown as 7477,
Tel Mill Marg, Ram Nagar and 16226, Nai Wala, Karol Bagh,
which were the past and present addresses of the MCC. It
was also found that some of these accounts were introduced
by the assessee or by a person having address as 7477, Tel
Mill Marg. This fact was found substantiated as after the
search and seizure, these accounts had not been operated by
anyone. Based on all this, it was concluded that these
accounts are not genuine but belonged to the assessee firm
and were being operated by Mittal and his persons. In
respect of 20 bank accounts, ACIT calculated the figure at
`1,06,23,044/-. In addition to this, ACIT also estimated `5.00
lakh each as deposit in unverified four bank accounts and also
further amount of `5.00 lakh each as deposit in the bank
accounts belonging to MCC in which Mittal or his relatives or
friends were stated to be the partners or the Directors. This
way, ACIT estimated `40.00 lakhs as undisclosed income on
this account and thereby arrived at a total undisclosed income
of MCC as `1,46,23,044/. This was treated as undisclosed
income of MCC on substantive basis and in case of Mittal on
protective basis.
9. The assessees preferred appeals against the orders of their
respective assessments. These were disposed of by a
common order of CIT(A). The CIT(A) held as under:-
―a) The proceedings under section 158 BC in the
case of M/s.Tushar Stock & Share Brokers P.
Ltd. and under Section 158BD in the case of
M/s.Mittal Consul & Co., and Shri R.K. Mittal are
treated as valid, in order and within the time
prescribed under the Act.
b) The assessment orders in all three cases have
been framed after considering the submissions of
the appellants.
c) The seized documents were properly
requisitioned by the investigation wing of Income
Tax Department.
d) The addition of Rs.1,06,23,044/- in the hands of
M/s.Mittal Consul & Co. on substantive basis is
confirmed. The same amount is treated as
income of M/s.Tushar Stock & Share Brokers P.
Ltd. and Shri R.K. Mittal on protective basis. All
other additions made on estimate basis as
deposits in Bank accounts are deleted.
e) The interest under Section 158BFA will be
recalculated by the Assessing Officer.
f) In the case of M/s.Tushar Stock & Share Brokers
P. Ltd. additions of Rs.13,10,000/- and
Rs.10,80,000/- and disallowance of Rs.78,335/-
out of telephone and car expenses are confirmed.
In the result, all three appeals are partly allowed.‖
10. The assessees preferred further appeal before the Tribunal.
The appeal of the appellant/assessee MCC was disposed of by
the Tribunal on 30th May, 2005 and that of Tushar and
Mittal vide separate orders dated 31st October, 2007.
With regard to the plea regarding validity of proceedings
initiated under Section 158BD against MCC and Mittal, the
Tribunal in its order of 30th May, 2005 in the case of MCC
recorded as under:-
―8. As is evident from the perusal of the aforesaid
provisions, the satisfaction of the AO about any
‗undisclosed income' being belonged to any
persons other than the person with respect to
whom search was made u/s 132 or whose books
of account or other documents or any assets
were requisitioned u/s 132A is a condition
precedent for proceeding against that person u/s
158BD. The expression ‗undisclosed income' is
defined in Section 158BB contained in Chapter
XIV - B and as per the provisions of sub-section
(1) of section 158BB, such undisclosed income
for the block period is required to be computed,
in accordance with the provisions of the Act, on
the basis of evidence found as a result of search
or requisition of books of account or other
documents and such other materials or
information as are available with the AO and
relatable to such evidence. A conjoint reading of
these provisions makes it clear that the
satisfaction of the AO as regards any undisclosed
income belonging to other person as envisaged
in Section 158BD has to be on the basis of
evidence found as a result of search or
requisition of books of account or other
documents and such other material or
information as are available with the AO and
relatable to such evidence and unless it is found
on the basis of such evidence that any
undisclosed income belongs to the assessee, no
proceedings u/s 158BD can be validly initiated
against him.
9. In the present case, nothing other than cash was
requisitioned by the Department u/s 132A made
in the case of M/s.Tushar Stock & Share Brokers
P. Ltd. and since the said cash did not admittedly
belong to the assessee, there was no evidence
found as a result of requisition of books of
account or other documents for deriving
satisfaction that any undisclosed income
belonged to the assessee. It is thus clear that
the condition precedent for initiating
proceedings u/s 158BD against the assessee was
not satisfied in the present case and
consequently, the proceedings so initiated were
bad in law. As such, considering all the facts of
the case and keeping in view the relevant
provisions of Chapter XIV-B as discussed above,
we hold that the assessment made by the
Assessing Officer u/s 158BC read with Section
158BD was void ab-initio and the same,
therefore, is liable to be quashed...‖
11. The above findings of the Tribunal with regard to invalidity of
proceedings under 158BD and 158BC in the case of MCC
were accepted by the Tribunal in the cases of Tushar and
Mittal also. The Tribunal in the cases of Tushar and Mittal
also quashed the assessments and consequently deleted the
additions made on protective basis.
12. Based on the reasoning of invalidity of proceedings, the
Tribunal deleted addition of `10.80 lakh in the case of Tushar,
and recorded as under:-
―17.3 We have carefully considered the entire material
on record and the rival submissions. It is
undisputed that no serach was conducted in the
case of the assessee by the Income-Tax
Department nor any requisition was made u/s
132A of the Act. Therefore, the amount of
Rs.10,80,000/- representing share application
money cannot be treated to be undisclosed
income for making block assessment order u/s
158BC. The fact that the assessee had disclosed
share application money in the return filed has
also not been controverted. From this fact also
the contention of the assessee that the addition
is not based on any material found during the
course of search and therefore is not
maintainable, is acceptable.‖
13. Similarly, addition of `13.10 lakh in the case of Tushar was
also deleted by the Tribunal with the following reasons:-
―18.3 We have carefully considered the entire material
on record and the rival submissions. It may be
pointed out that no proper requisition regarding
this document was made by the income-tax
department from FERA authorities u/s 132A.
Merely because the department obtained a copy
of the seized diary it could not be said that the
material came through a valid and proper
requisition, order or warrant as prescribed u/s
132A. The matter has been considered in detail
in the case of Sukh Ram v. ACIT 99 ITD 417 (Del)
wherein it has been held by the Tribunal that any
evidence which has not been found as a result of
search or such evidence which has been
gathered is not relatable to evidence found as a
result of search cannot be made the basis of
block assessment under Chapter XIV-B of the I.T.
Act.‖
14. Likewise, addition of `78,335/- on account of personal use of
car and telephone expenses was also deleted by the Tribunal
with the following reasons:-
―19. ...... As observed earlier, no search was
conducted in the case of the assessee nor any
material was found during the course of survey
or search so as to justify the ad hoc addition
made on estimate basis. The course adopted by
the AO cannot be justified in the block
assessment proceedings under Chapter XIV-B
because in the block assessment proceedings
any addition on account of undisclosed income
can be made only on the basis of material found
during the course of search or on the basis of
any other material in the possession of the AO
relatable to such material or evidence found
during the course of search. In the present case
no such material is found during the course of
search or on the basis of any survey u/s 132A.
Therefore, the provisions of Chapter XIVB cannot
be invoked for justifying such addition. In view
of the above this addition is also not justified.‖
15. The present appeals have been preferred by the
respondents/assesses against the aforesaid impugned orders
of the Tribunal. The appeals are admitted on the following
substantial questions of law:-
ITA No. 572/2008
Whether the Tribunal was correct in law and in merits
in holding that the proceedings under Section 158BC
were not validly initiated in the present case and as
such the block assessment is liable to be quashed?
ITA Nos. 1277/2007 and 928/2008
Whether the Tribunal was right in holding that the
proceedings under Section 158 BD and 158 BC were
void ab initio and are liable to be quashed?
16. Learned counsel for the respondents/assessees submitted that
the proceedings under Section 158BC and 158 BD could not
be justified because there was neither any material nor
evidence found during the course of search from the
possession of the assessees nor any material was
requisitioned from ED to form the basis of block assessment
proceedings. He submitted that since there was no
requisition by the Income Tax Department under Section
132A of the Act for any books of accounts or documents
seized by ED and it was only for cash which too admittedly
did not belong to any of the assessees, but to Vimal Verma
and Vinod Kumar, the initiation of proceedings under Section
158BD was not valid. He further submitted that the diary
which was made basis of additions of Rs.13,10,000/- in the
case of Tushar could not be relied upon inasmuch as there
was no requisition made under Section 132A in respect
thereof. In this regard, he further submitted that scope of
framing block assessment under Section 158BD is limited to
the material found as a result of search conducted on third
party and requisition made in that regard. Since no
requisition was made, no addition could have been made on
the basis of the entries found in the diary. He relied upon
CIT v. G.K. Sanniappan, 284 ITR 220 and CIT v. R.M.
Patel (HUF), 298 ITR 274.
17. The learned counsel also submitted that in any case,
requisition was made under Section 132A on 20th January,
1997 of Rs.2,41,000/- seized by ED, but notice under Section
158BC was issued to the assessees only on 22nd October,
1999 and that being highly belated, the proceedings initiated
under Section 158BD of the Act are untenable in law. In this
regard he relied upon Khandubhai Vasanji and others v.
CIT, 236 ITR 73.
18. With regard to the additions of Rs.10,80,000/- on account of
share capital in the case of Tushar, he submitted that the
same was duly recorded in the books of accounts and the
addition was rightly held as untenable by the Tribunal. He
also submitted that addition of Rs.1,06,23,044/- in the hands
of MCC on substantive basis and in the hands of Tushar and
Mittal on protective basis was untenable in the absence of any
evidence found as a result of search or requisition of books of
accounts or other documents deriving satisfaction.
19. On the other hand, learned counsel for the Revenue
submitted that in the process of search of Tushar, ED not only
recovered cash of Rs.2.41 lakhs but also 30 cheque books (in
fact 27 as there is repetition of three accounts) and also a
diary which were seized by the ED. A requisition was made
under Section 132A of the Act. Details of the cheque books
accounts were furnished by the ED. The copy of diary was
also received by the investigating wing of the Income Tax
Department. It was based on the contents of the cheque
books that the investigation was conducted from the banks
and from the assessees. He submitted that in the post-search
inquiry also, Mr.Mittal stated that some of the cheque books
related to his clients and some to his companies/concerns in
which his relatives/friends were interested. He submitted
that the post-search inquiry was based on the documents
seized and the information received was relatable to the
assessees and that being so, was a relevant piece of
evidence/information. He relied upon CIT v. Mukundray K.
Shah 290 ITR 433 SC and Manish Maheshwari v. Asstt.
CIT 289 ITR 341 SC.
20. 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.
21. For the present purpose, it would be useful to refer to the
relevant provision as contained in Section 132A, 158BB,
158BC and 158BD of the Act.
―132A. Powers to requisition books of account, etc. - (1)
Where the [Director General or Director] or the
[Chief Commissioner or Commissioner], in
consequence of information in his possession,
has reason to believe that--
(a) .....
(b) any books of account or other documents
will be useful for, or relevant to, any proceeding
under the Indian Income-tax Act, 1922 (11 of
1922), or under this Act and any person to whom
a summons or notice as aforesaid has been or
might be issued will not, or would not, produce
or cause to be produced, such books of account
or other documents on the return of such books
of account or other documents by any officer or
authority by whom or which such books of
account or other documents have been taken
into custody under any other law for the time
being in force, or‖
(2) On a requisition being made under sub-
section (1),the officer or authority referred to in
clause (a) or clause (b) or clause (c), as the case
may be, of that sub-section shall deliver the
books of account, other documents or assets to
the requisitioning officer either forthwith or
when such officer or authority is of the opinion
that it is no longer necessary to retain the same
in his or its custody.
158BB
(1) The undisclosed income of the block period shall
be the aggregate of the total income of the
previous years falling within the block period
computed, in accordance with the provisions of
Chapter IV, on the basis of evidence found as a
result of search or requisition of books of
account or documents and such other materials
or information as are available with Assessing
Officer, as reduced by the aggregate of the total
income, or as the case may be, as increased by
the aggregate of the losses of such previous
years, determined...
158BC
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,
(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 and section 144 shall, so far as
may be, apply;
158BD
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.
22. The above provisions came to be interpreted by the Apex
Court in the case of Manish Maheshwari v. Asstt.
Commissioner of Income Tax and Anr. [2007] 289 ITR 341
(SC), wherein it was held as under:-
―10. 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 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.
11. 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.‖
23. In the case of Manesh Maheshwari (supra) the Apex Court
also referred to various judgments of different High Courts
and particularly that of Gujarat High Court in Khandubhai
Vasanji Desai and Ors. v. Deputy Commissioner of
Income-Tax and [1999]236ITR73, wherein it was held as
under:
―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 Section 132 or whose books of account or
other documents or any assets were
requisitioned under Section 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
Section 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 Section 158BC of the Act.‖
24. In the present case the Tribunal had recorded that no
material other than cash was requisitioned and hence there
was no material before the Assessing Officer to confirm the
information or to record satisfaction as contemplated under
Section 158BD. In this regard, at the outset, it was submitted
by learned counsel for the Revenue, and rightly so, that these
findings of the Tribunal are contrary to the facts inasmuch as
it was not only the cash which was requisitioned but the other
documents seized by the ED also. It was in response to the
requisition that details of 27 cheque books was furnished by
the ED to JCIT. JCIT proceeded to enquire the details of
information so furnished by the ED relating to those cheque
books from different banks. It was sequitor to the above
information related to the cheque books that the course of
inquiry/information was conducted by the JCIT from the
Banks and Mittal. The information so gathered by the JCIT
was related to the third party i.e. MCC and relatable to the
information so furnished by the ED. Post search material
information developed by JCIT (Assessing Officer of Tushar),
was very much relevant for arriving at satisfaction of
undisclosed income at the hands of MCC and same was
correctly considered at the time of drawing of satisfaction by
the JCIT. It was after making inquiry from the Banks and
Mittal that the JCIT recorded his satisfaction and
communicated it to ACIT on 17.02.1990. A perusal of this
detailed information contained in as many as five pages
reveals the conclusive finding arrived at by JCIT regarding
undisclosed income of MCC.
25. In the case of CIT, Central v. R.M.Patel (Huf) [2008] 298
ITR 274 (Mad), it was held as under:-
3. Concededly, the seized materials did not relate
to the assessee. On the other hand, what is
contemplated under Section 158BB is that the
undisclosed income shall be computed only in
accordance with the provisions of the Act on the
basis of evidence found as a result of search and
such other material or information which are
relating to such material. If the material seized
do not, in any way, connects the assessee
indicating that the assessee had any undisclosed
income, it may not be proper to proceed against
the assessee under Section 158BD read with
Sections 158BC and143(3) of the Act without any
basis whatsoever, especially in the absence of
any material indicating any suppression of sales
or suppression of income by the assessee.
4. If that be so, we do not have any hesitation to
hold that the undisclosed income cannot be
assessed in the absence of any material collected
during the search relating the assessee and that
the Revenue cannot proceed on the basis of such
material which is not related to the assessee
invoking Section 158BD read with
Sections 158BC and 143(3) of the Act for
assessing the undisclosed income during the
block period of 1988-89 to 1997-98 and 1.4.1998
to 5.11.1998.
26. In the case of CIT v. G.K. Senniappan [2006] 284 ITR 220
(Mad) also Section 158 BB was under consideration and it
was held as:-
Section 158BB occurs in Chapter XIV-B, which
provides for special procedure for assessment of
search cases. The computation of undisclosed
income of the block period is contemplated
under Section 158BB. As per the section, the
undisclosed income of the block period should be
the aggregate of the total income of the previous
years falling within the block period computed in
accordance with the provisions of this Act, on the
basis of the evidence found as a result of search
or requisition of books of account or other
documents and such other materials or
information as are available with the Assessing
Officer and relatable to such evidence, as
reduced by the aggregate of the total income, or
as the case may be, as increased by the
aggregate of the losses of such previous years.
4. A mere reading of the above provision clearly
indicates that the sentence "such other materials
or information as are available with the
Assessing Officer" cannot be bisected or taken in
isolation for the purpose of computation. Such
other materials or information as are available
with the Assessing Officer, should as per the
section relatable to such evidence. The word
"such" used as a prefix to the word "evidence"
assumes much significance, in this provision, as
it indicates only the evidence found, as a result
of search or requisition of books of account or
other documents, at the time of search. Any
other material cannot form basis for computation
of undisclosed income of the block period.
27. In the case of CIT v. Mukundray K. Shah [2007] 29 ITR 433
(SC), the same provisions came to be considered by the Apex
Court. In this case the assessment order originated on search
conducted under Section 132(1) in which a diary was
identified. That identification was a starting point of the
enquiry relating to the detection of undisclosed income. The
diary made the Assessing Officer to hold an enquiry and in
the enquiry the cash flow statement emerged and resulted in
detection of undisclosed income. It was held that the
undisclosed income did not arise from any scrutiny
proceedings, tax evasion, surveys, information received from
external agency, etc, but was detected by Assessing Officer
wholly and exclusively as a result of search and therefore the
department was right in invoking the provisions of Chapter
XIVB.
28. In the present case, search was conducted on Tushar in the
premises which was not only that of Tushar but also of MCC
and Mittal. During the search, not only cash of Rs.2.41 lakhs
was recovered, but as many as 30 cheque books (in fact only
twenty seven because of repetition of three names) were also
recovered. A diary was also seized from the residence of the
Director, A.S. Aneja. The seized cash and documents were
requisitioned under Section 132A of the Act by the Income
Tax Department. Though the original cheque books were not
given by the ED, detailed information with regard to the
accounts etc. of those cheque books was furnished. It was
based on the details of these accounts that the AO of Tushar
proceeded to issue notice under Section 158BC to Tushar. It
was during the course of assessment of Tushar that detailed
information regarding those cheque books accounts etc. came
to be known. Mittal was who not only Director of Tushar but
also a partner of MCC, a Chartered Accountant firm, had
claimed some of those cheque books to be of his clients and
some of his friends and relations. He, however, could not give
any satisfactory or documentary evidence. He also failed to
produce account details except that of two, who were also
found not reliable being inconsistent in their statements with
the bank records.
29. From our above discussion, we are of the considered view
that the proceedings, as initiated under Section 158 BD and
also under Section 158 BC against the respondents/assessees
were legally valid. That being so, we answer all the questions
in favour of the Revenue and against the
respondents/assessees.
30. As noted above, the Tribunal in the case of MCC vide order
dated 30th May, 2005 arrived at a conclusion that the
proceedings under Section 158BC read with Section 158BD
were void ab initio since the condition precedent for quashing
the proceedings thereunder against the assessee were not
satisfied. It was based on this reasoning alone that the
Tribunal quashed the assessment against the MCC. The
Tribunal did not go into the merits of the case of the
assessee/MCC. It was based on this finding of the Tribunal
with regard to the invalidity of the proceedings in the case of
MCC, the Tribunal in the cases of Tushar and Mittal as well
vide separate impugned orders quashed the assessments and
consequently deleted the additions made on protective basis
in their cases. The Tribunal did not go into the merits of
these cases simply by recording that no search was conducted
in the case of the assessee/Tushar nor any requisition was
made under Section 132A and, therefore, the additions of
Rs.10.80 lakhs, Rs.13.10 lakhs and Rs.78,335/- could not be
treated as undisclosed income. Since the Tribunal has not
gone into the merits of the cases based on his finding that the
proceedings under Sections 158BC and 158BD were bad in
law, the cases are being remitted back to the Tribunal in view
of our findings with regard to the validity of the proceedings
under those provisions of law.
31. The present appeals are, accordingly, disposed of.
M.L. MEHTA, J.
MARCH 25, 2011 A.K. SIKRI, J.
Dev/AK
