Rikabchand R. Oswal,, Pune vs Assessee

M/s Manoj Himmatlal Shah, 125, N.T.M. Bhavani Peth, Pune - 411 042. PAN : ACMPS4482L .... Appellant

Vs.

Dy. Commissioner of Income Tax, Circle- 5, Pune. .... Respondent

ITA No.1949/PN/2013 (Block Period : 1996-97 to 2002-03)

Rikabchand R. Oswal, 321/3, Shantinagar Society, Mahatma Phule Peth, Pune - 411 042. PAN : AAAPO6898C .... Appellant

Vs.

Dy. Commissioner of Income Tax, Circle- 5, Pune. .... Respondent

ITA No.1950/PN/2013 (Block Period : 1996-97 to 2002-03)

Kokila Rikabchand Oswal, 321/3, Vandana Apartments, Mahatma Phule Peth, Pune - 411 042. PAN : AAAPO7561N .... Appellant

Vs.

Dy. Commissioner of Income Tax, Circle- 5, Pune. .... Respondent

Assessee by : Mr. M. K. Kulkarni Department by : Mr. Rajesh Damor Date of hearing : 03-03-2015 Date of pronouncement : 18-03-2015 2

ORDER

PER G. S. PANNU, AM

The captioned three appeals were heard together as the assessment in

all the three cases have arisen on account of a search action u/s 132(1) of the

Income Tax Act, 1961 (in short "the Act") carried out in the case of M/s

Rajashree Enterprises, Prop. Shri Ramanlal Shah and M/s Maheshwari

Financiers, Pro. Shri Mahendra Shah at Adoni, Andhra Pradesh. It was

submitted by the Ld. Representative that appeals involve common issues and

therefore they have been clubbed and heard together and a consolidated

order is being passed for the sake of convenience and brevity.

2. ITA No.1705/PN/2013 in the case of M/s Manoj Himmatlal Shah is

taken as the lead case. This appeal by the assessee is directed against the

order of the Commissioner of Income Tax (Appeals)-III, Pune dated

22.07.2013 which, in turn, has arisen from order dated 27.02.2008 passed by

the Assessing Officer u/s 158BD r.w.s. 158BC of the Act.

3. In this appeal, the primary dispute relates to an addition of

Rs.32,00,000/- made u/s 68 of the Act on account of unexplained loan and a

sum of Rs.7,55,062/-on account of unexplained expenditure u/s 69C of the Act

relating to the interest on aforesaid unexplained loan. Apart from challenging

the merits of the addition sustained by the CIT(A), assessee has raised an

Additional Ground of Appeal which goes to the root of the matter as it is

claimed that the principles of natural justice have been contravened in this

case while completing the block assessment. The said Additional Ground of

Appeal raised before us, which was not raised hitherto before the lower

authorities, reads as under :-

"(1) On the facts and circumstances of the case and in law the perusal of the order of the Ld. CIT(A) it reveals that in this Block assessment completed 3

under S. 158BD r.w.s. 158BC of the Act the satisfaction note as prepared by the A.O. of the searched party was not provided to the assessee which amounts to the denial of the reasonable opportunity was not given to the assessee to raise objections for the same. The reliance is placed on the Hon'ble Delhi High Court judgement in the case of Janki Exports International through S.P. Gupta vs. Union of India (2005) 278 ITR 296 (Del) 145 (PB Page No.96 to 100). Since the principles of natural justice have been contravened the Block assessment under appeal be quashed."

4. According to the Ld. Representative for the assessee, in the present

case the assessment has been finalized for the Block period comprising of

01.04.1995 to 11.10.2001 by invoking section 158BD of the Act. The

provisions of section 158BD of the Act have been invoked as a consequence

of a search action u/s 132(1) of the Act carried out on 12.10.2001 in the case

of M/s Rajashree Enterprises (Prop. Shri Ramanlal Shah) and M/s

Maheshwari Financiers (Prop. Shri Mahendra Shah) at Adoni, Andhra

Pradesh. The Ld. Representative contended that assessments in terms of

section 158BC of the Act were finalized in the cases of Shri Ramanlal Shah,

and Shri Mahendra Shah. The claim of the appellant is that the provisions of

section 158BD of the Act could be invoked in the hands of the assessee only

after recording the mandated satisfaction. It is pointed out that the assessee

has not been provided with copy of the satisfaction Note and therefore the

assessment completed by the Assessing Officer suffers from a legal defect.

Justifying the admission of the said Additional Ground of Appeal, the Ld.

Representative submitted that the same is a legal issue and the necessary

facts are emerging from record and therefore it should be admitted for

adjudication. The Ld. Representative also pointed out that under identical

circumstances in the case of M/s Bhagyashree Steel Center vs. DCIT, vide

ITA No.1706/PN/2013 dated 21.01.2015 the Pune Bench of the Tribunal has

admitted similar Additional Ground of Appeal and restored the matter back to

the file of Assessing Officer following the judgement of the Hon'ble Delhi High

Court in the case of Janki Exports International vs. Union of India, 278 ITR 296

(Delhi), a copy of the said order has also been placed on record. 4

5. On the other hand, the Ld. Departmental Representative has opposed

the plea of the assessee for admission of the aforesaid Additional Ground of

Appeal on the pretext that the same was not raised before the lower

authorities.

6. Having considered the rival submissions and also the precedent relied

upon by the assessee, we find that the aforesaid Additional Ground of Appeal

deserves to be admitted for adjudication. The Ground of Appeal raised

involves a point of law which relates to a jurisdictional aspect and quite clearly

the facts available on records justify its admission, as our subsequent

discussion would show. At the time of hearing, it was put across to the parties

that the aforesaid Ground deserves to be admitted and in that light the rival

counsels have advanced their arguments on merits of the said Additional

Ground of Appeal.

7. On merits of the Additional Ground of Appeal, it was a common point

between the parties that identical controversy has been dealt with by the Pune

Bench of the Tribunal in the case of M/s Bhagyashree Steel Center (supra)

wherein the relevant discussion is as under :-

"6. On merits, the Ld. Representative for the assessee relied upon the judgement of the Hon'ble Delhi High Court in the case of Janki Exports International vs. Union of India, 278 ITR 296 (Del) to submit that any person who is to be proceeded with u/s 158BD of the Act must be informed about the satisfaction of the Assessing Officer which has been recorded and that such person must be given a reasonable opportunity to put-forth his objection to the same. The Ld. Representative pointed out that in the present case, the satisfaction Note has not been put across to the assessee which is clearly emerging from the discussion made by the CIT(A) in para 4.1 of the impugned order. In the above context, we have perused the following discussion in the order of the CIT(A) at para 4.1 :-

"4.1 I have also perused the satisfaction note of the Assessing Officer (ACIT, Central Circle 2(3), Pune) of Rajashree Enterprises/ Maheshwari Financiers which was enclosed by way of a covering letter dated 06.04.2004 addressed to the Assessing Officer of the appellant. This covering letter clearly shows that the loan transactions amounting to Rs.3,96,830/- were shown in the books of accounts of Rajashree Enterprises and Maheshwari Financiers against whom search and 5

seizure was conducted on 12.10.2001. The covering letter is accompanied by a satisfaction note running into 10 pages which details the books of accounts, documents, bank pass books etc. that was seized and verified during the course of search and the enquiries that were conducted post-search. It details the modus operandi adopted by various parties including the appellant, in collusion with Rajashree Enterprises and Maheshwari Financiers to route their unaccounted money through that concern in the garb of loan. Therefore, the satisfaction of the Assessing Officer who has jurisdiction over the searched persons viz. Maheshwari Financiers and Rajashree Enterprises is found to be clearly recorded that the undisclosed income found in the books belongs to the appellant. The extract of the books of accounts including the loan amounts and interest thereon have been duly reproduced in the satisfaction note and therefore, the requirement of sec. 158BD that the books of accounts, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person, is seen to have been met. Therefore, although the appellant has not been provided a copy of satisfaction note, a perusal of the same shows that it contains the detailed working of the loan entries and the interest thereon as found in the books of Maheshwari Financiers and therefore, it can be concluded that the satisfaction by the Assessing Officer of the searched person is duly recorded, prior to initiation of action u/s 158BD r.w.s. Sec. 158BC."

7. The aforesaid discussion reveals that after examining the record the CIT(A) has come to a conclusion that though satisfaction note was recorded by the Assessing Officer yet a copy of the same has not been provided to the assessee. The Hon'ble Delhi High Court in the case of Janki Exports International (supra) was considering the plea of the assessee regarding issuance of notice u/s 158BD of the Act. Though the challenge to the notice issued u/s 158BD of the Act before the Hon'ble High Court was by way of a Writ Petition but the following discussion in the order of the Hon'ble High Court is relevant :-

"6. We find that section 158BD is somewhat analogous to section 147 in so far as the procedure that is required to be followed. Section 147 contemplates that, if the Assessing Officer has reasons to believe that there is escapement of income, then notice can be issued under section 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 documents, papers, etc. to the Assessing Officer who is required to assess the person in respect of whom the undisclosed income has been discovered. Once this is done, we feel that the person who is to be proceeded against under section 158BD and then section 158BC, must be informed about the satisfaction of the Assessing Officer which has been recorded and he must be given a reasonable opportunity to object to the same. Satisfaction can be arrived on some material. That material would provide the reasonable satisfaction. In the case of GKN Driveshafts (India) Ltd v. ITO & Ors. (2003) 179 CTR (SC) 11 : (2003) 259 ITR 19 (SC), the Supreme Court, while considering the provisions of section 148, pointed out as under :

"However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the 6

noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order."

7. Using the same parity of reasoning, we direct the Assessing Officer to supply the reason recorded for arriving at a satisfaction to the petitioner within a reasonable time upon the petitioner filing a return as required by the impugned notice. On receipt of the same, the petitioner would be entitled to file objections to the issuance of the notice and the Assessing Officer shall dispose of the same by passing a speaking order. It will be open for the petitioner to take the objection with regard to limitation and it will be for the Assessing Officer to pass a speaking order. After such speaking order is passed, the Assessing Officer shall proceed further in accordance with law."

8. The aforesaid discussion by the Hon'ble High Court reveals that the provisions of section 158BD of the Act has been found to be somewhat analogous to section 147 of the Act. On that basis, it has been explained by the Hon'ble High Court that the person who is to be proceeded with u/s 158BD of the Act and then section 158BC of the Act, such person must be informed about the satisfaction of the Assessing Officer which has been recorded and that such person must be given a reasonable opportunity to object to the same. In this background, the Hon'ble High Court directed the Assessing Officer to supply the reasons recorded for arriving at the satisfaction contemplated u/s 158BD of the Act and only after disposing of the objections taken by the petitioner, the assessment was to be completed thereafter.

9. In the present case, it is clear that the satisfaction Note has not been supplied to the assessee, as deduced by the CIT(A). Therefore, following the parity of reasoning laid down by the Hon'ble Delhi High Court in the case of Janki Exports International (supra), we set-aside the impugned orders of the lower authorities and restore the matter back to the file of the Assessing Officer who shall supply the reasons recorded for arriving at the satisfaction for invoking section 158D of the Act to the assessee. On receipt of such reasons, assessee shall be entitled to file objections which shall be disposed- off by the Assessing Officer by way of a speaking order and only thereafter he shall proceed to pass a fresh assessment in accordance with law.

10. The Ld. Departmental Representative raised a plea that the CIT(A) has already examined the record and is satisfied with the satisfaction recorded, thus, there was no justification for remanding the matter, on the basis of the judgement of the Hon'ble Delhi High Court in the case of Janki Exports International (supra). In our considered opinion, the aforesaid plea of the Revenue does not meet with the proposition of law laid down by the Hon'ble Delhi High Court, which we have discussed above. We find no merit in the aforesaid plea of the Revenue. Accordingly, the appeal of the assessee is disposed-off without examining the merits of the impugned addition of Rs.5,17,956/- which has been made by the Assessing Officer by invoking section 69C of the Act.

11. In the result, the appeal of the assessee is allowed for statistical purposes, as above."

7

8. The Hon'ble Delhi High Court in the case of Janki Exports International

(supra) held that any person who is to be proceeded with u/s 158BD of the Act

must be informed about the satisfaction of the Assessing Officer which has

been recorded and that such person must be given a reasonable opportunity

to put-forth his objection to the same. In the present case, the Ld.

Representative for the assessee pointed out that such satisfaction note has

not been put across to the assessee which is clearly emerging from following

discussion made by the CIT(A) in the impugned order :-

"4.1 I have also perused the satisfaction note of the Assessing Officer (ACIT, Central Circle 2(3), Pune) of Rajashree Enterprises/ Maheshwari Financiers which was enclosed by way of a covering letter dated 24.05.2004. This covering letter clearly shows that the loan transactions amounting to Rs.32,00,000/- were shown in the books of accounts of Rajashree Enterprises and Maheshwari Financiers against whom search and seizure was conducted on 12.10.2001. The covering letter is accompanied by a satisfaction note running into 10 pages which details the books of accounts, documents, bank pass books etc. that was seized and verified during the course of search and the enquiries that were conducted post-search. It details the modus operandi adopted by various parties including the appellant, in collusion with Rajashree Enterprises and Maheshwari Financiers to route their unaccounted money through that concern in the garb of loan. Therefore, the satisfaction of the Assessing Officer who has jurisdiction over the searched persons viz. Maheshwari Financiers and Rajashree Enterprises is found to be clearly recorded that the undisclosed income found in the books belongs to the appellant. The extract of the books of accounts including the loan amounts and interest thereon have been duly reproduced in the satisfaction note and therefore, the requirement of sec. 158BD that the books of accounts, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person, is seen to have been met. Therefore, although the appellant has not been provided a copy of satisfaction note, a perusal of the same shows that it contains the detailed working of the loan entries and the interest thereon as found in the books of Maheshwari Financiers and therefore, this ground that no documents, papers or other evidence have been actually handed over to his Assessing Officer by the Assessing Officer of the searched person is considered to be a frivolous ground."

[underlined for emphasis by us]

9. The aforesaid discussion in the order of the CIT(A) is reveals that after

examining the record, CIT(A) came to conclude that though the satisfaction

note was recorded by the Assessing Officer yet a copy of the same has not

been provided to the assessee. Therefore, in the aforesaid factual

background, following the parity of reasoning laid down by the Hon'ble Delhi 8

High Court in the case of Janki Exports International (supra) as well as our

earlier decision in the case of M/s Bhagyashree Steel Center (supra), we set-

aside the impugned orders of the lower authorities and restore the matter back

to the file of the Assessing Officer who shall supply the reasons recorded for

arriving at the satisfaction for invoking section 158D of the Act to the

assessee. On receipt of such reasons, assessee shall be entitled to file

objections which shall be disposed-off by the Assessing Officer by way of a

speaking order and only thereafter he shall proceed to pass a fresh

assessment order in accordance with law.

10. Since we have set-aside the matter back to the file of the Assessing

Officer on the preliminarily ground, the merits of the impugned addition of

Rs.39,55,062/- have not been examined by us, which would be re-visited by

the Assessing Officer in accordance with law in the ensuing proceedings.

11. In the result, the appeal of the assessee is allowed for statistical

purposes.

12. At the time of hearing, it was common point between the parties that the

facts and circumstances in the other two captioned cases, namely, (i)

Rikabchand R. Oswal; and, (ii) Kokila Rikabchand Oswal are pari-materia to

those considered by us in the case of M/s Manoj Himmatlal Shah (supra) in

the earlier paras. Therefore, our decision in the case of M/s Manoj Himmatlal

Shah (supra) shall apply mutatis-mutandis in the other two captioned appeals

also. Accordingly, in the other two captioned appeals, the impugned orders of

the lower authorities are set-aside and the matter is restored back to the file of

the Assessing Officer who shall supply the reasons recorded for arriving at the

satisfaction for invoking section 158D of the Act to the assessee. On receipt

of such reasons, assessee shall be entitled to file objections which shall be

disposed-off by the Assessing Officer by way of a speaking order and only 9

thereafter he shall proceed to pass a fresh assessment in accordance with

law.

13. Resultantly, the captioned appeals of the assessee are treated as

allowed for statistical purposes, as above.

Order pronounced on 18 th March, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 18 th March, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-III, Pune; 4) The CIT-III, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune