1999-VIL-249-CAL-DT

Equivalent Citation: [1999] 240 ITR 419, 156 CTR 139, 108 TAXMANN 127

CALCUTTA HIGH COURT

Date: 27.08.1999

PARAG NIVESH PRIVATE LIMITED

Vs

DEPUTY COMMISSIONER OF INCOME-TAX AND OTHERS

BENCH

Judge(s)  : Y. R. MEENA 

JUDGMENT

Y. R. MEENA J.---By this petition, the petitioner has challenged the notice dated December 24, 1997, issued under section 158BC/BD of the Income-tax Act, 1961 (hereinafter referred to as Act of 1961), and prayed that the said notice be quashed.

The petitioner is a private limited company within the meaning of the Companies Act, 1956, and the company was incorporated on March 11, 1993. The assessee carries on business of trading in shares and securities and commodities and also make investments from time to time. The petitioner company's issued and subscribed share capital is Rs. 48,52,000 of which Rs. 13,02,000 was raised by March 31, 1994, and Rs. 35,50,000 was raised during the financial year March 31, 1996. Its shareholders are income-tax assessees and subscribed to the share capital by account payee cheques and the shares held by them are duly reflected in their accounts filed with their respective Assessing Officers.

The assessee has filed the income-tax return for the assessment year 1994-95 disclosing a loss of Rs. 11,630. An intimation under section 143(1)(a) of the Act of 1961 has been issued on March 27, 1997, accepting the returned loss.

For the assessment year 1995-96, the assessee has disclosed an income of Rs. 3,16,310. An intimation has again been issued under section 143(1)(a) of the Act of 1961. In this year notices under sections 142(1) and 143(2) of the Act have been issued to the assessee. For the assessment year 1996-97, the petitioner has disclosed an income of Rs. 55,240. Intimation has been received in this year also under section 143(1)(a) of the Act of 1961.

For all these three years the assessee has approached the Settlement Commission for settlement of his income in these years. His application has been admitted and the matter regarding income of the assessee, for all these three years is pending before the Settlement Commission and in the application before the Settlement Commission the assessee has further offered additional income aggregating Rs. 2,80,000 in all these three aforesaid years. For the assessment year 1998-99, the assessee filed its return on October 26, 1998, disclosing a loss of Rs. 1,19,970.

On October 30, 1998, a notice has been issued under section 142(1) of the Act of 1961 to initiate proceedings under section 158BC in the case of Super Forgings and Steels Limited (hereinafter referred to as "the said company"). Proceedings under section 158BD have also been initiated against the petitioner on December 24, 1997.

The search against the said company was conducted on September 20, 1996, and a notice was issued under section 158BC. The said company approached the Settlement Commission. The application of the said company has been admitted by the Settlement Commission and the matter is pending before the Settlement Commission in respect of the income of the said company.

Learned counsel for the petitioner, Shri Bajoria, has submitted that respondent No. 2 has no right/power or jurisdiction to issue the said notices dated December 25, 1997, to the petitioner. The case of the petitioner is that when the petition is pending before the Settlement Commission for the assessment years 1995-96, 1996-97 and 1997-98 the Assessing Officer has no authority to issue notices under section 142(1) or 143(2) or no proceedings can be allowed under section 158BC.

He further submits that the Assessing Officer has no material on the basis of which any satisfaction could be arrived at that petitioner has any undisclosed income. He further submits that when the income of the said company is to be considered by the Settlement Commission on the basis of material seized at the time of search of the said company how parallel proceedings can be conducted in the case of this petitioner for the same income.

On the other hand, learned counsel for the Revenue, Shri Mallick, submits that in search and seizure operation under section 132(1) of the Act of 1961 search was conducted on September 20, 1996, at the premises of Super Forgings and Steels Ltd., on the basis of some papers and documents found and seized relating to the petitioner. The notice under section 158BC/158BD has been issued to the assessee/petitioner on December 24, 1997, for assessing the income for block assessment period. He further submits that the provisions of section 158BA start with a non-obstante clause that notwithstanding anything contained in any other provisions of this Act, in case of search the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.

Chapter XIV-B provides for special procedure for assessment of search cases. The provisions of section 158B provide the definition of "block period" and "undisclosed income". The provisions of section 158BA provide that in case of a search after 30th day of June, 1995, the Assessing Officer shall proceed to assess "the undisclosed income" in accordance with the provisions of this Chapter.

The provisions of section 158B provide how the undisclosed income shall be computed of the block assessment period. The provisions of section 158BD provide 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 the Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly.

Learned counsel for the Revenue heavily relied on the provisions of section 158BD. According to him, the petitioner's case is covered by the provisions of section 158BD. The other sections of this Chapter provide time limit for completion of block assessment, certain interests and penalties not to be levied or imposed, levy of interest and penalty in certain cases, authority competent to make block assessment.

In view of these provisions, we have to consider whether the Assessing Officer has any justification or jurisdiction to issue notice under section 158BC/BD of the Act of 1961?

In case of search there is a special provision under Chapter XIV-B which provides the special procedure for assessment of search cases. Section 158BA provides the assessment of "undisclosed income" as a result of search. Therefore, before proceeding to assess the income of any person in the case of search in pursuance of notice under section 158BC/BD, the Assessing Officer should first see whether there is an "undisclosed income" which can be assessed under Chapter XIV-B. Clause (b) of section 158B provides the definition of undisclosed income which reads as under :

"undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."

The case of the assessee is that the Assessing Officer has not pointed out any undisclosed income of the assessee and before notice under section 158BC/BD the Assessing Officer has to see that the assessee has an "undisclosed income". The case of the assessee is that the assessee has accounted for all his income even in some papers found during search in the case of Super Forgings and Steels Ltd., all that income has been disclosed. Not only that this assessee came into existence only on March, 1993, and income for the assessment years 1995-96, 1996-97 and 1997-98 the assessee has approached the Settlement Commission regarding its income for these years which should be the income of this assessee in these years that will be settled in the settlement proceedings. For all these three years will be settled by the Settlement Commission.

When neither the Assessing Officer has any information regarding "undisclosed income" of the assessee nor there is any scope for assessing the income of the assessee by him, for the assessment years 1995-96 to 1997-98. There is no justification for issue of notice to the assessee under section 158BC/BD.

Chapter XIX-A deals with the settlement of cases. Section 245B provides that the Central Government shall constitute a Commission to be called the Income-tax Settlement Commission for the settlement of cases under this Chapter. Clause (b) of section 245A defines the case. "Case" means any proceeding under this Act for the assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under sub-section (1) of section 245C is made.

The provisions of section 245F provide the power and procedure of the Settlement Commission. The statute has conferred all the powers on the Settlement Commission, which are vested in an income-tax authority under this Act and the Settlement Commission subject to the provisions of sub-section (3) of section 245F has exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case. However, sub-section (4) of section 245F provides that for the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission.

From the above referred provisions it appears that if some matter has been admitted by the Settlement Commission then the Settlement Commission will have all the exclusive powers of the Assessing Officer regarding the dispute of income pending before it. No other authority can assess the income which is pending before the Settlement Commission.

A notice under section 158BC annexure "E" was issued on December 24, 1997, to the assessee directing him to file the return in the prescribed Form No. 2B and be delivered in his office within 16 days, There was no search in the case of this assessee. The search was in the case of Super Forgings and Steels Ltd., only on the basis of some papers found during search, impugned notice has been issued to the assessee. Super Forgings and Steels Limited has filed the petition for settlement and its application has been admitted. Now the matter is pending before the Settlement Commission. The Assessing Officer is not proceeding with the assessments in the case of Super Forgings and Steels Ltd., as the matter is pending before the Settlement Commission.

The assessee-company came into existence only in March, 1993, and all the three relevant assessment years that is 1995-96 1996-97 and 1997-98 the assessee's application has been admitted by the Settlement Commission and now the income of the assessee for the assessment years 1995-96 1996-97 and 1997-98 is the subject-matter of settlement before the Settlement Commission.

When the search was conducted in the case of Super Forgings and Steels Ltd., and that company has approached the Settlement Commission. The Assessing Officer is not proceeding for assessments in pursuance of the notice under section 158BC. How the Assessing Officer can proceed for assessment in pursuance of the notice under section 158BC/BD in the case of this assessee, when its income for these years is pending before the Settlement Commission. Learned counsel for the Revenue could not explain the justification how the Assessing Officer can proceed in the case of this assessee for assessment in pursuance of the notice under section 158BC/BD.

Mr. Mallick, learned counsel for the Revenue, submits that the issue regarding the income of the assessee for the assessment years 1995-96 to 1997-98 is pending before the Settlement Commission but that was a case of regular assessment and no matter regarding search is pending before the Settlement Commission.

On an application of the assessee before the Settlement Commission, the Settlement Commission has admitted the application of the assessee for settlement of his income vide order dated May 27, 1998. For settlement of its total income, the income-tax liability for the assessment years 1995-96, 1996-97 and 1997-98. How it can be said that income of these years were not subject-matter of the settlement before the Settlement Commission. Not only that, but the attention of the applicant was drawn to the provision of section 245H of the Income-tax Act, 1961, which provides power of Settlement Commission to grant immunity from prosecution and penalty but sub-section (2) of that section further provides that the immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person concealed any particular material to the settlement or had given false evidence.

In case the assessee gives false information, the immunities granted to it can be withdrawn in view of the provision of section 245H. Therefore, no assessee submits the false information regarding his income in application for settlement of income before the Settlement Commission. When there was an application for settlement of its income for the assessment years 1995-96 to 1997-98 his entire income for these years is the subject matter of settlement, before the Settlement Commission.

When the assessee's case is pending before the Settlement Commission how there can be any assessment of such income by other authority in the Department. Can one income be estimated or assessed by two different authorities at the same time and when if we accept the submission of learned counsel for the Revenue that though the matter is pending before the Settlement Commission even then the Assessing Officer can proceed with the assessment in pursuance of notice under section 158BC/BD. That approach will be absurdity. Obviously when two different authorities will assess the same income for the same period in the case of the same assessee that both authorities cannot assess the same income for the same period and if both have different views regarding the income of the assessee which income should be taxed ? Therefore, I do not agree with learned counsel for the Revenue that when the income of the assessee for the three assessment years is the subject-matter of settlement before the Settlement Commission, the Assessing Officer can proceed for assessment of income for the same years, in pursuance of notice under section 158BC/BD.

The provisions of section 245F of the Act provides that the Settlement Commission will have the powers conferred on it and shall have all the powers which are vested in an income-tax authority under this Act. In case where the application has been admitted for settlement of income of the assessee, sub-section (2) further provides that until an order is passed under sub-section (4) of section 245D, then, subject to the provisions of sub-section (3), of that section, the Settlement Commission shall have exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case.

Sub-section (3) and sub-section (4) of section 245D provide that where the application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and after examining of such records, the Settlement Commission may also direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matter covered by the application. Sub-section (4) further provides that after examination of the records and the report of the Commissioner received and after giving an opportunity to the applicant and to the Commissioner to be heard, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under subsection (1) or sub-section (3).

In view of this provision when the assessee has approached the Settlement Commission for assessment of his income for the assessment years 1995-96, 1996-97 and 1997-98, I do not find any justification in the notice under section 158BC/BD. How the Assessing Officer can assess the same income which is the subject-matter before the Settlement Commission.

Chapter XIV-B provides for block assessment years which means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted. Search has been conducted in the case of Super Forgings and Steels Ltd., on September 20, 1996, The assessee-company came into existence only in March, 1993. Block period will go even downwards to 1993, when the assessee-company was not in existence at all. When the assessee was not in existence before March, 1993, there is no question of taxing any income before March, 1993.

It is pertinent to note that there was a search at the premises of Super Forgings and Steels Ltd., and that the assessee has gone to the Settlement Commission. The Settlement Commission has admitted its application for assessing the concealed income. As the entire material was seized the Settlement Commission will consider to assess the concealed income of Super Forgings and Steels Ltd., and if the income is taxed in the hands of Super Forgings and Steels Ltd. how that income can be assessed once again in the hands of this assessee. Therefore, unless it is found that some income out of the seized document does not belong to Super Forgings and Steels Ltd., only thereafter it can be considered that income whether belong to the assessee at all. Therefore, unless the income in the case of Super Forgings and Steels Ltd. is settled by the Settlement Commission. On this ground also there is no justification to issue the notice under section 158BC/BD to the assessee.

Admitted facts are that the notice under section 158BC/BD has been issued to the assessee consequent to search in the case of Super Forgings and Steels Ltd. Similar notice was issued to Super Forgings and Steels Ltd. That assessee filed the application before the Settlement Commission. Its application is admitted by the Settlement Commission, therefore, the Assessing Officer is not proceeding to assess the income of Super Forgings and Steels Ltd., in pursuance of notice under section 158BC.

How the Assessing Officer can proceed to assess the income of the assessee, when the dispute regarding assessable income for the assessment years 1995-96 to 1997-98 is also pending before the Settlement Commission.

To sum up.

No. 1 : The Income-tax Officer has no material to justify that the assessee had undisclosed income which can he assessed under Chapter XIV-B of the Act.

No. 2 : The search was in the case of Super Forgings and Steels Limited and not in the case of this assessee, while the Assessing Officer has not proceeded to assess the income of Super Forgings and Steels Ltd. in pursuance of notice under section 158BC, on the basis that the dispute regarding the income of Super Forgings and Steels Ltd. is pending before the Settlement Commission. How the Assessing Officer can proceed to assess the income of the assessee for the assessment years 1995-96 to 1997-98 in pursuance of notice under section 158BC/BD, while the matter regarding the total income for those years is also pending before the Settlement Commission.

No. 3 : Any income which is assessable on the basis of seized papers, the matter to assess that income is pending on application of Super Forgings and Steels Ltd. If that income is taxed in the hands of Super Forgings and Steels Ltd., how that can be again assessed in the hands of this assessee.

No. 4 : The assessee came into existence in March, 1993, and till the date of search the relevant assessment years are 1995-96 to 1997-98 and for all these years whatever be the income of the assessee '? The matter is pending before the Settlement Commission. Therefore, the total income from whatever source that can be considered by the Settlement Commission.

No. 5 : When the application of the assessee for settlement of income has been admitted by the Settlement Commission, as in the case of Super Forgings and Steels Limited for the income of those years no parallel proceedings should be continued even the proceedings in pursuance of notice under section 158BC/BD of the Act.

In the result notice dated December 24, 1998, issued under section 158BC/BD is quashed, the petition is allowed.

 

 

 

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