1. This is an appeal filed by the assessee arising out of the order of CIT(A)- II, Pune dated 2^nd September 2005. Several grounds have been raised, however, the assessee has challenged; at the outset, the validity of the impugned assessment order, passed Under Section 158 BD read with Section 143(3) dated 31.3.2005 for the block period of A.Y.1995-96 to 2000-01 by raising the following ground: 1] The learned CIT(A) erred in rejecting assessee's contention that the asst. order Under Section 158BC r.w.s. 158BD is null and void as it has been passed by; the A.O without satisfying the basic conditions of Section 158BD. 1.1] The learned CIT(A) failed to appreciate that the provisions of Section 158BD can be invoked only if the A.O is satisfied that the undisclosed income belonged to the appellant. In this case, however, the proceedings were initiated on receiving the direction from the CIT(A) whereas originally, on examining the facts of the case, the learned A.O. had accepted the contentions of the appellant and did not initiate the proceedings against the appellant Under Section 158BD. Accordingly, the asst. be held null and void.
On merits also, assessee has raised the grounds, however, it was pronounced in the Court that if the appellant fails on ground No. 1, then only there is a necessity of adjudication on the grounds raised in respect of merits of the case as reproduced below: 3] The learned CIT(A) erred in confirming the addition the addition of Rs. 35,00,000/- and Rs. 1,01,000/- i. The loose papers allegedly indicating the payments in cash of Rs. 36,01,000/- were found at the premises of Shri Purandare and not in the appellant's premises and hence, the presumption Under Section 132(4A) could not be used against the appellant.
2. After having the preliminary discussion in respect of the adjudication of the grounds raised, we have thought it correct and proper to first adjudicate upon the legal issue as raised in ground No.1, accordingly proceeded as here-under.
3. The appellant is an 'Individual' and the A.O has stated the nature of business as income from salary and other sources. Vide para 2 of the impugned assessment order, brief facts as stated by the A.O were that an action Under Section 132 was conducted on 8.12.99 in the case of one M/s. Lunawat Bhor Construction Pvt. Ltd. ( in short, LBCPL). Along with that search operation, simultaneously, action Under Section 132 was conducted at the residence of one Shri Mukund K. Purandhare. From the residence of Mr. Purandhare, some pages were seized wherein, on one of the paper, there was a noting mentioning a financial transaction with the assessee. The said Mr. M.K. Purandhare was summoned and his statement was recorded Under Section 131 of I.T. Act. The A.O has reproduced the relevant portion of the said statement and the core issue for the impugned addition of Rs. 35 lakhs was on account of the said statement wherein he has confirmed the payment of Rs. 35,00,000/- in cash to Mr. Jayant M. Lunawat (the appellant-assessee). As per the said statement, Mr. Purandhare has informed that he was known to the assessee since 1995. Further, it was confirmed in the said statement that the said acquaintance was on account of a land belonging to Gajanan Society, the development right of the said society were with M/s. LBCPL. It was stated that the appellant- assessee was the chairman of the said company. The queries were raised in respect of the taking over of the said company M/s. LBCPL. In this regard, Mr. Purandhare has informed that the said company namely M/s. Lunawat Bhor Constructions Pvt. Ltd had the development right of Gajanan Society. In the statement, the said party has also mentioned the figures of consideration as arrived at among the parties. About this, there was a reference on page No. 43 and page No. 45 of the seized material and the stress was given on an entry where under the term cash Rs. 35/- was mentioned and under the term bank, amount mentioned was 17.5. So, it was explained by Mr. Purandhare that those entries have clearly indicated that Rs. 35 lakhs was paid in cash to the assessee and rest of the amount of Rs. 17.5 lakhs was paid through post dated cheques. It has also been stated that the recorded consideration was only Rs. 17.5.
So, the A.O has forwarded the copy of the statement as well as copies of the seized materials to assessee for his comments. The assessee has requested for cross examination of Shri M.K. Purandhare. After this discussion on merits/factual background of the case, the A.O has also mentioned vide para 2.4 that the assessee has objected the initiation of proceedings Under Section 158 BD against him. It was challenged before the A.O that no satisfaction was recorded by the A.O in the case of (the assessee. It has also been contested that the Revenue was not satisfied about the payment made to the assessee and due to this reason, the other concerned A.O has disallowed the claim of the said sum of Rs. 35,00,000/- in the hands of the said company LBCPL. Relevant para 2.4 in this regard is reproduced from the impugned order of the A.O. 2.4 The assessee has also objected to the proceedings Under Section 158BD. According to assessee, the proceedings Under Section 158BD can be initiated on the satisfaction of the Assessing Officer and in the case of assessee, the Assessing Officer was satisfied that payment was not made to him and accordingly in the assessment of the Company i.e. Lunawat Bhor Constructions Pvt. Ltd. the A O disallowed the payment of Rs. 35 lakhs. The CIT(A) has no jurisdiction to sit in the discretion and judgment of the Assessing Officer and usurp the powers of the A.O. to himself. Similarly, the proceedings in the case of Lunawat Bhor Constructions Pvt. Ltd. were initiated Under Section 158BD and in those proceedings the assessee was examined by the ACIT Central Circle 1(2). As per the provisions of Section 158BD the A.O can issue notice under the section only in the proceedings Under Section 158BC initiated in the case of a person who is searched. In case of the assessee the notice is issued out of the proceedings of the Company - Lunawat Bhor Constructions Pvt. Ltd., which in itself is a proceeding Under Section 158BD. According to assessee, as mentioned in letter dated 25/10/2004, the Department itself has not accepted the decision of CIT(A) in the case of Lunawat Bhor Constructions Pvt Ltd, and has filed an appeal before the Tribunal against the order of the CIT(A). Thus, when the A.O. is not satisfied about the correctness of the decisions of CIT(A), the issuance of notice Under Section 158BD is not justified.
Thereafter, vide para 3 the A.O. has mentioned that the statement of Shri Purandhare was a reliable statement and the notice Under Section 158BD has also been issued after being satisfied on the basis of the information and evidence available to the A.O. Again after referring page No. 45, 47 and 52 of the seized material, the A.O has finally added the said amount of Rs. 35 lakhs as undisclosed income in the hands of the assessee. Being aggrieved, this issue was carried before the first appellate authority.
4. Before Learned CIT(A), the assessee has challenged the validity of proceedings initiated Under Section 158 BD. The findings of the CIT(A) in this regard were that the shares of LBCPL were held by the assessee and his wife which were sold to Purandhare Group. The said company was having development right of the Society and the seized paper have revealed "cash 35 to Shri Lunawat," so Ld CIT(A) has mentioned that as per the said seized paper, it was clear that the appellant had received Rs. 35 lakhs in cash on account of transfer of development rights. The CIT(A) has also mentioned that the said loose paper was dated 15.12.95 and on the basis of the said information, the A.O has assumed jurisdiction as prescribed Under Section 158 BD read with Section 158 BC. Resultantly, CIT(A) has upheld the action of the A.O.4.1. Ld CIT(A) has also discussed the objection of assumption of jurisdiction based upon a direction the other CIT(A) in the cse of M/s.
LBCPL. In this regard, it was mentioned that the said CIT(A) had merely expressed his view point which was in the nature of an information attracting the attention of concerned A.O. From the reasons recorded by the A.O, it was clear that he has applied his mind to the facts of the case and thereafter came to the conclusion that the appellant was having undisclosed income as mentioned in those lose papers seized from the premises of Mr M.K. Purandhare, therefore, the proceedings have been rightly initiated in the case of the assessee Under Section 158 BD, expressed by Ld CIT(A).
4.2 There was an objection about the time lack for initiation of proceeding Under Section 158 BD and in this regard, from the side of the assessee, a reliance was placed on the decision of Hon'ble Gujarat High Court in the case of Kandabhati Vizzanje Desai 236 ITR 73. The opinion of the ld CIT(A) was that the proceedings were initiated Under Section 158BD on 27.3.2003 in consequence upon a search proceedings started in the case of [Purandhare group on 8.12.99. According to him, the proceedings Under Section 158BD were not barred by limitation under the statute. In this manner, the legal objections of the assessee were dismissed which are now being challenged through this second appeal.
5. From the side of the appellant, Learned A.R. Mr. Sunil Pathak has appeared and on the basis of the facts mentioned herein-above, argued that the assessee has started a company namely LBCPL on 20^th March 94, in which he and his wife were the directors. The said company had acquired development rights of Gajanan Cooperative Society, Kothrud, Pune. The Purandhare group has purchased the said company on 1.7.95, hence the assessee has transferred all his rights in favour of the transferee. A search was conducted on Shri Purandhare on 8.12.99 and a chit was found mentioning 35/- to Shri Lunawat for land. Highlighting the alleged mistakes of the RevenueDeptt., Ld AR has vehemently relied upon a decision of the A.O , already taken in the case of the said company wherein, according to him, the A.O has thoroughly investigated the matter and recorded the statements and thereafter arrived at the conclusion that no such payment was made to the assessee and the claim by the said company of expenditure or deduction was disallowed. When the said company had gone in appeal, then again the statements were recorded, however, while deciding the said appeal, the Ld CIT(A) has formed a different opinion that the amount was actually paid by Shri Purandhare and directed the A.O to issue notice Under Section 158BD/147 to the assessee. Accordingly, in the impugned order, the A.O has taken the action against the assessee. Coming to his main plank of (argument, Ld. A.R. has drawn our attention on pages 243, 245 and 246 of the compilation containing the copies of the notices issued Under Section 158BD and 147 by the A.O. Referring page 243 of the paper book which contains a notice issued by ACIT, Ciricle 5, Pune dated 14.5.2003, wherein vide para 2, it was clearly mentioned that the proceedings Under Section 158 BD were initiated on the basis of the intimation received from the office of CIT(A)-I, Pune, during the course of appeal proceedings in the case of M/s. LBCPL. On page 244, there was a letter from the assessee addressed to the A.O wherein, the assessee has demanded "satisfaction recorded by the assessee". Next is the page 245 of paper book containing a notice Under Section 158 BD dated 8.4.2003 wherein vide para 3, it was intimated by the ACIT, Circle 3, Pune that the CIT(A) during the course of appellate proceedings in the case of LBCPL had recorded the statement on oath and intimated the office to initiate proceedings Under Section 158 BD of I.T. Act. On the basis of those notices & correspondence, Ld. A.R. Mr. Pathak has stressed that the A.O has initiated the proceedings Under Section 158 BD only on the basis of the direction of Ld CIT(A) who was deciding an appeal of an another company which had already been sold by the assessee, namely M/s. LBCPL. According to him, now the situation is that on one hand, the A.O had made an addition of Rs. 35 lakhs by disallowance of expenditure in the hands of the said company by treating as non-genuine, however, on the other hand, also making an addition of the same amount held to be received by the assessee. One more fact has also been brought by Ld. A.R. that the revenue department has resorted to the assessment Under Section 158BD as well as Under Section 147 in the case of one Shri Pramod Lunawat, thus taxing the same amount on substantive basis in two hands. So, he has contested that the proceedings Under Section 158BD should not emerge out of the appellate proceedings carried out in an another case. He has also contested that the; assessment was beyond a reasonable time because the action Under Section 132 was initiated out on Purandhare group on 8.12.99 and the notices in the case of the assessee were issued after the lapse of 3 1/2 years on 27.3.2003. In support of this objection of inordinate delay, Ld. A.R. has cited the case of Khandubhai Vasanji Desai and Ors.
236 ITR 73 (Guj.), and the decisions of H. Ajitbhai & Co. v. ACIT (Ahd.) 47 TTJ 22, and Raymond Woollen Mills Ltd. v. I.T.O. 57 ITD 536.
5.1. The next argument was in respect of change of opinion by the revenue Department. His argument was that initially, while deciding the assessment of the said company, the A.O has disallowed the claim of expenditure of Rs. 35 lakhs stated to be made to the assessee. So, the revenue Department has taken a view that the payment was not genuine which could not be established, therefore, disallowed the same.
According to Ld. A.R., now the revenue Department has changed its opinion, and alleging that the payment has actually been paid by the said company to the assessee, so initiated the proceedings Under Section 158BD and taxed the same amount in the hands of the assessee.
5.2. Next plank of his argument was that the A.O has not recorded on his own the satisfaction but issued the notice as per the directions and satisfaction of an another CIT(A) who had no jurisdiction over the assessee, hence the proceedings initiated were was bad in law. Reliance was placed upon J.K. Synthetics Ltd. 83 ITR 335/95 ITR 78, Sheo Narain Jaiswal, 176 ITR 352 and Kelvinator of India Ltd. 256 ITR Page 1.
6. From the side of the revenue, Ld. C.I.T D.R. Mr. Sunil Kumar Mishra appeared and opened his argument that the first appellate authority has wide power which also includes the power of enhancement, which means the order of A.O merges with the order of CIT(A). Since this is the procedural aspect of completion of assessment proceedings so it was within the powers of Ld CIT(A) to intimate the A.O to take necessary remedial action. However, he is of the view that by default, the said remedial action had not been taken in the case of an assessee or even in the; case of an another assessee, by the revenue Department. The A.O. has so many ways of recording his satisfaction where he has reason to believe that an undisclosed income is to be taxed in the hands of a particular assessee. The said belief of the A.O can be based upon any information came to his notice either on his own investigation or by any other agency or any superior authority i.e. CIT(A) as in this case.
He has relied upon the decision in the case of Premjibhai and Sons 251 ITR 625 (Guj.), Rushil Industries Ltd. v. Harsh Prakash (Guj.) 251 ITR 608, Priya Blue Industries P. Ltd. 251 ITR 615 (Guj.) and Nilesh R.Shah 253 ITR 33 (AT). He! has vehemently argued that the A.O has rightly assumed the jurisdiction and there was no necessity of an independent investigation when the facts were clearly borne out of record available and for this proposition, he has relied upon 248 ITR 381 6.1 Ld C.I.T D.R Mr. Sunilkumar Mishra has also drawn our attention on the observation made by Ld CIT(A)-I, Pune while deciding the appeal of the said company namely M/s. LBCPL referring page 15, para 4.4 of the order reproduced below: 4.4 Before we proceed further on this issue, it would be relevant to point out that the statement on oath including cross examination thereof by the appellant company through Shri. Sunil Ganoo, C.A. brought out certain startling features which require remedial action not only in the case of Shri. Jayant M. Lunawat by issuing notice Under Section 158BD as well as a notice Under Section 148 of the I.T. Act, 1961 but also in the case of the firms and company in which Smt. Sunita J. Lunawat is shown to be a partner/director as well as in the case of Shri. Anilkumar B. Bhor and his wife Smt.
Tripti Anilkumar Bhor and Shri. Pramod J. Lunawat. The assessing officer is directed to communicate these observations to the assessing officers of the concerned persons without any further delay so that remedial action could be taken in time i.e. before 31.03.2003, besides taking action Under Section 158BD/148 against Shri. Jayant M. Lunawat.
So D.R's argument was that the powers of the first appellate authority are co-terininus with the A.O, hence he has rightly stepped into the shoes and lawfully directed the A.O to communicate those observations to the concerned A.O without any further delay, so a remedial action could be taken as prescribed Under Section 158BD/148 against this assessee. The Ld. D.R. has further argued that those investigations were simply of an extension of the powers of the AO and the enquiries were rightly conducted on those basis as the A.O was advised to take the appropriate remedial action. Again referring page 175 of the paper book containing the appellate order of the said company, wherein in the internal page 18, para 4.8, Ld CIT(A) has not directed but simply intimated to take the remedial action after arriving at a conclusion that the payment of Rs. 35 lakhs had been made to Mr. Lunawat, the appellant, and an action Under Section 158 BD as well as 148 (protectively), was proposed. Thereafter, referring Explanation-3 to Section 153, he has argued that where by an order any income is excluded from the total income of one person and held to be the income of another person, then an assessment of such income on such other person be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. Therefore, the action of the A.O was also within the purview of this Explanation.
6.2. Ld C.I.T. D.R. has also argued on the point of limitation that sometimes, the revenue department require enough time more than the reasonable time due to the pending investigation or examination of the seized material. To arrive at the right conclusion, a revenue officer is expected to cover all the issues, causing delay in issuance of notice. Ld. C.I.T. D.R. has argued that this is not the case of the assessee that because of the said inordinate delay, the revenue officers have forgotten some vital fact and erred in arriving at the conclusion to tax the amount of Rs. 35,00,000/- in the hands of the assessee. According to him, maximum it could be termed as a "procedural irregularity" but in no case, it can be termed as "mallafide delay" on the part of the A.O. The investigation was not set at rest because Ld CIT(A) having co-terminus power examined the necessity of issuance of a notice Under Section 158 BD and only thereafter arrived at the conclusion to intimate the concerned officer to issue notice in the case of this assessee as well. For this proposition, he has relied upon the decision in the case of Sakthivel Bankers 255 ITR 144 (Mad.). Ld CIT(A) has applied his mind while hearing the appeal of the company M/s. LBCPL and thereafter thought it proper to pass on the information to concerned A.O for initiation of proceedings. According to him, satisfaction was recorded not only by CIT(A), but also by the concerned A.O, hence there was no fault in assumption of jurisdiction; Ld. D.R has concluded by citing a decision in the case of Shirish Madhukar Dalvi 287 ITR 242 (Bom).
7. In rejoinder, Ld. A.R. Mr. Sunil Pathak has stated that the circumstances of the; case do not indicate that the A.O who had the original jurisdiction over the search and seizure material recorded his satisfaction and passed on the information to the A.O of the assessee.
Secondly, he has also mentioned that the filing of an appeal by the Revenue Department against the order of the said CIT(A) passed in the case of M/s. LBCPL dated 7.3.2003 also indicates that the view taken in the said order was not acceptable to the revenue department. According to him, firstly the satisfaction of CIT(A) was illegal and the CIT(A) cannot start the propeeding Under Section 158 BD and secondly, the said order is now under dispute being challenged by the revenue department.
So, he has argued that the revenue department is blowing hot and cold at the same time. He has also commented that the concerned CIT(A) can be termed as a superior officer than the A.O but he was not a supervisory officer, so his satisfaction as well as his direction were not in accordance with the provision of the Chapter in question. The Ld. AR has also relied upon an observation of Hon'ble Patna High Court in the case of Gauri Shankar Chowdhary 234 ITR 865, wherein the Hon'ble Court has observed that the appeal, reference or revision or any other proceedings before a Court must relate to an assessee in question or not any direction or assessment made in appeal, reference or [revision in the case of any person or in a proceedings in which the assessee in question is not a party, he has concluded.
8. We have heard the pleadings of both the sides at length. The orders of the authorities below have been carefully perused in the light of the material placed before us and the precedents cited. Facts as stated herein-above are not much in dispute because the issue raised before us is purely a legal issue pertaining to the assumption of jurisdiction by the A.O while issuing notice Under Section 158 BD of I.T. Act. Also, we have to decide whether under the present set of facts and circumstances of the case, the concerned A.O has assumed the jurisdiction as prescribed or he has been allegedly instructed by an appellate authority for the issuance of notice Under Section 158 BD of I.T. Act.
And also we have to examine whether the first A.O having the jurisdiction over the seized material has factually passed on the information as well as the seized material to the A.O having jurisdiction over the assessee after recording his own satisfaction; as is mandatorily prescribed in this Section. Within this narrow legal compass, we hereby proceed to examine the concerned Chapter XIV B and the impugned Section 158 BD of I.T. Act. The Finance Act 1955 introduced a new Scheme of assessment of "undisclosed income" determined as a result of search. Under this scheme, the "undisclosed income" detected as a result of a search initiated after 30^th June 1995 is to be assessed separately as the income of a designated period termed as "block period" consisting of 10 previous years and the undisclosed income is subject to tax at a flat rate of 60%. In this case, the A.O has initiated the proceedings by issuance of a notice Under Section 158BD to the appellant assessee, hence we deem it proper to reproduce the Section: 158BD. 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 [under Section 158BC] against such other person and the provisions of this Chapter shall apply accordingly.
9. On careful reading of this Section, it envisages two situations where the A.O is satisfied that (i) any undisclosed income belongs to any person other than the person with respect to whom search was made and (ii) in such a situation, the books of accounts, other documents or assets seized or requisitioned shall be handed over to the other A.O having jurisdiction over such other person, thereafter (iii) that this other A.O. shall proceed against such other person and the provisions of this Chapter shall apply accordingly. The intention of the Legislature, thus, makes it clear that Under Section 158BD, the papers obtained during the search are to be handed over to the other A.O, who is necessarily the A.O having jurisdiction over the such person about whom the satisfaction is reached, though he is an another person other than the person whose premises has been raided, yet, the said other person has undisclosed income. Before we proceed to further interpret this section, we are expected to be guided by a maxim "A verbis legis non est recedendum" i.e. a literal construction of a law is not to be departed from. The general principle for interpretation of taxing statute is that the statute has to be strictly construed. The well-established rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY and LORD SIMONDS, means; "The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words". In a classic passage LORD CAIRNS stated the principle thus" "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable, construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute." So, in fiscal legislation, a transaction cannot be taxed on any doctrine of "the substance of the matter" as distinguished from its legal signification, for a subject is not liable to tax on supposed "spirit of law" or!" by inference or by anology.". LORD TOMLIN has observed: "It is said that in reyenue cases there is a doctrine that the court may ignore the legal position and regard what is called 'the substance of the matter'. [Extracted from Principles of Statutory Interpretation - by Justice G.P. Singh]. So, the crux of the matter is that a tax payer is not to be taxed unless the words of the taxing statute unambiguously impose the tax on him. The proper course in construing revenue Acts is to give a fair and reasonable construction to their language without leaning to one side or the other but keeping in mind that no tax can be imposed without words clearly showing an intention to lay the burden and that equitable construction of the words is not permissible. So, the taxing statute nor can be interpreted on any presumptions or assumptions. On the lines of these established principle, we have examined the circumstances under which the impugned notice Under Section 158 BD was issued to this assessee. The correspondence in this regard is placed on page 240 to 245 of the compilation which has been duly pointed out during the course of hearing, hence carefully perused by us. A notice dated 27.3.2003 was issued Under Section 158 BD of I.T. Act asking the assessee to prepare a true and correct return of the undisclosed income. On receiving this notice, a letter was issued from the side of the assessee dated 3.5.2003 asking the A.O to give the copy of the satisfaction recorded by him or by the A.O before whom the proceedings Under Section 158 BC were in progress, so that on receiving the satisfaction so recorded by the concerned A.O, the assessee would be enabled to file the complete return. Through a letter dated 14.4.2003, the concerned ACIT has stated that the proceedings Under Section 158 BD were initiated on the basis of intimation received to this office from CIT(A)-I, Pune, during the course of appeal proceedings in the case of M/s. LBCPL. An another letter dated 8.4.2003 is also placed on record wherein the concerned revenue officer has informed that the ClT(A)-l, Pune, during the course of appeal proceedings in the case of M/s. LBCPL had recorded the statement of the assessee on oath and intimated the office to initiate proceedings Under Section 158 BD of I.T. Act. From the contents of all those correspondence, it emerges that the concerned officer was guided by Ld. CIT(A), who was hearing an appeal of a company namely M/s.
LBCPL. However, Ld. C.I.T. D.R. Mr. Sunilkumar Mishra has argued that the said CIT(A) has not directed for initiation of the proceedings Under Section 158BD but simply intimated to adopt a legal recourse, hence the action thereafter could not be termed as illegal or out of jurisdiction. To examine the veracity and the correctness of this argument of Ld. C.I.T. D.R., we have perused para 4.4 of the impugned order of Ld. CIT(A), which has already been reproduced herein-above, and have found that the Ld. CIT(A) has directed the A.O in unequivocal terms to communicate those observations to the concerned officer to take remedial action Under Section 158 BD/ Under Section 148 against this assessee. Vide para 4.8, Ld. CIT(A) has concluded that quote "Applying the same test on the exhaustive testimony of Shri J.M.Lunawat and after an analysis of the documents submitted by him, I have to hold that the payment of Rs. 35 lacs had been made to Shri.J.M.Lunawat and action Under Section 158BD as well as Under Section 148(protectively) is called for against him. The submission of the appellant with regard to statement on oath of Shri.J.M. Lunawat before CIT(A) has been looked into and is reproduced hereunder" unquote.
Undoubtedly this is not merely a passing over of an information or mere intimation for adoption of remedial course by the concerned Revenue Officers; but it is a clear direction for issuance of notice that Rs. 35 lakh is to be assessed in the hands of such other person i.e. the appellant before us.
10. Audi alteram partem an interesting fact had emerged that while completing the assessment proceedings of the company M/s. LBCPL for the block period, the A.O in the impugned order dated 31.7.2002 has held that the claim of expenditure in respect of payment of Rs. 35,00,000/- to the assessee i.e. Jayant Lunawat was not proved to be genuine, hence disallowed as unexplained expenditure Under Section 69C of I.T. Act and the relevant para of the said observation of A.O as appearing on page 63 of the paper book and internal page 4 of the A.O's order is reproduced below: In the light of specific denial by Shri Lunawat, an opportunity of cross examination was conferred upon assessee. The assessee availed this opportunity and cross examined Shri Lunawat in the office of the undersigned on 25.7.2002 and 26.2.2002 and once again Shri Jayant Lunawat specifically denied of having received any cash amount from the assessee company. The contents of his statement Under Section 131 recorded on 19.7.2002 could not be proved false and assessee could not adduce any evidence to corroborate his contentions regarding claim of expenditure of Rs. 35 lacs either during assessment proceedings or during cross examination of Shri Jayant Lunawat.
After the cross examination, Shri Jayant M. Lunawat also filed his written submission dated 26.7.2002 in my office on 26.7.2002 in which he has clarified certain issues raised to him in the cross examination. He has again denied the receipt of Rs. 35 lacs in cash from Shri Purandare. The assessee company has also filed its submissions on 29.7.2002 regarding unrecorded cash consideration of Rs. 35 lacs paid to Shri Lunawat and Mrs. Nahar. Both these rival submissions are duly considered. Further as the expenditure is claimed by the assessee company, onus to prove the same squarely lies on the assessee company. As the assessee company has not produced any further evidence in support of the expenditure and the recipient Shri Jayant Lunawat has categorically denied the receipt and also in the light of the fact that the paper relating to expenditure is neither conclusive nor contents of such seized paper were confirmed to be correct by Shri Jayant Lunawat, therefore, the claim of expenditure of Rs. 35 lacs is not proved to be genuine, hence disallowed as unexplained expenditure under Section 69C of the Income-tax Act, 1961 for A.Y. 1996-97.
So the only meaning can be drawn from the above para that the investigation officer who had the control over the seized material has reached to the conclusion that the impugned seized paper was neither a conclusive evidence nor contents of such sfized paper were confirmed to be correct by this appellant. Contrary to this observation of A.O, when this disallowance was challenged by the said assessee, then Ld. CIT(A) has examined this assessee again and thereafter held vide para 4.12 that the explanation was not satisfactory in respect of the payment received by Shri J.M. Lunawat and required to be added as undisclosed income. So, the addition was reversed from the hands of the M/s. LBCPL, but simultaneously, it was held that the payment of Rs. 35,00,000/- was to be made in the hands of this assessee namely Shri J.M. Lunawat by initiating the proceedings Under Section 158BD of I.T. Act. It has been informed by Ld. A.R. during the course of proceedings before us that even this order of Ld CIT(A) has not been fully accepted by the revenue department and challenged before the ITAT, which is yet to be decided.
So, on one hand, the revenue has formed an opinion that the payment to this assessee was not genuine but on the other hand, treating the same amount in the hands of this assessee as undisclosed income. According to us, this anomaly in itself has proved that the revenue Department was utterly confused as to how to tax this amount and in Whose hands.
Naturally, this approach of revenue cannot be approved because once a search and seizure action has been taken and the revenue department has reached to the doorstep of a tax payer and searched his house, then there should not be any scope of an ambiguity or instability in the action of the revenue department. At this juncture, we may also like to clarify that since we are not on the merits of the case hence this observation of ours should not be treated as a finding while deciding the other connected appeals, stated to be pending before ITAT Pune.
11. One more aspect has also to be examined and to be analysed by us that who is the officer authorized Under Section 158BD to record his satisfaction. The section says, as already interpreted above, that the A.O who is in possession of the seized material is authorized to record his satisfaction in respect of an undisclosed income to be assessed in the hands of an another person and on recording that satisfaction, he is expected to hand over all documents or seized material to the A.O having jurisdiction over that other person. Revenue has not established in this case, though repeatedly asked during the course of hearing that whether any such procedure was adopted; but failed to place on record any such information. There is no such material or correspondence placed before us, through which the revenue Department could have established that the A.O in possession of the seized material has recorded his satisfaction and thereafter, handed over all the documents and seized material to the A.O having the jurisdiction over such other person. Therefore, a serious question has been raised from the side of the Ld. A.R. Mr. Pathak, and he was right in raising this doubt; that the concerned A.O. has resumed the jurisdiction which was not provided in the statute. On this count as well, the entire proceedings as initiated Under Section 158 BD appears to be void and against the statute.
12. Though we have pronounced our decision in above paras, holding that the impugned order passed by invoking Section 158BD was void ab initio, but before we part with, we are briefly considering the case laws cited from the either side. Ld. A.R. has cited Khandubhai Vasanji Desai and Ors. 236 ITR 73 (Guj.) in support of this arguments on the limitation of period or in other words, inordinate delay for issuance of notice Under Section 158 BD. On carefully reading of this decision, we have found that the issue was different and the Hon'ble Court has observed that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14 of the Constitution. However, the Court has further observed that when the constitution warrants a special procedure to be adopted, the Legislature is entirely within its domain to devise it to achieve the object of law. The situation wrere search and seizure has yielded useful material showing, the existence of undisclosed income is different from a situation, where no undisclosed income is in fact detected but the A.O only has a reason to believe that some income has escaped assessment in a particular assessment year. Two more decisions have also been cited namely Raymond Woollen Mills Ltd., v. I.T.O. 57 ITD 536 (Bom) and Muthoot M. George Brothers v. ACIT 47 TTJ 434, but the Sections involved and the intention of the legislature was entirely different as discussed in those precedents, hence in our view, reliance on these decisions is misplaced. On the issue of recording of satisfaction, Ld. A.R. has cited the decision in the case of J.K.Synthetics, 83 ITR 335(SC) but that too is not relevant precedent because there the Hon'ble Supreme Court was deciding the powers of CBDT and while doing so has observed that the Central Board is not competent to give directions regarding the exercise of any judicial power by its subordinate authorities. We have also examined the case of Sheo Narain Jaiswal, 176 ITR 352 (Pat.) and have noticed that the issue was re-assessment proceedings Under Section 147 of I.T. Act. In that appeal, on the facts of the case, it was held that the ITO never formed the requisite belief that there had been escapement of income or that income had escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly the material facts for the assessment in that year. So, it was held that the reassessment proceedings were invalid and were liable to be quashed. We can be persuaded by this order because facts of that case have revealed that the Commissioner was having a view that a particular amount was to be assessed but the ITO has expressed the opinion that it should not be assessed but followed the instructions in obedience to the directions of the Commissioner by assumption of jurisdiction Under Section 148 which was quashed being bad in law due to non-satisfaction of the condition precedent. An another decision of Kelvinator of India 256 ITR Page 1 (Del.) ( Full Bench) has also been cited in support of the argument that in case of change of opinion, the initiation of re-assessment proceedings were bad in law. The Hon'ble Court has observed that a statute conferring a statutory power may be held to be ultra vires - Artcile 14, the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionally should be favoured. In that event it was held that by empowerment of Section 147, the I.T.O may exercise his jurisdiction for initiation of proceedings for re-assessment not upon a mere change of opinion, the same may be held to be unconstitutional, observed by the Hon'ble Court. The ratio laid down in this precedent can support the argument of Ld. A.R. because as per the observations made supra, the dilemma of the revenue department is very much apparent.
12.1. A decision of respected co-ordinate bench, ITAT Pune is significant to cite as quoted by Ld. A.R. wherein a decision was taken on the issue of invoking of the provisions of Section 158 BD on recording of a satisfaction by the concerned A.O so decided in the case of Suman Dhanji Zalte, 68 TTJ 273 (Pune) and the held portion as per the head-note is reproduced below: The bare reading of Section 158BD clearly shows that the search provisions can be invoked only if AO is satisfied that any undisclosed income belongs to some person other than the one with respect to whom search was made under Section 132. Such satisfaction must be arrived at by the AO before invoking the provisions of Section 158BD on the basis of material found in the course of search of other person. Any material coming into the possession of the AO after invoking the Section 158BD cannot be considered for exercising such jurisdiction. In the absence of such satisfaction, the assessment made on any other person would be illegal and void ab initio since jurisdiction to assess other person can be exercised validly only in accordance with provisions of Section 158BD. There is nothing on the basis of which it can be said that AO was satisfied that any undisclosed income belong to these assessees. No such satisfaction has been recorded in either of the cases. On the contrary, the AO himself has given a finding that the undisclosed income assessed in the hands of these assessees actually belongs to D and the assessments are being made in these cases on protective basis. In view of the clear finding of the AO to the effect that income assessed in the hands of these assessees actually belongs to D, it cannot be said that AO had the satisfaction as laid down by the provisions of Section 158BD. The impugned assessment cannot be sustained firstly because there was no material before the AO to come to the conclusion that any undisclosed income belongs to these assessees; secondly because, no such satisfaction has been recorded by the AO and thirdly because, there is a finding of the AO himself that such undisclosed income belongs to D. In view of the above, it is held that the impugned assessments were illegal and void ab initio. Accordingly, the impugned assessments are hereby cancelled.
13 We have also examined few case laws cited by Mr. Sunilkumar Mishra, Ld. C.I.T. D.R. in support of his argument that the proceedings Under Section 158BD can be taken if the A.O is satisfied that on account of a search operation, an undisclosed income is to be assessed in the hands of an another person, citation was Rushil Industries Ltc). 251 ITR 608 (Guj.). There is no doubt about this proposition that Section 158 BD definitely requires a satisfaction of the A.O that the books of accounts or any other document found in the search showed undisclosed income of the person other than the one against whom the search was conducted. The observation of the Hon'ble Court was that the disclosure in the search operation against the two persons was a relevant material for forming an opinion and satisfaction that the said other person had not truly disclosed its income, hence the action Under Section 158 BD was held as justified. In that appeal as well, the stress was given by the Hon'ble Court that firstly the A.O should form an opinion and thereafter on recording his satisfaction, can pass on the information to the concerned A.O. having jurisdiction over such other person. We have also held that the satisfaction of the A.O having jurisdiction over the seized material is a condition precedenti before assumption of jurisdiction Under Section 158 BD by the A.O. of such other person. In the same ITR, an another decision which was relied upon by Ld. D.R.i.e. Priya Blue Industries P. Ltd. 251 ITR 615 (Guj.) and one more decision from the same ITR i.e. Premjibhai and Sons 251 ITR 625. In all those cases, the issue was about initiation of proceedings Under Section 158 BD and the Hon'ble Courts have unanimously held that if at any stage, the A.O. is satisfied that an undisclosed income belongs to some other person, notice is to be issued to such other person. On that basis, the Hon'ble Court has held that the issuance of notice Under Section 158 BD to a person other than a person raided needs no waiting till the completion of proceedings Under Section 158BC against the person raided and concluded that it could not be said that there was no scope for action Under Section 158BD. So, the scope and the ambits of this provision have been lald down by the Hon'ble Courts and we have also taken the same stand that before initiation of proceedings Under Section 158BD and before assumption of jurisdiction by the A.O assessing of the other person, the procedure as laid down should be strictly followed by the revenue authorities. Same was the view of ITAT Chennai Bench in the case of Nilesh R. Shah 253 ITR 34 (AT), hence as far as the interpretation of this Section regarding the procedure laid down is in question, no-one has any doubt that the satisfaction of the concerned A.O in possession of the seized material is a must and he is duty bound to hand over the connected document to the A.O having jurisdiction over such other person. As far as the decision of Digvijay Chemicals 248 ITR 381 (Allahabad) is concerned, the issue was that whether an opportunity is required to be given before issuance of notice Under Section 158BD or before recording satisfaction by the A.O and the Hon'ble Court has held that if the concerned A.O was satisfied that the undisclosed income pertained to such other person then there was no requirement in Section 158BD of affording opportunity of hearing to a party before recording satisfaction. In our humble opinion, since the statute do not provide of affording an opportunity of hearing, therefore, the recording of satisfaction cannot be challenged being not a quasi-judicial order but simply an administrative order but the essence is that the presence of a satisfaction of such an officer who is in control of the material is a must. An another decision was cited by Mr. Mishra i.e. Saktival Bankers and Ors. 255 ITR 144 (Mad.), however, the issue involved was slightly different and based upon the facts of those cases, the Hon'ble Court has arrived at the conclusion that the notices issued by the A.O, to whom the records of the person against whom notices had been issued, had been transferred, were perfectly valid and the application of the provision of Chapter XIV B was equally held as valid. The only decision which is left for our consideration as finally cited by Ld. C.I.T. D.R. is (the decision of Hon'ble Bombay High Court in the case of Shri Shirish Madhukar Dalvi 287 ITR 242 and the context was that an error in the notice not mentioning block period for which return was required to be filed is not a condition precedent but only a matter of procedure, so the Court has held that no prejudice was caused to the assessee.
14. Ex antecidentibus et consequentibus and more particularly, apropos view taken in paras 9, 10, 11 and 12 ante, we hereby draw our conclusion; (i) that the facts and circumstances of the case have established that the officer, who was in possession of the seized material failed to record his satisfaction as mandatorily required Under Section 158 BD of I.T. Act and (ii) that the facts and circumstances of the case as; well as the legal position so emerges from the above discussion lead to the conclusion that the assumption of jurisdiction by the A.O Under Section 158 BD was not in accordance with law and as prescribed in statute, hence bad in law.
15. For statistical purpose, this appeal is allowed by quashing the impugned judgment.