2001-VIL-165-ITAT-AHM
Equivalent Citation: TTJ 071, 445,
Income Tax Appellate Tribunal AHMEDABAD
Date: 15.01.2001
DR. AJAY KUMAR AGRAWAL.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : I.S. VERMA., P. S. KALSIAN.
JUDGMENT
P.S. KALSIAN, A.M.:
This appeal is directed by the assessee against the order of the CIT(A), dt. 27th Nov., 1997.
2. Various grounds of appeal have been raised by the assessee against the assessment order passed by the AO under s. 158BD of the IT Act. However, assessee has raised additional grounds of appeal and has requested that since the additional ground of appeal requires no verification of facts, it is purely legal, the same should be admitted.
3. The following additional grounds of appeal have been raised:
"Because the assessment order, dt. 27th Nov., 1997, is wholly illegal, as being outside the purview and scope of s. 158BD (Chapter XIV-B) of the IT Act, 1961.
2. Because there existed no material/information which could lead the AO to have the requisite satisfaction so as to confer jurisdiction on him to initiate proceedings under s. 158BD in the case of the appellant."
4. After hearing both the sides we admit the additional grounds of appeal as it involved the issue of jurisdiction of the AO under s. 158BD of the Act.
5. The brief facts of the case are that a search and seizure operation was conducted at the business premises of Sri Narayan Das Sarraf & Sons, M/s Radha Krishna Payal Bhandar, M/s Radha Krishna Payal Bhandar (P) Ltd. and residential premises of the assessee on 3rd, 4th, 5th and 6th Nov., 1996, as stated by AO. Thereafter notice under s. 158BC of the IT Act was served on 8th July, 1997, which was duly served on the assessee on 15th July, 1997. Subsequently the AO issued notice under s. 158BD r/w s. 158BC on 7th Oct., 1997, which was also duly served on the assessee, asking the assessee to file particulars of income for the block period (asst yrs. 1987-88 to 1997-98). Assessee derived income from medical profession and he is proprietor of M/s Maseeha Surgical Centre, Varanasi. In response to the notice under s. 158BD r/w s. 158BC the assessee filed return of income in Form 2B on 11th Nov., 1997, declaring nil undisclosed income.
6. It is mentioned by the AO that the assessee's books of account and loose sheets, etc. found during search were scrutinised. After scrutiny of books of accounts, etc. and after giving opportunity of hearing to the assessee the income for the block period was computed as Rs. 15,97,740. The AO imposed tax @ 60 per cent under s. 113 of the IT Act.
6.1. As regards the additional grounds of appeal mentioned above, it is argued by the learned counsel of the assessee that the assessee Ajay Agarwal is living separately at 14/15 Laskerbagh, Varanasi, where he had his clinic. No search at the premises of the assessee was conducted under s. 132 of the IT Act. The assessee was being assessed by the AO, Ward-3, Varanasi. Notice under s. 158BC was issued by the AO having jurisdiction over Shri Agarwal. Notice under s. 158BC was issued on 8th July, 1997, by the Asstt. CIT, Varanasi. The assessee's counsel filed reply and stated that notice appears to be misconceived since there is no Panchnama in the name of the assessee. Therefore, case of the assessee is not covered under Chapter XIV-B of the Act. Subsequently the Asstt. CIT issued notice under s. 158BD on 7th Oct., 1997. In the meantime the order has been passed by the CIT by transferring jurisdiction from AO Ward-III to Asstt. CIT and that is why Asstt. CIT, CC, issued notice under s. 158BD on 7th Oct., 1997.
7. It is argued by the learned counsel for the assessee that before issuing notice under s. 158BD the AO should be satisfied that any undisclosed income belong to any person other than the person in respect of whom search was made under s. 132 or which books of accounts or other documents or any assets were requisitioned under s. 132A and then the books of accounts and other documents, etc. were handed over to the AO having jurisdiction over such other person and that AO shall proceed against such other person and the provision of Chapter XIV-B shall apply.
7.1. According to the learned counsel for the assessee the AO was not satisfied about the undisclosed income in the case of the assessee before issue of notice under s. 158BD of the IT Act. The learned counsel for the assessee also stated that merely filing of return under s. 158BD of the Act did not confer jurisdiction to the AO to pass order under s. 158BD r/w s. 158BC. The learned counsel for the assessee referred to decision of the Allahabad High Court in 58 ITR 220 (sic) and decision of Tribunal in Urmila Chandak & Ors. vs. Asstt. CIT (1998) 60 TTJ (Mad) 758. The learned counsel for the assessee argued that since the AO was not satisfied about the existence of undisclosed income in the case of the assessee, there was no jurisdiction to issue notice under s. 158BD of the Act.
8. The learned Departmental Representative on behalf of the Department submitted a photostat copy of the notice and facts recorded by the AO on the note-sheet referring to the reasons for issue of notice under s. 158BD of the IT Act. Learned Departmental Representative pointed out that the AO was satisfied about the issue of notice under s. 158BD/BC as there was seizure of assets from the premises of Shri Ajay Kumar Agarwal. At this stage the learned counsel for the assessee pointed out that he had only asked for certified copy of the order sheet. In the case of the assessee copies were submitted to him on 17th March, 1999, after completion of the assessment. Office copy of the note sheets now submitted by the learned Departmental Representative before the Tribunal were not given to the assessee earlier. The learned counsel pointed out that even this office note also does not support the AO's case for issue of notice under s. 158BD r/w s. 158BC because no search was conducted at the premises of Shri Ajay Kumar Agarwal and Ajay Kumar Agarwal was not partner in the firm M/s R.K. Agarwal & Ors., where searches were carried out by the Department and that no asset mentioned in the office note belong to the assessee, was found from the business premises of Shri R.K. Agarwal.
9. We have considered the facts of the case and material on record and rival submissions. For the sake of convenience provisions of s. 158BD and 158BE(2) are reproduced below:
"158BD. Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed against such person and the provisions of this Chapter shall apply accordingly."
158BE(2) The period of limitation for completion of block assessment in the case of the other person referred to in s. 158BD shall be:
(a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any asset requisitioned after the 30th day of June 1995, but before the last day of January, 1997; and
(b) two years from the end of the month in which notice under this chapter was served on such other person in respect of search initiated or books of account or other documents or any asset are requisitioned on or after the 1st January, 1997."
10. It is clear from the provisions of s. 158BD that an AO can issue notices or proceed against any person other than the person with respect to whom search was made under s. 132, where the AO having jurisdiction over the person searched is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 of IT Act and give a finding that he is satisfied that any undisclosed income belong to any person other than the person with respect to whom search was made under s. 132. This finding regarding the satisfaction of undisclosed income is necessary because the period of limitation of one year or two years for completing block assessment has to be calculated in respect of such other person referred to under s. 158BD and such period of limitation has to be calculated from the end of the month in which the notice under Chapter XIV-B was served on such other person under s. 158BD. Therefore, burden lies on the AO to show that he was satisfied about the existence of undisclosed income belonging to any person other than person with respect to whom search was made under s. 158BD. This burden can be discharged by any evidence available on record, which shows that the AO was satisfied about the existence of undisclosed income in the case of the assessee.
11. The AO has recorded the following reasons before issue of notice under s. 158 of the IT Act
OFFICE NOTE
Ajay Kumar Agarwal S/O
N.D. Agarwal
5/4 Laskar Bagh, Varanasi
Dt. 8th July, 1997
Block asst. yrs. 1987-88 to 1996-97 and asst. yr. 1997-98 (From 1st April, 1996 to 3rd Nov., 1996).
A search was conducted in the business of this assessee and residential premises of the partners on 3rd Nov., 1996 to 5th Nov., 1996 under s. 132(1) of IT Act, 1961. On the basis of scrutiny of seized materials, books of account, document and loose papers, under noted undisclosed income has been worked out:
Items Found Seized From business premises
of above concern
1. Cash 67,050 37,380 -
2. Silver ornaments 7,22,550 9,116 -
-------- --------
Ornaments 62,900 62,900
3. Other assets such 2,37,300 2,37,300 -
as units of UTI, etc.
Thus, I have reason to believe that the above undisclosed income is assessable under Chapter XIV-B for the above block period under the provisions of s. 158BD of the IT Act, 1961, for which notice under s. 158BC(a) is issued."
It is clear from the entries on the order sheet that the satisfaction note recorded by the AO for issue of notice under s. 158BC was withdrawn by the AO after the assessee objected to the issue of notice under s. 158BC on 8th July, 1997. Subsequently notice under s. 158BD was issued by the AO but before issuing of notice under s. 158BD no satisfaction was recorded to show how the AO was satisfied about the undisclosed income relating to the assessee from the seized books of account or documents in the case of M/s Radha Krishna Payal Bhandar. Therefore, issue of notice under s. 158BD was without satisfaction about the undisclosed income in the case of the assessee and notice was bad in law and has to be cancelled. Even otherwise if it is considered that the satisfaction note recorded on 8th July, 1997, was for issue of notice under s. 158BD even then also the satisfaction was recorded by the AO on 8th July, 1997, for the purpose of issue of notice under s. 158BD as a result of search carried out on the business premises of firm M/s Radha Krishan Payal Bhandar or partner. No documents or books of account or asset showing undisclosed income relating to the assessee Shri Ajay Kumar Agarwal was found or seized by the AO. The AO has only mentioned the fact that silver ornaments and other assets were found and seized from the business premises of the firm M/s Radha Krishna Payal Bhandar and his partner. On the basis of documents books of account and other assets found from the business premises of Radha Krishna Payal Bhandar and his partner, it cannot be stated that the provisions of s 158BD are applicable in the case of the assessee Shri Ajay Kumar Agarwal who is not a partner in the firm M/s Radha Krishna Bhandar. Such books of account revealing undisclosed income pertaining to him was not found from the business premises of M/s Radha Krishna Bhandar or its partners. Therefore, provisions of s. 158BD is not applicable in the case of Ajay Agarwal. The AO mechanically without application of mind has issued notice under s. 158BD to the assessee Shri Ajay Kumar Agarwal. Notice issued by the AO under s. 158BD in these circumstances is also invalid and bad in law. Since the notice issued under s. 158BD is bad in law the assessment completed by the AO under s. 158BD in consequence of invalid notice under s. 158BD has to be cancelled.
12. As the assessment under s. 158BD has been cancelled it is not necessary to consider other grounds of appeal.
13. In the result appeal is allowed.
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