Whether when a warrant is issued against the address of assessee but without a name, invocation of provisions of Sec 158BC instead of Sec 158BD will be illegal - YES: HC

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.

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.