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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3958 OF 2014

(SPECIAL LEAVE PETITION(C.)NO.10542 OF 2011)

COMMISSIONER OF INCOME TAX - III APPELLANT

VERSUS

M/S.CALCUTTA KNITWEARS, LUDHIANA RESPONDENT

WITH C.A.NO.3959 OF 2014 @ S.L.P.(C)NO.11943 of 2011

WITH C.A.NO.3960 OF 2014 @ S.L.P.(C)NO.17662 of 2011

WITH C.A.NO.3961 OF 2014 @ S.L.P.(C)NO.17656 of 2011

WITH C.A.NO.3962 OF 2014 @ S.L.P.(C)NO.17661 of 2011

WITH C.A.NO.3963 OF 2014 @ S.L.P.(C)NO.2804 of 2012

WITH C.A.NO.3964 OF 2014 @ S.L.P.(C)NO.2805 of 2012

WITH C.A.NO.3965 OF 2014 @ S.L.P.(C)NO.5264 of 2012

WITH C.A.NO.3966 OF 2014 @ S.L.P.(C)NO.5265 of 2012

WITH C.A.NO.3967 OF 2014 @ S.L.P.(C)NO.5266 of 2012

WITH C.A.NO.3968 OF 2014 @ S.L.P.(C)NO.7574 of 2012

WITH C.A.NO.3969 OF 2014 @ S.L.P.(C)NO.7575 of 2012

WITH C.A.NO.3970 OF 2014 @ S.L.P.(C)NO.7576 of 2012

WITH C.A.NO.3971 OF 2014 @ S.L.P.(C)NO.7577 of 2012

WITH C.A.NO.3972 OF 2014 @ S.L.P.(C)NO.9721 of 2012

WITH C.A.NO.3973 OF 2014 @ S.L.P.(C)NO.11460 of 2012

WITH C.A.NO.3974 OF 2014 @ S.L.P.(C)NO.12111 of 2012

WITH C.A.NO.3975 OF 2014 @ S.L.P.(C)NO.12886 of 2012

WITH C.A.NO.3976 OF 2014 @ S.L.P.(C)NO.12887 of 2012

WITH C.A.NO.3977 OF 2014 @ S.L.P.(C)NO.15207 of 2012

WITH C.A.NO.3978 OF 2014 @ S.L.P.(C)NO.15209 of 2012

WITH C.A.NO.3979 OF 2014 @ S.L.P.(C)NO.16266 of 2012

WITH C.A.NO.3980 OF 2014 @ S.L.P.(C)NO.16265 of 2012

WITH C.A.NO.3981 OF 2014 @ S.L.P.(C)NO.16319 of 2012

WITH C.A.NO.3982 OF 2014 @ S.L.P.(C)NO.16782 of 2012

WITH C.A.NO.3983 OF 2014 @ S.L.P.(C)NO.19491 of 2012

WITH C.A.NO.3984 OF 2014 @ S.L.P.(C)NO.19492 of 2012

WITH C.A.NO.3985 OF 2014 @ S.L.P.(C)NO.20626 of 2012

WITH C.A.NO.3986 OF 2014 @ S.L.P.(C)NO.21459 of 2012

WITH C.A.NO.3987 OF 2014 @ S.L.P.(C)NO.21460 of 2012

WITH C.A.NO.3988 OF 2014 @ S.L.P.(C)NO.30192 of 2012

Page 2 2

WITH C.A.NO.3989 OF 2014 @ S.L.P.(C)NO.36559 of 2012

WITH C.A.NO.3990 OF 2014 @ S.L.P.(C)NO.12130 of 2013

WITH C.A.NO.3991 OF 2014 @ S.L.P.(C)NO.15368 of 2013

AND WITH

S.L.P.(C)NO.7741 of 2013

O R D E R

1.Delay, if any, in filing and refiling the Special

Leave Petitions is condoned.

2.Leave granted.

3.The issue that falls for our consideration and

decision in all these appeals is: at what stage of the

proceedings under Chapter XIV-B does the assessing

authority require to record his satisfaction for

issuing a notice under Section 158BD of the Income Tax

Act, 1961 ('the Act' for short).

4.Since the issue is common in all these appeals, after

hearing the learned counsel for the parties to the

lis, we dispose of all these appeals by this common

order.

5.For the purpose of disposal of these appeals, we take

the Civil Appeal@ Special Leave Petition (Civil)

Page 3 3

No.10542 of 2011 as the lead case.

Civil Appeal No.3958 of 2014 @S.L.P.(C)No.10542/2011:

6.The respondent in this appeal is a firm engaged in

manufacturing hosiery goods in the name and style of

M/s. Calcutta Knitwears.

7.A search operation under Section 132 of the Act was

carried out in two premises of the Bhatia Group,

namely, M/s. Swastik Trading Company and M/s. Kavita

International Company on 05.02.2003 and certain

incriminating documents pertaining to the assessee

firm were traced in the said search.

8.After completion of the investigation by the

investigating agency and handing over of the documents

to the assessing authority, the assessing authority

had completed the block assessments in the case of

Bhatia Group. Since certain other documents did not

pertain to the person searched under Section 132 of

the Act, the assessing authority thought it fit to

transmit those documents, which according to him,

pertain to the “undisclosed income” on account of

investment element and profit element of the assessee

firm and require to be assessed under Section 158BC

Page 4 4

read with Section 158BD of the Act to another

assessing authority in whose jurisdiction the

assessments could be completed. In doing so, the

assessing authority had recorded his satisfaction note

dated 15.07.2005.

9.The jurisdictional assessing authority for the

respondent-assessee had issued the show cause notice

under Section 158BD for the block period 01.04.1996 to

05.02.2003, dated 10.02.2006 to the assessee inter

alia directing the assessee to show cause as to why

should the proceedings under Section 158BC not be

completed. After receipt of the said notice, the

assessee firm had filed its return under Section 158BD

for the said block period declaring its total income

as Nil and further filed its reply to the said notice

challenging the validity of the said notice under

Section 158BD, dated 08.03.2006. The assessee had

taken the stand that the notice issued to the assessee

is (a) in violation of the provisions of Section 158BD

as the conditions precedent have not been complied

with by the assessing officer and (b) beyond the

period of limitation as provided for under Section

Page 5 5

158BE read with Section 158BD and therefore, no action

could be initiated against the assessee and

accordingly, requested the assessing officer to drop

the proceedings.

10.The assessing authority, after due consideration of

the reply filed to the show cause notice, has rejected

the aforesaid stand of the assessee and assessed the

undisclosed income as Rs. 21,76,916/- (Rs.16,05,744/-

(unexplained investment) and Rs.5,71,172/- (profit

element)) by order dated 08.02.2008. The assessing

officer is of the view that Section 158BE of the Act

does not provide for any limitation for issuance of

notice and completion of the assessment proceedings

under Section 158BD of the Act and therefore a notice

could be issued even after completion of the

proceedings of the searched person under Section 158BC

of the Act.

11.Disturbed by the orders passed by the assessing

officer, the assessee firm had carried the matter in

appeal before the Commissioner of Income Tax (Appeal-

II) (for short 'the CIT(A)’). The CIT(A), while

rejecting the stand of the assessee in respect of

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validity of notice issued under Section 158BD, has

partly allowed the appeal filed by the assessee firm

and deleted the additions made by the assessing

officer in its assessments, by his order dated

27.08.2008.

12.The Revenue had carried the matter further by

filing appeal before the Income Tax Appellate Tribunal

(for short 'the Tribunal') and the assessee has filed

cross objections therein. The Tribunal, after hearing

the parties to the lis, has rejected the appeal of the

Revenue and observed that recording of satisfaction by

the assessing officer as contemplated under Section

158BD was on a date subsequent to the framing of

assessment under Section 158BC in case of the searched

person, that is, beyond the period prescribed under

Section 158BE(1)(b) and thereby the notice issued

under Section 158BD was belated and consequently the

assumption of jurisdiction by the assessing authority

in the impugned block assessment would be invalid, by

order dated 23.04.2009.

13.Aggrieved by the order so passed by the Tribunal,

the Revenue had carried the matter in appeal under

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Section 260A of the Act before the High Court. The

High Court, by its impugned judgment and order dated

20.07.2010, has rejected the Revenue's appeal and

confirmed the order passed by the Tribunal.

14.That is how the Revenue is before us in this

appeal.

15.We have heard Shri Rupesh Kumar learned counsel for

the Revenue and Shri R.P.Bhatt, Shri Ajay Vohra, Shri

Santosh Krishan, learned counsel and other learned

counsel for the respective assessees-respondents.

16.Shri Rupesh Kumar, learned counsel for the Revenue

would contend that the assessing authority, after

completion of the assessment proceedings against the

searched person under Section 158BC, being of the

opinion that the other documents which have surfaced

at the time of the search under Section 132 of the Act

belong to a person other than the searched person had

recorded his satisfaction in the said respect and

transmitted the papers to the jurisdictional assessing

officer for the assessments of such person other than

the searched person. Further, he would submit that the

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assessing officer has complied with the requirements

of Section 158BD of the Act in its entirety while

preparing the satisfaction note and transmitting the

documents to the jurisdictional assessing officer and

therefore, the Tribunal and the High Court were not

justified in holding that the satisfaction note ought

to have been prepared by the assessing officer before

the completion of the assessment proceedings of the

searched person under Section 158BC of the Act and

that the notice issued under Section 158BD was

belated.

17.Per contra, Shri Bhatt, learned senior counsel and

Shri Ajay Vohra and Shri Santosh Krishan learned

counsel for the assessees would state that a

satisfaction note requires to be made by the assessing

officer before the seized documents were transmitted

to another assessing officer in whose jurisdiction the

person other than the searched person is assessed and

submit that the said satisfaction note should be

recorded before the assessment proceedings of the

searched person are completed under Section 158BC of

the Act and not later in time. By saying so, the

Page 9 9

learned counsel would justify the reasoning and the

conclusion reached by the Tribunal as well as the High

Court.

18.In order to resolve the controversy, certain

provisions of the Act require to be noticed by us.

19.Chapter XIV-B of the Act is a special provision

carved out by the legislature for the purpose of the

assessments in cases pertaining to Sections 132 and

132A of the Act. The said chapter was introduced by

the Finance Act, 1995 with effect from 01.07.1995 and

comprises Sections 158B to 158BH of the Act. The

provisions under this Chapter were made inapplicable

in case of search initiated under Section 132 or

Section 132A after 31.05.2003 by introduction of an

amendment to the Chapter as Section 158BI vide the

Finance Act, 2003 with effect from 01.06.2003. The lis

before us requires examination of the provisions of

the said Chapter, particularly Section 158BD.

20.Section 158B of the Act is the dictionary clause.

It provides for the definition of “block period” and

“undisclosed income”. For the purpose of this case, a

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reference to the definition of the “undisclosed

income” as provided for in Section 158B(b) is

necessary and, therefore, it is noticed. The same

reads as under:

“Undisclosed income" includes any money, bullion,

jewellery or other valuable article or thing or any income

based on any entry in the books of account or other

documents or transactions, where such money, bullion,

jewellery, valuable article, thing, entry in the books of

account or other document or transaction represents wholly

or partly income or property which has not been or would

not have been disclosed for the purposes of this Act [or

any expense, deduction or allowance claimed under this Act

which is found to be false]”.

21.Sections 158BC and 158BD of the Act are machinery

provisions. Section 158BC of the Act provides the

procedure for block assessment and Section 158BD of

the Act provides for assessments in the case of an

undisclosed income of any other person. The said

sections are relevant for the purpose of this case

and, therefore, they are extracted. They read as

under:

Page 11 11

“Section 158BC. PROCEDURE FOR BLOCK ASSESSMENT.

Where any search has been conducted under section 132 or

books of account, other documents or assets are

requisitioned under section 132A, in the case of any

person, then, -

[(a) The Assessing Officer shall,

(i) In respect of search initiated or books of account or

other documents or any assets requisitioned after the 30th

day of June, 1995 but before the 1st day of January, 1997

serve a notice to such person requiring him to furnish

within such time not being less than fifteen days;

(ii) In respect of search initiated or books of account or

other documents or any assets requisitioned on or after

the 1st day of January, 1997, serve a notice to such

person requiring him to furnish within such time not being

less than fifteen days but not more than forty-five days,

as may be specified in the notice a return in the

prescribed form and verified in the same manner as a

return under clause (i) of sub-section (1) of section 142,

setting forth his total income including the undisclosed

income for the block period:

Provided that no notice under section 148 is required to

be issued for the purpose of proceeding under this

Chapter:

Provided further that a person who has furnished a return

Page 12 12

under this clause shall not be entitled to file a revised

return;]

(b) The Assessing Officer shall proceed to determine the

undisclosed income of the block period in the manner laid

down in section 158BB and the provisions of section 142,

sub-sections (2) and (3) of section 143 [section 144 and

section 145]shall, so far as may be, apply;

(c) The Assessing Officer, on determination of the

undisclosed income of the block period in accordance with

this Chapter, shall pass an order of assessment and

determine the tax payable by him on the basis of such

assessment;

(d) The assets seized under section 132 or requisitioned

under section 132A shall be dealt with in accordance with

the provisions of section 132B.]

*** *** ***

Section 158BD. UNDISCLOSED INCOME OF ANY OTHER PERSON.

Where the Assessing Officer is satisfied that any

undisclosed income belongs to any person, other than the

person with respect to whom search was made under section

132 or whose books of account or other documents or any

assets were requisitioned under section 132A then, the

books of account, other documents or assets seized or

requisitioned shall be handed over to the Assessing

Officer having jurisdiction over such other person and

that Assessing Officer shall proceed [under section 158

BC] against such other person and the provisions of this

Page 13 13

Chapter shall apply accordingly.”

22.Section 158BC speaks of procedure for assessment of

a person searched under Section 132 of the Act or

books of accounts, other documents or assets are

requisitioned under section 132A. The limitation for

the purpose of completion of the block assessments for

the purpose of Section 158BC of the Act is as provided

under Section 158BE(1)(a) of the Act, that is the time

limit for completion of block assessment.

23.Section 158BD of the Act provides for “undisclosed

income” of any other person. Before we proceed to

explain the said provision, we intend to remind

ourselves of the first or the basic principles of

interpretation of a fiscal legislation. It is time and

again reiterated that the courts, while interpreting

the provisions of a fiscal legislation should neither

add nor subtract a word from the provisions of instant

meaning of the sections. It may be mentioned that the

foremost principle of interpretation of fiscal

statutes in every system of interpretation is the rule

of strict interpretation which provides that where the

Page 14 14

words of the statute are absolutely clear and

unambiguous, recourse cannot be had to the principles

of interpretation other than the literal rule (Swedish

Match AB v. Securities and Exchange Board, India , AIR

2004 SC 4219, CIT v. Ajax Products Ltd. [1965] 55 ITR

741 (SC)).

24.We may gainfully refer to The Cape Brandy

Syndicate v. Inland Revenue Commissioners [1921] 1 KB

64 at 71 which involved the Finance (No. 2) Act 1915

which imposed excess profits duty on trade or

businesses commenced after the outbreak of the First

World War in 1914. By subjecting the legislation to a

strict literal interpretation, Rowlatt J. held that

the Finance (No. 2) Act 1915, in isolation, did not

apply to businesses that commenced after the outbreak

of war in 1914 and observed as follows:

“… the principle in favour of a strict literal approach …

simply means that in a taxing Act one has to look merely

at what is clearly said. There is no room for any

intendment. There is no equity about a tax. There is no

presumption as to a tax. Nothing is to be read in, nothing

is to be implied. One can only look fairly at the language

used.”

Page 15 15

25.In Commissioner of Stamp Duties (NSW) v. Simpson ,

(1917) 24 CLR 209 Barton J., citing Viscount Haldane

in Lumsden v Inland Revenue Commissioners, [1914] AC

877, stated the following:

“The duty of Judges in construing Statutes is to adhere to the literal construction unless

the context renders it plain that such a construction cannot be put on the words. This rule is

especially important in cases of Statutes which impose taxation.”

The Court in Simpson case (supra) sought to determine

whether a deed poll constituted a settlement for the

purposes of Section 49 of the Stamp Duties Act, 1898

(NSW). Section 3 which defined the word ‘settlement’ as

meaning ‘any contract or agreement’ was examined. The

Court by adopting a strict literal approach held that only

a contract or an agreement could constitute a settlement

and that Section 49 providing for deed poll was not

applicable and therefore, the taxpayer did not have to pay

any stamp duty.

26.Lord Granworth in Grundy v. Pinniger, (1852) 1 LJ

Ch 405 has observed that:

“To adhere as closely as possible to the literal meaning

of the words used, is a cardinal rule from which if we de -

Page 16 16

part we launch into a sea of difficulties which it is not

easy to fathom.”

That is to say, once the literal rule is departed, then

any number of interpretations can be put to a statutory

provision, each Judge having a free play to put his own

interpretation as he likes. This would be destructive of

the edifice of fiscal legislations which impose economic

duties and sanctions.

27.In taxing statutes, even if the literal

interpretation results in hardship or inconvenience,

it has to be followed (G.P. Singh's Principles of

Statutory Interpretations, 12

th

Ed, 2010, Lexis Nexis

Butterworths Wadhwa Nagpur; Bennion on Statutory

Interpretation, 5

th

Ed., Lexis Nexis, p. 863; Vepa P.

Sarathi, Interpretation of Statutes, 5

th

Ed., Easter

Book Company, Chapter VIII, Taxing Statutes). This

Court in CIT v. Keshab Chandra Mandal , AIR 1950 SC 265

has held that hardship or inconvenience cannot alter

the meaning of the language employed by the

legislature if such meaning is clear and apparent.

Hence departure from the literal rule should only be

done in very rare cases, and ordinarily there should

Page 17 17

be judicial restraint to do so. (Pandian Chemicals Ltd.

v. C.I.T., 2003(5) SCC 590, Narsiruddin v. Sita Ram

Agarwal, AIR 2003 SC 1543, Bhaiji v. Sub-Divisional

Officer, Thandla , 2003(1) SCC 692, J.P. Bansal v.

State of Rajasthan and Anr., AIR 2003 SC 1405, State

of Jharkhand and Anr. v. Govind Singh : JT 2004(10) SC

349, Jinia Keotin v. K.S. Manjhi, 2003 (1) SCC 730,

Shiv Shakti Co-operative Housing Society v. Swaraj

Developers, AIR 2003 SC 2434, Grasim Industries

Limited v. Collector of Customs , 2002 (4) SCC 297 and

Union of India v. Hamsoli Devi , 2002 (7) SCC 273)

28.The Australian High Court in Federal Commissioner of

Taxation v. Westraders Pty Ltd , (1980) 144 CLR 55

considered the scope of Section 36A of the Income Tax

Assessment Act, 1936(Cth), which on a literal

interpretation allowed the taxpayer to make a profit

and still claim a loss for tax purposes. The

Commissioner argued the taxpayer’s conduct amounted to

a tax avoidance scheme and should therefore be

disallowed under Section 260 of the Income Tax

Assessment Act, 1936(Cth). The Court held that under a

literal interpretation Section 36A could apply to

Page 18 18

allow the taxpayer to claim a loss. Barwick CJ,

speaking for the majority relied on the decision in

Inland Revenue Commissioners v. Westminster (Duke) ,

[1936] AC 1 which advocated the literal approach be

applied when interpreting taxation legislation and

stated the following:

“It is for the Parliament to specify, and to do so, in my opinion, as far as language will

permit, with unambiguous clarity, the circumstances which will attract an obligation on the

part of the citizen to pay tax. The function of the court is to interpret and apply the

language in which the Parliament has specified those circumstances. The court is to do so

by determining the meaning of the words employed by the Parliament according to the

intention of the Parliament which is discoverable from the language used by the Parliament.

It is not for the court to mould or to attempt to mould the language of the statute so as to

produce some result which it might be thought the Parliament may have intended to

achieve, though not expressed in the actual language employed”

29.In Cooper Brookes (Wollongong) Pty Ltd v. Federal

Commissioner of Taxation (1981) 147 CLR 297 it is held

that in a taxing statute if the language is

unambiguous, departing from the literal approach ‘may

lead judges to put their own ideas of justice or

social policy in place of the words of the statute’.

Similar view was espoused in C & J Clark Ltd v. Inland

Revenue Commissioners, [1975] 1 WLR 413 and BP

Refinery (Westernport) Pty Ltd v. Hastings Shire,

(1977) 180 CLR 266.

Page 19 19

30.In Hepples v. FCT, (1991) 173 CLR 492, the High

Court of Australia unequivocally favoured the

principle that taxation legislation should be subject

to a strict literal interpretation and opined that

such an approach was supported by ‘common sense’.

Therein, the taxpayer, on ceasing to be employed, was

paid $40,000 by his employer in exchange for the

taxpayer agreeing that he would not carry on or be

interested in certain businesses and would not divulge

any trade secrets. The issue before the Court was

whether or not such payment would form part of the

taxpayer’s assessable income for the purposes of the

Income Tax Assessment Act, 1936 (Cth). It was held that

since the Act did not provide for such payments to

form part of a taxpayer’s assessable income, the

payment would not be assessable.

31.This Court in Tata Consultancy Services v. State

of Andhra Pradesh has ascribed plain meaning to the

terms computer and computer programme in

a fiscal statute and reiterating the proposition laid

Page 20 20

down in Inland Revenue Commissioner case (supra),

observed that a court should not be over zealous in

searching ambiguities or obscurities in words which

are plain.

32.In Prakash Nath Khanna v. C.I.T. , 2004 (9) SCC 686,

this Court has explained that the language employed in

a statute is the determinative factor of the

legislative intent. The legislature is presumed to

have made no mistake. The presumption is that it

intended to say what it has said. Assuming there is a

defect or an omission in the words used by the

legislature, the Court cannot correct or make up the

deficiency. Where the legislative intent is clear from

the language, the Court should give effect to it

(Delhi Financial Corporation v. Rajiv Anand , 2004 (11)

SCC 625; Government of Andhra Pradesh v. Road Rollers

Owners Welfare Association , 2004(6) SCC 210).

33.In B. Premanand and Ors.v. Mohan Koikal and Ors.,

(2011)4 SCC 266 this Court has observed as follows:

“32. The literal rule of interpretation really means that

there should be no interpretation. In other words, we

Page 21 21

should read the statute as it is, without distorting or

twisting its language.

33. We may mention here that the literal rule of inter -

pretation is not only followed by Judges and lawyers, but

it is also followed by the lay man in his ordinary life.

To give an illustration, if a person says "this is a pen -

cil", then he means that it is a pencil; and it is not

that when he says that the object is a pencil, he means

that it is a horse, donkey or an elephant. In other words,

the literal rule of interpretation simply means that we

mean what we say and we say what we mean. If we do not

follow the literal rule of interpretation, social life

will become impossible, and we will not understand each

other. If we say that a certain object is a book, then we

mean it is a book. If we say it is a book, but we mean it

is a horse, table or an elephant, then we will not be able

to communicate with each other. Life will become im -

possible. Hence, the meaning of the literal rule of inter -

pretation is simply that we mean what we say and we say

what we mean.”

34.Thus, the language of a taxing statute should

ordinarily be read understood in the sense in which it

is harmonious with the object of the statute to

effectuate the legislative animation. A taxing statute

should be strictly construed; common sense approach,

equity, logic, ethics and morality have no role to

Page 22 22

play. Nothing is to be read in, nothing is to be

implied; one can only look fairly at the language used

and nothing more and nothing less. (J. Srinivasa Rao

v. Govt. of A.P. and Anr. 2006(13) SCALE 27 , Raja

Jagadambika Pratap Narain Singh v. C.B.D.T., [1975]

100 ITR 698(SC))

35.It is also trite that while interpreting a

machinery provision, the courts would interpret a

provision in such a way that it would give meaning to

the charging provisions and that the machinery

provisions are liberally construed by the courts. In

Mahim Patram Private Ltd. v. Union of India (UOI) and

Ors., (2007) 3 SCC 668 this Court has observed that:

“20. A taxing statute indisputably is to be strictly con -

strued. [See J. Srinivasa Rao v. Govt. of Andhra Pradesh

and Anr., 2006(13)SCALE 27 ]. It is, however, also well-

settled that the machinery provisions for calculating

the tax or the procedure for its calculation are to be con -

strued by ordinary rule of construction. Whereas a liabil -

ity has been imposed on a dealer by the charging section,

it is well-settled that the court would construe the stat -

ute in such a manner so as to make the machinery workable.

Page 23 23

21. In J. Srinivasa Rao (supra), this Court noticed the de -

cisions of this Court in Gursahai Saigal v.Commissioner of

Income-tax, Punjab, [1963] 1 ITR 48(SC) and Ispat Indus-

tries Ltd. v. Commissioner of Customs, Mumbai,

2006(202)ELT561(SC).In Gursahai Saigal (supra), the ques -

tion which fell for consideration before this Court was

construction of the machinery provisions vis-à-vis the

charging provisions. Schedule appended to the Motor

Vehicles Act is not machinery provision. It is a part of

the charging provision. By giving a plain meaning to the

Schedule appended to the Act, the machinery provision does

not become unworkable. It did not prevent the clear inten -

tion of the legislature from being defeated. It can be

given an appropriate meaning.”

36.A reference to the observations of this Court in J.K.

Synthetics Limited and Birla Cement Works and another

v. Commercial Taxes Officer and another,(1994) 4 SCC

276 would be apposite:

“13. It is well-known that when a statute levies a tax it

does so by inserting a charging section by which a liabil -

ity is created or fixed and then proceeds to provide

the machinery to make the liability effective. It, there -

fore, provides the machinery for the assessment of the li -

ability already fixed by the charging section, and then

provides the mode for the recovery and collection of tax,

including penal provisions meant to deal with defaulters.

… Ordinarily the charging section which fixes the liabil -

Page 24 24

ity is strictly construed but that rule of strict con -

struction is not extended to the machinery provisions

which are construed like any other statute. The ma -

chinery provisions must, no doubt, be so construed as

would effectuate the object and purpose of the statute and

not defeat the same. (Whitney v. Commissioners of Inland

Revenue 1926 A C 37, CIT v. Mahaliram Ramjidas (1940) 8

ITR 442 , Indian United Mills Ltd. v. Commissioner of Ex -

cess Profits Tax, Bombay, [1955] 27 ITR 20(SC) and Gursa -

hai Saigal v. CIT, Punjab, [1963] 1 ITR 48(SC).”

37.It is the duty of the court while interpreting

the machinery provisions of a taxing statute to give

effect to its manifest purpose. Wherever the intention

to impose liability is clear, the Courts ought not be

hesitant in espousing a commonsense interpretation to

the machinery provisions so that the charge does not

fail. The machinery provisions must, no doubt, be so

construed as would effectuate the object and purpose

of the statute and not defeat the same ( Whitney v.

Commissioners of Inland Revenue 1926 A C 37 , CIT v.

Mahaliram Ramjidas (1940) 8 ITR 442 , Indian United

Mills Ltd. v. Commissioner of Excess Profits Tax,

Bombay [1955] 27 ITR 20(SC) , and Gursahai Saigal v.

CIT, Punjab [1963] 1 ITR 48(SC) ; Commissioner of

Page 25 25

Wealth Tax, Meerut v. Sharvan Kumar Swarup & Sons,

(1994) 6 SCC 623; CIT v. National Taj Traders, (1980)

1 SCC 370; Associated Cement Company Ltd. v.

Commercial Tax Officer, Kota and Ors. , (48) STC 466) .

Francis Bennion in Bennion on

Statutory Interpretation, 5

th

Ed., Lexis Nexis in

support of the aforesaid proposition put forth as an

illustration that since charge made by the legislator

in procedural provisions is excepted to be for the

general benefit of litigants and others, it is

presumed that it applies to pending as well as future

proceedings.

38.Having said that, let us revert to discussion of

Section 158BD of the Act. The said provision is a

machinery provision and inserted in the statute book

for the purpose of carrying out assessments of a

person other than the searched person under Sections

132 or 132A of the Act. Under Section 158BD of the

Act, if an officer is satisfied that there exists any

undisclosed income which may belong to a other person

other than the searched person under Sections 132 or

132A of the Act, after recording such satisfaction,

Page 26 26

may transmit the records/documents/chits/papers etc to

the assessing officer having jurisdiction over such

other person. After receipt of the aforesaid

satisfaction and upon examination of the said other

documents relating to such other person, the

jurisdictional assessing officer may proceed to issue

a notice for the purpose of completion of the

assessments under Section 158BD of the Act, the other

provisions of XIV-B shall apply.

39.The opening words of Section 158BD of the Act are

that the assessing officer must be satisfied that

“undisclosed income” belongs to any other person other

than the person with respect to whom a search was made

under Section 132 of the Act or a requisition of books

were made under Section 132A of the Act and

thereafter, transmit the records for assessment of

such other person. Therefore, the short question that

falls for our consideration and decision is at what

stage of the proceedings should the satisfaction note

be prepared by the assessing officer: whether at the

time of initiating proceedings under Section 158BC for

the completion of the assessments of the searched

Page 27 27

person under Section 132 and 132A of the Act or during

the course of the assessment proceedings under Section

158BC of the Act or after completion of the

proceedings under Section 158BC of the Act.

40.The Tribunal and the High Court are of the opinion

that it could only be prepared by the assessing

officer during the course of the assessment

proceedings under Section 158BC of the Act and not

after the completion of the said proceedings. The

Courts below have relied upon the limitation period

provided in Section 158BE(2)(b) of the Act in respect

of the assessment proceedings initiated under Section

158BD, i.e., two years from the end of the month in

which the notice under Chapter XIV-B was served on

such other person in respect of search initiated or

books of account or other documents or any assets are

requisitioned on or after 01.01.1997. We would examine

whether the Tribunal or the High Court are justified

in coming to the aforesaid conclusion.

41.We would certainly say that before initiating

proceedings under Section 158BD of the Act, the

Page 28 28

assessing officer who has initiated proceedings for

completion of the assessments under Section 158BC of

the Act should be satisfied that there is an

undisclosed income which has been traced out when a

person was searched under Section 132 or the books of

accounts were requisitioned under Section 132A of the

Act. This is in contrast to the provisions of Section

148 of the Act where recording of reasons in writing

are a sine qua non. Under Section 158BD the existence

of cogent and demonstrative material is germane to the

assessing officers’ satisfaction in concluding that

the seized documents belong to a person other than the

searched person is necessary for initiation of action

under Section 158BD. The bare reading of the provision

indicates that the satisfaction note could be prepared

by the assessing officer either at the time of

initiating proceedings for completion of assessment of

a searched person under Section 158BC of the Act or

during the stage of the assessment proceedings. It

does not mean that after completion of the assessment,

the assessing officer cannot prepare the satisfaction

note to the effect that there exists income tax

belonging to any person other than the searched person

Page 29 29

in respect of whom a search was made under Section 132

or requisition of books of accounts were made under

Section 132A of the Act. The language of the provision

is clear and unambiguous. The legislature has not

imposed any embargo on the assessing officer in

respect of the stage of proceedings during which the

satisfaction is to be reached and recorded in respect

of the person other than the searched person.

42.Further, Section 158BE(2)(b) only provides for the

period of limitation for completion of block

assessment under section 158BD in case of the person

other than the searched person as two years from the

end of the month in which the notice under this

Chapter was served on such other person in respect of

search carried on after 01.01.1997. The said section

does neither provides for nor imposes any restrictions

or conditions on the period of limitation for

preparation the satisfaction note under Section 158BD

and consequent issuance of notice to the other person.

43. In the lead case, the assessing officer had

prepared a satisfaction note on 15.07.2005 though the

assessment proceedings in the case of a searched

Page 30 30

person, namely, S.K. Bhatia were completed on

30.03.2005. As we have already noticed, the Tribunal

and the High Court are of the opinion that since the

satisfaction note was prepared after the proceedings

were completed by the assessing officer under Section

158BC of the Act which is contrary to the provisions

of Section 158BD read with Section 158BE(2)(b) and

therefore, have dismissed the case of the Revenue. In

our considered opinion, the reasoning of the learned

Judges of the High Court is contrary to the plain and

simple language employed by the legislature under

Section 158BD of the Act which clearly provides

adequate flexibility to the assessing officer for

recording the satisfaction note after the completion

of proceedings in respect of the searched person under

Section 158BC. Further, the interpretation placed by

the Courts below by reading into the plain language of

Section 158BE(2)(b) such as to extend the period of

limitation to recording of satisfaction note would run

counter to the avowed object of introduction of

Chapter to provide for cost-effective, efficient and

expeditious completion of search assessments and

avoiding or reducing long drawn proceedings.

Page 31 31

44.In the result, we hold that for the purpose of

Section 158BD of the Act a satisfaction note is sine

qua non and must be prepared by the assessing officer

before he transmits the records to the other assessing

officer who has jurisdiction over such other person.

The satisfaction note could be prepared at either of

the following stages: (a) at the time of or along with

the initiation of proceedings against the searched

person under Section 158BC of the Act; (b) along with

the assessment proceedings under Section 158BC of the

Act; and (c) immediately after the assessment

proceedings are completed under Section 158BC of the

Act of the searched person.

45.We are informed by Shri Santosh Krishan, who is

appearing in seven of the appeals that the assessing

officer had not recorded the satisfaction note as

required under Section 158BD of the Act, therefore,

the Tribunal and the High Court were justified in

setting aside the orders of assessment and the orders

passed by the first appellate authority. We do not

intend to examine the aforesaid contention canvassed

Page 32 32

by the learned counsel since we are remanding the

matters to the High Court for consideration of the

individual cases herein in light of the observations

made by us on the scope and possible interpretation of

Section 158BD of the Act.

46.With these observations, the appeals are disposed

of. The matters are remanded to the respective High

Courts for deciding the matters afresh after affording

an opportunity of hearing to the parties.

Ordered accordingly.

In C.A.NO.3959 OF 2014 @ S.L.P.(C)NO.11943 of 2011

C.A.NO.3960 OF 2014 @ S.L.P.(C)NO.17662 of 2011

C.A.NO.3961 OF 2014 @ S.L.P.(C)NO.17656 of 2011

C.A.NO.3962 OF 2014 @ S.L.P.(C)NO.17661 of 2011

C.A.NO.3963 OF 2014 @ S.L.P.(C)NO.2804 of 2012

C.A.NO.3964 OF 2014 @ S.L.P.(C)NO.2805 of 2012

C.A.NO.3965 OF 2014 @ S.L.P.(C)NO.5264 of 2012

C.A.NO.3966 OF 2014 @ S.L.P.(C)NO.5265 of 2012

C.A.NO.3967 OF 2014 @ S.L.P.(C)NO.5266 of 2012

C.A.NO.3968 OF 2014 @ S.L.P.(C)NO.7574 of 2012

C.A.NO.3969 OF 2014 @ S.L.P.(C)NO.7575 of 2012

C.A.NO.3970 OF 2014 @ S.L.P.(C)NO.7576 of 2012

C.A.NO.3971 OF 2014 @ S.L.P.(C)NO.7577 of 2012

C.A.NO.3972 OF 2014 @ S.L.P.(C)NO.9721 of 2012

C.A.NO.3973 OF 2014 @ S.L.P.(C)NO.11460 of 2012

C.A.NO.3974 OF 2014 @ S.L.P.(C)NO.12111 of 2012

C.A.NO.3975 OF 2014 @ S.L.P.(C)NO.12886 of 2012

C.A.NO.3976 OF 2014 @ S.L.P.(C)NO.12887 of 2012

C.A.NO.3977 OF 2014 @ S.L.P.(C)NO.15207 of 2012

C.A.NO.3978 OF 2014 @ S.L.P.(C)NO.15209 of 2012

Page 33 33

C.A.NO.3979 OF 2014 @ S.L.P.(C)NO.16266 of 2012

C.A.NO.3980 OF 2014 @ S.L.P.(C)NO.16265 of 2012

C.A.NO.3981 OF 2014 @ S.L.P.(C)NO.16319 of 2012

C.A.NO.3982 OF 2014 @ S.L.P.(C)NO.16782 of 2012

C.A.NO.3983 OF 2014 @ S.L.P.(C)NO.19491 of 2012

C.A.NO.3984 OF 2014 @ S.L.P.(C)NO.19492 of 2012

C.A.NO.3985 OF 2014 @ S.L.P.(C)NO.20626 of 2012

C.A.NO.3986 OF 2014 @ S.L.P.(C)NO.21459 of 2012

C.A.NO.3987 OF 2014 @ S.L.P.(C)NO.21460 of 2012

C.A.NO.3988 OF 2014 @ S.L.P.(C)NO.30192 of 2012

C.A.NO.3989 OF 2014 @ S.L.P.(C)NO.36559 of 2012

C.A.NO.3990 OF 2014 @ S.L.P.(C)NO.12130 of 2013

AND

WITH C.A.NO.3991 OF 2014 @ S.L.P.(C)NO.15368 of 2013:

In view of the order passed in Civil Appeal @ S.L.P.

(C)No.10542 of 2011, these appeals are also disposed of in

the same terms, conditions, observations and directions

contained therein.

Ordered accordingly.

Page 34 34

S.L.P.(C)No.7741/2013:

De-tag and list separately.

Ordered accordingly.

.......................J.

(H.L. DATTU)

.......................J.

(S.A. BOBDE)

NEW DELHI;

MARCH 12, 2014