1. These three appeals have been filed by the Revenue against three orders of CIT(A), Jalandhar, in three cases mentioned in the caption of this order in the block assessments for the block period from 1st April, 1988 to 23rd Dec, 1998. Since the issues involved in these appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. The main order in this case has been passed in the case of Sh. Vinod Goel in IT(SS)A No. 14/Asr/2005 and the same has been followed in the remaining two cases. In all the three appeals, the Revenue has taken following identical grounds as under: 1. That, on the facts and in the circumstances of the case, the learned CIT(A) has erred in quashing the assessment framed under Section 158BD r/w Section 158BC on the ground that it was a direct search on the assessee and hence proceedings under Section 158BD were not in accordance with law.
2. That, on the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that the search warrant dt. 23rd Dec, 1998 was in the case of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co., A/30, Sadar Bazar, Jalandhar Cantt., while the premises to be searched were that 11/2 Grain Market, Jalandhar Cantt., from where the incriminating material was found and seized and as such proceedings under Section 158BD were validly initiated.
3. That, on the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the search on the premises at 11/2, Gram Market was a different search from the search in the cas(e of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co., 9/30, Sadar Bazar, Jalandhar Cantt, because block period were different in both the cases, insomuch so the block period ends on the date of commencement of the search.
4. That, on the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that the AO had recorded satisfaction before initiation of proceedings and completed the proceedings with prior approval of Addl. CIT.3. The relevant facts of the case are that the Director of IT (Inv.), Ludhiana had authorised search actions under Section 132(1) at the business and residential premises of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) at 9/30, Sadar Bazar, Jalandhar Cantt. Besides, the site office of Damini Resorts & Builders (P) Ltd., at Basant Avenue, Part-I, Dugri Road, Ludhiana and the residence of Sh. Vijay Kumar and his sons at 420-C, Urban Estate, Phase-II, Dugri Road, Ludhiana, were also searched on 8th Dec, 1998.
Initially, the business premises at 9/30, Sadar Bazar at 11/2, Grain Market, Jalandhar Cantt. were covered under Section 133A(1) of the IT Act, 1961 (in short 'the Act'). Such action was converted into search action by issue of consequential warrants of authorization by Addl. DIT (Inv.), Jalandhar, in the names of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) for the reason that during search action certain important documents pertaining to deals of S/Sh.
Rakesh Kumar and Vijay Kumar, in developing colonies and various transactions of real estate were found. Search action was carried out on 23rd Dec, 1998. No search warrant was issued in the case of Sh.
Vinod Goel, a tax practitioner. During the course of search action, a large number of incriminating documents belonging to Sh. Vinod Goel and his two associate business concerns were found. These were handed over to Asstt. CIT (Inv.) Cir. 2(2), who issued a notice under Section 158BD r/w Section 158BC to Sh. Vinod Goel on 10th Jan., 2001 served on the assessee on 30th Jan., 2001 calling for return for block assessment.
The assessee did not file return for block assessments. However, the assessee disputed the issue of notice under Section 158BD vide letter dt. 17th Sept., 2002 on the ground that the provisions of Section 158BD were not ptima facie applicable to this case. The AO observed that search warrant was issued in the names of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) 9/30, Sadar Bazar, Jalandhar Cantt., in respect of premises at 11/2 Grain Market, Jalandhar. It was only after the incriminating documents were found during the survey, which pertained to S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers), 9/30, Sadar Bazar, Jalandhar Cantt. that survey operation being conducted at the said premises was converted into search action by way of issue of consequential search warrant. During the search action incriminating documents relating to Sh. Vinod Goel, were found. After recording satisfaction under Section 158BD, a notice under Section 158BD was issued. The AO observed that since search warrant was not issued in the name of Sh. Vinod Goel, the block assessment was to be completed in his case under Section 158BD r/w Section 158BC and not under Section 158BC.He, therefore, rejected the objection raised by the assessee and completed the block assessment on 26th Sept., 2002 determining therein undisclosed income of Rs. 91,13,193 on the basis of documents seized during the aforesaid search.
4. Being aggrieved, the assessee filed an appeal before the CIT(A), where the legality of the action of the AO for completing the block assessment in the case of the assessee under Section 158BD r/w Section 158BC was inter aha challenged. It was submitted before the CIT(A) that the assessee had been practising as tax practitioner from his office at 11/2, Grain Market, Jalandhar Cantt. for the last 25 years. On the first floor of the said premises, the office of SidhantDeposits & Advances (P) Ltd. is located, where the assessee's wife was one of the directors. The survey action was converted into search and seizure action under Section 132(1) of the Act, which resulted into seizure of certain documents and other records, books of account pertaining to the assessee as well as Sidhant Deposits and Advances (P) Ltd. However, in the search warrant, the name of the assessee and the aforesaid company were not mentioned and the search warrant was in the names of S/Sh.
Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders & Colonisers) 9/30, Sadar Bazar, Jalandhar Cantt. The assessee challenged the action of the Department under Section 132(1) at the premises of the assessee before the Hon'ble Punjab & Haryana High Court on the ground that the premises belonging to assessee were searched without there being search warrant in his name or in the name of the aforesaid company. The Hon'ble High Court taking notice of the incriminating documents, material and evidence found during the course of search action upheld the validity of such action vide its order dt. 26th Sept., 2000 in CWP No. 963 of 1999 reported as Vinod Goel and Ors. v. Union of India and Ors. (2001) 171 CTR (P&H) 440 -Ed.. Accordingly, it was argued that since validity of such action was upheld in the case of the assessee, notice under Section 158BC should have been issued in this case. It was also argued that earlier the assessee was being assessed by AO Ward 2(6) and after the search the validity of the search was disputed before the Hon'ble High Court. The High Court vide its interim order dt. 25th Jan., 1999 admitted the writ petition and granted absolute stay against all proceedings in pursuance to the search and seizure action till further orders. It was submitted that during this period, no order under Section 127(1) could be passed by transferring the case from Ward 2(6) to Asstt. CIT, (Inv.) Cir. 2(2), Jalandhar. However, when the assessee approached the Investigation Wing for issue of photocopies of the seized material, he was advised to approach the Dy.
CIT, (Inv.) Cir. 2(2), Jalandhar, to whom seized record had been handed over. It was submitted that since final order by the Hon'ble High Court was passed on 26th Sept., 2000, therefore, till such time no order under Section 127 for transferring the case from Ward 2(6) to Investigation Cir. 2(2), Jalandhar could have been passed. Thus, it was argued that the order for transferring jurisdiction from Ward 2(6) to the Investigation Circle 2(2) was invalid. It was submitted that no such order passed under Section 127(1) was communicated to the assessee. It was argued that subsequently the case was transferred from Asstt. CIT, Inv. Cir. 2(2), Jalandhar to Asstt. CIT, Cir. 4, Jalandhar vide subsequent order dt. ,31st July, 2001 and 21st Aug., 2001 vide CIT's order under Section 127 of the Act. However, he submitted that since transfer of case from Ward 2(6) to Asstt. CIT, Inv. Cir. 2(2) was not valid, the subsequent transfer of case from Asstt. CIT Inv. Cir.
2(2) to Asstt. CIT, Cir. 4 was also invalid. Thus, it was contended that the notice under Section 158BD on 10th Jan., 2001 by Asstt. CIT, Inv. Cir. 2(2), Jalandhar, who had no jurisdiction over the case was bad in law and all proceedings flowing therefrom were void ab initio.
The learned CIT(A) obtained the comments of the AO on the submissions of the assessee. The learned CIT(A) rejected the submissions of the assessee in regard to jurisdiction of the AO who issued notice under Section 158BD on the ground that earlier the assessee was being assessed to tax with Ward 2(6), Jalandhar. He observed that the objection of the assessee for transfer of its case from Ward 2(6) to Asstt. CIT, Inv. Cir. 2(2), Jalandhar was fully met with common order of jurisdiction passed by the then CIT, Jalandhar dt. 10th Oct., 1994 as per which in case of search action under Section 132 of the Act, such case being assessed by Ward 2(6) will automatically be assigned to Asstt. CIT, Inv. Cir. 2(2), Jalandhar. Thus, he held that transfer of case from Ward 2(6) to Asstt. CIT Inv. Cir. 2(2), was legal and proper.
He also rejected the submission of the assessee that a separate order under Section 127 of the Act was required to be passed. Thus, he upheld the validity of notice issued by Asstt. CIT, Inv. Cir. 2(2), Jalandhar, in pursuance of CIT's order dt. 7th Oct., 1994. He also observed that subsequent transfer in the case of Asstt. CIT, Inv. Cir. 2(2), Jalandhar to Asstt. CIT, Cir. 4, Jalandhar, was done by passing a separate order under Section 127 on 31st July, 2001/21st Aug., 2001.
4.1 As regards other submissions made by the assessee, the learned CIT(A) quashed the block assessment framed by the AO for the following reasons: (i) The AO proceeded against the assessee under Section 158BD on the basis that no search warrant had been issued in the name of the assessee. But it was an admitted fact that no documents pertaining to S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) were found during the course of search as all the seized documents belonged to the assessee and his connected companies which formed basis for completing the block assessments in these cases.
Since there were no documents pertaining to S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) at the time of search, these were not confronted to the assessees for their explanation. The learned CIT(A) observed that this fact also gets reinforced by the reason that in case of Sh. Ashok Kumar, block assessment was completed and there was no reference to any incriminating documents found during the search at the premises of the assessee. In case of Sh. Rakesh Kumar, the assessee approached the Settlement Commission and the AO was not able to mention whether report sent to the Settlement Commission refers to any documents seized during the course of search. Thus, the learned CIT(A) concluded that no documents, or books of account of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) were found/seized. These were never confronted to the persons searched nor any addition based on such documents was made in their cases.
(ii) He referred to the provisions of Section 158BD of the Act, as per which the AO having jurisdiction over the cases where search action was carried out has to record his satisfaction that the undisclosed income belonged to some other person and thereafter he is required to hand over the documents to the AO having jurisdiction over other such person to whom such documents belonged who has not been searched. The AO will then initiate block assessment proceedings against such person for the same block period as was applicable to the persons searched. Even if the AO is common both to the cases where search action has been carried out and such other person to whom documents belonged but no search action was taken against him, the AO has to record satisfaction in the case of other assessee who is outside the purview of Section 158BC of the Act.
Thus, he concluded that the satisfaction was to be recorded in the cases where search had taken place and thereafter the seized documents were required to be handed over to the AO having jurisdiction over such person to whom such documents relate. The learned CIT(A) observed that the AO could not produce any evidence of satisfaction having been drawn in the cases of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) and, therefore, satisfaction recorded in the case of assessee was contrary to the provisions of Section 158BD of the Act. Thus, he held that the assessment framed under Section 158BD was not in conformity with the provisions of Section 158BD of the Act.
(iii) The learned CIT(A) also referred to the block period mentioned in the order as 1st April, 1988 to 23rd Dec, 1998 whereas search against the person mentioned in the warrant was concluded on 8th Dec, 1998 with the block period from 1st April, 1988 to 8th Dec, 1998. The learned CIT(A) observed that the very fact that the AO has taken the block period different from the block period in the cases where search action under Section 132(1) had been carried out showed that the AO treated the case of the assessee as an independent search. He also observed that the manner in which the block assessment was finalized conformed more with the provisions of Section 158BC rather than Section 158BD. He also supported his observation by the fact that the Revenue had taken a firm stand before the Hon'ble High Court that incriminating documents relating to assessee found during the course of search could have not been produced by the assessee if summons under Section 131 had been issued. The search action was challenged by the assessee and not by S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers). The Hon'ble High Court upheld the search as valid in the case of the assessee. He observed that notice under Section 158BD was issued after the Hon'ble High Court passed the order.
Therefore, the case was covered under Section 158BC and not under Section 158BD. (iv) The learned CIT(A) observed that as the search action was upheld by the Hon'ble High Court, the learned Addl. DIT (Inv.) handed over the documents to Asstt. CIT, Inv. Cir. 2(2), Jalandhar.
Thus, the learned CIT(A) held that the block assessment order was passed in the manner as provided under Section 158BC of the Act.
This is also clear from the fact that satisfaction was recorded only in the case of the assessee. Thus, the learned CIT(A) observed that the proceedings initiated in the case of assessee under Section 158BD were not in accordance with law and, therefore, the block assessment flowing therefrom would also become void for want of jurisdiction. For this proposition, the learned CIT(A) relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store . Accordingly, the learned CIT(A) quashed the block assessment and did not record any finding with regard to the merits of the addition. The Revenue is aggrieved by the order of the CIT(A). Hence this appeal before this Bench.
5. The learned CIT-Departmental Representative, Sh. Kuldeep Singh, drew our attention to p. 1 of the paper book which is a copy of Panchnama in Departmental paper book (in short 'the DPB') prepared at the premises of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers), 9/30, Sadar Bazar, premises at 11/2 Grain Market, Jalandhar, on 23rd Dec, 1998. During the course of search action certain documents relating to the assessee and two other companies were found and seized. He submitted that the assessee challenged the search action under Section 132(1) carried out by the Department at the premises of the assessee before the Hon'ble High Court of Punjab & Haryana on the ground that no search warrant was issued in his name and his associate business companies. The Hon'ble High Court vide its order dt. 26th Sept., 2000 upheld the search action under Section 132(1).
Copy of the order is placed at pp. 10 to 36 of the assessee's paper book (in short 'the APB'). He submitted that once the search action was held to be valid and the search warrant was not in the name of the assessee, the AO had rightly completed the block assessment under Section 158BD of the Act and the learned CIT(A) was not justified in quashing the block assessment. He submitted that nowhere the order of the High Court says that the search action was in the case of Sh. Vinod Goel. He referred to p. 17 of the DPB which is a satisfaction recorded by the AO for issue of notice under Section 158BD to the assessee. The AO has clearly listed out documents mentioned at serial Nos. 1 to 16 which did not pertain to S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers), where action under Section 132(1) was carried out. He then drew our attention to p. 18 of the paper book which is a copy of the notice issued under Section 158BD by the Dy.
CIT, Inv. Cir. 2(2), Jalandhar. He submitted that the learned CIT(A) has erroneously relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish Iron Store (supra) which was not at all applicable to the facts of the present case. He submitted that the reliance of the CIT(A) on the judgment of Hon'ble Delhi High Court in the case of Amity Hotels (P) Ltd. v. CIT misplaced because the Hon'ble High Court has held that there must be a valid search for making the block assessment. In the present case, the validity of search action has already been upheld by the High Court. He further submitted that the decision of the Tribunal, Chandigarh Bench in the case of Ved Parkash Sanjay Kumar v. Asstt. CIT (2000) 66 TTJ (Chd) 442 : (2001) 76 ITD 107 (Chd) relied upon by the CIT(A) was not correct. In that case, it was held that omission to reach satisfaction as required under Section 158BD was an illegality and not an irregularity. But in the present case, the AO has recorded satisfaction before issuing a notice under Section 158BD. Thus, he submitted that the learned CIT(A) was not justified in annulling the block assessment completed by the AO. He submitted that the order of the CIT(A) may be set aside and the appeal restored to his file for deciding the various grounds relating to merits of the additions made by the AO in the block assessment.
6. The earned Counsel for the assessee, on the other hand, relied on the order of the CIT(A) and reiterated the submissions which were made before him. He submitted that survey action under Section 133A had been carried out at the premises of S/Sh. Rakesh Kumar, Ashok Kumar and R.K.and Co. (Builders and Colonisers) at 11/2, Grain Market, Jalandhar Cantt. on 8th Dec, 1998. Later on such action was converted into search action under Section 132(1) of the Act by issue of consequential search warrants by the Addl. DIT (Inv.), Jalandhar on 23rd Dec, 1998. He referred to p. 1 of the APB which is a copy of the Panchnama. The search was concluded on 23rd Dec, 1998. Page 8 of the said paper book refers to inventory of bank account drawn during the course of search belonging to the various persons including Trimurti Deposits & Advances (P) Ltd.; and Sidhant Deposits & Advances (P) Ltd. The assessee challenged the search action carried out at the premises of the assessee without there being a search warrant either in his name or two associate business companies. The Hon'ble Punjab & Haryana High Court vide its order dt. 25th Jan., 1999 (copy placed at p. 9 of the paper book) granted completed stay of proceedings in pursuance of search and seizure action till the final orders. The assessee approached the Dy.
Director of IT (Inv.), to allow the photocopies of the documents of the seized material. Drawing our attention to p. 38 of the APB which is a copy of Dy. Director of IT (Inv.), Jalandhar, the earned Counsel submitted that the assessee was advised to contact Dy. CIT, Inv. Cir.
2(2) Jalandhar, to whom the seized material was handed over. However, the concerned AO declined to allow photocopies of the seized documents vide letter dt. nil (copy placed at p. 39 of the APB) on the ground that the Hon'ble Punjab & Haryana High Court vide its interim order dt.
25th Jan., 1999 had granted complete stay of proceedings till further orders. He submitted that the assessee was earlier being assessed by the ITO Ward 2(6). A notice under Section 158BC was issued by the Dy.
CIT, Inv. Cir. 2(2), Jalandhar, on 10th Jan., 2001. He submitted that the final order was passed by the Hon'ble Punjab & Haryana High Court on 26th Sept., 2000 (copy placed at pp. 10 to 36 of the paper book) whereby it was held that the search action carried out by the Department was valid despite observing that the description given in the warrant may be defective. But that would not make search action invalid. Drawing our attention to p. 15 of the paper book, the earned Counsel submitted that the stand of the Department before the High Court was that the documents seized during search carried out by the Department revealed nexus in the transactions relating to the property dealing between the petitioners on the one hand and S/Sh. Ashok Kumar, Rakesh Kumar and R.K. and Co. (Builders and Colonisers). It was only on discovery of such material that consequential search warrant was issued. Thus, he submitted that once the Hon'ble High Court has given opinion that there was a valid search carried out at the premises of the assessee without a search warrant, block assessment could have only been completed by issue of notice under Section 158BC and not under Section 158BD. He submitted that these objections were duly raised before the AO vide letter dt. 17th Sept., 2002 (a copy placed at pp. 75 to 77 of the APB). Thus, it was noted that the notice under Section 158BD was illegal and bad in law. He also reiterated the submissions which were made before the CIT(A) in regard to jurisdiction of the Asstt. CIT, Inv. Cir. 2(2), Jalandhar on the ground that the documents and books seized during the search relating to the assessee were required to be forwarded to the AO having jurisdiction over the person searched under Section 132(1). He submitted that Dy. CIT, Range-IV, Jalandhar, vide his letter dt. 16th Nov., 2004 (a copy placed at pp.
110 and 111 of the APB) submitted that the same AO had jurisdiction over the cases of the assessee, who also had jurisdiction over the cases of the persons searched under Section 132(1) of the Act. He submitted that subsequently the case was transferred by CIT, Jalandhar under Section 127 from Asstt. CIT, Inv. Cir. 2(2) to Range-IV vide order dt. 31st July, 2001/21st Aug., 2001 (a copy placed at pp. 41 to 44 of the paper book). But he submitted that there was no order passed under Section 127 for transferring the case from Ward 2(6) to Asstt.
CIT, Inv. Cir. 2(2), Jalandhar. Thus, the notice under Section 158BD was without jurisdiction. Drawing our attention to p. 87 of the paper book which is a copy of block assessment order in the case of Sh. Ashok Kumar, where the block period is mentioned as 1st April, 1988 to 8th Dec, 1998 i.e. different from the present case where the block period indicated is from 1st April, 1988 to 23rd Dec, 1998 (he stated that) this only.showed that the assessee's case was taken as an independent search and, therefore, block assessment proceedings under Section 158BC could have been initiated under the Act. He also relied on the decision of the Tribunal, Chandigarh Bench in the case of Ved Paikash Sanjay Kumar v. Asstt. CIT (supra). He reiterated the submissions with regard to the satisfaction recorded in the case of the assessee himself rather than recording the satisfaction in the cases where search under Section 132(1) was carried out. Thus, he submitted that the CIT(A) has rightly quashed the block assessment completed in this case.
7. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material placed on record. We have also referred to the relevant pages of the paper book to which our attention has been drawn and gone through the orders of the authorities below. The undisputed facts of the case are that the search warrant under Section 132(1) "was carried out at the premises of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) on 8th Dec, 1998. On the basis of the documents seized during the said operation, the IT authorities were satisfied that there was nexus between Sh. Vinod Goel and his associate business concerns viz., Trimurti Deposits & Advances (P) Ltd. and Sidhant Deposits & Advances (P) Ltd. with S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders & Colonisers), in the matters relating to property dealings. Therefore, it was decided to cover the premises at 11/2, Grain Market, Jalandhar Cantt. under Section 133A on 23rd Dec, 1998. A large number of incriminating documents belonging to the assessee and his business concerns were found which resulted in converting the survey action into search operation under Section 132(1) of the Act. All the three assessees in appeal before this Bench challenged the action of the Department carried out under Section 132 at the premises without there being search warrant in Civil Writ Petition No. 963 of 1999 before the Hon'ble Punjab & Haryana High Court. The Hon'ble Punjab & Haryana High Court vide its order dt. 26th Sept., 2000 has held that search action was valid. The earned Counsel for the assessees has heavily relied on the order of the High Court upholding the validity of search action and contended that the block assessment in this case should have been completed under Section 158BC and not under Section 158BD of the Act.
We do not find any force in such submission of the learned counsel.
Admittedly, search warrant was not in the name of assessee and his two associate companies. Section 132(1) of the IT Act empowers the IT authorities specified therein to carry out search and seizure action in the circumstances mentioned in els. (a), (b) and (c) of Sub-section (1) of Section 132. The authorities mentioned therein can authorize the officer or officers of the Department to enter and search any building, place, vessel, vehicle or aircraft, where on the basis of information he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable articles or things are kept. When a search warrant is issued in the name of persons, the places to be searched are also mentioned therein. It is not necessary that such place or building must belong to the assessee in whose name search warrant is issued. Such place or building might belong to some other person who is not covered in the search warrant. What is required is that the books of account or other documents, valuables etc.
belonging to the person searched are suspected to be lying at such place or building. The very fact that books of account or documents belonging to the persons searched were not found from the said premises and some incriminating documents belonging to other persons not covered under the search warrant were found would neither invalidate or vitiate the search proceeding nor would absolve the persons not searched whose books and incriminating documents have been found from proceedings against him. The very fact that the Hon'ble High Court of Punjab & Haryana has upheld the search action at the premises does not mean that search was conducted. Now when we apply this legal position to the facts of the present case, we find that the search warrant issued in the names of other persons was held to be valid. However, the premises belonging to the assessee were also covered in the authorization of search issued by the Addl. DIT (Inv.), Jalandhar. Now in case the books of account or documents indicating undisclosed income of the assessee were found from the said premises, it cannot be said that the action under Section 132(1) was taken in the case of the assessee. Admittedly, the search warrants were issued in the names of other persons and the books of account and documents belonging to the assesseo and his business concerns were found from the said premises. Section 158BC deals with the completion of block assessment in a case where search action has been conducted under Section 132(1) or books of account, other documents or assets are requisitioned under Section 132A in the case of any person. In the present cases, neither action under Section 132 nor under Section 132A was carried out by the Department.
Therefore, the block assessment could have not been completed in the present cases under Section 158BC of the Act irrespective of the fact that the validity of the search has been upheld by the Hon'ble High Court. Section 158BD would cover the cases of the assessees. Section 158BD deals with the case where the AO is satisfied that any undisclosed income belongs to any other person, other than 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 AO having jurisdiction over such other person and that the AO shall proceed under Section 158BC against such other person and the provisions of this chapter shall apply accordingly. Now in the present case, since the search warrant was not issued in the name of the assessee but the books of account and documents belonging to the assessee were found during the course of search carried out in other cases, the correct course for the AO was to issue notice under Section 158BD which the AO had done. We are, therefore, of the opinion that the action under Section 158BD was correctly taken against the assessee and his two business companies.
Since the AO having jurisdiction over the cases of persons searched and the assessee was the same, he was justified in issuing notice under Section 158BD after recording satisfaction.
7.1 During the course of proceedings before the authorities below, the assessee had taken the plea of issue of notice under Section 158BD without jurisdiction. The main contention of the assessee was that since he was being assessed to tax by ITO Ward 2(6), the seized documents relating to assessee should have been transferred to the said AO instead these were transferred to Asstt. CIT, Inv. Cir. 2(2), Jalandhar. Thus, it was argued that the Asstt. CIT, Inv. Cir. 2(2), Jalandhar, wrongly assumed jurisdiction and, therefore, the notice under Section 158BD was illegal and bad in law. This submission of the assessee has been rejected by the CIT(A) by observing that this objection of the assessee was duly met by the common jurisdictional order passed by the CIT, Jalandhar on 7th Oct., 1994, as per which the jurisdiction over the cases covered under search action would automatically stand transferred to Asstt. CIT, Inv. corresponding to Dy. CIT, Inv. Cir. 2(2), Jalandhar. Thus, he has upheld the validity of notice issued under Section 158BD. The assessee is not in appeal before us on this issue. Even otherwise, we find no merit in the contentions of the assessee because the jurisdiction over the case was rightly assumed by the Dy. CIT, Inv. Cir. 2(2), Jalandhar, by virtue of CIT, Jalandhar's order dt. 7th Oct., 1994. Subsequently, the case was transferred to Asstt. CIT Cir. IV, Jalandhar, by specific order passed by the CIT under Section 127 of the Act on 31st July, 2001721st Aug., 2001.
Therefore, the assessment was rightly completed by the Asstt. CIT, Cir.
IV, Jalandhar.
7.2 The other point which was raised before the CIT(A) related to recording of satisfaction under Section 158BD of the Act before issue of notice under that section. It is admitted that the books of account relating to the assessee were found during the course of search action authorized in the cases of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers). The Investigation Wing of the IT Department had transferred the books of account and documents relating to the assessee and his associate concerns to Asstt. CIT, Cir. 2(2), Jalandhar who had jurisdiction both in respect of cases searched and the assessee and his two associate concerns. We have referred to the satisfaction recorded by the AO, under Section 158BD r/w Section 158BC of the Act. In the case of Sh. Vinod Goel, a copy is placed at p. 17 of the paper book, the same is reproduced as under: "Reasons for issue of notice under Section 158BD r/w Section 158BC of the FT Act, 1961 in the case of Sh. Vinod Goel S/o Sh. Sin Ram, R/o House No. 15, Mohalla No. 7, Jalandhar Cantt.
A warrant of authorisation was issued in the name of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers), 9/30, Sadar Bazar, Jalandhar Cantt. to search the premises at 11/2 Grain Market, Jalandhar Cantt. Annex. A-l to A-35 were found and seized from these premises on 23rd Dec, 1988. A perusal of the search material found during the search shows that Sh. Vinod Goel has been engaged in the business of real estate.
Following documents were seized, which do not pertain to S/Sh.
Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers): Therefore, in order to bring the transactions mentioned in the above seized documents to tax, which were found during the search carried out in the case of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. Co.
(Builders and Colonisers,) 9/30, Sadar Bazar, Jalandhar Cantt. at 11/2, Grain Market, Jalandhar, a notice under Section 158BD of the IT Act, r/w Section 158BC is being issued to Shri Vinod Goel S/o Sh.
Siri Ram, House No. 15, Mohalla No. 7, Jalandhar Cantt.
A bare reading of the above said section (reasons) shows that the AO has referred to the cases where search action was carried out and seizure of the books of account pertaining to the assessee was made.
The details of such documents have also been listed above. Similar satisfaction exists in the cases of Sidhant Deposits & Advances (P) Ltd. and Trimurti Deposits & Advances (P) Ltd. (copies placed at pp. 20 and 21 of the APB). The assessee has not denied that the documents seized were not found during the course of search action carried out in the abovementioned case. There is no denial by the assessee that these documents do not relate to him and his business companies. In fact, the validity of search action has been upheld by the Hon'ble High Court by taking cognizance of the fact that documents found during search operation established nexus between the business carried on by the S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co. (Builders and Colonisers) with the assessee and his business concerns. The Hon'ble High Court observed that such action was in continuation of the earlier action carried out by the Department at the premises of the aforesaid persons on 8th Dec, 1998. The Hon'ble High Court also took notice of the fact that in the authorization, the Addl. DIT, Inv. had observed that Sh. Vinod Goel who was present at the time of survey could not produce any evidence to show that investment was made from explained sources and there were documents showing his very strange business links with Damini Resorts & Builders (P) Ltd., Ludhiana and there was sufficient number of incriminating documents. Thus, the factum that these documents belong to Sh. Vinod Goel and his business concerns and contained undisclosed income of these concerns was known during the course of survey/search action itself.
158BD. Where the AO 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 AO having jurisdiction over such other person and that AO shall proceed under Section 158BC against such other person and the provisions of this chapter shall apply accordingly.
A bare reading of the above section shows that in order to confer jurisdiction on the AO to complete block assessment under Section 158BD in the case of other person, the following requirements need to be met: (i) The search action must have been taken place at the premises of some person under Section 132(1) of the Act.
(ii) Such search action must result in seizure of books of account, documents, other valuables pertaining to some other person for whom no search warrant has been issued or requisition has been made.
(iii) There must be an evidence of undisclosed income of such person against whom block assessment is to be made.
In the present cases, we find that all the aforesaid conditions are met. The seized documents pertaining to the assessee and his two associate concerns were found during the course of search carried out at the premises of S/Sh. Rakesh Kumar, Ashok Kumar and R.K. and Co.
(Builders and Colonisers). These were handed over to the AO having jurisdiction over the cases, where search action took place. The same officer was also the AO for the assessee. The assessee has not denied that these documents do not belong to him or his business associates.
It is also a fact that Sh. Vinod Goel who was present at the time could not produce any evidence to show that the investment was made from explained sources and the number of such incriminating documents found and seized was much large. Thus, on the basis of material and evidence available on record, it was prima facie clear that these documents contained the undisclosed income of these persons who were not covered under search warrant. In fact, the various additions made by the AO on the basis of these documents further confirm that these seized documents contained undisclosed transactions of undisclosed income of the assessee and his business concerns. In the satisfaction recorded, the AO has also listed the details of specific documents found and seized during search. These facts clearly show that the AO has applied his mind while recording satisfaction under Section 158BD before issue of notice. The satisfaction referred to in Section 158BD means the application of mind by the AO to the material and evidence available on record before issuing notice under Section 158BD. We find that in the present cases, satisfaction recorded by the AO was based on appraisal of the seized documents and material and, therefore, the same was valid. We also do not find any merit that such satisfaction should have been recorded in the cases searched and not in the case of assessee because the same AO had jurisdiction over all these cases. The question of confronting the persons searched about the books of account would have arisen had the assessee denied that these books of account do not belong to him and his business concerns. In fact, the Hon'ble High Court took notice of the reasons for issue of authorisation under Section 132 that Shri Vinod Goel who was found present could not explain the transactions in the seized documents. Therefore, we do not find any infirmity in the action of the AO.7.4 The learned CIT(A) has erroneously relied on the decision of the Tribunal, Chandigarh Bench in the case of Ved Paikash Sanjay Kumai v.Asstt. CFT (supra). The facts of the case before the Tribunal, Chandigarh Bench were that survey action under Section 133A was carried out at the business premises of the firm. At the same time search and seizure operations under Section 132 were carried out at the residential premises of the partners of the firm which resulted in detection and seizure of documents. Thereafter, the AO issued notice under Section 158BC to the assessee where no search action under Section 132(1) was carried out. Besides, it was found that the AO had not recorded satisfaction before proceedings against the assessee under Section 158BC. Thus, the issue of notice by the AO under Section 158BC without recording satisfaction and in the absence of any search warrant in the name of the assessee was held to be void ab ihitio. While doing so, the Tribunal observed that notice under Section 158BC could not be issued on the basis of mental satisfaction alone which is neither recorded nor linked to the material seized in a search against the assessee. In that case, the factum of undisclosed income belonging to the assessee was also not found. These are not the facts of the present case. The AO has recorded satisfaction before issue of notice under Section 158BD and the seized material available with the AO indicated undisclosed income of the assessee. Therefore, this decision is not applicable to the facts of the present case.
7.5 The other decision referred to by the CIT(A) was of Tribunal, Hyderabad Bench in the case of Esseu Intra-Poit Services (P) Ltd. v.Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 FTD 228 (Hyd). In this case, the Tribunal, Hyderabad Bench held that special provisions relating to block assessment had to be construed strictly and one cannot enlarge scope of these provisions so as to permit re-examination and what has been or what would have been subject matter of regular assessment or reassessment. The facts of the present case are clearly distinguishable inasmuch as the income assessed in the block assessment had not been disclosed in the regular returns filed by the assessee and his two business associate concerns. The other case which was referred to before the CIT(A) is the judgment of Hon'ble Delhi High Court in the case of Amity Hotels (P) Ltd. v. CIT (supra), where it was held that existence of undisclosed income of the assessee was condition precedent for issue of notice under Section 158BD. In the case before the Hon'ble Delhi High Court, the AO had mentioned in the satisfaction recorded that investigation was needed and the High Court found that there was no evidence regarding suppression of income. But these are not the facts of the present case. Thus, this judgment is also not applicable to the facts of the present case.
7.6 We may further mention that the Tribunal, Amritsar Bench (SB), in the case of Smt. Mahesh Kumaii Batia v. Jt. CIT (2005) 95 TTJ (Asr)(SB) 461 : (2005) 95 ITD 152 (Asr)(SB) where one of us (the AM) was a party considered the issue whether the provisions of Section 158BC relating to issue of notice were substantive or procedural in nature? and if they are held to be procedural in nature, then can defect in the notice or with regard to its issue, render block assessment proceedings to be null and void. The Bench observed that though Chapter XIV-B refers to the special procedure for completion of block assessments, however, these machinery provisions contained in the chapter give rise to certain rights and responsibilities and such provisions could be considered to be substantive in nature. The Bench observed that the provisions of Section 158B, Section 158BA and Section 158BB were substantive in nature. The Bench observed that it is from these provisions that the AO derived power to assess undisclosed income of a person who has been subjected to search under Section 132 or in whose case there is a requisition under Section 132A. The Tribunal observed that the AO acquires powers to assess undisclosed income of a person at the time of initiation of search, but the actual exercise of that power commences only after the search is over by serving notice under Section 158BC. Section 158BA(1) empowers the AO to assess the undisclosed income. Section 158BA(2) creates a taxability against the assessee in respect of his total undisclosed income. Section 158BB casts a duty on the AO to compute the undisclosed income in a particular manner and a corresponding right in favour of a person that the AO was following the said provisions in computing undisclosed income. Thus, the Bench held that Section 158BC merely sets in motion machinery to quantify the liability of the assessee. The notice served by the AO is first step in that direction which will make the earlier three provisions which were substantive in nature to be workable. The Bench also drew a distinction between the provisions of Section 147 on the one hand and the provisions of Sections 158B, 158BA and 158BB on the other. By referring to the scope of powers vested under Section 147, the Bench observed that the AO assumed jurisdiction under Section 147 by issuing a notice under Section 148. If the AO committed any error in issuing the notice under Section 148, it would be an error of jurisdiction. However, the AO assumed jurisdiction to assess undisclosed income under Section 158BA(1) on the initiation of search and not by way of issue of notice under Section 158BC. Thus, it was held that issue of notice under Section 158BC was procedural and did not relate to the jurisdiction of the AO to complete block assessment and any defect with regard to issue of notice under Section 158BC cannot render block assessment proceedings to be null and void. Such defect will be rectifiable under Section 292B of the Act. Though the decision of Tribunal, Amritsar Bench (SB)(supra) in this case deals with the issue of notice under Section 158BC, the provisions of Section 158BC are, more or less, similar to the provisions of Section 158BD of the Act. Therefore, the ratio of the decision would equally be applicable to Section 158BD. The jurisdiction of the AO to assess the undisclosed income of a person not searched would flow from search action carried out at the premises of some other person resulting in seizure of books of account/incriminating documents relating to the undisclosed income of the assessee. Issue of notice under Section 158BD only sets in motion machinery to quantify the liability of the assessee and does not confer jurisdiction over the AO. Reliance of the GIT(A) on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Munish lion Store (supra) is misplaced because in that case matter related to the jurisdiction of AO to impose penalty under Section 271(1)(c) of the Act. The Hon'ble Punjab & Haryana High Court has held that failure on the part of AO to record satisfaction in the assessment order in terms of Section 271(1)(c) was jurisdictional defect which cannot be cured.
But in the present case, issue of notice under Section 158BD is not a jurisdictional defect and any defect in the same cannot render block assessment proceedings to be null and void. In the present case, we have not found any defect on the part of AO for issuing notice under Section 158BD of the Act.
7.7 Having regard to these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the learned CIT(A) was not justified in quashing the block assessment completed by the AO. Accordingly, we set aside the order of the CIT(A) and allow the grounds of appeal of the Revenue. Since the learned CIT(A) has not decided the other grounds relating to merits of the additions, the appeal is restored to his file for deciding the grounds relating to merits of the additions after allowing reasonable opportunity to both the parties. We order accordingly. The various grounds of appeal of the Revenue are treated as allowed for statistical purposes.
8. As regards other two appeals in cases of Trimurti Deposits & Advances (P) Ltd. and Sidhant Deposits & Advances (P) Ltd. in IT(SS) A No. 12/Asr/2005 and IT(SS) A No. 13/Asr/2005, the facts of the cases' and submissions of both the parties are the same as in the case of Sh.
Vinod Goel. Therefore, the findings recorded in the case of Sh. Vinod Goel are squarely applicable to the facts of the two cases. For parity of reasons, we set aside the orders of the CIT(A) and restore the appeals to the file of the CIT(A) for deciding the grounds relating to the merits of the additions after allowing reasonable opportunity to both the parties. We order accordingly. The grounds of appeals are treated as allowed for statistical purposes.
9. In the result, all the three appeals of the Revenue are treated as, allowed for statistical purposes.