Commissioner of Income-tax v. V. D. Muralidharan
[Citation -2014-LL-1111-5]

Citation 2014-LL-1111-5
Appellant Name Commissioner of Income-tax
Respondent Name V. D. Muralidharan
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 11/11/2014
Assessment Year 1991-92,1992-93,1993-94,1994-95,1995-96,1996-97,1997-98,1998-99,1999-00,2000-01,2001-02
Judgment View Judgment
Keyword Tags substantial question of law • period of limitation • undisclosed income • issuance of notice • satisfaction note • statutory period • block assessment • public interest • reasonable time • void ab initio • revision order • time barred
Bot Summary: The assessee challenged the ex parte order dated May 29, 2009, by way of appeal before the Commissioner of Income-tax contending that notice under section 158BD of the Act was issued beyond two years period of completion of assessment under section 158BC of the Act in the case of Sree Gokulam Chits and Finance Co. Ltd. and the present proceedings are time barred. In the appeal preferred by the assessee against the assessment order dated May 29, 2009, the Commissioner of Income-tax, by order dated February 22, 2013, held that since the notice under section 158BD of the Act was served beyond the time limit specified under section 158BE of the Act, the block assessment order is ab initio void. The assessee in these appeals challenged the block assessment order dated May 29, 2009, before the Commissioner of Income-tax , who, by order dated March 9, 2012, set aside the block assessment order and held that since the notice under section 158BD of the Act was served beyond the time limit specified under section 158BE of the Act, the block assessment order is ab initio void. Concededly, in all these cases, the proceedings initiated under section 158BD of the Act by issuance of notice to the assessees was beyond the period of two years of completion of assessment under section 158BC of the Act in the case of Sree Gokulam Chits and Finance Co. Ltd. It is the plea of the Department that there is no time limit prescribed in the statute for completion of block assessment in respect of persons other than the person on whom search was made and the notices issued under section 158BD of the Act by the Assessing Officer are valid. Senior counsel for the Revenue submitted that there is no time limit prescribed under the Act for issuance of notice under section 158BD and, according to him, the Assessing Officer has to first complete the assessment that gets time barred first and then proceed to make assessment under section 158BD later. In our view, a prudent officer should first complete assessment under section 158BC on searched assessees and thereafter based on the materials available, proceed for assessment under section 158BD against other assessees about whom details were obtained in the course of search. At the maximum we can declare an assessment arbitrary, if assessment is not initiated within a reasonable time which is not the case here because the assessment was initiated under section 158BD within two months from completion of assessment under section 158BC against searched assessees which was made within time.


JUDGMENT judgment of court was delivered by R. Sudhakar J.-T. C. (A.) Nos. 247 and 248 of 2014 are filed challenging order of Income-tax Appellate Tribunal "C" Bench, Chennai, dated November 19, 2013, made in I. T. (SS) A. Nos. 14/Mds/2012 and 14/Mds/2013 for block assessment years 1991-92 to 2000-01 and 200102 (part), raising following questions of law: T. C. (A.) No. 247 of 2014 "(i) Whether, on facts and in circumstances of case, Tribunal was right in quashing revision order passed under section 263 of Act on ground that original assessment order made under section 144 read with section 158BD of Act itself was quashed as ab initio void? (ii) Whether, on facts and in circumstances of case, Tribunal was right in quashing revision order passed under section 263 of Act, when assessee has not produced any evidence for claiming 50 per cent. of commission receipt as expenditure to earn such commission income?" T. C. (A.) No. 248 of 2014 "(i) Whether, on facts and in circumstances of case, Tribunal was right in quashing block assessment as time barred, when there is no time limit prescribed in Income-tax Act either for recording of satisfaction note or issuing notice under section 158BD of Act? (ii) Whether, on facts and in circumstances of case, Tribunal was right in following Special Bench judgment in case of Manoj Aggarwal v. Deputy CIT [2008] 113 ITD 377; [2009] 310 ITR (AT) 99 (Delhi) [SB], which is not applicable to facts of present case and clearly distinguishable? (iii) Whether, on facts and in circumstances of case, Tribunal was right in cancelling block assessment without adjudicating grounds of appeal raised before it which is contrary to ratio of judgment of Madras High Court in case of South India Surgical Co. P. Ltd. [2003] 263 ITR 5 (Mad)?" T. C. (A.) No. 502 of 2014 is filed by Revenue challenging order of Income-tax Appellate Tribunal "A" Bench, Chennai, dated March 13, 2013, made in I. T. (SS) A. No. 16/Mds/2012 for block assessment years 1991-92 to 2001-02, raising following question of law: "Whether, on facts and in circumstances of case, Tribunal was right in quashing order under section 263 of Act when assessee has not produced any evidence for claiming 50 per cent. of commission receipt as expenditure to earn such commission income?" T. C. (A.) Nos. 651 and 652 of 2014 are filed calling in question order of Income-tax Appellate Tribunal "C" Bench, Chennai, dated March 21, 2013, made in I. T. (SS) A. Nos. 10/Mds/2012 and 19/Mds/2012 for block assessment years 1991-92 to 2001-02, raising following questions of law: T. C. (A.) No. 651 of 2014 "Whether, on facts and in circumstances of case, Tribunal was right in quashing order under section 263 of Act when assessee has not produced any evidence for claiming 50 per cent. of commission receipt as expenditure to earn such commission income?" T. C. (A.) No. 652 of 2014 "(i) Whether, on facts and in circumstances of case, Tribunal was right in quashing block assessment order on ground that block assessment notice under section 158BD was issued beyond time prescribed? (ii) Whether, on facts and in circumstances of case, Tribunal was right in quashing block assessment order without noting that there is satisfaction note and block assessment notice was issued and assessment were completed within time prescribed?" 4.1. facts in nut-shell are as under: respondents-assessees are individuals engaged in business of financing and commission agency with Sree Gokulam Chits and Finance Co. Ltd. There was search action under section 132 of Income-tax Act, 1961 (for brevity, "the Act") in business/office/branch/residential premises of one A. M. Gopalan and Sree Gokulam Chits and Finance Co. Ltd. on November 28, 2000, seizing several incriminating materials. investigation revealed that employees/agents of Sree Gokulam Chits and Finance Co. Ltd. were in receipt of commission which was not admitted in their respective returns of income. After search action, all cases were notified to Assessing Officer, Central Circle I(1), Chennai, for completing block assessment. 4.2. respondents-assessees were found to be earning commission income from Sree Gokulam Chits and Finance Co. Ltd. and, hence, notices under section 158BD of Act were issued to respondents on various dates. respondents in T. C. (A.) Nos. 247, 248, 651 and 652 of 2014 did not file return of income. respondent in T. C. (A.) No. 502 of 2014 filed return of income on July 4, 2007, admitting undisclosed income at Rs. 2,07,385. 4.3. Pursuant to same, Assessing Officer proceeded to complete block assessment under section 144 read with section 158BD of Act. Assessing Officer treated actual commission received by respondents as undisclosed income and deducted 50 per cent. of it towards incidental expenditure incurred by them. Thus, Assessing Officer determined undisclosed income as under: T. C. (A.) Nos. Undisclosed income 247 and 248 of 2014: Rs. 5,13,880 502 of 2014: Rs. 2,07,390 651 and 652 of 2014: Rs. 6,38,779 4.4. Even though proceedings till this stage dealt with similar facts and circumstances, manner in which cases proceeded further varies and, therefore, they are set out separately for better understanding. In T. C. (A.) Nos. 247 and 248 of 2014 4.5.1. assessee challenged ex parte order dated May 29, 2009, by way of appeal before Commissioner of Income-tax (Appeals) contending that notice under section 158BD of Act was issued beyond two years period of completion of assessment under section 158BC of Act in case of Sree Gokulam Chits and Finance Co. Ltd. and, therefore, present proceedings are time barred. 4.5.2. Pending said appeal, appellant (Commissioner of Income- tax, Central I, Chennai) reviewed assessment order dated May 29, 2009, on ground that deducting 50 per cent. of commission receipts as incidental expenditure incurred by assessee is erroneous and prejudicial to interests of Revenue. By order dated March 30, 2012, appellant set aside assessment order dated May 29, 2009, and directed Assessing Officer to redo assessment after affording opportunity to assessee. Aggrieved by order dated March 30, 2012, passed under section 263 of Act, assessee filed appeal before Tribunal in I. T. (SS) A. No. 14/Mds/2012. 4.5.3. In appeal preferred by assessee against assessment order dated May 29, 2009, Commissioner of Income-tax (Appeals), by order dated February 22, 2013, held that since notice under section 158BD of Act was served beyond time limit specified under section 158BE of Act, block assessment order is ab initio void. Challenging said order dated February 22, 2013, Revenue preferred appeal before Tribunal in I. T. (SS) A. No. 14/Mds/2013. 4.5.4. Tribunal dismissed appeal filed by Revenue and held that block assessment is void ab initio as notice under section 158BD of Act was served beyond time limit specified under section 158BE of Act. As consequence, appeal filed by assessee was dismissed by Tribunal as infructuous. 4.5.5. Aggrieved by said order, Revenue has filed T. C. (A.) Nos. 247 and 248 of 2014, raising questions of law, referred to supra. In T. C. (A.) No. 502 of 2014 4.6.1. Pursuant to assessment order passed, appellant reviewed assessment order dated May 29, 2009, on ground that deducting 50 per cent. of commission receipts as incidental expenditure incurred by assessee is erroneous and prejudicial to interests of Revenue. By order dated March 30, 2012, appellant set aside assessment order dated May 29, 2009, and directed Assessing Officer to redo assessment after affording opportunity to assessee. Aggrieved by order dated March 30, 2012, passed under section 263 of Act, assessee filed appeal before Tribunal in I. T. (SS) A. No. 16/Mds/ 2012. 4.6.2. Tribunal set aside revision order passed by Commissioner of Income-tax, Central-I, Chennai, under section 263 of Act and allowed appeal filed by assessee. 4.6.3. Aggrieved by said order, assessee filed T. C. (A.) No. 502 of 2014 raising question of law, referred supra. In T. C. (A.) Nos. 651 and 652 of 2014 4.7.1. assessee in these appeals challenged block assessment order dated May 29, 2009, before Commissioner of Income-tax (Appeals), who, by order dated March 9, 2012, set aside block assessment order and held that since notice under section 158BD of Act was served beyond time limit specified under section 158BE of Act, block assessment order is ab initio void. 4.7.2. However, by order dated March 30, 2012, appellant (Commissioner of Income-tax, Central-I, Chennai) reviewed assessment order dated May 29, 2009, on ground that deducting 50 per cent. of commission receipts as incidental expenditure incurred by assessee is erroneous and prejudicial to interests of Revenue. By order dated March 30, 2012, appellant set aside assessment order dated May 29, 2009, and directed Assessing Officer to redo assessment after affording opportunity to assessee. 4.7.3. Pursuant to said order passed by Commissioner of Income- tax on March 30, 2012, Assessing Officer, by order dated March 20, 2013, passed assessment order under sections 263 and 158BD read with section 144 of Act treating entire amount of commission received by assessee as undisclosed income. 4.7.4. Aggrieved by order dated March 30, 2012, passed under section 263 of Act, assessee filed appeal before Tribunal in I.T.(SS) A. No. 10/Mds/2012 and challenging order dated March 9, 2012, passed by Commissioner of Income-tax (Appeals), Revenue filed I. T. (SS) A. No. 19/Mds/2012. 4.7.5. Tribunal, by order dated March 21, 2013, allowed appeal of assessee and dismissed appeal filed by Revenue. 4.7.6. Challenging said order, Revenue has filed appeals in T. C. (A.) Nos. 651 and 652 of 2014 on questions of law, referred to supra. We have heard learned counsel on either side and perused orders passed by Tribunal and authorities below. Concededly, in all these cases, proceedings initiated under section 158BD of Act by issuance of notice to assessees was beyond period of two years of completion of assessment under section 158BC of Act in case of Sree Gokulam Chits and Finance Co. Ltd. It is plea of Department that there is no time limit prescribed in statute for completion of block assessment in respect of persons other than person on whom search was made and, therefore, notices issued under section 158BD of Act by Assessing Officer are valid. It is trite law that where limitation is not prescribed, action must be taken within reasonable period. However, reasonable period would depend upon facts of each case and it would be open to assessee to contend that it is bad on ground of delay. In this regard, it would be apposite to refer to decision of Supreme Court in Government of India v. Citedal Fine Pharmaceuticals [1989] 3 SCC 483, wherein it was held as under: "6. In absence of any period of limitation it is settled that every authority is to exercise power within reasonable period. What would be reasonable period, would depend upon facts of each case. Whenever question regarding inordinate delay in issuance of notice of demand is raised, it would be open to assessee to contend that it is bad on ground of delay and it will be for relevant officer to consider question whether in facts and circumstances of case notice of demand for recovery was made within reasonable period. No hard and fast rules can be laid down in this regard as determination of question will depend upon facts of each case." (emphasis supplied) In case on hand, block assessment in respect of Sree Gokulam Chits and Finance Co. Ltd. was proceeded under section 158BC of Act. It is only on basis of block assessment of person with respect to whom search was made under section 132 of Act, proceedings under section 158BD of Act in respect of any other person can be initiated. Therefore, provisions of sections 158BD and 158BC are intertwined. In other words, jurisdiction to issue notice under section 158BD of Act to any person, other than person with respect to whom search was made, and consequent time limit prescribed under section 158BE of Act in respect of third parties, would certainly be included within two years period given to Assessing Officer for completion of block assessment under section 158BE(1) of Act. When such inference can be drawn from bare reading of provisions which are explicit, it does not lie in mouth of Revenue to state that there is no time limit prescribed in statute for initiation of proceedings under section 158BD of Act. above said view of this court is fortified by decision of Delhi High Court in CIT v. Umesh Chandra Gupta [2014] 362 ITR 1 (Delhi), wherein it is held as under (page 4): "The period of limitation in respect of primary individual, i.e., searched person is controlled by section 158BE(1) which is subject to well defined exceptions under Explanation (1) to that provision. If Revenue s logic were to prevail, while authority to carry out assessment in case of third parties itself stems out of search conducted of searched person, Assessing Officer (of searched person) would be left free with untrammelled discretion to take up materials which he deems to be incriminating and forward to concerned Assessing Officer (of third party) at his will and pleasure. Surely, such startling and far-reaching consequence was not intended. third reason why this court rejects Revenue is that dissection of section 158BE in manner suggested would mean that section 158BE(2) would stand on its own without any period of limitation. Instead of this, approach of Tribunal appears to have been to hold Assessing Officer (of searched person) who primarily possessed jurisdiction over subject matter, including jurisdiction to record satisfaction that third party also had to file block assessment and was subject to such notice under section 158BD, to complete assessment and also to record satisfaction within basic period of two years. This interpretation, in opinion of court, not only furthers intention of Parliament, but also subserves larger public interest in that it places reasonable fetters upon jurisdiction of concerned Assessing Officer who might otherwise be left with uncontrolled discretion in such matters. Fourthly, section 158BE expressly states that satisfaction is to be recorded by Assessing Officer with respect to need to issue notice to third party before he hands over possession of books and assets seized or requisitioned, to Assessing Officer of such third party. This too clearly has reference to primary jurisdiction of Assessing Officer of searched person and consequential limitation placed upon him to complete assessment within period of two years spelt out under section 158BE." (emphasis supplied) reliance placed on decision of Kerala High Court in CIT v. Bimbis Creams and Bakes [2012] 24 Taxmann.com 143 (Ker); [2013] 1 ITR-OL 466 (Ker) by learned standing counsel for Revenue is not applicable to facts of present case, as in said decision assessment under section 158BD of Act was well within statutory period. relevant portion of said decision reads as under (page 471 of 1 ITR-OL): "Relying on decision in CIT v. Panchajanyam Management Agencies [2011] 333 ITR 281, senior counsel for respondentassessee submitted that Assessing Officer was bound to initiate simultaneous proceedings under section 158BD against respondent-assessee i.e. along with section 158BC assessments initiated against group of concerns searched by Department. Senior counsel for Revenue submitted that there is no time limit prescribed under Act for issuance of notice under section 158BD and, according to him, Assessing Officer has to first complete assessment that gets time barred first and then proceed to make assessment under section 158BD later. Besides finding force in this contention, we also feel that it is only on completion of assessment under section 158BC on searched assessee Assessing Officer can conclude that remaining income in respect of which details were collected during search could be assessed in hands of other assessees. In fact, bifurcation of income relating to searched assessees and income relating to others will be clear only after determining income of searched assessees. So much so, in our view, prudent officer should first complete assessment under section 158BC on searched assessees and thereafter based on materials available, proceed for assessment under section 158BD against other assessees about whom details were obtained in course of search. In absence of any provision in Act requiring Department to issue notice under section 158BD within time frame, we do not think court can prescribe any time limit. At maximum we can declare assessment arbitrary, if assessment is not initiated within reasonable time which is not case here because assessment was initiated under section 158BD within two months from completion of assessment under section 158BC against searched assessees which was made within time. So much so, we hold that assessment under section 158BD was within time. So much so, we hold that assessment under section 158BD was initiated within reasonable time and same was completed within statutory period of 2 years as contemplated under section 158BE(2)(b) of Act. We, therefore, allow appeal on this issue as well by reversing order of Tribunal and by holding that assessment completed on respondent under section 158BD is well within time. In view of findings above, we set aside orders of Tribunal and restore appeals back to files of Tribunal with direction to Tribunal to hear and dispose of appeals along with appeals of group of concerns remanded by us, vide judgment above referred." (emphasis supplied) For foregoing reasons, we find no question of law, much less substantial question of law, arising for consideration in these appeals. Accordingly, these appeals are dismissed. No costs. Consequently, M. P. No. 1 of 2014 in T. C. (A.) No. 248 of 2014 and M. P. No. 1 of 2014 in T. C. (A.) No. 652 of 2014 are closed. *** Commissioner of Income-tax v. V. D. Muralidharan
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