Lekshmi Traders ABKARI Contractors v. Commissioner of Income Tax, Ernakulam

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** **THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 2[ND] DAY OF NOVEMBER 2022 / 11TH KARTHIKA, 1944** **ITA NO. 225 OF 2015** **AGAINST THE ORDER IN IT (SS) A NO.14/COCH/2002 OF I.T.A.TRIBUNAL, COCHIN BENCH APPELLANT:** **LEKSHMI TRADERS ABKARI CONTRACTORS, SASTHAMKOTTA, KOLLAM.** **BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.RAJA KANNAN** **RESPONDENT:** **THE COMMISSIONER OF INCOME TAX, CR BUILDINGS, IS PRESS ROAD, ERNAKULAM, KOCHI-682 018.** **BY ADV CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT** **THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 02.11.2022 ALONG WITH ITA NO.2/2018 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ITA Nos.225/2015 & 2/2018 -2- # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** ## **THE HONOURABLE MR.JUSTICE BASANT BALAJI** **WEDNESDAY, THE 2[ND] DAY OF NOVEMBER 2022 / 11TH KARTHIKA, 1944** ## **ITA NO. 2 OF 2018** **AGAINST THE ORDER IN IT(SS) A NO. 14/COCH/2002 OF I.T.A.TRIBUNAL,** ## **COCHIN BENCH** ## **APPELLANT:** **LEKSHMI TRADERS ABKARI CONTRACTORS, SASTHAMKOTTA, KOLLAM.** **BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM SRI.RAJA KANNAN** **RESPONDENT:** **THE COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM - 695 003.** **THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 02.11.2022 ALONG WITH ITA NO.225/2015 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ITA Nos.225/2015 & 2/2018 -3- ## **JUDGMENT** ## S.V. Bhatti, J. We have heard Mr. Raja Kannan learned counsel for the appellant and Mr. Christopher Abraham learned Standing Counsel for the respondents. 2. Lekshmi Traders/assessee is the appellant. The Commissioner of Income Tax, Ernakulam/Revenue is the respondent. The circumstances and the issues for decision in both the appeals are similar circumstances and the details of orders from which the respective appeals are filed are stated in the following tabular statement: |Sl.<br>No.|Order of<br>assessment|Order of<br>Commissione<br>r|Order of Income<br>Tax Appellate<br>Tribunal|ITA No.| |---|---|---|---|---| |1|Block period<br>01.04.88 to<br>23.02.99 dtd<br>28.12.2001|108Q/2001-02<br>dtd<br>25.03.2002|I.T.(SS) A<br>No.14/Coch/2002<br>dtd 12.02.2015|ITA<br>No.225/<br>2015| |2|Block period<br>01.04.88 to<br>23.02.99 dtd<br>28.12.2001|108Q/2001-02<br>dtd<br>25.03.2002|I.T.(SS) A<br>No.14/Coch/2002<br>dtd 29.07.2016|ITA<br>No.02/2<br>018| ITA Nos.225/2015 & 2/2018 -4- 3. The learned counsel appearing for parties have stated that ITA No.225/2015 can be treated as lead case for convenience and the outcome in the said appeal will have bearing on the other appeal as well. ITA No.225/2015 4. On 23.02.1999 a search under Section 132 of the Income Tax Act (for short, ‘the Act’) was conducted in the premises of one R. Prasad. The said Prasad, it is not in dispute that, is one of the partners of the assessee which has been treated as an ‘Association of Persons’ for assessment under the Act. The materials found in the search conducted in the premises of R. Prasad resulted in issuance of notice under Section 158BD of the Act to the assessee herein for the block period 01.04.1988 to 23.02.1999. We refrain from referring to orders of assessment, Appellate Authority, etc., for the issue being agitated by the assessee in the present appeal pursuant to the judgment of this Court in ITA No.85/2013 resulting in the ITA Nos.225/2015 & 2/2018 -5- ## impugned order. The operative portion of the judgment dated ## 02.07.2014 reads as follows: “11. Learned counsel for the appellant Shri Gopinath Menon further submitted that what is raised as an additional ground by the appellant is a question of law, that too by relying upon the decision of the Apex Court in **Manish Maheswhari's case** ((2007) 289 ITR 341 SC). It is therefore submitted that the parties are not prevented from raising a question of law and it is upto the Tribunal to consider the acceptability of the same and such a power of the Tribunal is not curtailed by the judgment rendered by the Division Bench as per Annexure F. The learned Senior Counsel for the Revenue reiterated that the decision applicable in this case is **Panchajanyam Management Agencies' case** ((2011) 333 ITR 281). We need not resolve the said controversy in this appeal, as it is upto the Tribunal to consider the same. We are definitely of the view that the powers of the Tribunal are not curtailed by the judgment of the Division Bench as Annexure F, merely because the said judgment, in the operative portion "directed the matter to be considered on merits after hearing the parties." It is also not correct to say that the decision of the Division Bench concerning the validity of the notice will prevent the Tribunal to consider any other ground which the appellant has raised for consideration. It cannot therefore be said that when this 'Court sent back the matter for fresh consideration, no other points than those raised in the grounds of appeal can be considered and no additional ground can be allowed to be raised for consideration. We accordingly answer the questions raised, in favour of the assessee and against the Revenue. In that View of the matter, we allow the appeal and set aside Annexure H order passed by the Tribunal: The Tribunal will consider the matter afresh in the light of the findings rendered by us above and it is upto the Tribunal to consider the additional ground raised by the appellant and take appropriate decision as enjoined by law. No costs.” ITA Nos.225/2015 & 2/2018 -6- 5. The Tribunal upon remand through Annexure-J order dated 12.02.2015 rejected the grounds under Section 158BD of the Act canvassed by the assessee. Hence the appeal with the following substantial questions law: “i. Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in rejecting the additional ground raised by the appellant, while passing Annexure J Order, without considering the ratio of the decisions of the Hon'ble Supreme Court Manish Maheswari's Case, reported in (2007) 289 ITR 341 (SC), A.R Enterprises' Case, reported in (2013) 350 ITR 489 (SC), Calcutta Knitwears Case, reported in (2014) 362 ITR 673 (SC)? ii. Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that recording of satisfaction by the assessing officer is not contemplated u/s. 158BD, which forms the basis for passing Annexure J order? iii. Whether on the facts and circumstances of the case, the Appellate tribunal was justified in relying on the decision in Panchajanyam Management Agencies Case, reported in (2011) 333 ITR 281; which was rendered in a clearly distinguishable set of facts? iv. Whether on the facts and circumstances of the case, the Appellate tribunal was justified in not considering or distinguishing any of the decisions relied on by the appellant, which settled the legal position that recording of satisfaction by the assessing officer is a sine qua non for initiating proceedings against another person u/s. 158BD of the Act? v. Is not the finding of fact by the Appellate Tribunal erroneous and perverse, in the light of the factual and ITA Nos.225/2015 & 2/2018 -7- ## legal aspects involved?” 6. Mr. Raja Kannan contends that the applicable provision to the case on hand is Section 158BD of the Act. The Tribunal committed an error in law by paraphrasing the decision of this Court in _**Commissioner of Income-Tax v. Panchajanyam Management Agencies and Services[1]**_ case and dismissing the appeal. The principle laid down in _Panchayanyam_ case is not attracted to the case on hand. The Tribunal should have applied the principle laid down by the Apex Court in _**CIT v. Calcutta Knitwears**_ and _**ACIT v. AR . Enterprises**_[2] The Assessing Officer who conducted the search without recording satisfaction has made over the material to the jurisdictional Assessing Officer, which is illegal. The Tribunal should have accepted the instructions covered by Circular No.24/2015 issued by the CBDT, which deals with the necessity for recording satisfaction under Section 158BD of the > 1 (2011) 333 ITR 281 2 (2013) 350 ITR 489 (SC) ITA Nos.225/2015 & 2/2018 -8- ## Act. We refer to the relevant portion in the circular issued by the CBDT, which reads as under: “3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/parimateria to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC. apply to proceedings us 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT. 4. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts. 5. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgement. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.” ## 6.1 The ratio laid down in _Calcutta Knitwears_ case, and _AR_ _Enterprises_ case is applicable in all fours to the case on hand and the answer to the above question can be arrived at by merely referring to the very paragraphs which are commended to us with considerable force by the counsel for the appellant, which ITA Nos.225/2015 & 2/2018 -9- ## read thus: ## **Calcutta Knitwears case** It is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose. Wherever the intention to impose liability is clear, the courts ought not be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same (Whitney v. IRC [1926] AC 37, CIT v. Mahaliram Ram jidas [1940] 8 ITR 442 (PC), India United Mills Ltd. v. CEPT (1955] 27 [TR 20 (SC) and Gursahai Saigal v. CIT (1963] 48 ITR (SC) 1; CWT v. Sharean Kumar Swarup and Sons [1994] 6 SCC 6231; CIT v. National Taj Traders [1980] 1 SCC 3702; Associated Cement Co. Ltd. v. CTO [1981] 48 STC 466 (SC)). Francis Bennion in Bennion on Statutory Interpretation, 5th Ed., Lexis Nexis in support of the aforesaid proposition put forth as an illustration that since charge made by the legislator in procedural provisions is excepted to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings. Having said that, let us revert to discussion of section 158BD of the Act. 38 The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under section 132 or section 132A of the Act. Under section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under section 132 or section 132A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc to the Assessing Officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional Assessing Officer may proceed to issue a notice for the purpose of completion of the assessments under section 158BD of the Act, the other provisions of ITA Nos.225/2015 & 2/2018 -10- ## Chapter XIV-B shall apply. ## **AR Enterprises case** 14. In Asst. CIT v. Hotel Blue Moon [2010] 3 SCC 259 at page 2642, one of s (H. L. Dattu J.), while explaining the purport of Chapter XIV-B of the Act, has observed that a search is the sine qua non for the block assessment; the special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period, intended to provide à mode of assessment of undisclosed income, which has been detected as a result of search. Hence, from the aforementioned discussion, it is clear that a valid search under section 132 of the Act is a sine qua non for invoking block assessment proceedings under Chapter XIV-B. Further, according to section 158BD of the Act, the Assessing Officer must record his or her satisfaction that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 of the Act. 15. It seems that these requisites were in fact not adhered to in the present case. During the course of the hearing, learned counsel for the assessee did contend that the Revenue did not have jurisdiction to invoke Chapter XIV-B of the Act, against the assessee. According to the learned counsel, before initiating proceedings under section 158BD of the Act, the Assessing Officer had not recorded his satisfaction that any undisclosed income belonged to the assessee or that the assessee did not have the intention to disclose their income. Hence, the block assessment proceedings against the assessee should be quashed. However, we are unable to appreciate the submission of the learned counsel at this stage, since the same was never urged before the High Court and the Tribunal. Hence, we refrain from making any observations on a contention that had never been argued before the High Court and the Tribunal. We shall restrict our opinion strictly to the issue before us, viz., whether the payment of advance tax for the relevant assessment year is tantamount to the disclosure of income for the purpose of application of Chapter XIV-B of the Act. ITA Nos.225/2015 & 2/2018 -11- (Emphasis added) He prays for answering the substantial questions of law in favour of the Assessee and against the Revenue. 7. Mr.Christopher Abraham contends that the principle laid down in _Calcutta Knitwears_ case and _AR enterprises_ case does not apply to the case on hand since the search was conducted on 23.02.1999. Though the judgments referred to had been held as a condition precedent, according to him, the recording of satisfaction is not a requirement reflected in Section 158BD. What is required is the satisfaction of the Officer searching the premises to make over the case to the jurisdictional Assessing Officer. Explained, it is argued that the fact that the Officer who searched the premises comes across the material of some other person and forwards such material to the jurisdictional Assessing Officer, then the very fact that the material forwarded is firstly upon due satisfaction arrived at by the Officer who searched the premises. Such a step is sufficient for proceeding ITA Nos.225/2015 & 2/2018 -12- with the assessment by the jurisdictional Assessing Officer. Therefore, it is argued that the judgments relied on by the appellant firstly, are not applicable to the circumstances of the case, and secondly, the Section is clear that the satisfaction of the Officer is sufficient but not the recording of reasons. 8. The arguments advanced on behalf of both sides are taken note of. The comprehensive question that needs to be answered in the appeal is whether the order of assessment dated 28.12.2001 as confirmed by the Appellate Authority and the Tribunal is valid and legal and whether the notice under Section 158BD is issued after the Assessing Officer is satisfied to forward the material to the jurisdictional Assessing Officer. The . question in whichever way considered is no more _res integra_ 8.1 The dictum referred to supra is clear on the point that the recording of satisfaction by the Assessing Officer who conducted the search is a _sine qua non_ for issuing notice under Section 158BD of the Act. It is not the case of the Revenue that ITA Nos.225/2015 & 2/2018 -13- satisfaction, in whichever way it has been recorded by the searching officer, is available in the case on hand. The contrary situation is that material alone without recording satisfaction is made over to the Assessing Officer, which resulted in issuing notice under Section 158BD of the Act. In our considered view the said procedure is illegal consequently, the order of assessment as confirmed by the Appellate Authority is liable to be set aside and accordingly set aside. The questions are answered in favour of the Assessee and against the Revenue. Income Tax Appeal is allowed. No order as to costs. ITA No.2/2018 This appeal is filed challenging an order made by the Tribunal in a Miscellaneous Petition filed by the assessee. The rectification was pursued before the Tribunal to take note of the CBDT circular etc. The dictum of the Supreme Court as understood by the CBDT Circular, no doubt, would lead us to the ITA Nos.225/2015 & 2/2018 -14- conclusion that the non-recording of satisfaction has vitiated the proceedings initiated in the Act. Having regard to the answers given by this Court in the accompanying appeal, the questions stated in the appeal need not be separately considered. Hence, the instant appeal is closed. Sd/- **S.V.BHATTI JUDGE** Sd/- **BASANT BALAJI JUDGE** JS ITA Nos.225/2015 & 2/2018 -15- ## **APPENDIX OF ITA 225/2015** ## **APPELLANT’S ANNEXURES** ## **ANNEXURE A** **TRUE COPY OF THE NOTICE DATED 13.12.1999 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX TO THE APPELLANT.** **ANNEXURE B** **TRUE COPY OF THE BLOCK ASSESSMENT ORDER DATED 28.12.2001 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX TO THE APPELLANT.** ## **ANNEXURE C** **TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 25.03.2002 ISSUED TO THE APPELLANT.** **ANNEXURE D TRUE COPY OF THE ADDITIONAL GROUND DATED 01.02.2004 FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL.** - **ANNEXURE E TRUE COPY OF THE HONOURABLE ORDER DATED 27.02.2004 IN IT (SS) A NO.14/2002 ISSUED TO THE APPELLANT.** ## **ANNEXURE F** - **TRUE COPY OF THE JUDGMENT OF THE HONOURABLE HIGH COURT DATED 12.11.2010 IN ITA NO.1510 OF 2009 ISSUED TO THE APPELLANT.** - **ANNEXURE G TRUE COPY OF THE ADDITIONAL GROUND FILED BY THE APPELLANT BEFORE THE HON'BLE TRIBUNAL DATED 06.02.2012.** **ANNEXURE H TRUE COPY OF THE ORDER OF THE HON'BLE TRIBUNAL DATED 12.10.2012 IN IT (SS) A NO.14/COCH/2002 & IT (SS) A NO.17/COCH/2002 ISSUED TO THE APPELLANT.** **ANNEXURE I TRUE COPY OF THE JUDGMENT DATED 02.07.2014 ISSUED TO THE APPELLANT BY THE HON'BLE COURT IN ITA NO.85/2013.** ## **ANNEXURE J** **TRUE COPY OF THE ORDER DATED 12.02.2015, ISSUED TO THE APPELLANT BY THE HON'BLE TRIBUNAL IN IT (SS) A NO.14/COCH/2002.** ITA Nos.225/2015 & 2/2018 -16- ## **APPENDIX OF ITA 2/2018** ## **APPELLANT’S ANNEXURES** ## **ANNEXURE A** **A TRUE COPY OF THE NOTICE DATED 13.12.1999 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX TO THE APPELLANT** ## **ANNEXURE B** **A TRUE COPY OF THE BLOCK ASSESSMENT ORDER DATED 28.12.2001 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX TO THE APPELLANT** ## **ANNEXURE C** **A TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 25.03.2002** ## **ANNEXURE D** **A TRUE COPY OF THE ADDITIONAL GROUND DATED 01.02.2004 FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL** ## **ANNEXURE E** **A TRUE COPY OF THE ORDER DATED 27.02.2004 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN IT (SS) A No.14/COCH/2002** ## **ANNEXURE F** **A TRUE COPY OF THE JUDGMENT OF THE HON'BLE HIGH COURT DATED 12.11.2010 IN ITA No.1510 OF 2009** ## **ANNEXURE G** - **A TRUE COPY OF THE ADDITIONAL GROUND DATED 06.02.2012 FILED BY THE APPELLANT BEFORE THE APPELLATE TRIBUNAL** - **ANNEXURE H A TRUE COPY OF THE COMMON ORDER DATED 12.10 2012 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN IT (SS) A No.14/COCH/2002 & IT (SS) A No.17/COCH/2002** ## **ANNEXURE I** **THE TRUE COPY OF THE JUDGMENT DATED 2.7.2014, PASSED BY THIS HON'BLE COURT IN ITA No.85/2013** ## **ANNEXURE J** **THE TRUE COPY OF THE ORDER DATED 12.02.2015 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN IT (SS) A No.14/COCH/2002** ITA Nos.225/2015 & 2/2018 -17- ## **ANNEXURE K** ## **ANNEXURE L** ## **ANNEXURE M** ## **ANNEXURE N** **THE TRUE COPY OF THE MISCELLANEOUS PETITION DATED NIL FILED BY THE APPELLANT BEFORE THE ITAT, COCHIN BENCH, COCHIN** **THE TRUE COPY OF THE ARGUMENT NOTE DATED NIL SUBMITTED BY THE APPELLANT BEFORE THE APPELLATE TRIBUNAL** **THE TRUE COPY OF THE ORDER DATED 29.07.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN** **THE TRUE COPY OF THE CIRCULAR NO.24/2015 DATED 31.12.2015 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES**