In Tapan Kumar Dutta vs Commissioner of Income Tax, the Supreme Court of India held that a second notice under Section 158BC of the Income Tax, 1961 issued to the assessee by the same Assessing Officer after verifying the materials seized from the assessee’s firm, is valid.
The appellant-assessee, Tapan Kumar, is one of the partners in a partnership firm called Nityakali Rice Mill. The firm was subjected to search by the Income Tax Department. Several documents/books including an amount of Rs.34 lacs were seized. Thereafter, a notice under section158BC of the Income Tax (IT) Act, 1961 was issued to the appellant by the Assessing Officer (A.O.) to prepare and file a true and correct return of his total income including the undisclosed income in respect of which he was assessed for the block period 1989-90 to 1999-2000. The very same day, a separate notice under Section 158BC of the Income Tax Act,1961 was served to the Firm, by the same A.O.
The appellant filed his block return and declared his aggregate undisclosed income at Rs.14 lakhs. He also filed an application before the Additional Commissioner of Income Tax to issue necessary directions to A.O. under Section 144A of the Income Tax Act,1961. The Additional Commissioner issued separate directions under Section 144A of the IT Act in the cases of M/s. Nitya Kali Rice Mill, Kartick Dutta, Shambhu Mondal and Tamal Mondal and the Draft Assessment Order under Section 158BC of the IT Act was sent to the Joint Commissioner of Income Tax for approval which was returned by the Joint Commissioner stating that no warrant for authorization was issued in the names of the persons mentioned in the Draft Assessment Order. Thereafter, the Deputy Commissioner of Income Tax passed a Block Assessment order stating that the return filed in the case of the Firm should be accepted as Nil income also directed to initiate proceedings against the Appellant for the assessment of undisclosed income for the block period under Section 158BD of the IT Act. A fresh notice under Section 158BC read with Section 158BD of the Income Tax Act, 1961 was issued to the Appellant to file the block return for the period 1989-90 to 1999-2000. The A.O. assessed the undisclosed income to the tune of Rs.3.48 Crores. On appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) reduced the amount to Rs.66 Lacs. He opined that undisclosed income for the concerned period should be taken in the aggregate sum.
Being aggrieved, the Appellant, as well as the Revenue, preferred an Appeal before the Tribunal. Tribunal dismissed the appeal of the appellant and partly allowed the appeal of the Revenue. The appellant approached High Court but the appeal was rejected. Then an appeal was made to the Supreme Court.
The Counsel for the appellant argued that the first notice issued under Section 158BC of the Income Tax Act is the valid notice and the assessment has to be made in pursuance thereof and the AO has no authority to issue the second notice under Section 158BD. He further contended that the Firm, as well as the Appellant, were assessed by the same Assessing Officer wherein Section 158BD has no application because it applies only in the case where the Assessing Officer assessing the Firm as well as the Appellant is different.
The Counsel for the Revenue contended that the notice under Section 158BD can be issued to a person with respect to whom the search was not conducted but undisclosed income was found as belonging to such person from the material seized from the residence or business premises of the person with respect to whom search was made under Section 132. He submitted that the satisfaction of the Assessing Officer was apparent and that there was no infirmity in the issue of notice under Section 158BC read with Section 158BD of the IT Act to the Appellant.
The Bench Comprising of Justice R. K Agrawal and Justice Abhay Manohar Sapre found that the Assessing Officer had issued a notice under Section 158BD to the Appellant only after being satisfied and that no satisfaction is required before issuing a notice under section 158BC as it speaks of a condition that where any search had been conducted under Section 132 or books of accounts or other documents or assets or requisition under Section 132A in case of any person, then, the Assessing Officer shall serve notice to such person requiring him to furnish within specified time a return in the prescribed form. Therefore, according to the Court, at the time when the notice under Section 158BC was issued by the Assessing Officer to M/s Nitya Kali Rice Mill, it was not necessary for the Assessing Officer to arrive at a satisfaction that any undisclosed income belongs to M/s Nitya Kali Rice Mill.
“A search was conducted against M/s Nitya Kali Rice Mill under Section 132 of the IT Act. Since the notice under Section 158BC issued to M/s Nityakali Rice Mill and the notice under Section 158BC issued to the Appellant were on the same day i.e., on 09.09.1999, the question of coming to a satisfaction that any undisclosed income based on seized books of accounts or documents or assets belonged to the present Appellant did or could not arise inasmuch as no reasonable or prudent man can come to such satisfaction unless the seized books of accounts or documents or assets are perused, examined and verified. Therefore, the Assessing Officer was right in arriving at a decision that the notice under Section 158BC issued to the present Appellant on 09.09.1999 did not satisfy the requirement of Section 158BD of the IT Act. He, therefore, rightly proceeded to issue the fresh notice (Second Notice) under Section 158BD on 20.11.2000 after recording a satisfaction that any undisclosed income based on seized books of account or document or assets or other materials may belong to the Appellant.” the Court observed.
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