SCA/6135/1998 1/10 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 6135 of 1998 WITH SPECIAL CIVIL APPLICATION No. 6136 of 1998 SPECIAL CIVIL APPLICATION No. 6137 of 1998 SPECIAL CIVIL APPLICATION No. 6138 of 1998 SPECIAL CIVIL APPLICATION No. 6139 of 1998 SPECIAL CIVIL APPLICATION No. 6141 of 1998 SPECIAL CIVIL APPLICATION No. 6148 of 1998 SPECIAL CIVIL APPLICATION No. 6149 of 1998 SPECIAL CIVIL APPLICATION No. 6150 of 1998 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ Sd/- HONOURABLE MR.JUSTICE R.H.SHUKLA Sd/- ==================================== 1. Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO SCA/6135/1998 2/10 JUDGMENT ==================================== NIVEDITA M. MAKWANA - Petitioner Versus P M SHUKLA - Respondent ==================================== Appearance : MR SN SOPARKAR, SENIOR ADVOCATE with MR VARUN K. PATEL for Petitioners. MR MANISH R BHATT for Respondent. ==================================== CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and HONOURABLE MR.JUSTICE R.H.SHUKLA Date : 07/07/2008 COMMON ORAL JUDGMENT (Per : HONOURABLE MR. JUSTICE R. H. SHUKLA) 1. The present petitions have been filed by the petitioners challenging the impugned notice at Annexure A dated 17.06.1998 on the basis of the fact that the petitioner is a partner of the firm Vikas Shipping Corporation as the search was carried out in the premises of the firm. 2. It is contended that one M/s. Vikas Shipping Corporation was a partnership firm engaged in the business of shipping and the search of the premises of the said partnership firm was carried out on 19.12.1997 and on the basis thereof, pursuant to the report made by A.D. (I.T.), Bhavnagar, the impugned SCA/6135/1998 3/10 JUDGMENT notice in exercise of power under Section 158 BD of the Income Tax Act, 1961 has been issued, which is challenged in the present petitions. 3. Affidavit-in-reply has been filed by the Assistant Commissioner of Income-Tax and thereafter, further affidavit has been filed. As the impugned notice Annexure A and the affidavit submitted by learned Senior Standing Counsel Mr. Manish R. Bhatt appearing for the revenue, is stated to be common for all the matters which is not in dispute, the same has been treated as having been filed in each matter and, therefore, no separate affidavit has been filed in the connected matters. 4. Heard learned Senior Counsel Mr. S. N. Soparkar for the petitioners and Mr. Manish R. Bhatt, learned Senior Counsel for the revenue. 5. The main contention that has been raised is with regard to invocation of the provision of Section 158 BD and the fulfillment of the condition precedent before SCA/6135/1998 4/10 JUDGMENT resorting to or invoking such provision. Mr. S. N. Soparkar, learned Senior Counsel has submitted that it clearly transpires from Annexure A - the impugned notice that report has been submitted by A.D. (I.T.), Bhavnagar and on the basis thereof, merely because the petitioner is a partner of the firm, provision has been invoked resorting to Section 158-BD. He has, therefore, strenuously submitted that before resorting to this provision, the authority i.e. Assistant Commissioner of Income-Tax himself has not reached that satisfaction which is a mandatory requirement of law. Learned Senior Counsel Mr. Soparkar has also submitted that for reaching at such satisfaction, other condition precedent is required to be fulfilled like any other material, books of accounts etc. could have been gathered or found during the search on the basis of which perhaps such a satisfaction could have been reached. Therefore, learned Senior Counsel Mr. Soparkar has submitted that as no material / books of accounts have been seized on the basis of which such satisfaction could have been reached, the power could not have been resorted qua the partner (petitioner). SCA/6135/1998 5/10 JUDGMENT Mr. Soparkar has also submitted that it is not even reflected that any such satisfaction has been reached in the impugned order. Therefore, learned Senior Counsel Mr. Soparkar has submitted that the impugned notices deserve to be quashed and set aside and the present petitions may be allowed. 6. Mr. Soparkar has further submitted that for computation of undisclosed income of the block period, the provision is made under Section 158 BB and referring to these provisions of Section 158 BB and 158 BD, he has strenuously submitted that subject to fulfillment of this condition provided in the statute, the powers can be exercised. In support of his submissions, he referred to and relied upon the judgment of the Hon'ble Apex Court in the case of Manish Maheshwari V/s. Assistant Commissioner of Income-Tax and another, (2007) 289 ITR 341 (SC) wherein the Apex Court has observed that “the conditions precedent for invoking the provisions of Section 158BD thus, are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose SCA/6135/1998 6/10 JUDGMENT premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act.” Mr. Soparkar has also referred to the judgment of the Division Bench of this Court in Special Civil Application No. 9763 of 2000 (Coram :- Hon'ble Mr. Justice D. A. Mehta & Hon'ble Mr. Justice H.B. Antani) dated 18.06.2008. 7. Learned advocate Mr. Manish Bhatt for the revenue has referred to the affidavit-in-reply and also at Annexure A – the impugned notices and submitted that A.D. (IT), Bhavnagar has prepared a report and on the basis of such report, the case is covered under Section 158BD as a partner of the firm is his own satisfaction. There is no dispute with regard to the partnership and the petitioner was a partner in the firm. He has further submitted that further affidavit has also been filed that satisfaction was recorded by himself and, therefore, there is a compliance with the requirement of law that he himself should reach the satisfaction relying on the report submitted to him. Mr. Bhatt has, SCA/6135/1998 7/10 JUDGMENT therefore, strenuously submitted that there is no error of jurisdiction and, therefore, at this stage, the Court may not exercise its extra ordinary powers under Article 226 and, therefore, may not quash and set aside the impugned notices. 8. In view of this rival submission, it is required to be considered whether the impugned notice requires to be quashed and set aside. For that purpose, the submissions made by learned Senior Advocate Mr. S. N. Soparkar as regards the compliance of the provision of law i.e. Sections 158 BB & 158 BD are required to be seen in light of the observations made by the Apex Court in the judgment of Manish Maheshwari V/s. Assistant Commissioner of Income-Tax and another (Supra). The submission that there is no independent satisfaction reached which is the main basis or the bone of contention is required to be appreciated. Referring to Annexure A which according to learned Senior Counsel Mr. S. N. Soparkar cannot be said to be a decision of the Deputy Commissioner of Income Tax himself and has merely relied upon the SCA/6135/1998 8/10 JUDGMENT report of the A.D. (I.T.), Bhavnagar; whereas according to learned advocate Mr. Manish R. Bhatt, it is his independent satisfaction (arrived on the basis of the report), is required to be closely scrutinized. Even if for the sake of argument, this submission made by learned Senior Standing Counsel Mr. Manish R. Bhatt is accepted that Annexure A fulfills the requirement of law so far as the satisfaction which is required to be recorded by the authority, even then it falls short of the other criteria or the requirements which are required to be fulfilled as laid down by the law. A close look at the provision of Section 158 BD would make it clear that before this provision can be invoked, there has to be a satisfaction arrived at as per Section 158 BD and for that purpose, when it is attracted and applied in relation to any person, other than the person whose premises has been searched like in the present case the partner of the firm, there has to be some material, document or other assets which forms the foundation or the basis of arriving at such satisfaction regarding invocation of Section 158 SCA/6135/1998 9/10 JUDGMENT BD for the block assessment for the undisclosed income of any other person. Undisputedly, no further material has been found or recovered during the search at the premises of the firm which is also not reflected in the impugned notice or even the affidavit filed. Therefore, in absence of any material or books of account on the basis of which the satisfaction as contemplated under law could be arrived at by the authority is admittedly, not seized during the search of the premises of the firm. Therefore, in absence of any such additional material or books of account or evidence, there is no premises or foundation for arriving at the satisfaction in compliance with the mandatory provision of law. The requirement of law which is held to be mandatory cannot be said to have been fulfilled. The Apex Court in the case of Manish Maheshwari V/s. Assistant Commissioner of Income-Tax and another (Supra) has further observed that “as the Assessing Officer has not recorded his satisfaction which is mandatory ..............”. SCA/6135/1998 10/10 JUDGMENT Therefore, in light of this clear observation referring to this very provision on the issue, we are of the opinion that the impugned notice deserves to be quashed and set aside for non-fulfillment of the mandatory conditions precedent before invocation or resorting to such provision. Therefore, the impugned notice dated 16.07.1998 Annexure A is hereby quashed and set aside. All the petitions stand allowed. Rule is made absolute. 9. Registry is directed to place a copy of this judgment in each connected matters. Sd/- Sd/- [K. A. PUJ, J.] [R.H. SHUKLA, J.] Savariya