2008 (6) TMI 574 - HC - Income Tax

Unaccounted transaction - between partners and/or persons connected - searched u/s. 132 - Validity of notice issued u/s 158BC - warrant of authorisation - ascertaining whether there was any material with the respondent authority to even prima facie come to the conclusion that an entity by the name of M/s Jalaram Theatre existed as a partnership firm. HELD THAT - In the present case, from the record of the respondent authority and the facts which have come on record of this petition it becomes apparent that the prerequisite conditions empowering the AO to exercise the powers for issuing notice u/. 158BC of the Act are not fulfilled. During course of hearing reliance had been placed on a draft document relating to proposed sale of property known as Jalaram Theatre for a sum to submit that the said document was unearthed during course of survey leading to belief that there was unaccounted transaction in property. The said document, on a bare perusal, cannot assist the case of the respondent. Firstly, the said document is not signed by anybody, neither the sellers nor the purchasers. The document reflects proposed transaction of an immovable property. The law enjoins every person to compulsorily register a document involving transfer of immovable property valued at more than ₹ 100 and hence in absence of any other corroborating evidence that such a transaction took place between the parties the Court is not expected to raise a presumption that a transaction took place in violation of the law of the land. However, apart from the fact that there are eight purchasers and six sellers and none of the parties have appended their signatures to the document, what is most material is the fact that the vendors are the six petitioners who are described to be co-owners of the immovable property. Thus, even if for the sake of argument the document in question is treated as a relevant piece of evidence only for the purpose of initiating proceedings, even then no entity by the name of M/s Jalaram Theatre, a partnership firm, is mentioned in the document belying the claim of the respondent authorities to the contrary. The document supports the stand of the petitioners that the petitioners are co-owners and are deriving rental income from the property which has duly been reflected in their respective returns of income. Therefore, it is apparent that the action of the respondent authority in issuing impugned notice u/s. 158BC of the Act, cannot be sustained. Accordingly, the said notice u/s. 158BC of the Act, is hereby quashed. The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs.

Summary

Issues:
Challenge to notice issued under s. 158BC of the IT Act, 1961 based on co-ownership of a building rented out to a firm. Validity of search action under s. 132 of the Act leading to the impugned notice. Justification of calling upon M/s Jalaram Theatre to file a return of income. Examination of original satisfaction note for existence of M/s Jalaram Theatre as a partnership firm. Approval and issuance of warrant of authorisation in the name of "partners of Jalaram Theatre/Jayshree Talkies." Lack of material to establish the existence of M/s Jalaram Theatre during search proceedings. Compliance with conditions for issuing notice under s. 158BC of the Act. Unearthing of a draft document during survey regarding a proposed sale of property known as Jalaram Theatre.

Analysis:
The petition challenges a notice issued under s. 158BC of the IT Act, 1961 to M/s Jalaram Theatre, Junagadh, based on co-ownership of a building rented out to a separate firm. The respondent authority justified the notice citing unaccounted transactions between partners of Jayshree Talkies and partners of M/s Jalaram Theatre. However, the petitioners argued that they were not related to Jayshree's partners and questioned the authority's basis for issuing the notice.

The search action under s. 132 of the Act was conducted at Jayshree Talkies' premises, leading to the impugned notice to M/s Jalaram Theatre. The respondent authority alleged suppression of receipts and unaccounted payments based on the survey. The petitioners contended that as there was no entity named M/s Jalaram Theatre, they should not be required to file a return under s. 158BC.

Upon examination of the original satisfaction note, it was found that M/s Jalaram Theatre was not mentioned in the initial proposals for search proceedings. The warrant of authorisation was issued in the name of "partners of Jalaram Theatre/Jayshree Talkies," raising doubts about the authority's basis for including M/s Jalaram Theatre. The lack of evidence establishing the existence of M/s Jalaram Theatre during the search proceedings undermined the validity of the notice under s. 158BC.

Additionally, a draft document related to the proposed sale of Jalaram Theatre property was presented during the survey. However, the document lacked signatures and did not mention M/s Jalaram Theatre as a partnership firm, supporting the petitioners' claim of co-ownership and proper income disclosure.

In conclusion, the High Court quashed the notice issued under s. 158BC of the Act, ruling in favor of the petitioners due to the lack of substantiated evidence supporting the authority's actions. The petition was allowed, and no costs were awarded.