TAPAN KUMAR DUTTA versus COMMISSIONER OF INCOME TAX, WEST BENGAL on 24 April 2018

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SUPREME COURT REPORTS

[2018] 4 S.C.R.

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TAPAN KUMAR DUTTA

v.

COMMISSIONER OF INCOME TAX, WEST BENGAL

(Civil Appeal No. 2014 of 2007)

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APRIL 24, 2018

[R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]

Income Tax Act, 1961 – ss.158BD – Undisclosed incomebelonging to any person other than the searched person –Jurisdiction of assessing officer under s.158BD – Held: NoticeCunder s.158BD can be issued to a person with respect to whomsearch was not conducted but undisclosed income was found asbelonging to such person from the material seized from the residenceor business premises of the person with respect to whom search wasmade under s.132 – s.158BD speaks of the condition that “whereDthe Assessing Officer is satisfied that any undisclosed income belongsto any person other than the searched person”, which means thatthe Assessing Officer must have to be satisfied that any undisclosedincome belongs to any person other than the searched person – Inthe instant case, it is not in dispute that the Assessing Officer, whois assessing the Firm as well as the Appellant, is the same person –EIn other words, the same Assessing Officer having jurisdiction overthe searched person can proceed against the present Appellant –Therefore, the Assessing Officer had jurisdiction to proceed againstthe present Appellant to make a block assessment under ChapterXIV-B of the IT Act, as he was prima facie satisfied that anyFundisclosed income belongs to the appellant.

Income Tax Act, 1961 – ss.158BC – Jurisdiction of AssessingOfficer under s.158BC – Held: Before issuing the notice unders.158BC against the searched person, no satisfaction thatundisclosed income belongs to the searched person is necessary asGs.158BC speaks of a condition that where any search had beenconducted under s.132 or books of accounts or other documentsor assets or requisition under s.132A in case of any person, then,the Assessing Officer shall serve notice to such person requiringhim to furnish within specified time a return in the prescribed form.

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Dismissing the appeal, the Court

HELD: 1. Notice under Section 158BD can be issued to aperson with respect to whom search was not conducted butundisclosed income was found as belonging to such person fromthe material seized from the residence or business premises ofthe person with respect to whom search was made under Section132. There must be prima facie satisfaction on the part of theAssessing Officer on the basis of searched books of accounts orother documents or assets that any undisclosed income belongsto any person other than the searched person. The jurisdictionunder Section 158BD is based on the satisfaction of the AssessingOfficer that:- (a) there is undisclosed income; (b) such undisclosedincome does not belong to the person with respect to whom actionunder Section 132 was taken and; (c) such undisclosed incomebelongs to some other person. Therefore, mere disclosure madeby the assessee before the authority cannot be the basis forreaching a satisfaction that any undisclosed income belongs tohim unless the seized books of accounts or other documents orassets are perused, examined or verified by the concernedAssessing Officer. In the instant case, only after being satisfiedthat the appellant fell within the ambit of Section 158BD, a noticewas issued by the Assessing Officer. [Paras 8, 9][343-F-G; 344-D-F]

2. A conjoint reading of Sections 158BC and 158BD madeit clear that no satisfaction to the effect that undisclosed incomebelongs to the searched person is necessary before issuing thenotice under Section 158BC against the searched person asSection 158BC speaks of a condition that where any search hadbeen conducted under Section 132 or books of accounts or otherdocuments or assets or requisition under Section 132A in caseof any person, then, the Assessing Officer shall serve notice tosuch person requiring him to furnish within specified time a returnin the prescribed form. [Para 10][344-F-G]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2014of 2007.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2014of 2007.

From the Judgment and Order dated 17.11.2005 of the High Courtof Calcutta in Income Tax Appeal No. 174 of 2005.

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ASalman Khurshid, Sr. Adv., K. V. Mohan, Ananda Sen,Ms. Sanchita Ali, Zatin Khurshid, Advs. for the Appellant.

K. Radhakrishna, Sr. Adv., Rupesh Kumar, Tushar Bhakshi,Mrs. Anil Katiyar, Advs. for the Respondent.

The Judgment of the Court was delivered byB

R. K. AGRAWAL, J. 1. This appeal has been filed against theimpugned final judgment and order dated 17.11.2005 passed by the HighCourt at Calcutta in Income Tax Appeal No. 174 of 2005 whereby aDivision Bench of the High Court dismissed the appeal of the appellantherein while upholding the judgment and order dated 29.04.2005 passedCby the Income Tax Appellate Tribunal (in short ‘the Tribunal’): ‘D’ Bench,Kolkata in IT(SS) A No. 174/Kol/2003.

2. Brief facts:

(a) The Appellant is a partner in a Partnership Firm by nameD“Nityakali Rice Mill” (in short ‘the Firm’). On 06.11.1998, a search wasconducted at the business premises of the Firm by the Income TaxDepartment and several documents/books including a sum of Rs. 34lakhs were seized.

(b) Thereafter, on 09.09.1999, a notice was issued to the Appellantby the Assessing Officer under Section 158BC of the Income Tax Act,E1961(in short ‘the IT Act’) to prepare and file a true and correct returnof his total income including the undisclosed income in respect of whichhe was assessed for the block period 1989-90 to 1999-2000. On thevery same day, a separate notice under Section 158BC was issued inthe name of the said Firm by the very same Assessing Officer. PursuantFto the same, the Appellant filed his block return for the aforesaid periodon 08.11.1999 declaring his aggregate undisclosed income at Rs 14 lakhs.

(c) Meanwhile, an application was filed by the Appellant beforethe Additional Commissioner of Income Tax, Asansol, praying for hisintervention and issue of necessary direction to the Assessing OfficerGunder Section 144A of the IT Act. On 14.08.2000, the AdditionalCommissioner perused the records and directed the Assessing Officerto take appropriate steps in order to determine the income of the assessee.The Additional Commissioner issued separate directions under Section144A of the IT Act in the cases of M/s. Nitya Kali Rice Mill, KartickDutta, Shambhu Mondal and Tamal Mondal and the Draft AssessmentH

Order under Section 158BC of the IT Act was sent to the JointCommissioner of Income Tax, Burdwan, Range-2 for approval whichwas returned by the Joint Commissioner on 16.11.2000 stating that nowarrant for authorization was issued in the names of the personsmentioned in the Draft Assessment Order.

(d) On 20.11.2000, Block Assessment Order was passed by theDeputy Commissioner of Income Tax stating that the return filed in thecase of the Firm should be accepted as ‘Nil’ income and also directed toinitiate proceedings against the Appellant for the assessment ofundisclosed income for the block period under Section 158BD of the ITAct. Pursuant to the order dated 20.11.2000, a fresh notice under Section158BC read with Section 158BD of the IT Act was issued to the Appellantto file the block return for the period 1989-90 to 1999-2000.Consequently, the Appellant intimated the Assessing Officer through aletter dated 21.10.2002 that the block return has already been filed forthe aforesaid period on 08.11.1999. Further, the issue of fresh noticedoes not extend the time allowed for completion of the assessment underChapter XIV of the IT Act.

(e) On 29.11.2002, the Assessing Officer passed the assessmentorder while assessing the undisclosed income of the Appellant to thetune of Rs. 3,48,56,430/-. Being aggrieved, the Appellant preferred anappeal being No. 133/CIT(A)/Bwn/02-03 before the Commissioner ofIncome Tax (Appeals). Vide order dated 18.09.2003, the Commissionerof Income Tax (Appeals) held that the undisclosed income of the blockperiod in the instant case should be taken in the aggregate sum ofRs. 66,55,911/- as against Rs. 3,48,56,430/- as assessed by the AssessingOfficer.

(f) Being aggrieved, the Appellant preferred an Appeal beingNo. IT(SS)/174/Kol/2003 before the Tribunal. At the same time, theRevenue also went in appeal by filing IT (SS) 178/K/2003 before theTribunal. The Tribunal, vide order dated 29.04.2005, dismissed the appealfiled by the Appellant while partly allowing the appeal filed by the Revenue.Being aggrieved, the Appellant filed an appeal being No. ITA 174 of2005 before the High Court. Vide judgment and order dated 17.11.2005,the Division Bench had dismissed the appeal filed by the assessee.

(g) Being aggrieved by the judgment and order dated 17.11.2005,the Appellant has preferred this appeal before this Court.

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3. Heard Mr. Salman Khurshid, learned senior counsel for theappellant and Mr. K. Radhakrishna, learned senior counsel for therespondent and perused the records.

Point(s) for consideration:-

4. The only point for consideration before this Court is whether inBthe facts and circumstances of the present case, the issue of Second(Fresh) Notice under Section 158BD of the IT Act is valid or not?

Rival contentions:-

5. Learned senior counsel for the appellant strenuously contendedthat the first notice issued under Section 158BC of the IT Act datedC09.09.1999 is the valid notice and the assessment has to be made inpursuance thereof and the AO has no authority to issue the second noticeunder Section 158BD. Learned senior counsel further contended thatthe Firm as well as the Appellant were assessed by the same AssessingOfficer wherein Section 158BD has no application because it appliesDonly in the case where the Assessing Officer assessing the Firm as wellas the Appellant is different. The Assessing Officer rightly issued thenotice under Section 158BC both upon the Firm as well as upon theAppellant which resulted in the draft assessment and the proceedingson the basis of the notice under Section 158BD are not valid. LearnedEsenior counsel finally contended that the purported proceedings underSection 158BD are clearly invalid and without jurisdiction.

6. On the other hand, learned senior counsel for the respondentsubmitted that the Appellant has identified the seized documents in respectof his personal business and the bank accounts in the name of KartickDutta and Shambhu Mondal are also in respect of his personal business,Fhence, the undisclosed income earned during the block period belongs tothe Appellant and not the Firm. Learned senior counsel further submittedthat the notice under Section 158BD can be issued to a person withrespect to whom search was not conducted but undisclosed income wasfound as belonging to such person from the material seized from theGresidence or business premises of the person with respect to whomsearch was made under Section 132. The Assessing Officer, afterrecording satisfaction to the effect, rightly issued the notice under Section158BC read with Section 158BD to the Appellant and assessed the incometo the tune of Rs. 3,48,56,430/-. Learned senior counsel further submitted H

that in the case at hand the satisfaction of the Assessing Officer is apparentand there is no infirmity in the issue of notice under Section 158BC readwith Section 158BD of the IT Act to the Appellant. Learned seniorcounsel finally submitted that the High Court was right in rejecting theclaim of the Appellant and no interference is sought for by this Court inthe matter.

Discussion:-

7. In the instant case, it is a matter of dispute that second noticeissued on 20.11.2000 is not valid and competent since the first noticeissued by the same Assessing Officer dated 09.09.1999 under Section158BC was valid and the assessment ought to be made in pursuance ofthat notice and, therefore, the Assessing Officer has no authority toissue the second notice.

8. In this view of the matter, it is pertinent to mention Section158BD of the IT Act which reads as under:- “158BD. Undisclosed income of any other person.- Wherethe Assessing Officer is satisfied that any undisclosed incomebelongs to any person, other than the person with respect to whomsearch was made under section 132 or whose books of accountor other documents or any assets were requisitioned under section132A then, the books of account, other documents or assets seizedor requisitioned shall be handed over to the Assessing Officerhaving jurisdiction over such other person and that AssessingOfficer shall proceed under section 158BC against such otherperson and the provisions of this Chapter shall apply accordingly.”

It can be seen that notice under Section 158BD can be issued toa person with respect to whom search was not conducted but undisclosedincome was found as belonging to such person from the material seizedfrom the residence or business premises of the person with respect towhom search was made under Section 132. Section 158BD speaks ofthe condition that “where the Assessing Officer is satisfied that anyundisclosed income belongs to any person other than the searched person”,which means that the Assessing Officer must have to be satisfied thatany undisclosed income belongs to any person other than the searchedperson. In the present case, it is not in dispute that the Assessing Officer,who is assessing the Firm as well as the Appellant, is the same person.

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AIn other words, the same Assessing Officer having jurisdiction over thesearched person can proceed against the present Appellant. Therefore,the present Assessing Officer had jurisdiction to proceed against thepresent Appellant to make a block assessment under Chapter XIV-B ofthe IT Act, in case the Assessing Officer is prima facie satisfied thatany undisclosed income belongs to the present Appellant.B

9. It is well settled that there must be prima facie satisfaction onthe part of the Assessing Officer on the basis of searched books ofaccounts or other documents or assets that any undisclosed incomebelongs to any person other than the searched person. In support of thecontention that there was prima facie satisfaction of the AssessingCOfficer, his order was based upon the material on record that undisclosedincome belonged to the present Appellant, when he issued the noticeunder Section 158BC on 09.09.1999. The jurisdiction under Section158BD is based on the satisfaction of the Assessing Officer that:- (a) there is undisclosed income;D

(b) such undisclosed income does not belong to the person withrespect to whom action under Section 132 was taken and;

(c) such undisclosed income belongs to some other person.

Therefore, mere disclosure made by the present assessee beforeEthe authority cannot be the basis for reaching a satisfaction that anyundisclosed income belongs to him unless the seized books of accountsor other documents or assets are perused, examined or verified by theconcerned Assessing Officer. We are of the opinion that in the presentcase, only after being satisfied that the Appellant fell within the ambit ofSection 158BD, a notice was issued by the Assessing Officer.F

10. Further, on a conjoint reading of Sections 158BC and 158BD,it is clear that no satisfaction to the effect that undisclosed income belongsto the searched person is necessary before issuing the notice underSection 158BC against the searched person as Section 158BC speaksof a condition that where any search had been conducted under SectionG132 or books of accounts or other documents or assets or requisitionunder Section 132A in case of any person, then, the Assessing Officershall serve notice to such person requiring him to furnish within specifiedtime a return in the prescribed form. Therefore, at the time when noticeunder Section 158BC was issued by the Assessing Officer to M/s Nitya H

Kali Rice Mill, it was not necessary for the Assessing Officer to arriveat a satisfaction that any undisclosed income belongs to M/s Nitya KaliRice Mill. A search was conducted against M/s Nitya Kali Rice Millunder Section 132 of the IT Act. Since the notice under Section 158BCissued to M/s Nitya Kali Rice Mill and the notice under Section 158BCissued to the Appellant were on the same day i.e., on 09.09.1999, thequestion of coming to a satisfaction that any undisclosed income basedon seized books of accounts or documents or assets belonged to thepresent Appellant did or could not arise inasmuch as no reasonable orprudent man can come to such satisfaction unless the seized books ofaccounts or documents or assets are perused, examined and verified.Therefore, the Assessing Officer was right in arriving at a decision thatthe notice under Section 158BC issued to the present Appellant on09.09.1999 did not satisfy the requirement of Section 158BD of the ITAct. He, therefore, rightly proceeded to issue fresh notice (SecondNotice) under Section 158BD on 20.11.2000 after recording a satisfactionthat any undisclosed income based on seized books of account ordocument or assets or other materials may belong to the Appellant. Infact, in the present case, the AO has himself come to a conclusion thatthe notice issued under Section 158BC on 09.09.1999 to the assesseewas not in conformity with the requirement of Section 158BD of the ITAct. The Assessing Officer proceeded under Section 158BD of the ITAct not in pursuance of any direction by the Joint Commissioner butafter being satisfied that the case squarely fell within the ambit of Section158BD of the IT Act.

11. A perusal of Section 158BD of the IT Act makes it clear thatthe Assessing Officer needs to satisfy himself that the undisclosed incomebelongs to any person other than the person with respect to whom thesearch was made under Section 132 or whose books of accounts orother documents or assets were requisitioned under Section 132A. Thevery object of the Section 158BD is to give jurisdiction to the AssessingOfficer to proceed against any person other than the person againstwhom a search warrant is issued. Although Section 158BD does notspeak of ‘recording of reasons’ as postulated in Section 148, but sinceproceedings under Section 158BD may have monetary implications, suchsatisfaction must reveal mental and dispassionate thought process of theAssessing Officer in arriving at a conclusion and must contain reasonswhich should be the basis of initiating the proceedings under Section158BD.

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A12. Pursuant to the above, we are of the opinion that the orderdated 14.08.2000, passed by the Additional Commissioner of IncomeTax (Appeals), under Section 144A of the IT Act whereby he, inter-alia,directed the Assessing Officer to take the undisclosed income of theAppellant including from the benami business in the name of two otherpersons at an aggregate sum of Rs 17 lakhs as against Rs 14 lakhsBdeclared by the Appellant in his block return was passed in contraventionof law and is not sustainable in the eyes of law.

13. In view of the foregoing discussion, we are of the consideredopinion that the High Court was right in passing the judgment and orderdated 17.11.2005 and no interference is sought for by this Court. Hence,Cthe appeal is dismissed with no order as to costs.

Devika Gujral

Appeal dismissed.

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