By Kishor Karia, Chartered Accountant, Atul Jasani, Advocate
14. Search and seizure – Assessment of third
person – It is an essential condition precedent that any money, bullion or
jewellery or other valuable articles or thing or books of accounts or documents
seized or requisitioned should belong to a person other than the person
referred to in section 153A of the Act.
Appeal – Power
to admit additional ground – As per the provisions of section 153C of the Act,
incriminating material which is seized has to pertain to the Assessment Years
in question and when it is undisputed that the documents which are seized do
not establish any co-relation, document-wise, essential requirement u/s. 153C of
the Act for assessment under that provision is not fulfilled, it becomes a
jurisdictional fact – Tribunal was justified in admitting the additional ground
Commissioner
of Income Tax-III, Pune vs. Sinhgad Technical Education Society (2017) 397 ITR
344 (SC)
A search and
seizure operation was carried out under section 132 of the Act on one Mr. M. N.
Navale, President of the Sinhgad Technical Education Society (the
assessee-society), and his wife on July 20, 2005 from where certain documents
were seized. On the basis of these documents, which according to the Revenue
contained notings of cash entries pertaining to capitation fees received by
various institutions run by the Assessee, a notice u/s.153C of the Act was
issued on April 18, 2007.
In the order of
assessment, the Assessee was treated as an Association of Person (AOP). Having
regard to the complexity involved in the accounts and the changes to be
effected on account of the change in the status of the Assessee to that of AOP,
a special audit u/s. 142(2A) of the Act was conducted. On the basis of special
audit report, taxable incomes for the Assessment Years 1999-2000 to 2006-07 had
been worked out.
Assessment Year
1999-2000 was covered u/s.147 of the Act, Assessment Year 2006-07 was covered
u/s.143(3) of the Act and Assessment Years 2000-01 to 2005-06 were covered
u/s.153C read with section143(3) of the Act.
The Assessee
filed appeal there against, which was partially allowed by the Commissioner of
Income Tax (Appeals) {CIT(A)}. He, however, upheld the order of the AO, holding
that the Assessee was not eligible for exemption u/s.11 of the Act and,
therefore, donations received were rightly treated as income. Against the
aforesaid part of the order, which was against the Assessee, it preferred further
appeal to the ITAT. In the appeal before the ITAT, the Assessee raised
additional ground questioning the validity of the notice u/s.153C of the Act on
the ground that satisfaction was not properly recorded and also that the notice
u/s.153C was time barred in respect of Assessment Years 2000-01 to 2003-04. The
ITAT allowed the Assessee to raise the additional ground and decided the same
in favour of the Assessee thereby quashing the notice in respect of the
aforesaid Assessment Years. Challenging this order, the Revenue filed appeals
before the High Court. However, the High Court dismissed these appeals.
The objection
of the Revenue before the Supreme Court was that it was improper on the part of
the ITAT to allow additional ground to be raised, when the Assessee had not
objected to the jurisdiction u/s.153C of the Act before
the AO.
The Supreme
Court noted that the ITAT permitted this additional ground by giving a reason
that it was a jurisdictional issue taken up on the basis of facts already on
the record and, therefore, could be raised. The ITAT had held that as per the
provisions of section 153C of the Act, incriminating material which was seized
had to pertain to the Assessment Years in question and it was an undisputed
fact that the documents which were seized did not establish any co-relation,
document-wise, with the aforesaid four Assessment Years. Since this requirement
u/s. 153C of the Act was essential for assessment under that provision, it
became a jurisdictional fact. The Supreme Court found this reasoning of the
ITAT to be logical and valid, having regard to the provisions of section 153C
of the Act. According to the Supreme Court, para 9 of the order of the ITAT
revealed that the ITAT had scanned through the Satisfaction Note and the material
which was disclosed therein was culled out and it showed that the same belonged
to Assessment Year 2004-05 or thereafter. After taking note of the material in
para 9 of the order, the position that emerged therefrom was discussed in para
10. It was specifically recorded that the counsel for the Department could not
point out to the contrary. It was for this reason the High Court had also given
its imprimatur to the aforesaid approach of the Tribunal. The Supreme
Court further noted that the learned senior Counsel appearing for the
Respondent, had argued that notices in
respect of Assessment Years 2000-01 and 2001-02 were even time-barred.
The Supreme
Court held that the ITAT rightly permitted this additional ground to be raised
and correctly dealt with the same ground on merits as well. Order of the High
Court affirming this view of the Tribunal was, therefore, without any blemish.
In view of the aforementioned findings, the Supreme Court was of the view that
it was not necessary to enter into the controversy as to whether the notice in
respect of the Assessment Years 2000-01 and 2001-02 was time-barred.
The Supreme
Court observed that the Gujarat High Court in Kamleshbhai Dharamshibhai
Patel vs. CIT (2013) 31 taxmann.com 50 had categorically held that it was
an essential condition precedent that any money, bullion or jewellery or other
valuable articles or thing or books of accounts or documents seized or
requisitioned should belong to a person other than the person referred to in
section153A of the Act. According to the Supreme Court, this proposition of law
laid down by the High Court was correct, which was also stated by the Bombay
High Court in the impugned judgement as well. The Supreme Court noted that
judgement of the Gujarat High Court in the said case went in favour of the
Revenue when it was found on facts that the documents seized, in fact, pertain
to third party, i.e. the Assessee, and, therefore, the said condition precedent
for taking action u/s.153C of the Act had been satisfied.
The Supreme
Court also held that likewise, the Delhi High Court in SSP Aviation Limited
vs. DCIT (2012) 346 ITR 177 (Delhi) had also decided the case on altogether
different facts which had no bearing once the matter was examined in the
aforesaid hue on the facts of this case. The Bombay High Court has rightly
distinguished the said judgement as not applicable.
According to
the Supreme Court, there was no merit in these appeals.
The Supreme
Court however, clarified that it had not dealt with the matter on merits
insofar as incriminating material found against the Assessee or Mr. Navale was
concerned.
The Supreme
Court dismissed the appeals with the aforesaid observations.
15. Search and
seizure – In view of the amendment made in section 132A of the IT Act, 1961 by
Finance Act of 2017, namely, that the ‘reason to believe’ or ‘reason to
suspect’, as the case may be, shall not be disclosed to any person or any
authority or the appellate Tribunal as recorded by IT authority u/s.132 or section
132A, the Supreme Court could not go into that question of validity of the
search at all
N. K.
Jewellers and Ors. vs. Commissioner of Income Tax
(398 ITR 116
(SC).
On 27th
May, 2000, an employee of the Appellant was returning from Amritsar by train No.
2030, Swarn Shatabdi Express and he was found in the possession of Rs. 30 lakh
cash in a search by Railway Police. The SHO, GRP Station, Jalandhar after
making enquiries from the concerned employee registered a case under sections
411/414 of the Indian Penal Code on 27th May, 2000.
The said
information was received by the Investigation Unit, Jalandhar from SHO, GRP
Station Jalandhar on 29th May, 2000. Warrant of authorisation
u/s.132A of the IT Act, 1961 (the Act), was obtained from the Director of IT,
Ludhiana and the cash of Rs. 30 lakh was requisitioned on 3rd June,
2000 and seized. Proceeding for assessment for the block period from 1st
April, 1991 to 3rd June, 2000 u/s. 158BD of the Act was initiated.
The explanation
of the Appellant before the assessing authority was that his employee had gone
to Amritsar to make some purchases of gold but the transaction did not
materialise. The AO was of the view that the amount represented sales of gold
made by the Appellant on earlier occasions and the sale proceeds were being
carried back to Delhi. After considering the statements of various persons and
other material on record, the authorities came to the conclusion that it was
concealed income and accordingly, the Appellant was assessed to tax. As such, the
explanation of the Appellant was not accepted and the High Court also took the
view that the Appellant was disbelieved for adequate reasons and hence, no
substantial question of law arises for its consideration.
Before the
Supreme Court, the learned Counsel for the Appellant submitted that the
proceedings initiated u/s.132 of the Act were invalid for the reason that it
could not be based on a search conducted on a train by the police authorities
and, therefore, the proceedings initiated for block assessment period 1st
April, 1991 to 3rd June, 2000 were without jurisdiction.
The Supreme
Court noted that this plea was not raised by the Appellant before any of the
authorities. Further, it noted the amendment made in section 132A of the IT
Act, 1961 by Finance Act of 2017, namely, that the ‘reason to believe’ or
‘reason to suspect’, as the case may be, shall not be disclosed to any person
or any authority or the appellate Tribunal as recorded by IT authority u/s.132
or Section132A. According to the Supreme Court, it therefore, could not go into
that question at all. Even otherwise, the Supreme Court found that the
explanation given by the Appellant regarding the amount of cash of Rs. 30 lakh
found by the GRP and seized by the authorities had been disbelieved and had
been treated as income not recorded in the books of account maintained by it.
In view of the above, according to the Supreme Court there was no infirmity in
the order passed by the High Court.
Accordingly,
the civil appeal was dismissed.
16. Appeal to
the High Court – In order to admit the second appeal, what is required to be
made out by the Appellant being sine qua non for exercise of powers u/s.
100 of the Code, is existence of “substantial question of law”
arising in the case so as to empower the High Court to admit the appeal for
final hearing by formulating such question
Maharaja
Amrinder Singh vs. The Commissioner of Wealth Tax (2017) 397 ITR 752 (SC)
The issue
involved in the wealth tax appeals for the three assessment years 1981-82,
1982-83 and 1983-84 was decided by the Tribunal in favour of the Appellant
(assessee) which gave rise to filing of the appeals before the High Court by
the Revenue u/s. 27-A of the Act questioning therein the legality and
correctness of the orders of the Tribunal. The High Court allowed the appeals
filed by the Revenue setting aside the order dated 05.07.2011 passed by the
Income Tax Appellate Tribunal and restoring the order of assessment passed by
the Assessing Officer for levying penalty for the entire period of delay in
respect of the said Assessment Years, which gave rise to filing of these
appeals by way of special leave before the Supreme Court by the Assessee.
The short
question, which arose for consideration before the Supreme Court in these
appeals, was whether the High Court was justified in allowing the appeals filed
by the Revenue and thereby was justified in setting aside the orders passed by
the Tribunal.
The Supreme
Court observed that in Santosh Hazari vs. Purushottam Tiwari (Deceased) by
L.Rs., (2001) 3 SCC 179, it had held that in order to admit the second
appeal, what is required to be made out by the Appellant being sine qua non for
exercise of powers u/s. 100 of the Code of Civil Procedure, 1908, is existence
of “substantial question of law” arising in the case, so as to
empower the High Court to admit the appeal for final hearing by formulating
such question. In the absence of any substantial question of law arising in
appeal, the same merits dismissal in limine on the ground that the
appeal does not involve any substantial question of law within the meaning of
section100 of the Code.
According to
the Supreme Court, the interpretation made by it of section 100 in Santosh
Hazari’s Case (supra), would equally apply to section27-A of the Act
because firstly, both sections provide a remedy of appeal to the High Court;
secondly, both sections are identically worded and in pari materia; thirdly,
section27-A is enacted by following the principle of “legislation by
incorporation”; fourthly, section 100 is bodily lifted from the Code and
incorporated as Section27-A in the Act; and lastly, since both sections are
akin to each other in all respects, the appeal filed u/s. 27-A of the Act has
to be decided like a second appeal u/s.100 of the Code.
The Supreme
Court on the facts of the case, found that the High Court had proceeded to
decide the appeals without formulating the substantial question(s) of law. The
High Court did not make any effort to find out as to whether the appeals
involved any substantial question(s) of law and, if so, which was/were that
question(s), nor it formulated such question(s), if in its opinion, really
arose in the appeals. The High Court failed to see that it had jurisdiction to
decide the appeals only on the question(s) so formulated and not beyond it.
[Section27(5)].
In the light
of foregoing and keeping in view the law laid down in the case of Santosh
Hazari (supra), the Supreme Court held that the impugned orders were not
legally sustainable and thus were liable to be set aside. As a result, the
appeals succeed and were allowed. Impugned orders were set aside. Both the
cases were remanded to the High Court for deciding the appeals afresh in
accordance with the observations made above. _
