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Citation Codes
Equivalent Citations
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Case Number
Attorney(S)
  • By Adv. Ms. Anitha Ramachandran, Ms. Indu Susan Jacob
  • By Mr. Jose Joseph, SC
Judges
  • JUSTICE T. R RAMACHANDRAN NAIR
  • JUSTICE NITIN JAMDAR Chief Justice
Acts
  • Section 153C read with Section 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • By Adv. Ms. Anitha Ramachandran, Ms. Indu Susan Jacob
  • By Mr. Jose Joseph, SC
Judges
  • JUSTICE T. R RAMACHANDRAN NAIR
  • JUSTICE NITIN JAMDAR Chief Justice
Acts
  • Section 153C read with Section 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short)
See more information ...
Smart Summary

Structured Summary of the Judgment

Factual and Procedural Background

The appellant is a doctor and an assessee ordinarily assessed by the Deputy Commissioner of Income Tax, Kozhikkode. A search was conducted on another assessee at Mangalore on 17/03/2009. During that search, materials and evidence were gathered which the Assessing Officer at Mangalore found to belong to the appellant. Those materials were transferred to the Assessing Officer who regularly assesses the appellant at Kozhikkode.

Based on the transferred materials, the appellant's assessments for six assessment years (2003-04 to 2008-09) were taken up and completed under Section 153C read with Section 153A of the Income Tax Act, 1961. For the assessment year 2009-10 (the previous year in which the search occurred), no return had been filed and a best judgment assessment was completed under Section 144 on 29/12/2010. The best judgment order also quoted Sections 153C and 153A, although the department explained the assessment for 2009-10 was made under Section 144.

Instead of pursuing the statutory appellate remedy, the appellant challenged the assessments by filing writ proceedings before the Single Judge, who rejected the challenge. The appellant filed the present Writ Appeal against that dismissal. The Court heard counsel for the appellant and the Revenue's Standing Counsel.

Legal Issues Presented

  1. Whether the best judgment assessment for assessment year 2009-10, completed under Section 144, is invalid merely because the assessment order also quotes Sections 153C and 153A (which apply to preceding years) in the same order.
  2. Whether, before transferring materials seized in the search of one assessee to the Assessing Officer of another assessee under Section 153C, the Assessing Officer who conducted the search is required to record a formal "satisfaction" akin to the requirement under the prior provision (Section 153BD / Section 158BD) that the undisclosed income belongs to another person.
  3. Procedural question as to the availability of statutory appeal remedies (i.e., appeals to CIT (Appeals)) after the Single Judge did not decide assessments on merits.

Arguments of the Parties

Appellant's Arguments

  • The assessments permissible under Section 153C read with Section 153A are limited to six assessment years preceding the year of search (i.e., 2003-04 to 2008-09), and therefore Section 153C/153A cannot apply to the assessment year 2009-10 (the previous year in which the search occurred).
  • The best judgment assessment for 2009-10 is invalid because the assessment order also quoted Sections 153C and 153A; impliedly the contention was that quoting those Sections affected the validity of the Section 144 assessment.
  • The Assessing Officer at Mangalore failed to record the required satisfaction under Section 153C before transferring the seized materials to the appellant's Assessing Officer, which the appellant contended vitiates the transfer and resulting assessments.
  • Relied on the Supreme Court decision in Manish Maheshwari v. Asst. Commissioner of Income Tax (289 ITR 341) to support his argument regarding the need for recorded satisfaction (as contended).

Respondent's (Revenue) Arguments

  • The Department's position (accepted by the Single Judge) was that the assessment for 2009-10 is a valid best judgment assessment under Section 144 because the assessee failed to file a return and no advance tax was paid; the mere quotation of Sections 153C and 153A in that order did not render the Section 144 assessment invalid.
  • Transfer of materials under Section 153C only requires that seized money, bullion, jewellery, valuable articles, books of account or documents "belong to or relate to" a person other than the searched assessee; it does not require an inquiry whether the seized materials prove undisclosed income of another person.
  • Relied on the Division Bench decision of this Court in Commissioner of Income Tax v. Panchajanyam Management Agencies & Services (333 ITR 281 (Ker)) to support the Revenue's position regarding transfer under Section 153C.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Manish Maheshwari v. Asst. Commissioner of Income Tax, 289 ITR 341 Relied upon by the appellant in support of the contention that a formal recorded satisfaction is required before transferring seized materials to another Assessing Officer. The Court noted the appellant's reliance on this Supreme Court decision but held there was no need to go into that decision because Section 153C departs from the prior provision (Section 153BD/Section 158BD) and, on the Court's interpretation, does not require the same recorded-satisfaction inquiry before transfer.
Commissioner Of Income Tax v. Panchajanyam Management Agencies & Services, 333 ITR 281 (Ker) Relied upon by the Revenue (Division Bench of this Court) for the proposition relating to transfer of materials and assessment under Section 153C. The Court observed the Revenue's reliance on this Division Bench decision but again found no necessity to decide the appeal by reference to that decision because it interpreted Section 153C on its own terms, concluding the transfer requirement is limited to whether the seized materials "belong to or relate to" another person and does not mandate an enquiry into whether they prove undisclosed income of that person.

Court's Reasoning and Analysis

The Court proceeded in a stepwise manner:

  1. On the 2009-10 assessment (best judgment under Section 144): The Court accepted the Revenue's explanation that the assessment for the year 2009-10 was a best judgment assessment under Section 144 because the assessee had not filed any return and had not paid advance tax. Although the assessment order also quoted Sections 153C and 153A (provisions applied to the preceding six years), that did not vitiate the Section 144 assessment. The Court held that a best judgment assessment validly made under Section 144 is not invalidated merely because other contemporaneous orders for preceding years referenced Sections 153C/153A. The Court emphasized that the department must clarify the actual provision under which each contested assessment is made, and in this case the department explained the 2009-10 assessment was under Section 144.
  2. On the six assessments from 2003-04 to 2008-09 under Sections 153C read with 153A: The central question was whether the Assessing Officer who conducted the Mangalore search was required to record a satisfaction (in the sense required under the prior provision Section 153BD/Section 158BD) before transferring materials to the appellant's Assessing Officer. The Court examined statutory differences between Section 153C and the previous provision (Section 153BD/Section 158BD) and concluded that Section 153C requires only a determination that the money, bullion, jewellery, valuable articles, books of account or documents seized "belong to or relate to" a person other than the searched assessee. It does not require the searching officer to examine whether the materials prove undisclosed income of that other person before transfer. Thus, the statutory scheme contemplates a procedural transfer of materials to the Assessing Officer before whom the other person is regularly assessed, who is then best placed to evaluate the relevance and evidentiary value of those materials.
  3. The Court described the transfer under Section 153C as an internal departmental arrangement: the only fact to be verified by the officer conducting the search is whether the recovered materials relate to a person other than the searched assessee and whether that person is regularly assessed before another officer. Once transferred, the receiving Assessing Officer has full jurisdiction to appreciate the evidentiary value and to make assessments, penalties or other orders after hearing the assessee.
  4. Applying this interpretation to the facts, the Court found that the Assessing Officer at Mangalore rightly transferred the files to the appellant's Assessing Officer at Kozhikode, and therefore there was no infirmity in the transfer for want of a recorded "satisfaction" in the sense contended by the appellant.
  5. The Court also observed that if the appellant's argument were accepted (requiring a more elaborate recorded satisfaction before transfer), the appellant might be prejudiced because any such objection by him at the stage of transfer would, if overruled, preclude raising the same objection before his regular Assessing Officer who must in any event consider the relevance of the materials. Hence the statutory scheme ensures that the regular Assessing Officer assesses the materials in the context of the assessee's own records and past assessments.
  6. The Court repeatedly noted that the appellant retained the ordinary statutory remedy to challenge the assessments on merits by filing appeals before the appellate authority, CIT (Appeals), and that the Single Judge had not considered the merits of the assessments themselves.

Holding and Implications

Holding: The Writ Appeals are dismissed as devoid of merit, subject to the limited relief granted by the Court.

Direct implications for the parties:

  • The best judgment assessment for assessment year 2009-10 made under Section 144 is valid notwithstanding that Sections 153C and 153A were also quoted in that order; the quotation of those Sections did not invalidate the Section 144 assessment.
  • The assessments for the six assessment years 2003-04 to 2008-09 completed under Section 153C read with Section 153A were not vitiated by the absence of a recorded "satisfaction" by the searching officer at Mangalore; Section 153C requires only that the materials seized belong to or relate to a person other than the searched assessee and contemplates transfer to the regular Assessing Officer for that person.
  • The appellant retains the statutory right to file appeals before CIT (Appeals) against the assessments on merits. The Court allowed the appellant one month from the date of the judgment to file such appeals; if filed within that period the appellate authority is to treat them as filed in time and decide them on merits except on grounds already raised and decided by the Court in this judgment.
  • If the appellant seeks interim orders from the Assessing Officer or the appellate authority, any payments made pursuant to interim orders of this Court should be reckoned when considering such applications.

The Court did not state that it was laying down a general binding precedent beyond its interpretation of Section 153C in the context of this case. The judgment disposes of the present Writ Appeals and clarifies the Court's view of the correct interpretation and application of Section 153C as applied to the facts before it.

Show full summary ...

    K.M. Mehaboob v. Income Tax

    JUDGMENT

    Ramachandran Nair, J.

    The appellant, a Doctor, who is an assessee before the Deputy Commissioner of Income Tax, Kozhikkode, was assessed under Section 153C read with Section 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) based on evidence gathered in the course of search of another assessee at Mangalore. When the searched assessee's assessment was taken up under Section 153A, based on the information and materials gathered during search that Assessing Officer noticed that the part of the evidence collected and materials received during search of that assessee belong to the appellant, and therefore the evidence and materials so collected during search of the assessee at Mangalore were transferred to the Assessing Officer before whom the appellant/assessee is regularly assessed at Kozhikkode. Based on materials received from the Assessing Officer from Mangalore, the appellant/assessee's assessments were taken up under Section 153C read with Section 153A after issuing notice and the said assessments were completed through separate orders for each of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search was made on the assessee at Mangalore as provided under Section 153A(1)(b) of the Act. While the assessments are completed for the assessment years from 2003-04 to 2008-09 under Section 153C read with Section 153A of the Act, for the assessment year 2009-10 separate assessment was made on best judgment basis under Section 144 of the Act because the assessee did not file even return for that assessment year even when assessment was taken up in December, 2010. Over looking the statutory remedy of appeal, the assessee contested the assessments in writ proceedings on technicalities before the learned Single Judge, who rejected the same against which this Writ Appeal is filed.

    2. We have heard learned counsel appearing for the appellant/assessee and learned Standing Counsel for the respondents.

    3. Before proceeding to consider the Writ Appeal on the grounds decided by the learned Single Judge against the appellant, we are constrained to observe that on the merit with regard to the additions sustained in assessments, assessee still has right of appeal before the appellate authority, namely CIT (Appeals), because the learned Single Judge has not considered the assessments on merit. Therefore, it is for the appellant/assessee to file appeals before the statutory authorities raising contentions which are not decided by the learned Single Judge and by us.

    4. The first challenge is against the assessment for the assessment year 2009-10 made under Section 144 read with Sections 153C and 153A of the Act. According to the appellant, assessments permissible under Section 153C read with Section 153A are only for six assessment years in terms of Section 153A(1)(b) of the Act. Admittedly, search was on 17/03/2009 and therefore the six assessments permissible under the above Sections are for the assessment years 2003-04 to 2008-09. The appellant has contested the validity of all the assessments. We first proceed to consider the challenge against the validity of the best judgment assessment completed for the assessment year 2009-10. The specific grievance of the appellant is that assessment for the assessment year 2009-10 is for the previous year in which search was made and therefore for that year Section 153A or Section 153C has no application. However, the contention of the learned Standing Counsel for the Income Tax Department, which found acceptance with the learned Single Judge, is that though in the assessment order for the year 2009-10 all the connected Sections of the Act including Sections 153C and 153A are mentioned, it is in fact a best judgment assessment under Section 144 for failure of the assessee to file return for the said assessment year. Admittedly, assessment for the year 2009-10 has been made on 29/12/2010 along with the assessments taken up under Section 153C read with Section 153A for the six preceding assessment years. All the six assessments under these provisions are completed by separate orders along with separate best judgment assessment completed for the assessment year 2009-10. There is no dispute that all the assessments including the contested best judgment assessment for the year 2009-10 were completed by the regular Assessing Officer who has jurisdiction on the assessee. The assessee has no explanation as to why no return was filed for the assessment year 2009-10. The assessee had also not made any payment of advance tax during the previous year relevant for the said assessment. When no return is filed for the assessment year, the Assessing Officer is bound to make best judgment assessment under Section 144 of the Act, which is exactly what is done in this case. However, since the materials gathered during search of another assessee was the basis for completion of assessments of the appellant for the six preceding assessment years under Section 153C read with Section 153A, regular assessment for 2009-10 was completed immediately thereafter. The Assessing Officer by mistake has quoted all those Sections namely Sections 153C and 153A of the Act in the best judgment assessment also wherein it is also stated that the said assessment is made under Section 144 of the Act. We do not think the validity of a best judgment assessment completed under Section 144 is any way affected merely because Sections 153C and 153A, based on which preceding year's assessments were completed, are also quoted therein. When assessee contests the validity of assessments completed with reference to different provisions of the Act, it is the obligation of the department to clarify the real provision under which the each contested assessment is really made, which in this case is explained to be under Section 144 of the Act. When the best judgment assessment made under Section 144 is otherwise valid for the year 2009-2010, there is no scope for challenging it's validity on the ground that some other Sections pertaining assessment made contemporaneously for preceding years are also quoted therein. We therefore do not find any merit in the challenge against the assessment for the year 2009-10 on the ground that the Assessing Officer has also quoted Sections 153C and 153A of the Act in the said order because we have found that the assessment is one made exclusively under Section 144 of the Act after issuing notice to the assessee. However, it was open to the assessee to contest the best judgment assessment on merit in appeal before CIT (Appeals), which he can still do.

    5. The remaining question to be considered is appellant's challenge against the assessments completed for the six assessment years from 2003-04 to 2008-09 under Section 153C read with Section 153A(1) on the ground that the Assessing Officer who conducted search on the assessee at Mangalore under Section 132 has not recorded the satisfaction as required under Section 153C before transferring the files to the Assessing Officer of the appellant to make assessments on the appellant under Section 153C read with Section 153A of the Act. While learned counsel for the appellant has relied on the decision of the Supreme Court in Manish Maheshwari v. Asst. Commissioner of Income Tax, reported in 289 ITR 341, learned Standing Counsel for the Revenue has relied on the Division Bench decision of this Court in Commissioner Of Income Tax v. Panchajanyam Management Agencies & Services and Services, reported in 333 ITR 281 (Ker). We do not think there is any need to go to both these decisions because even though Section 153C is analogous to the previous provisions of Section 153BD, there is complete deviation in the new provision in as much as while Section 158BD provided for transfer of file only when the Assessing Officer who conducted the search or who called for books of accounts was satisfied that the undisclosed income found therefrom belongs to any person other than the searched assessee who has to be assessed under Section 158BD read with Section 158BC, under Section 153C of the Act for transferring the material or evidence collected in search to the Assessing Officer of an assessee other than the searched assessee, what is required to be satisfied is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized in the course of search of an assessee belong to or relate to a person other than the searched assessee. In other words, unlike under Section 158BD for transferring a file under Section 153C, there is no need to examine whether the books of accounts or other evidence or materials seized in the course of search of an assessee represents or proves undisclosed income of another assessee. On the other hand, for transferring the file to the Assessing Officer of such other assessee, all what is required to be considered is whether the materials or books of accounts or evidence recovered relates to another assessee, which may or may not lead to an assessment in the case of the other assessee after transfer of the file to his Assessing Officer. This is only an internal arrangement to be made between two Departmental Officers and in this regard the only fact that needs to be verified is whether the assessee whose books of accounts or materials are recovered in the course of search of any other assessee, is a regular assessee before another Officer, and if so, to transfer the file to such other Officer for his consideration and for passing orders, whether assessment or penalty or such other order permissible under the Act by that Officer. Admittedly, in this case, the Assessing Officer, who conducted the search and who obtained materials and evidence about the income of the Appellant rightly transferred the files to the Assessing Officer of the appellant at Kozhikode, who has jurisdiction to assess him, and it is only on receipt of such files and materials from the Assessing Officer from Mangalore, the appellant's assessments were taken up and completed under Section 153C read with Section 153A of the Act. We, therefore, do not find any merit in the contention of the appellant's counsel that satisfaction was not recorded by the Assessing Officer at Mangalore before transferring the materials and seized records to the appellant's Assessing Officer. In our view, if appellant's argument is accepted he could be placed in a worse position, because if his objections were considered and overruled while transferring the file by the Assessing Officer at Mangalore holding that goods seized or materials recovered really belong to him justifying assessment, the appellant will forfeit his right to raise same objection before his Assessing Officer who has to consider the relevance of the documents, accounts or other materials received from the Assessing Officer at Mangalore. The scope of Section 153C is such that assessment has to be strictly made only by the Assessing Officer before whom the assessee is regularly assessed because it is that Officer who is familiar with the transactions, income and regular assessment of the assessee for the preceding years' and based on the same to consider the relevance of materials or documents received from another Assessing Officer after hearing the assessee to consider such materials or evidence for assessment. So much so, we do not think any enquiry or hearing or adjudication is contemplated by the Assessing Officer, who conducted the search of an assessee in which evidence or materials belonging to another assessee is obtained for transferring the file to the Assessing Officer before whom such other assessee is to be assessed. Even though transfer as contemplated under Section 153C has to be made by the Officer who conducted the search and who recovered books of accounts, materials or articles in the course of search of an assessee other than searched assessee, still it is open to such assessee to establish before his Assessing Officer that the opinion of the Assessing Officer transferring the materials or evidence or books of accounts or goods seized is wrong and that those do not belong to him. In other words, the transfer of recovered books of accounts, evidence or materials is only a procedural formality to be complied with by the Assessing Officer who searched an assessee and recovered materials pertaining to another assessee, and the Assessing Officer who takes up assessment under Section 153C against the latter will have full jurisdiction to appreciate evidentiary value of the books of accounts or materials or goods received from the other officer and proceed to make assessment in his own way. We therefore do not find any merit in the contention of the appellant's counsel that satisfaction is required to be recorded by the Assessing Officer, who conducted the search before transferring materials or articles or things found belonging to another assessee.

    6. In view of the findings above, we dismiss these Writ Appeals as devoid of any merit. Since the assessments were subject matter of contest in Writ Petitions and in Writ Appeals, we feel the appellant can be given one month time from now to file appeals. If appeals are filed within one month from now, the appellate authority will treat the appeals as filed in time and proceed to dispose of the same on merit except on grounds raised before us and decided by us. Similarly, if the appellant moves for interim orders either before the Assessing Officer or before the appellate authority, payments made under interim orders of this Court should be reckoned while considering such application.

    These Writ Appeals are dismissed but by granting the limited relief as above.

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    Comments

    K.M. Mehaboob v. Income Tax
    (Jul 30, 2012)