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CASE NO.: Appeal (civil)  924 of 2007

PETITIONER: Manish Maheshwari

RESPONDENT: Asstt. Commissioner of Income Tax & Anr

DATE OF JUDGMENT: 23/02/2007

BENCH: S.B.  Sinha & Markandey Katju

JUDGMENT: J U D G M E N T WITH  CIVIL APPEAL NO.         925           OF 2007 [Arising out of SLP (Civil) No.9751 of 2005] M/s Indore Construction (Pvt.) Ltd.                                     \005Appellant Versus Commissioner of Income Tax                                              \005Respondent

S.B. SINHA, J :

       Leave granted.

       Interpretation of the provision Section 158BC of the Income Tax Act,  1961 (for short, ’the Act’) is in question in these appeals which arise out of  judgments and orders dated 28.09.2004 and 14.03.2005 passed by a Division  Bench of the Indore Bench of the Madhya Pradesh High Court in I.T.A. Nos.  60 and  105 of  1999.

       Before embarking on legal issues, we may notice the fact of matter  from Civil Appeal arising out of Special Leave Petition (Civil) No.9751 of  2005.

       The assessee ’M/s Indore Construction Company (Pvt.) Ltd.’ (for  short, ’the Company’) is a company registered and incorporated under the  Companies Act, 1956 (for short, ’the Act’).  One Shri Rameshwar  Maheshwari is of one of its Directors.  Shri Maheshwari, apart from being a  Director of the said Company, is also a tax consultant.  A search was  conducted, as contemplated under Section 132 of the Act,  in the premises of  the said Maheshwari and his wife Smt. Lalita Devi on 21.11.1995.  Several  incriminating documents relating to the business of the Company were  seized.  A proceeding was initiated against the Company purported to be  under Section 158BC of the Act.  The order of assessment was passed on  29.11.1996.  The Tribunal in an appeal preferred by the assessee  thereagainst opined that the Assessing Officer had no jurisdiction to proceed  against the assessee for making the block assessments in terms of Chapter  XIV-B  of the Act, as no search was conducted in terms of Section 132 of  the Act, stating :

"28.    Perusal of the assessment order would go to reveal  that the A.O. did not do so.  Instead of determining the  undisclosed income on the basis of the materials seized  from the residence of the Co’s Director, he embarked  upon a roving enquiry in respect of  completed  assessments by referring three apartments to the  Valuation Cell ’to ascertain the correct investment made  by the assessee’ and on receipt of the reports of the

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Valuation Cell proceeded to compute the income u/s 69  as unexplained investment, adding thereto further  undisclosed profit earned on sale of flats.  To our mind,  what the A.O. did is beyond the scope of sec. 158BD.   No addition can be made in any of the assessment year of  the block period regarding which no material or  information is available with the A.O.  In a case,  where  any material or information is found during search, the  A.O. has to co-relate such material/information with  regard to the regular assessment which have already been  completed.  At the cost of repetition we may state that  Chapter XIV-B does not authorize the A.O. to review the  assessment competed unless and until there is any direct  or indirect or clinching evidence to indicate that the  assessee has withheld or had not disclosed any income.   No additions can be made merely on the basis of  presumption or hypothesis.  This is what the A.O. had  actual done."

       An appeal preferred by the respondent herein before the High Court,  as noticed hereinbefore, thereagainst under Section 260-A of the Act, has  been allowed, holding that the Assessing Officer had the requisite  jurisdiction in terms of Section 158BD of the Act read with Section 2(31)  thereof.  The Block Assessment Period is 1987-88 to 1995-96.  The search  was conducted on 21.11.1995, wherefor a warrant of authorization was  issued on 15.10.1995 in the following terms :          "If a summons under sub-section (1) of section 131  of the Income Tax Act, 1961 or under sub section (1) of  section 142 of the Income Tax Act, 1961 is issued to Shri  Rameshwar R. Maheshwari, Smt. Lalita Devi.

To produce, or cause to be produced, books of  accounts or other documents of the institution or relevant  proceedings under the Income Tax Act, 1961 he would  not produce or cause to be produced, such books of  accounts or other documents as required.

Shri Rameshwar H. Maheswari, Smt. Lalita Devi.

any person is in possession of any money, bullion,  jewellery or other valuable article or things and such  money, bullion, jewellery or other valuable article or  things represents either wholly or partly income or  property which has not been, or would not be disclosed  for the purposes of the Indian Income Tax Act, 1922 or  the Income Tax Act, 1961."   

We may also notice that  purported compliance of Section 158BD was  sought to be made by issuing a notice to the Company on 06.02.1996, which  is  as under :

       "To                 Indore Construction Co. Pvt. Ltd.                 380, Jawahar Marg,                 Indore

In pursuance of provisions of the section 158BC of  the Income Tax Act, 1961, you are requested to prepare a  true and correct return of your total income including the  undisclosed income in respect of which you as individual  / HUF / Firm / Company / AOP / Body of  individual/local authority are assessable for the block

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period mentioned in Section 158B(a) of the Income Tax  Act, 1961.

The return should be in the prescribed form 2B and  be delivered in this office within 16 days of service of  this notice duly verified and signed in accordance with  the provisions of Section 140 of the Income Tax Act,  1961.

(Search was conducted in the month of Nov. 95)."                        A Company registered and incorporated under the Act is indisputably  a ’person’ within the meaning of Section 2(31) of the Act.  Block period is  defined in Section 158B(a) contained in Chapter XIV-B, to mean :          "(a)    "block period" means the previous years relevant          to ten assessment years preceding the previous          year in which the search was conducted under          section 132 or any requisition was made under          section 132A, and includes, in the previous year in          which such search was conducted or requisition          made, the period up to the date of the          commencement of such search or, as the case may          be, the date of such requisition;"   

Chapter XIV-B provides for ’Special Procedure for Assessment of  Search Cases’.  How a search would be conducted is provided for in Section  132 of the Act;  Clause (a) of sub-section (1) whereof reads as under :

"132.  Search and seizure         (1)     Where the Director General or Director or  the Chief Commissioner or Commissioner or any such  Joint Director or Joint Commissioner as may be  empowered in this behalf by the Board, in consequence  of information in his possession, has reason to believe  that -

(a)     any person to whom a summons under sub-section  (1) of section 37 of the Indian Income Tax Act, 1922 (11  of 1922), or under sub-section (1) of section 131 of this  Act, or a notice under sub-section (4) of section 22 of the  Indian Income-tax Act, 1922, or under sub-section (1) of  Section 142 of this Act was issued to produce, or cause to  be produce , any books of account or other documents  has omitted or failed to produce, or cause to be produced,  such books of account or other documents as required by  such summons or notice, or";

the officer specified therein  so authorized would be entitled to exercise its  powers stated therein.  

Sub-section 1A of Section 132 of the Act empowers the Chief  Commissioner or Commissioner to authorize an officer to take action under  any of the clauses referred thereto. A presumption is raised under sub- section 4A of Section 132 of the Act in the following terms :

"(4A).   Where any books of account, other documents,  money, bullion, jewellery or other valuable article or  thing are or is found in the possession or control of any  person in the course of a search, it may be presumed \026

(i)     that such books of account, other  documents, money, bullion, jewellery or other valuable  article or thing belong or belongs to such person;

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       (ii)    that the contents of such books of account  and other documents are true; and

       (iii)   that the signature and every other part of  such books of account and other documents which  purport to be in the handwriting of any particular person  or which may reasonably be assumed to have been signed  by, or to be in the handwriting of, any particular person,  are in that person’s handwriting, and in the case of a  document stamped, executed or attested, that it was duly  stamped and executed or attested by the person by whom  it purports to have been so executed or attested."

       Search and seizure is to be made in terms of Rule 112 of the Income  Tax Rules, 1962.  For the purpose of invoking the said provision, special  procedure for assessment is laid down in Chapter XIV-B, the conditions  precedent wherefor as laid down must be satisfied.  Sections 158BC and  158BD read as under :

"158BC. Procedure for block assessment :

       Where any search has been conducted under  section 132 or books of account, other documents or  assets are requisitioned under section 132A, in the case  of any person, then :-

(a)     the Assessing Officer shall \026

(i)     in respect of search initiated or books of  accounts or other documents or any assets  requisitioned after the 30th day of June, 1995 but  before the 1st day of January, 1997, serve a notice  to such person requiring him to furnish within such  time not being less than fifteen days;

(ii)    in respect of search initiated or books of  accounts or other documents or any assets  requisitioned on or after the 1st day of January,  1997 serve a notice to such person requiring him to  furnish within such time not being less than fifteen  days but not more than forty-five days;

as may be specified in the notice a return in the  prescribed form and verified in the same manner as  a return under clause (1) of sub-section (1) of  section 142, setting forth his total income  including the undisclosed income for the block  period :

Provided that no notice under section 148 is  required to be issued for the purpose of proceeding  under this Chapter :

Provided further that a person who has furnished a  return under this clause shall not be entitled to file  a revised return;

(b)     the Assessing Officer shall proceed to determine  the undisclosed income of the block period in the  manner laid down in section 158BB and the  provisions of section 142, sub-sections (2) and (3)  of section 143 and section 144 shall, so far as may  be, apply;

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(c)     the Assessing Officer, on determination of the  undisclosed income of the block period in  accordance with this Chapter, shall pass an order  of assessment and determine the tax payable by  him on the basis of such assessment;

(d)     the assets seized under section 132 or requisitioned  under section 132A shall be retained to the extent  necessary and the provisions of section 132B shall  apply subject to such modifications as may be  necessary and the references to "regular  assessment" or "reassessment" in section 132B  shall be construed as references to "block  assessment".  

"158BD. Undisclosed income of any other person \026

       Where the Assessing Officer is satisfied that any  undisclosed income belongs to any person, other than the  person with respect to whom search was made under  section 132 or whose books of account or other  documents or any assets were requisitioned under section  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 against  such other person and the provisions of this Chapter shall  apply accordingly."

       Condition precedent for invoking a block assessment is that   a search  has been conducted under Section 132, or documents or assets have been  requisitioned under Section 132A.  The said provision would apply in  the  case of any person in respect of whom search has been carried out under  Section 132A or documents or assets have been requisitioned under Section  132A.  Section 158BD, however, provides for taking recourse to a block  assessment in terms of Section 158BC in respect of any other person, the  conditions precedents wherefor are : (i) Satisfaction must be recorded by the  Assessing Officer that any undisclosed income belongs to any person, other  than the person with respect to whom search was made under Section 132 of  the Act; (ii) The books of account or other documents or assets seized or  requisitioned had been handed over to the Assessing Officer having  jurisdiction over such other person; and (iii) The Assessing Officer has  proceeded under Section 158BC against such other person.   

       The conditions precedent for invoking the provisions of Section  158BD, thus, are required to be satisfied before the provisions of the said  chapter are applied in relation to any person other than the person whose  premises had been searched or whose documents and other assets had been  requisitioned under Section 132A of the Act.

       A taxing statute, as is well-known, must be construed strictly.         In  Sneh Enterprises v. Commissioner of Customs, New Delhi [(2006) 7 SCC  714], it was held :

       "While dealing with a taxing provision, the  principle of ’Strict Interpretation’ should be applied.  The  Court shall not interpret the statutory provision in such a  manner which would create an additional fiscal burden  on a person.  It would never be done by invoking the  provisions of another Act, which are not attracted.  It is  also trite that while two interpretations are possible, the  Court ordinarily would interpret the provisions in favour  of a tax-payer and against the Revenue."

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       Yet again in J. Srinivasa Rao  v. Govt. of A.P. & Another [2006 (13)  SCALE 27], it was held :

       "In a case of doubt or dispute, it is well-settled,  construction has to be made in favour of the taxpayer and  against the Revenue."

         In M/s. Ispat Industries Ltd. v. Commissioner of Customs,  Mumbai [JT 2006 (12) SC 379 : 2006 (9) SCALE 652], this Court  opined: "In our opinion if there are two possible  interpretations of a rule, one which subserves the  object of a provision in the parent statute and the  other which does not, we have to adopt the former,  because adopting the latter will make the rule ultra  vires the Act."

       Law in this regard is clear and explicit.  The only question which  arises for our consideration is as to whether the notice dated 06.02.1996  satisfies the requirements of Section 158BD of the Act.  The said notice does  not record any satisfaction on the part of the Assessing Officer.  Documents  and other assets recovered during search had not been handed over to the  Assessing Officer having jurisdiction in the matter.

       No proceeding under Section 158BC had been initiated.  There is,  thus, a patent non-application of mind.  A prescribed form had been utilized.   Even the status of the assessee had not been specified.  It had only been  mentioned that the search was conducted in the month of November 1995.   No other information had been furnished. The provisions contained in  Chapter XIVB are drastic in nature.  It has draconian  consequences.  Such a  proceeding can be initiated, it  would bear repetition to state,  only if a raid is  conducted.  When the provisions are attracted, legal presumptions are raised  against the assessee.  The burden shifts on the assessee.  Audited accounts  for a period of ten years may have to be reopened.

       A large number of decisions of various High Courts have been cited at  the bar.  We would, at the outset, refer to a decision of the Gujarat High  Court in Khandubhai Vasanji Desai and Others v. Deputy Commissioner of  Income-Tax  and Another   [(1999) 236 ITR 73].  Therein, it was clearly  held :          "This provision indicates that where the Assessing  Officer who is seized of the matter and has jurisdiction  over the person other than the person with respect to  whom search was made under s. 132 or whose books of  account or other documents or any assets were  requisitioned under s. 132A, he shall proceed against  such other person as per the provisions of Chapter XIV-B  which would mean that on such satisfaction being  reached that any undisclosed income belongs to such  other person, he must proceed to serve a notice to such  other person as per the provisions of s. 158BC of the Act.  If the Assessing Officer who is seized of the matter  against the raided person reaches such satisfaction that  any undisclosed income belongs to such other person  over whom he has no jurisdiction, then, in that event, he  has to transmit the material to the Assessing Officer  having jurisdiction over such other person and in such  cases the Assessing Officer who has jurisdiction will  proceed against such other person by issuing the requisite  notice contemplated by s. 158BC of the Act. "

       Similar view has been taken by the Gujarat High Court in Rushil

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Industries Ltd. v. Harsh Prakash  [(2001) 251  ITR 608],  Priya Blue  Industries P. Ltd. v. Joint Commissioner of Income-Tax [(2001) 251 ITR  615], Premjibhai and Sons v. Joint Commissioner of Income-Tax [(2001)  251 ITR 625], and by Kerala High Court in Commissioner of Income-Tax v.  Deep Arts [(2005) 274 ITR 571], Commissioner of Income-Tax v. Don  Bosco Card Centre  [(2006) 205 CTR 500] and by Madhya Pradesh High  Court in Commissioner of Income-Tax v. Smt. Maya Chotrani [(2007) 288  ITR 175].

       We may, however, notice that Mr. A.K. Chitale, relied upon a  decision of the Delhi High Court in Commissioner of Income Tax v. Pushpa  Rani [(2005) 193 CIR (Del) 256] wherein a Division Bench of the said Court   held :

"\005The Tribunal on the material placed before it, arrived  at a conclusion that there were no search warrants in the  name of the assessees and hence it accepted the  contention of the learned counsel that the proceedings  initiated under s. 158BC in the cases of the assesses were  ab initio void and without jurisdiction.  The learned  counsel for the Department was unable to furnish any  clarification and stated before the Tribunal that the facts  stated by the assesses regarding non-issuance of the  search warrant in the case of the two ladies were correct.   It is in view of this that the Tribunal has held that unless  a search warrant is issued, the Assessing Officer cannot  invoke the provisions of  s. 158BC for initiation of block  assessment proceedings under Chapter XIV-B.   However, so far as the bank locker is concerned, it is  submitted that the officer was armed with the search  warrant and, therefore, whatever the property was found,  namely, jewellery,  money and bonds, etc., the assesses  ought to have assessed and the Tribunal ought not to  have interfered with the order made by the CIT (A)."

       We are of the opinion that the said decision has no application in the  instant case.

       As the Assessing Officer has not recorded its satisfaction, which is  mandatory; nor has it transferred the case to the Assessing Officer having  jurisdiction over the matter, we are of the opinion that the impugned  judgments of the High Court cannot be sustained, which are set aside  accordingly.  The appeals are allowed. However, in the facts and  circumstances of the case, there shall be no order as to costs.