Commissioner of Income Tax vs Abhyudaya Builders (P) Ltd.

Satish Chandra, J.—This appeal has been filed by the Department-Appellant u/s 260-A of the Income Tax Act against the judgment and order dated 31.03.2008 passed by the Income Tax Appellate Tribunal, Lucknow in I.T.A. No. 334/Luc/2003 for the assessment year 1993-94.

On 10.09.2008, a Division Bench of this Court had admitted the appeal on the following substantial questions of law:

1 Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in upholding the order of the Commissioner of Income Tax (Appeals) and thus annulling the assessment order and directing the Assessing Officer to proceed u/s 158BD of the I.T. Act, 1961.

2 Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in not properly appreciating the fact that action taken u/s 147 of the Act was in accordance with law as the information, that there is falsity in the disclosed material by the Assessee was brought to the notice of the A.O. at a later stage. The Income Tax Appellate Tribunal thus also erred in holding that A.O. could initiate proceedings only u/s 158BD of the Act and not u/s 148(1) of the Act.

3 The Appellant craves to add, delete or modify any ground(s) either before or during the pendency of this appeal, with the permission of the Hon''ble Court.

The brief facts of the case are that the Respondent-Assessee Company is engaged in the business of construction of building. For the assessment year (1993-94) under consideration, an original assessment was completed u/s 143(3) of the Income Tax Act (hereinafter referred to as the Act). The original assessment completed on 27.03.1996 on an income of Rs. 2,66,080910/-as against the loss of Rs. 3,91,500/-disclosed by the Assessee in his return, but the return was revised on 30.09.1996 at an income of Rs. 26,764/-after giving appeal effect to CIT(A)''s order dated 12.08.1996, which was further revised u/s 154 to NIL income.

In the meantime, a search & seizure operation was carried out in the month of March, 1998 at the business and residential premisses of one Shri Ashok Kumar, proprietor M/s. Arch En Design Centre who had also purchased a premise on the 3rd Floor of the building known as "Shree Ram Tower", which was constructed by the Assessee Company. From the seized material, it appears that Shri Ashok Kumar has made total payment of Rs. 13,00,000/- to the Assessee Company, but the same was shown only of Rs. 5,98,000/-as per the sale deed. On the basis of this information, the A.O. has initiated the reassessment proceedings by issuing notice u/s 148 of the Act.

In the reassessment proceedings, the A.O. observed that Shri Ashok Kumar has paid a sum of Rs. 5,98,800/- as recorded in the sale deed. In addition, he has also paid a sum of Rs. 7,11,200/- to the Assessee Company over and above the declared cost. The A.O. has worked out the extra receipts being 118.77%, which were not shown in the book of accounts. In other words, A.O. observed that the Assessee has received undisclosed money at the rate of 118.77%. With this percentage, he has estimated the total unaccounted money pertaining to the entire sale of space in the building in question and made the addition of Rs. 42,58,142/-.

Being aggrieved, the Assessee has filed an appeal before the CIT (A), who vide order dated 14th March, 2003 observed that addition was made on the basis of information gathered at the time of search in the case of Shri Ashok Kumar, so the provision of Section 158BD of the Act is applicable in the case of Assessee Company, and certainly not the provisions of Section 148/147 of the Act, which were invoked by the A.O. Being unsatisfied, the Department-Appellant has filed an appeal before the Tribunal, who vide its impugned order dated 31.03.2008 has confirmed the order of the CIT (A) and dismissed the appeal filed by the Department. Being aggrieved, the Department has knocked the door of this Court.

With this backdrops, Shri D.D. Chopra, Learned Counsel for the Appellant relied on the A.O.''s order. He submits that the Assessee has received partly unaccounted money while selling the space in Shree Ram Tower. Such type of unaccounted money generally is known as ''on money''. He also submits that in the instant case, it is evident that on the basis of search paper No. 177A, found at the premise of Sri Ashok Kumar that he has made a total payment of Rs. 13 lacs to the assesse, whereas the cost was shown only for Rs. 5.98 lacs for flat area 1497.02 sq.ft. in the "Shree Ram Tower".

Sri D.D. Chopra, Learned Counsel for the Appellant further submits that Section 158BD of the Income Tax Act, 1961 is some what analogous to Section 147 of the said Act in so far as the procedure that is required to be followed. Section 147 of the Act contemplates that if the Assessing Officer has reason to believe that there is statement of income, then notice can be issued u/s 148 of the Act. So far as Section 158BD of the Act is concerned, the Assessing Officer has to be satisfied that there is undisclosed income. Upon such satisfaction, the Assessing Officer is required to forward the relevant document, papers, etc., to the Assessing Officer who is required to assess the person in respect of whom the undisclosed income has been discovered. For this purpose, he relied on the ratio laid down in the case of Janki Exports International Vs. Union of India (UOI) and Others,

According to him, proceedings u/s 147 of the Act are initiated if the Assessing Officer has reasons to believe that there is escapement of income by issuing notice u/s 148 of the Act. Proceedings u/s 158BD are resorted to where the assessing officer of the persons searched is satisfied that any undisclosed income belongs to other person. The books of account, documents or assets seized are handed over the Assessing Officer having jurisdiction over such other person and that assessing officer shall proceed u/s 158BD against such other person as per the provisions of Chapter XIV-B of the Act.

In the instant case, the proceedings under Sections 147/148 were initiated by the Assessing Officer of the Assessee on receiving information from the investigation wing of the department that during the search carried out at the premisses of Sri Ashok Kumar, Proprietor M/s Arch En Design Centre, the seized material indicated that Sri Ashok Kumar had made payment of Rs. 13,00,000/-to M/s Abhyudaya Builders (P) Ltd. (Assessee) for the purchase of property as against the amount of Rs. 5,98,000/-recorded in the sale deed executed before Sub Registrar, Lucknow. Although the block assessment proceedings u/s 158BC were not completed against Sri Ashok Kumar, the Assessing Officer of M/s Abhyudaya Builder (P) Ltd., (assesses) proceeded to initiate reassessment proceedings u/s 147/148 and as rightly passed an order u/s 147 of the Act. Lastly, he justified the impugned order passed by the Assessing Officer.

On the other hand, Sri Amit Shukla, Learned Counsel for the Respondent-Assessee relied on impugned order passed by the Tribunal. He submits that Assessee is a Company engaged in the business of constructions and sale of building. For the business activities so carried out, it has been regularly assessed to tax, mostly u/s 143(3) of the Act. For the assessment under consideration (1993-94), the assessment was completed u/s 143(3) on 27.03.1996 at an income of Rs. 2,66,080/-as against the loss of Rs. 3,91,500/-disclosed by the Assessee in its return of income.

He further submits that the Assessing Officer has reopened the case u/s 147 by issuing notice u/s 148 dated 30.03.1998 and completed the assessment at an income of Rs. 42,84,910/-after estimating the entire sales at 118.77% on extra money received. Such an assessment was wholly unprecedented in law and on facts without carrying out any enquiry. The CIT(A) already took a view that material in question was found during the course of search and seizure operation in the case of Ashok Kumar, so the A.O. was obliged to take action by initiating the proceedings u/s 158BD, and not u/s 147.

He read out Section 158BD of the Income Tax Act, which reproduced here as under:

Undisclosed income of any other person.

158 BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect of whom documents or any assets were requisitioned u/s 132 or whose books of account or other of account, other documents or any assets were requisitioned u/s 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 that Assessing Officer shall proceed [under Section 158BC] against such other person and the provisions of this Chapter shall apply accordingly.

During the course of search and seizure action in the case of a person who is subjected to search u/s 132 or 132(2A) and in the course of such search the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person who was subjected to search, then such seized documents or books of accounts or other documents shall be handed over to the Assessing Officer having jurisdiction over such other person and after having received such seized material, the Assessing Officer of such other person will proceed under the provisions of Chapter XIVB.

If the provision of Section 158BD is applied on the facts of the present case, it would be seen that:

Firstly, search has taken place in the case of Sri Ashok Kumar u/s 132(1) wherein documents relating to payment of "on-money" to the Assessee was found;

Secondly, proceedings u/s 158BC had been initiated in the case of Sri Ahok Kumar taking into cognizance of such seized documents, by the Assessing Officer Sri Ahok Kumar.

Thirdly, the Assessee is a person other than the person in respect of whom search and seizure, documents relating to the Assessee were found;

Fourthly, such documents were required to be handed over by the Assessing Officer of Sri Ashok Kumar to the Assessing Officer of the Assessee having jurisdiction upon it; and

Lastly, the Assessing Officer of the Assessee was bound to apply the provisions of Chapter XIVB, and proceed against it.

According to him, it would be seen that the finding of the CIT(A) and Tribunal cannot be held to be erroneous in law in any manner even though more stringent provisions have been applied in the case of the Assessee by the CIT(A) as well as by the ITAT as Chapter XIVB is applicable for six assessment years contained in the block period and rate of tax is also 60%.

Wholly without prejudice to the submissions made above, it was submitted by the counsel of the Assessee that if provisions of Section 148/147 are held to be applicable, then the entire matter has to be remanded back to the file of CIT(A) to deal and decide the issue of validity of proceedings u/s 147 and also on merits of the addition based on the outcome of the finding and enquiry in the case of Sri Ashok Kumar especially of the Assessing Officer on the seized material relating to payment of "On-money" as per the direction given by the ITAT, as none of the authorities, i.e. CIT(A) or ITAT have dealt the issue either on the validity of Section 147 or giving any finding on merits. The aforesaid submissions are wholly without prejudice and also without giving any arguments on the merits of the addition as none of the authorities have dealt the issue.

Lastly he made a request that the impugned order passed by the Tribunal may kindly be upheld.

We have heard both the parties at length and gone through the material available on record.

The only issue as per admitted "substantial question of law" is that whether on the facts and circumstances of the case, provision of Section 158BD or provision of reopening of assessment u/s 147 will apply ?

In the case of Janki Exports International (supra), it was held that Section 158BD is analogous to Section 147 regarding the procedure to be followed in the instant case. No action was taken by the Department u/s 158BD within the prescribed stipulated period, so the A.O. has taken the action under Sections 147/148 of the Income Tax Act.

It may be mentioned that the basic idea in the Act is that the entire income of an Assessee assessable in respect of a particular assessment year should be made the subject of one single assessment made on him for that year. Income which is assessable in one assessment year cannot be brought to tax in another assessment year even where its non-assessment in the year to which it relates was due to a device employed by the Assessee which came to light in the subsequent year as per the ratio laid down by the High Court in the case of Ratanchand Lallumal v. ITR 189 (All.). The Hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., observed that on such reopening, the previous assessment stands set aside, vacated or cancelled and the whole assessment proceedings start afresh. The reopening of the assessment is a power of extraordinary nature and so Section 147 must be strictly construed, as per ratio laid down by the Hon''ble Supreme Court in the case of Associated Stone Industries (Kotah) Ltd. Vs. Commissioner of Income Tax, Jaipur,

Before starting the proceedings u/s 147 of the Income Tax Act, A.O. must have the "reason to believe" and these words have the following four elements:

(i) some material or materials and not mere fancy, imagination, speculation, suspicion;

(ii) a nexus between such material and the belief of escapement of income from assessment in the circumstances outlined in Clause (a) or (b);

(iii) an application of mind by the Assessing Officer to such material; and

(iv) an inference based on reason drawn tentatively by the officer that income has escaped assessment.

The A.O. would be acting without jurisdiction if the "reason for his believe" that the conditions are satisfied does not exist, or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or the sufficiency of the reasons for the belief cannot be investigated by the Court, as per the ratio laid down in the case of Income Tax Officer, Jodhpur Vs. Purushottam Das Bangur and another,

In the instant case, a search was conducted at the business and residential premises of one Sri Ashok Kumar, who had purchased office premise on the 3rd floor in the building of "Shree Ram Tower" from the Assessee. The seize paper No. 177A shows that Sri Ashok Kumar had made a total payment of Rs. 13,00,000/-to the Assessee Company, whereas the cost of the building as per the registered deed was shows only Rs. 5,98,000/-and remaining amount was paid as in black money. Thus, there was sufficient material that the amount was escaped from assessment. The escaped assessment has been mentioned in explanation-2 of Section 147, accordingly, the following shall be deemed to be cases of income escaping assessment:

(a) where no return of income has been furnished by the Assessee, although the total income is above the taxable limit;

(b) where a return of income has been furnished, but no assessment has been made, i.e., in a non-scrutiny case, if the Assessee is found to have understated his income or claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but

(i) income chargeable to tax has been under-assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under the Act, or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

The Hon''ble Supreme Court in the case of V. Jaganmohan Rao and Others Vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, observed that even the case where the Assessing Officer erroneously fail to take the certain part of income can be a case where the said part of the income has escaped assessment.

In the instant case, the original assessment was made on 27.03.1996. The CIT(A) vide order dated 12.08.1996 set aside the order and the reassessment was completed on 30.09.1996. The Assessee again preferred an appeal. CIT(A) vide order dated 04.01.2001 has set aside assessment order with the direction that before re-framing the assessment, his direction have to be complied by the A.O. So, A.O. again issued the notice u/s 143(2) on 31.12.2001, fixing the date for 18.01.2002, but none attended on behalf of the Assessee. Hence, A.O. has passed the order on 28.03.2002 ex parte.

From the record, it also appears that in the case of Sri Ashok Kumar, who had purchased the flat Assessee-company and in his premises the document in question was found. The Tribunal vide its order dated 30.10.2001 (ITA No. 270/LKO/2000) for the block period 01.04.1987 to 09.12.1997 in the case of Sri Ashok Kumar has set aside the assessment order and restored the matter back to the A.O. with the specific direction. In the meantime, the stipulated period for initiating the proceeding u/s 158BD has expired, so the income has escaped from the clutches of the tax. For this reason only, the A.O. has initiated the proceedings under Sections 148/147 of the Act, which appears reasonable in the peculiar facts and circumstances of the case. Therefore, we uphold the order passed by the A.O. for the reasons mentioned above, especially when the Section 158BD is analogous to Section 147 as per the ratio laid down in the case of Janki Exports International (supra).

The answer to the substantial questions of law is in favour of the revenue department and against the Assessee.

However, in the instant case, the CIT(A) has annulled the assessment order passed by the A.O. Though he has affirmed on merit and the Tribunal endorsed it. Thus, the matter was not discussed on merits by the Tribunal. Therefore, we set aside the impugned order and restore the matter to the file of the Tribunal to decide the addition strictly on merit as per law expeditiously and preferably, say, within a period of three months after receipt of a certified copy of this order.

Appeal is disposed of accordingly.