Thursday, June 12, 2014

Income tax - Whether for purpose of determining time-frame for completion of assessment, date on which requisition u/s 132A is made, is irrelevant - YES: HC

NEW DELHI, JUNE 12, 2014: THE issue before the Bench is - Whether for the purpose of determining the time frame for completion of the assessment proceedings, the date on which the requisition under Section 132A is made, would not be material and the time period must run from the date when AO is in a position to proceed with the assessment proceedings and conclude the same. And the verdict goes in favour of the assessee.
Facts of the case

Assessee
 derives commission income from purchase and sale of properties and from the trading of transistor parts. It also worked as an informer for DRI. CBI conducted a search and seized cash of Rs. 1.12 crores. DIT (Inv.) issued warrant of authorization u/s 132A to CBI to deliver the books of account, documents and the assets seized by CBI during the search.

Assessee filed a petition before Special Judge requesting for release of cash seized by CBI. The Special Judge dismissed the petition of assessee and directed CBI to transfer the seized amount to Income Tax Department.

Assessee filed return declaring an income of Rs. 1.13 crores for AY 2002-03 which included Rs. 90 lacs from seized by CBI in response to notice issued u/s 158BC. AO made assessment considering the whole amount seized as undisclosed income for the block period. AO also completed assessment for AY 2002-03 separately determining the income at Rs. 90 lacs.

CIT (A) as well as ITAT both dismissed the appeals of the assessee. Before Hon’ble High Court, the question of law framed was that whether tribunal was justified to validly conclude that block period was 1.4.1996 to 21.03.2013 despite the fact that section 158BA specifically provides block period ends on the date on which, requisition was made u/s 132A and as such, the correct block period was 1.4.1996 to 18.9.2001. Whether the tribunal was justified in determining undisclosed income at Rs. 1.14 crores despite the fact that block period on the facts of the case comprised of the period 1.4.1996 to 18.9.2001 and not block period determined by the tribunal as 1.4.1996 to 21.03.2003 and whether the cash award received by assessee from DRI is to be treated as undisclosed income.

Assessee contended that the Block Period, as defined under Section 158B of the Act, means the period comprising of previous years relevant to six assessment years preceding the previous year in which search u/s 132 was conducted or requisition u/S 132A was made and also includes the period up to the date when such requisition was made. Tribunal erred, while upholding that the block period ended on 21.03.2003, as the requisition u/s 132A of the Act was made on 18.09.2001 and therefore, the block period must end on 18.09.2001. The date of execution of warrant of authorization u/s 132A cannot be held to be the date on which requisition u/s 132A was made. Regarding addition of Rs. 22.50 lacs, it was stated that it was a part of the cash rewards aggregating Rs. 27.00 lacs received from DRI.

Revenue contended that the requisition mentioned u/s 158B(a) relates to the date of the execution of the authorization issued u/s 132A. As per Explanation 2 to Section 158BE of the Act, the requisition is deemed to have been executed on the actual receipt of the books and accounts or other documents by the Authorized Officer. The block period ended on 21.03.2003 as the requisition u/s 132A was said to be complete on 21.03.2003 when the physical delivery of the amount seized by CBI and other documents were handed over to the tax authorities enabling the Assessing Officer to issue a notice under Section 158BC of the Act.

After hearing both the parties, the High Court held that,

++ Block period has been defined to mean the period comprising previous years relevant to the six assessment years preceding the previous year in which search u/s 132 is conducted or requisition u/s 132A is made. It also includes a part of the previous year till the date when the search u/s 132 is conducted or such requisition u/s 132A is made. DRI issued a warrant of authorization u/s 132A, on 18.09.2001, and the Income Tax Authorities received the books of accounts and other documents on 21.03.2003. On 28.05.2003, the Assessing Officer issued a notice to the assessee under Section 158BC of the Act to file a return of undisclosed income for the block period of 01.04.1996 to 21.03.2003;

++ The moot question is whether the Block period should end on 18.09.2001 (i.e. the date of the requisition) or on 21.03.2003 (i.e. the date on which the records were received). The words used in Section 158B(a) and Section 158BE(1) are different. Whereas, Section 158B(a) refers to making of requisition, the specific words being: “or any requisition was made under Section 132A … or requisition was made”, Section 158BE(1) refers to execution of authorizations, the specific words being: “authorizations ….. for requisition under Section 132A…. was executed”. The Legislature has, thus, consciously used different expressions in Section 158B(a) and Section 158BE. It is settled law that where a statute uses different words, it would be presumed that the Legislature intended the same to express different meanings. It, certainly, cannot be presumed that the Legislature had consciously used different expressions to mean the same thing. Moreover, a construction deriving support from different phraseology in different sections of a statute may be negated on considerations that it will lead to unreasonable or irrational results;

++ On a plain reading of Section 158B(a) and Explanation 2 to Section 158BE, it is difficult in accepting that the expression “requisition was made” must be read to mean the same as “authorizations for requisition was executed”;

++ The provision of Section 158BE(1) relates to the period of limitation within which the order of block assessment must be passed u/s 158BC. The purpose of Section 158BE (1) is to specify sufficient time within which the AO is expected to complete the exercise of assessment pursuant to the material that has been found against the assessee. The date on which the AO comes into possession of the assets and books of accounts of the assessee, would be relevant for determining the said period. AO cannot be expected to proceed and conclude the exercise of assessment in absence of the requisite records, documents and assets that form the basis on which the assessment proceedings are to be conducted under Chapter XIVB of the Act. For the purpose of determining the time frame for completion of the assessment proceedings, the date on which the requisition under Section 132A is made, would not be material and the time period must run from the date when AO is in a position to proceed with the assessment proceedings and conclude the same. The focus of Section 158BE(1) is fixation of the time frame for completion of the assessment. This is, clearly, not the focus of Section 158B(a);

++ The income, that is, received/receivable after the date of search and seizure would not be represented by the assets that are found during the search and seizure operations and certainly, would not be assessable to tax as undisclosed income for that period. There is, thus, good reason for the Block Period to be defined as a period prior to the date of search or prior to the date when the authorized officer finds reason to believe that the assets/materials already found, represent undisclosed income. The Parliament in its wisdom has, therefore, defined Block Period u/s 158B(a), to include the period up to the date of commencement of the search under section 132 or the date on which the requisition u/s 132A is made. Therefore, there is no reason to read the expression “requisition was made” to not mean the date on which the authorized officer made the requisition but to mean the date when he received the records/assets pursuant thereto. In view of the same, the Block Period adopted by AO was not in accordance with the provisions of the Act, the assessment made by the Assessing Officer would also required to be reviewed;

++ Assessee produced a letter from DRI stating that the assessee was the recipient of cash rewards. AO doubted the letter from DRI and held that the assessee had failed to prove a corelation between the cash found and the cash rewards claimed by him. Assessee had given details of the cash rewards received by him including the names of the officers who had given the said cash rewards to the assessee. The affidavit filed by the assessee could not have been rejected summarily without verifying the facts from the relevant authority. Thus, matter is remanded back to AO.

Regards
Prarthana Jalan
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