Delhi High Court
Commissioner Of Income Tax vs Sudhir Dhingra on 30 January, 2015
Author: S.Ravindra Bhat
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON: 07.01.2015
% PRONOUNCED ON: 30.01.2015
+ ITA 287/2009
COMMISSIONER OF INCOME TAX ..... Appellant
Through: Mr. Rohit Madan, Sr. Standing Counsel
with Ruchir Bhatia, Advocates.
versus
SUDHIR DHINGRA ..... Respondent
Through: Mr. Salil Aggarwal with Mr. Ravi
Pratap, Advocates.
ITA 1329/2009
COMMISSIONER OF INCOME TAX ..... Appellant
Through: Mr. N.P. Sahni, Sr. Standing Counsel
with Mr. Nitin Gulati and Mr. Judy James, Jr.
Standing Counsel.
versus
RENU VERMA ..... Respondent
Through: Mr. Vikas Jain, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
MR. JUSTICE S.RAVINDRA BHAT
1. These appeals under Section 260A of the Income Tax Act, 1961
(hereafter "the Act") impugn an order dated 04.04.2008 of the
Income Tax Appellate Tribunal (hereafter "the ITAT") in case of the
ITA 287 & 1329/2009 Page 1
respondent/assesses No.1 [in IT(SS)A No. 216/Del/2006 and CO.
No.408/Del/2007 for the block period from 01.04.1990 to
20.08.2000] & the order dated 17.04.2009 of the ITAT in case of the
respondent/assessee No. 2, [in IT(SS)A No. 84/Del/2007 for block
period 01.04.1990 to 03.08.2000]. The question of law urged before
this Court is whether the ITAT was correct in holding that a notice
must be issued by the Assessing Officer ("the A.O" in short) within
a reasonable period of time in relation to assessment proceedings
under sections 158BC and 158BD of the Act.
2. The facts which give rise to the present appeal are that the
Respondent/Assessees are individuals. On 03.08.2000 a search was
conducted under Section 132 of the Act at the business premises of
M/s Friends Portfolio Pvt. Ltd. and at the residential premises of its
Director, Shri Manoj Aggarwal. During the search and the course of
investigation and assessment proceedings before the Deputy
Commissioner of Income Tax (hereafter "the DCIT"), Central
Circle-3, New Delhi, it was found that that Sh. Manoj Aggarwal
provided bogus accommodation entries to various individuals. The
beneficiaries included the present respondent-assessees who received
accommodation entries in lieu of cash. The assessment u/s 158BC of
M/s Friends Portfolio Ltd. was completed on 29.08.2002. The AO,
after considering the materials, recorded to his satisfaction and
issued a letter to the respective A.O.‟s of the respective assessees
No. 1 & 2. Thereafter, the case of the assessees was taken up for
scrutiny as per the provisions of section 158BD and statutory notices
u/s 143(2) and 142(1) were issued and served upon them.
3. The Relevant dates in the present appeals are as follows:-
Assessee Sudhir Dhingra Renu Verma
Present Appeals IT(SS) A No. IT(SS)A No.
ITA 287 & 1329/2009 Page 2
Arising from 216/Del/2006 84/Del/2007
Date of Search of 03.08.2000 03.08.2000
M/s Friends Portfolio
Ltd.
Date of Completion 29.08.2002 29.08.2002
of Assessment
Recording of 13.02.2003 13.02.2003
Satisfaction by the
A.O. of the
aforementioned
company
Date of Issue of 10.07.2003 18.07.2003
Notice by the A.O. of
the relevant assessee
Assessment Order 28.07.2005 31.08.2005
Undisclosed Income 1,16,36,360/- 12,50,981/-
of the Assessed (so
assessed)
Date of the Order of 07.07.2006 04.10.2006
the CIT(A)
Date of the Order of 04.04.2008 17.04.2009
the ITAT
4. RELEVANT FACTS: ASSESSEE NO.1
On 10.07.2003 the A.O. of Assessee No. 1 issued a notice under
Section 158BC read with Section 158BD of the Act to Assessee No.
1 in the present appeal. On 21.08.2003 the assessee no. 1 filed a
return declaring undisclosed income at "Nil" for the block period.
Subsequently, after discussing the case with the Assessee no.1, the
A.O. framed the block assessment at an undisclosed income of
Rs.1,16,36,360/- after making additions on the account of
unaccounted cash received/paid under the cover of bogus
transactions of purchase/sale of shares. Aggrieved, assessee no. 1
preferred appeal before the Commissioner of Income Tax (Appeals)
(„the CIT (A)‟) who by order dated 07/07/2006 deleted all the
amounts brought to tax made by the AO. The revenue appealed this
ITA 287 & 1329/2009 Page 3
order of the CIT (A‟s) order before the ITAT. Simultaneously the
assessee no. 1 filed a cross objection urging the ground that the order
passed by the A.O. was bad and liable to be quashed as the same was
barred by limitation.
5. Relevant portions of the orders of the Assessment Order, Order of
the CIT(A) and the ITAT in the case of Assessee No. 1 have been
reproduced as under:
6. The AO‟s order dated 28.07.2005 inter alia, held that:
"10. ....Assessed at total undisclosed income of Rs.
1,16,36,360/- Charge tax @ 60% and interest u/s
158BFA(1) of the Income Tax Act. As it is apparent from the
order that the assessee was in possession of undisclosed
income, which was deleted as a result of search & seizure
proceedings, therefore, penalty proceedings u/s 158BFA(2)
have been initiated, separately..."
7. The relevant portion of the CIT (A‟s) order is as follows:
"....All these go to prove that not even an iota of evidence
has been brought out on record to prove that the transaction
of capital gain was bogus and that the amount of
Rs.76,00,000/- and Rs.40,12,000/- for the purchase and sale
of shares is hereby deleted. Similarly the addition of
24,360/- made by the AO on surmises, treating the payment
of brokerage and service tax on purchase and sale of shares
as unaccounted cash without bringing any evidence on
record is also hereby deleted. As a result appeal is
allowed."
8. The ITAT considered the merits of the revenue‟s appeal as well as
the assessee‟s cross-objections, i.e., CO No.408/Del/2007. The
ground raised by the assessee in his cross objection was on the issue
of the assessement proceeding being time barred. Apart from the
satisfaction being recorded by the AO on 13-02-2000, it was urged
in the cross objection that that the notice under section 158BD was
ITA 287 & 1329/2009 Page 4
issued by the assessee‟s A.O. on 10.07.2003. The assessee argued
that this notice was unsustainable because the satisfaction was
recorded belatedly and that impugned notice under Section 158BD
was illegal because the satisfaction recorded by the A.O. of M/s
Friends Portfolio was on 13.2.2003, notice under Section 158BD
was issued only on 10.07.2003. The ITAT held that the satisfaction
was recorded belatedly and that the notice was consequently bad.
The assessee had relied on the judgment of the Gujarat High Court in
Khandubhai Vasanji Desai & Others v. DCIT 236 ITR 73, where it
was reasoned that a period of 60 days may be considered reasonable
for issue of notice from the date of satisfaction recorded by the A.O.
of searched persons. The ITAT‟s impugned order held that;
"6. ...In the present case, the satisfaction was recorded by
the Assessing Officer of M/s Friends Portfolio Pvt. Ltd. on
13.02.2003 whereas notice under section 158BD was issued
by the Assessing Officer of the present assessee after almost
five months and hence following the tribunal judgment
rendered in the case of Shri Radhey Mohan Bansal (supra),
we hold that there was no effective notice to the assessee
within a reasonable period and hence the assessment
requires to be vacated. We order accordingly.
7. In the result, cross objection of the assessee is allowed.
8. In view of the fact that block assessment is vacated, the
appeal of the revenue does not survive and the same is
dismissed."
9. RELEVANT FACTS: ASSESSEE NO. 2
In light of the searches conducted of M/s Friends Portfolio Ltd. and
the premises of Sh. Manoj Aggarwal and the recording of the
satisfaction of the A.O. therein, proceedings u/s 158BD were
initiated against Assessee no. 2 and notice for the same was issued
on 18.07.2003. Assessee No. 2 aggrieved with the assessment order
ITA 287 & 1329/2009 Page 5
dated 31.08.2005, filed an appeal before the Ld. CIT (A) which by
order dated 04.10.2006 dismissed the appeal. Aggrieved with the
order the assessee appealed to the ITAT which by its impugned
order dated 17.04.2009 set aside the CIT (A‟s) order.
10.Relevant portions of the Assessment Order, Order of the CIT(A) and
the Order of the ITAT in the case of Assessee No. 2 has been
reproduced as under;
11.The Assessment Order dated 31.08.2005 inter alia, held that:
"With the remarks made as above, the total undisclosed
income for the block period is assessed at Rs. 15,28,570/-.
Penalty under Sec. 158BFA is being initiated separately.
Assessed at Rs. 15,28,570/-. Charge interest u/s 158BFA for
late filing of Return in Form 2B. Issue demand notice and
challan."
12.The order of the CIT(A) dated 04.10.2006 inter alia, held that:
"2.1 ...A perusal of the assessment order also shows that
the provisions of Section 158BD were invoked on the basis
of specific information received from D.C.I.T. Central-III,
New Delhi. It is the satisfaction of the Assessing Officer of
the person searched u/s 132 which is important for
initiating proceedings u/s 158BD. As held by Gujarat High
Court, the requirement for taking action u/s 158BD is only
prima facie satisfaction of the Assessing Officer that in
search operation there is material to show undisclosed
income of a person, other than the one against whom the
search was conducted (251 ITR 608). Hence, the argument
of the appellant that the jurisdiction u/s 158BD had been
invoked without any satisfaction on behalf of the Assessing
Officer is not correct. The appeal on these grounds,
therefore, fails.
*****************
*****************
In the result, the appeal is dismissed."
13.The relevant portion of the order of the ITAT dated 17.04.2009 is as
follows:
ITA 287 & 1329/2009 Page 6
"2. We have considered the rival submissions. It is noticed
that it has been clearly held by the special bench of this
Tribunal in the case of Bishen Chand referred to supra that
the notice u/s 158BD has to be issued before the completion
of the assessment in the case of the person searched. It has
also been held that the satisfaction is to be record[ed] in the
file of the person searched in regard to the evidence in
respect of undisclosed income held to be belonging to the
third party. It is notice[d] that in the present case the notice
u/s 158BD had been issued much after the completion of the
assessment in the case of Manoj Aggarwal. The revenue has
also not been able to produce any evidence to show that
satisfaction for initiation of proceedings u/s 158BD in the
case of their assessee has been recorded in the file of either
Shri Manoj Aggarwal or M/s. Friends Portfolio. In these
circumstances, on both the grounds respectfully following
decision of the Special Bench in the case of Bishan Chand
Mukesh Kumar the assessment as completed u/s 158BD
stands quashed."
14.The decision in Commissioner of Income Tax v Sh. Radhey Shyam
Bansal 2011 (337) ITR 217 (Del) dealt with the batch of cases
decided by the impugned common order of the ITAT and upheld the
latter‟s order. That common judgment of this court was carried in
appeal by special leave to the Supreme Court, which decided all the
appeals and other cases, on the question of law as to the
reasonableness of the time limit within which a notice under Section
158BD was to be issued. The Supreme Court, in its judgment
reported as CIT vs. Calcutta Knitwears, Ludhina 362 ITR 673 (SC),
inter alia, recorded as follows:
"44. In the result, we hold that for the purpose of Section
158BD of the Act a satisfaction note is sine qua non and must
be prepared by the assessing officer before he transmits the
records to the other assessing officer who has jurisdiction
over such other person. The satisfaction note could be
prepared at either of the following stages: (a) at the time of or
along with the initiation of proceedings against the searched
ITA 287 & 1329/2009 Page 7
person under Section 158BC of the Act; (b) along with the
assessment proceedings under Section 158BC of the Act; and
(c) immediately after the assessment proceedingjs are
completed under Section 158BC of the Act of the searched
person
45. We are informed by Shri Santosh Krishan, who is
appearing in seven of the appeals that the assessing officer
had not recorded the satisfaction note as required under
Section 158BD of the Act, therefore, the Tribunal and the High
Court were justified in setting aside the orders of assessment
and the orders passed by the first appellate authority. We do
not intend to examine the aforesaid contention canvassed by
the learned counsel since we are remanding the matters to the
High Court for consideration of the individual cases herein in
light of the observations made by us on the scope and possible
interpretation of Section 158BD of the Act."
15.The revenue argues that applying the above principles, it is clear that
the satisfaction note recorded on 13-02-2003 in the present case, was
not delayed. It was submitted that Calcutta Knitwears is decisive in
that the outer period of two years meant for completion of the
searched person‟s assessment is inconclusive of the time period for
issuance of notice to the third party and that the test of proximity
indicated by the Supreme Court is flexible in that notice under
Section 158BD is not conditional upon simultaneous completion of
the searched individual or concern‟ assessment. Counsel for the
respondent assessee did not dispute that the satisfaction note issued
in this case met with the requirements of law, as to the adequacy or
sufficiency of reasons recorded in the "satisfaction note". It was
however urged that in addition to the delay in recording the
satisfaction note, the delay in issuing the notice was also fatal to the
block assessment proceedings drawn against the assessees in this
case. To this end, counsel relied on the Gujarat High Court ruling in
Khandubhai Visanji Desai & Ors. v. Deputy Commissioner of
ITA 287 & 1329/2009 Page 8
Income Tax, [1999] 236 ITR 73 (Guj), the relevant portion of which
has been reproduced as under:
"16. ....Once the satisfaction under s. 158BD is reached by
the AO, there would be no valid reason for him to delay the
issuance of the notice which ought to be issued soon after
the satisfaction is reached and if the AO is different, he
ought to immediately transmit the relevant material to the
AO having jurisdiction to enable him to proceed against
such other person by issuing notice under
s. 158BC requiring him to file the return. Since the
satisfaction that any undisclosed income belongs to any
person other than the one with respect to whom search was
made or books of account, documents or assets
requisitioned, may, in many cases be reached after the AO
starts the proceedings under s. 158BC against the person
with respect to whom the search was made, the shift of the
commencement point of the limitation to the date of the
notice, which could be issued to such other person only after
it comes to light leading to the satisfaction of the AO that
any undisclosed income belongs to him, was fully justified
and it was germane to the object of making block assessment
of undisclosed income of such other person who is now
known as a person to whom that undisclosed income
belongs. The AO once he reaches the requisite satisfaction,
it bound to act swiftly to proceed against such other person
as soon as may be in reasonable time. The speed and
despatch with which he should act is writ large on the
connected provisions of s. 132(9A) of the Act under which
the authorised officer who has no jurisdiction over the
person referred to in cls. (a), (b) or (c) of sub-s. (1) of
s. 132 has to hand over the books of account, documents and
assets seized to the ITO having jurisdiction over such person
within 15 days of such seizure and the AO is required to
serve a notice to such person under s. 158BC(1) requiring
him to furnish return in the prescribed Form 28 and to
complete the block assessment in one year from the end of
the month in which the last authorisation for search or
requisition was executed. Thus, the apprehension that a
notice can be issued under s. 158BD r/w s. 158BC (1) by the
AO in the case of such "other person" at any time is ill-
founded. There is no lifting of the limitation period for
making the assessment order which is one year and the
ITA 287 & 1329/2009 Page 9
starting point of limitation in cases falling under
s. 158BD by the very nature of things can be fixed only after
the AO is satisfied that any undisclosed income belongs to
such other person and in cases where the AO is different
after the relevant material is transmitted to him. As soon as
the AO having jurisdiction receives the material in respect
of the other person, he is in the same position as the AO who
forwarded it to him and is expected to immediately proceed
to issue notice to that other person who falls in his
jurisdiction. This extra time for computing limitation is
warranted by the fact that the requisite satisfaction about
any undisclosed income belonging to such other person may
be reached after the commencement of the assessment
proceedings against the raided person and consideration of
the evidence forwarded by the authorised officer and
information that may be available to the AO and transmitted
to the other AO in cases where the other person falls in the
jurisdiction of that other AO which will necessarily take
some time..."
"18. ....If in any particular case a notice is unduly delayed
then that is a matter in which the validity of that notice can
be considered but that surely will not invalidate the
statutory provision which does not warrant any delay once
the satisfaction is reached and enjoins a duty upon the AO
to immediately proceed against such other person under the
provisions of Chapter XIV-B."
16.In Calcutta Knitwears, (supra), the Supreme Court inter alia,
recorded as follows (apart from its conclusions in para 44 quoted
above):
"39. Further, Section 158BE (2) (b) only provides for the
period of limitation for completion of block assessment
under section 158BD in case of the person other than the
searched person as two years from the end of the month
in which the notice under this Chapter was served on
such other person in respect of search carried on after
01.01.1997. The said section does neither provides for
nor imposes any restrictions or conditions on the period
of limitation for preparation the satisfaction note under
Section 158BD and consequent issuance of notice to the
other person."
ITA 287 & 1329/2009 Page 10
***************** ***************
42. Further, Section 158BE(2)(b) only provides for the
period of limitation for completion of block assessment
under section 158BD in case of the person other than the
searched person as two years from the end of the month
in which the notice under this Chapter was served on
such other person in respect of search carried on after
01.01.1997. The said section does neither provides for
nor imposes any restrictions or conditions on the period
of limitation for preparation the satisfaction note under
Section 158BD and consequent issuance of notice to the
other person.
43. In the lead case, the assessing officer had prepared a
satisfaction note on 15.07.2005 though the assessment
proceedings in the case of a searched person, namely,
S.K. Bhatia were completed on 30.03.2005. As we have
already noticed, the Tribunal and the High Court are of
the opinion that since the satisfaction note was prepared
after the proceedings were completed by the assessing
officer under Section 158BC of the Act which is contrary
to the provisions of Section 158BD read with Section
158BE(2)(b) and therefore, have dismissed the case of
the Revenue. In our considered opinion, the reasoning of
the learned Judges of the High Court is contrary to the
plain and simple language employed by the legislature
under Section 158BD of the Act which clearly provides
adequate flexibility to the assessing officer for recording
the satisfaction note after the completion of proceedings
in respect of the searched person under Section 158BC.
Further, the interpretation placed by the Courts below by
reading into the plain language of Section 158BE(2)(b)
such as to extend the period of limitation to recording of
satisfaction note would run counter to the avowed object
of introduction of Chapter to provide for cost effective,
efficient and expeditious completion of search
assessments and avoiding or reducing long drawn
proceedings."
Earlier in the judgment the date on which notice was issued to the
third party under Section 158 BD in that case was recorded:
ITA 287 & 1329/2009 Page 11
"The jurisdictional assessing authority for the
respondent-assessee had issued the show cause notice
under Section 158BD for the block period 01.04.1996 to
05.02.2003, dated 10.02.2006 to the assesse inter alia
directing the assessee to show cause as to why should the
proceedings under Section 158BC not be completed."
17.The application of Calcutta Knitwears was the subject matter of a
recently decided case, i.e., Commissioner of Income Tax v. V.K.
Narang HUF, ITA 1064/2009 (decided on 08.01.2015) where it was
observed that:
"4. Having regard to the decision in CIT v. Manish
Maheshwari (2007) 289 ITR 341 (SC) this Court is of the
opinion that the satisfaction note in the present case meets
with the requirements of law. So far as the question of delay
is concerned, the Court is of the opinion that in the facts and
circumstances of the present case, it cannot be held that
there was any delay in recording the satisfaction note. The
assessment of the searched person was completed on
31.12.2001. The satisfaction note was recorded on
30.05.2002 i.e. just about five months after the date of
completion of searched person. Notice was issued on
03.06.2002, immediately after the satisfaction note was
recorded to the present assessee."
5. Having placed due regard to the declaration of law made
by the Supreme Court which specified three possible points
in time when notice under Section 158BD can be issued to
third party/assessee, on the basis of material found on the
premises of the searched person, the period of five months
spent by the AO of the searched person in finalizing the
satisfaction note, can be said to have been proximate to the
assessment proceedings. We also recollect the decision of
this Court in Commissioner of Income Tax v. Raghubir
Singh Garg ITA No. 1420/2010 decided on 27.08.2014. In
that case, the search took place on 29.08.2002 and the
satisfaction note was recorded on 16.01.2003 i.e. within a
period of 4 ½ months. The Court was of the opinion that the
satisfaction note could be upheld. Following the said
decision it is held that there was no delay in issuance of
notice under Section 158BD in the facts of the case."
ITA 287 & 1329/2009 Page 12
18.In light of the aforementioned position of law this Court finds that
the delay of 5 months in the issuing of notice by the A.O. in the
present appeals cannot be unreasonable. Accordingly, the impugned
orders of the ITAT dated 04.04.2008 & 17.04.2009 is set aside on
this aspect. The satisfaction note is held to be validly issued and
within a reasonable time. In the light of the above observations of the
Supreme Court in Calcutta Knitwears, particularly the contextual
facts discussed (i.e. completion of the searched party‟s assessment on
31-03-2005, satisfaction note under Section 158BD issued on 15-07-
2005 and notice issued on 10-02-2006) it cannot be said that the
delay in issuing the notice (although the satisfaction note was
recorded within reasonable time) was fatal to the block assessment
against the present assesse.
19.The Court notices that the ITAT by its order dated 04.04.2008 in CIT
v. Sudhir Dhingra has not dealt with the merits of the Revenue‟s
contentions with regards to the challenge to the order of the Ld. CIT
(A). This is especially reflected from a reading of the judgment
which has solely proceeded on the question of delay in the issuance
of notice under Section 158BD. In the same vein the court also finds
that the order of the ITAT dated 17.04.2009 in Renu Verma v. CIT
has also been decided on the similar issue of delay. In these
circumstances, these two appeals are accordingly remitted to the
ITAT to decide their respective contentions on merits, on the facts of
the case, and as to the correctness or otherwise of the additions made
by the AO of the present assessees. Considering that the satisfaction
note and notice were issued in 2003, the ITAT shall consider and
decide these appeals expeditiously. The rights and contentions of the
ITA 287 & 1329/2009 Page 13
parties shall not be prejudiced. The appeals are partly allowed in the
above terms.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
JANUARY 30, 2015
ITA 287 & 1329/2009 Page 14
