THE issues before the Bench are - Whether when a warrant is issued
against the address of the assessee but without a name, invocation the
provisions of Sec 158BC instead of Sec 158BD will be illegal; Whether even
without a search warrant u/s 132 of the Act against the assessee, the block
assessment u/s 158BC can be said to be valid and sustainable without invoking
section 158BD; Whether the failure to issue notice u/s 158BD of the Act to the
assessee is only an irregularity in the assessment and not a nullity of the
block assessment; Whether the provisions of Section 292B of the Act can be
invoked to cure the defect in not issuing notice to the assessee u/s 158BD of
the Act and hence the block assessment on the assessee u/s 158BC can be said to
be legal and valid in law and Whether the addition u/s 68 of the Act in respect
of the c
ash credits can be made in the block assessment made under Chapter XIVB of the Act. And the verdict goes in favour of the assessee.
ash credits can be made in the block assessment made under Chapter XIVB of the Act. And the verdict goes in favour of the assessee.
Facts of the
case
The appellant
Ramaiah is carrying on real estate business as a property developer in the name
of M/s. Barath Building Constructions. He is also the Managing Director of
M/s.BBC Associates Limited. On 15.3.1996, a search action u/s 132 of the Act was
conducted in the premises of M/s.Petro Plast Group of Companies controlled by
three brothers, Anand Agarwal, Raju Agarwal and Omprakash Agarwal. According to
the Revenue, during the course of the said search, certain incriminating
documents were found relating to transactions of the above group with M/s.BBC
Associates, the Managing Director of which is the appellant herein and hence,
the business premises of M/s.BBC Associates Limited at No.23/1, Mylai
Ranganathan Street, T.Nagar, Chennai and the residential premises of the
assessee V.Ramaiah and his family at No.15, Neelakanta Mehta Street, T.Nagar,
Chennai were also subjected to search u/s 132 on the same date viz. 15.3.1996.
According to the Department, the Authorised Officer seized four receipts for a
value of Rs.1.10 crores and 18 blank agreements signed by the assesssee,
Proprietor of M/s. Barath Building Constructions (in short BBC) and Managing
Director of M/s.BBC Associates Ltd. during the search.
The
assessee had filed his returns of income, in his individual status, for the AYs
1987-88 to 1996-97 and also block returns for the period 1986-87 to 1996-97.
According to the Department, there are four unaccounted cash receipts issued by
the appellant V.Ramaiah to four persons, totalling to Rs.4,34,000/-; undisclosed
payment made by him for one Prabhat Talkies to the extent of Rs.1,61,843/=;
unaccounted investment in shares in benami names to the tune of Rs.4,13,000/=;
unaccounted receipts to the tune of Rs.1,60,00,000/-; unexplained cash credit of
Rs.4,50,00,000/= and other unexplained cash credits to the tune of
Rs.87,84,107/=. The said amounts were arrived at as 'undisclosed income' for the
block period 1986-87 to 1996-97 and tax on the said undisclosed income at 60%
was calculated at Rs.4,24,75,770=. The total undisclosed income for the
aforesaid AYs was arrived at Rs.7,07,92,950/- and the tax on the said sum was
arrived at Rs.4,24,75,770/-.
The
assessee preferred an appeal before ITAT challenging the additions and also
challenged the correctness of framing an order u/s 158BC, on various grounds.
The Tribunal, after hearing both the parties, rejected the appeal of the
assessee in all aspects, except with regard to the interest charged u/s 220(2).
On further appeal by the
assessee, it was held that,
++ as
per Section 158BA, when a search is initiated u/s 132 or books of account, other
documents or any assets are requisitioned u/s 132A, then, the AO shall proceed
to assess the undisclosed income in accordance with the provisions of Chapter
XIV-B;
++ as
per Section 158BC, when any search has been conducted u/s 132 or books of
accounts, other documents or assets are requisitioned u/s 132A after issue of
relevant notice, the AO shall complete the assessment as per the requirements of
the provisions of XIVB of the Act. Section 158BD contemplates that when an AO is
satisfied that any undisclosed income belongs to any person, '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, then, the said
books of account should be handed over to the AO having jurisdiction over such
other person and the concerned AO shall proceed against such other person.
Therefore, one has to go by the execution of the warrant u/s 132 to decide as to
whether the block assessment has to be completed u/s 158BC or u/s 158BD of the
Act;
++ in
the present case, two search warrants dated 15.3.1996 have been issued. First
one in the name of M/s. Petro Plast Group of Companies, Anand Agarwal and Om
Prakash Agarwal at No.23/2, Mylai Ranganathan Street, T.Nagar, Chennai. The
second warrant was issued for the search of the premises at No.15, Neelakanta
Mehta Street, T.Nagar, Chennai-17. Admittedly, no search warrant was issued in
the name of the present Assessee-Mr.Ramaiah. First warrant was issued in the
name of a company and the second one was issued without any name, but there was
only mention about the address where the assessee was carrying on business under
the name and style of M/s. BBC Associates Ltd. and Bharat Building Construction.
When there was no search warrant in the name of the appellant Ramaiah, whether
the procedure contemplated u/s 158BC has to be followed or Section 158BD has to
be proceeded is the question to be decided;
++
when the search of the business place of the appellant is a consequential one,
i.e. after the search of M/s.Petro Plast Group of Companies, we are not in a
position to understand as to how 158BC would be applicable to the present case
since the appellant, at best, can be called only as 'other person'. It would
have been entirely a new issue had no name was found in the search warrant but
only address was found. As stated above, for invoking the provisions of Section
158BC or 158BD, one has to go with the execution of the search warrant. When the
search warrant made on the business place of the appellant was a consequential
one and when the appellant was made liable to addition in view of the documents
(4 receipts) found in the place where the first search took place, in our
considered view, invocation of the provisions of Section 158BC instead of
Section 158BD is illegal since the appellant is a 'person other than the person
with respect to whom search was conducted';
++
this issue can be looked into from another angle. The authorities decided to
search M/s.Petro Plast Group of Companies, the business place of M/s.Anand
Agarwal and Om Prakash Agarwal. During the search the authorities have found and
seized 18 blank agreements along with four receipts signed by the assessee in
his letter-head, for a sum of about Rs.1.10 crores. After seizure of such
receipts, the authorities proceeded to the business place of the appellant (it
is to be noted that neither the name of the appellant nor his concern find a
place in the search warrant) and 'found' some undisclosed income of the
assessee. Though the Tribunal, in its judgment, has accepted that no warrant was
issued in the individual name of the appellant, without assigning any reason to
justify the action of the Revenue in taking to task the appellant, has simply
came to a conclusion that the assessment made by the Revenue u/s 158BC is
justified;
++
the Tribunal without offering any justifiable grounds for invoking Section 158BC
by the Revenue, has simply concluded that "In view of this, the assessment under
sec.158BC is justified." At this juncture, we feel it apt to mention the
difference between Sections 158BC and 158BD. While Section 158BC lays down the
procedure for conducting a search in a block assessment, Section 158BD specifies
the procedure to be followed when there is any material found during the search
u/s 132 against a person 'other than the person' with respect to whom the search
was made u/s 132;
++
while for the case u/s 158BC, for which the corresponding limitation is
prescribed u/s 158BE(1)(a) and the period of limitation shall count from the end
of the month in which the last of the authorisations for search u/s 132 or for
requisition u/s 132A was executed, the limitation u/s 158BE(2)(a) (for a case
falling u/s 158BD) commences from the end of the month in which the notice was
served on such other person in respect of search initiated or books of account
or other documents or any assets requisitioned after 30.6.1995, but before
1.1.1997;
++
therefore, these two Sections cannot be confused or applied interchangeable in
view of clear use of language by the legislature and it cannot be said that both
these Sections convey the same meaning and can be applied to one and the same
situation;
++ in
view of our discussion in the preceding paragraphs, there is no difficulty in
concluding that admittedly the appellant being a 'person other than the person
with respect to whom the search was conducted', if at all, only the provisions
u/s 158BD would apply and the provisions of Section 158 BC have no application
to his case. It is so since the facts clearly indicate that a warrant has been
issued not in the name of the appellant but in some other name and only on the
basis of the alleged seizure of documents in other case, action has been
resorted to against the appellant by the Revenue;
++
but, the Tribunal, in order to justify the action of the Revenue in resorting to
the provisions of Section 158BC to the case on hand, has proceeded further to
hold that even if the AO has committed any procedural irregularity, that could
be cured by the provisions of 292B of the Act. Now, therefore, the stage is set
to see as to whether the irregularity, if any, can be rectified in view of
Section 292B;
++ a
reading of the provision of Section 292B makes it clear that this provision
enables an invalid assessment or a proceeding as valid for three reasons, viz.,
mistake, defect or omission. Even if the assessment order suffers from any
mistake or any defect or any omission, such assessment order/proceeding cannot
be stated to be invalid. Now, one has to see whether the assessment order passed
by the AO invoking Section 158BC suffers from any procedural irregularities as
contemplated u/s 292B so as to make such assessment order valid. According to
the Tribunal, by applying Section 292B the procedural irregularity, if any, can
be rectified and, on that score, confirmed the decision of the AO in invoking
Section 158BC to the case of the appellant. It is not the case of the Revenue,
at any stage, that the Assessment Order suffers from mistake or defect or any
omission. But, the Tribunal itself has assumed that Section 292B would apply in
case of any defect in the procedure. Section 292B itself is having its own
limitations of applications with three exceptions stated in Section 292B.
Certainly passing an order of assessment u/s 158BC instead of Section 158BD (in
spite of clear terminology used in both the Sections) would not amount to a
mistake, a defect or an omission, much less a curable one. When different
contingencies are dealt with under different Sections of the Act, allowing an
illegality to be perpetrated and then taking a plea by the Revenue that such an
action adopted on their part would not nullify the proceedings, cannot be
appreciated since by virtue of such actions, the Revenue has attempted to
nullify the scheme of things of limitations legally propounded under the
Act.;
++ to
meet out different circumstances and contingencies, the legislature has framed
different Sections in the Act and having committed an illegality, the Revenue
cannot be permitted to clothe their illegality seeking aid from Section 292B.
Therefore, the observation of the Tribunal that the procedural irregularity can
be rectified by applying the provisions of Section 292B is unwarranted and
cannot be accepted;
++
when it is found that the assessment should have been proceeded only as
contemplated u/s 158BD, instead of Section 158BC and the invocation of Section
292B is by the Tribunal is wrong, the next question to be dealt with is
regarding the period of limitation;
++
section 158BE has amply made it clear that the assessment order u/s 158BC should
be passed within one year from the end of the month in which the last of the
authorisations for search u/s 132 was made or for requisition u/s 132A was
executed. Had the assessment proceeded u/s 158BD, then the period of limitation
for completion of the block assessment is one year from the end of the month in
which the notice was served on such other person in respect of search initiated
or books of account or other documents or any assets requisitioned;
++
when the assessment order was passed u/s 158BC, the order under that section
shall be passed within one year from the end of the month in which the last of
authorisations for search u/s 132 or for requisition u/s 132A, as the case may
be, was executed. If the assessment order is the one to be passed u/s 158BC, the
period of limitation contemplated u/s 158BE(1)(a) would apply and if the
assessment order has to be passed in the case of 'other person' referred to in
Section 158BD, the limitation of one year stipulated in Section 158BE(2)(a) will
come into play, in which case the period of limitation for completion of block
assessment in the case of the other person referred to in Section 158BD shall be
one year from the end of the month in which the notice was served on such other
person;
++ in
the present case, admittedly, the assessment order was passed by the AO on
30.6.1997 after a notice was issued u/s 158BC. When ITAT, by the order dated
9.5.2001 remanded the matter back to the Assessment Officer, the AO has passed
the order on 28.3.2003, again under the provisions of Section 158BC. When, thus,
the provisions of Section 158BC alone have been invoked, then automatically the
period of limitation contemplated u/s 158BE(1)(a) alone are applicable and not
the period of limitation provided u/s 158BE(2)(a) since the said period of
limitation is applicable to the 'other person' referred to in Section 158BD
(which provision has not been invoked by the Revenue). Tribunal has rejected the
claim of the assessee that if at all his case should have been dealt with only
u/s 158BD and definitely not u/s 158BC. Having thus rejected the claim of the
appellant/assessee and having upheld the action of the Revenue in invoking
Section 158BC, the Tribunal should have followed the limitation contemplated u/s
158BE(1)(a) but not the one provided for u/s 158BE(2)(a). One cannot be allowed
to follow a particular procedure contemplated in one Section and borrow the
limitation contemplated in the other Section. When the AO as well as the
Tribunal proceeded on the footing that invocation of Section 158BC is
justifiable and the appellant/assessee is liable for action u/s 158BC, they
should have noted whether order has been passed within the period stipulated u/s
158BE(1)(a). Issuance of notice in respect of search initiated would not save
the period of limitation u/s 158BC because it is not the case of the Revenue
that Section 158BD is the provision to be invoked rather than 158BC. The
assessment order passed in this case, u/s 158BC, is invalid as it has not been
passed within the prescribed period of limitation - the date of search being
15.3.1996, the assessment order ought to have been passed on or before
31.3.1997. Hence, the assessment made in this case is hopelessly time barred as
per Section 158BE(1)(a) since, admittedly, the assessment was concluded much
after the period of limitation i.e. only on 30.6.1997. In any event, the
proceedings for levy and collection of tax on the undisclosed income as per the
Assessment Order in appeal is legally invalid having regard to the provisions
contained in Section 158BD and as discussed supra by us. Substantial Questions
of Law No.1 to 5 are, thus answered in favour of the appellant/assessee and
against the Revenue. Even though on this finding, the appeal filed by the
appellant/assessee is entitled to be allowed, to give a quietus to the other
issues, we proceed to discuss them hereunder;
++ as
regards the additions made in the block assessment, though the AO has made
additions under seven different heads to compute the undisclosed income, the
appellant/assessee has chosen to contest only four additions on account of
addition u/s 68;
++ so
far as additions on account of Unaccounted Receipts from Shri Anand Agarwal is
concerned, there is not even a scrap of paper or material to substantiate the
claim of the Revenue that the opportunity of cross-examination was provided to
the assessee. In the absence of any material on record to show that such
opportunity was given to the assessee as directed by the Tribunal at the time of
remand, the order passed by the authorities as well as the Tribunal is against
the principles of natural justice and liable to be set aside;
++ so
far as additions on account of Unaccounted credit in the name of late Shri S.M.
Pandiyan is concerned, it is well settled that the burden of proving that a
transaction was benami is on the Revenue and the ordinary presumption of law is
that the apparent state of fact is real unless the contrary is proved and
therefore the burden of proving that a transaction is sham or that the person in
whose name the property stands is not the real owner but is only a benamidar for
another, is on the taxing authorities. In the present case, the AO has opined
that the amount of Rs.3 crores credited in the account of Shri S.M.Pandian on
5.11.94, really constitutes the undisclosed income of the assessee and requires
to be assessed u/s 68 of the Act for the block period. However, the Tribunal, by
going one step ahead, had observed that the very transaction is a benami
transaction, which cannot be appreciated;
++
the next question which falls for consideration is whether the addition u/s 68
of the Act in respect of the cash credits can be made in the block assessment
made under Chapter XIVB of the Act or not;
++ as
per Section 68 of the Act, when the assessee has no explanation about the nature
and source for the sum found credited in the books of accounts maintained to the
satisfactory of the AO, the sum so credited may be charged to income tax as the
income of the assessee of that previous year. For attracting Section 68, two
conditions to be satisfied, first is that the sum in dispute should be reflected
in the books of account and second is that when the AO questions about the said
sum, the explanation offered by the assessee towards the source of the said sum
should be satisfactory to the AO. It is not the case of the Revenue that the
undisclosed income is reflected in the books of account. Section 14 of the Act
gives the Heads of Income and they are (A) Salaries, (B) Interest on securities
(omitted w.e.f.1.4.1989) (C) Income from house property (D) Profits and gains of
business or profession (E) Capital gains and (F) Income from other sources;
++ on
a thorough perusal of the entire materials placed on record, the contention
cannot be accepted that Section 68 is applicable to the present case branding
the same as a benami one. The AO, in spite of clear explanations and production
of voluminous documents by the appellant, has held that the assessee has not
explained the cash credits. Even though a specific request was made on the part
of the assessee requesting for cross-examination of Mr.Anand Agarwal, by
producing various documents to explain the credits and specifically pointing out
that additions proposed are not tenable, the same was not afforded to him by the
Revenue. Further, at the cost of repetition, even though the Tribunal, by the
order dated 9.5.2001 has specifically directed to afford opportunity and
consider all materials, it was freely taken for a violation by the Revenue since
no such opportunity was ever afforded to the appellant;
++
the findings of the Tribunal in the impugned order, ignoring the aforesaid
documents is clearly perverse. While arriving at such conclusions, the Tribunal
has, unjustifiably and illegally, fixed onus on the assessee to establish such
credits. The Tribunal has committed a legal error in fixing onus on the
assessee, for the plea raised by the Revenue. Therefore, this point is also
answered in favour of the assessee and against the Revenue.
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