2010 (9) TMI 862 - KARNATAKA HIGH COURT

Block assessment - validity and legality of the search - Circular No. 772, dated 23rd December, 1998 - Power of the tribunal - starting point of limitation - Held that:- In the case of block assessment, the Assessing Officer on determination of 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. This block assessment as contained in Chapter XIV-B is a special procedure provided for unearthing undisclosed income and bringing to tax the said income by imposing tax. Under the scheme of the block assessment as is clear from the wordings in each and every section, the block assessment is based on search and seizure.

(1) The Tribunal has got powers to look into all aspects of search and a valid search is sine qua non for initiating block assessment. (2) Materials seized during an invalid search cannot be used in block assessment proceeding but can be used in other assessment proceedings under the Act.(3) The power to put prohibitory order under section 132(3) is under law but the reasons for doing so has to be recorded in writing and are justiciable - (4) The period of limitation starts on the date on which the last of authorisation has been executed and not when the authorised officer states that the search is finally concluded. Putting a prohibitory order under section 132(3) does not elongate the starting point of limitation.

In the light of the aforesaid discussion, as the Tribunal has declined to go into the jurisdictional aspect, the appropriate course would be to set aside the order and remit the entire matter back to the Tribunal for fresh consideration keeping in mind the observations made in this judgment and also consider the jurisdiction aspect which it had declined to consider while passing the impugned order. Therefore, the finding recorded by the Tribunal that action of the Income-tax authorities anterior to search cannot be the subject-matter of the appeal, the legality of the validity of the search proceedings cannot be gone into in the appeal against the order of block assessment and statute has not provided any right of appeal, against such an order cannot be sustained - substantial questions of law answered in favour of the assessee and against the Revenue.