2015 (4) TMI 1106 - HC - Income Tax

Assessment u/s 158BD - Held that - The confusion has apparently happened because search under section 132 of the Act commenced in the case of other assessees as well and, therefore, all similarly placed persons were clubbed together and assessment orders were passed. However, neither in the course of passing the assessment order nor during the appeal proceedings before the Tribunal or this court, attention was drawn to the survey proceedings under section 133A of the Act, in so far as the present assessee is concerned. Since all the cases were taken up together as one lot and assessment orders were passed, the error could have happened. Since the earlier order of the Tribunal dated April 12, 1999 does not deal with each one of the assessee, but based on a common order passed by the Tribunal, the error in the present case is apparent on the face of the record. This error was also not brought to the notice of this court in the earlier round of litigation. The typed set of documents filed in the earlier round of litigation by the assessee shows that it is a case of only survey under section 133A and search has been clearly deleted. There is no dispute on this fact, as the same is borne out by document. If it is a case of survey under section 133A of the Act, as is evident from the document, the block assessment, invoking the provisions of sections 158BC does not arise, as there is no search in terms of section 132 of the Act - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 158BC.
2. Validity of notice under Section 158BC in the absence of a warrant of authorization.
3. Basis of assessment on materials seized during the search.
4. Inclusion of income for the year 1995-96 in the block assessment.

Detailed Analysis:

Issue 1: Jurisdiction of the Assessing Officer under Section 158BC

The appellant/assessee challenged the jurisdiction of the Assessing Officer to issue a notice under Section 158BC, arguing that no search or requisition was made by the Income-tax Department. The Tribunal initially set aside the assessment orders, agreeing that there was no search or requisition. However, upon remand, the Tribunal relied on the Madhya Pradesh High Court's decision in CIT v. Indore Constructions P. Ltd., which allowed jurisdiction if undisclosed income was discovered, even without a separate authorization. This decision was later reversed by the Supreme Court, which clarified that the conditions precedent for invoking Section 158BD must be satisfied, including a search under Section 132 or requisition under Section 132A. The High Court found that there was only a survey under Section 133A, not a search, thus invalidating the block assessment under Section 158BC.

Issue 2: Validity of notice under Section 158BC in the absence of a warrant of authorization

The appellant argued that the assessment was invalid due to the absence of a warrant of authorization in their name. The Tribunal initially dismissed this argument, but the High Court emphasized that the absence of a search warrant meant that the Assessing Officer lacked jurisdiction to issue the notice under Section 158BC. The court referenced the Supreme Court's decision, which mandated that the conditions for invoking Section 158BD must be strictly followed, further invalidating the notice and subsequent assessment.

Issue 3: Basis of assessment on materials seized during the search

The Tribunal initially did not quash the assessment on the grounds that it was not based on materials seized during the search. However, the High Court found that since no search was conducted under Section 132, the assessment could not be based on seized materials. The court highlighted that the proceedings were based on a survey under Section 133A, which does not authorize a block assessment under Section 158BC.

Issue 4: Inclusion of income for the year 1995-96 in the block assessment

The appellant contended that the income for the year 1995-96 should not be included in the block assessment as the due date for filing the return had not expired before the date of the search and the income was duly disclosed before the search. The High Court did not address this issue directly, as it became academic after resolving the jurisdictional issue in favor of the appellant.

Conclusion:

The High Court allowed the appeal, setting aside the Tribunal's order dated February 28, 2006. The court concluded that the block assessment was invalid due to the absence of a search under Section 132, thus answering the second substantial question of law in favor of the appellant and rendering the other questions academic. The appeal was allowed without costs.