2010 (10) TMI 1119 - AT - Income Tax

Block assessment proceedings u/s 158BD after lapse of about 5 years - long gap of completion of the assessment in the case of persons searched - search action u/s 132 was carried out at the premises and after making preliminary enquiries, the proceedings u/s 158BD r.w.s. 158BC were initiated against the assessee - AO, after considering the material on record, computed the undisclosed income on which part relief is allowed by the ld.CIT(A) - HELD THAT - We are of the view that the issue is squarely covered in favour of the assessee by the order of ITAT, in the case of Vimal Vadilal Shah Ors 2010 (5) TMI 889 - ITAT AHMEDABAD following the decision of Special Bench in the case of Manoj Agarwal 2008 (7) TMI 446 - ITAT DELHI-A held that without there being satisfaction recorded prior to completion of assessment of the person searched proceedings so initiated u/s 158BD will not be valid. we hold that the block assessment framed in case assessee are not legally valid and therefore are quashed for the reason that notices u/s 158BD were issued in these cases long after completion of assessment in the case of person searched i.e. Ohm Developers. An identical matter was considered by this Court, CIT v. Mridula, Prop. M/s Dhruv Fabrics 2010 (7) TMI 664 - PUNJAB AND HARYANA HIGH COURT as observed If any other time limit is read in the provisions / statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment u/s 158BC in the case of an assessee against whom action u/s 132 or 132A had been carried out is finalized, Revenue can take action at any time in the absence of any specific limitation prescribed in the statute. A construction which leads to such an anomaly should be avoided. No justification for initiation of block assessment proceedings u/s 158BD against the assessee after long gap of completion of the assessment in the case of persons searched, viz. M/s Ohm Developers.Appeal of the assessee are allowed.

Summary

Issues Involved:
Appeal against deletion of investment in purchasing a flat, Validity of proceedings u/s 158BD of the Act, Time limitation for initiating proceedings u/s 158BD, Quashing of block assessment proceedings.

Analysis:

1. Appeal against Deletion of Investment in Purchasing a Flat:
The department appealed the deletion of an addition of Rs. 3,15,000 on account of investment in purchasing a flat. The Assessing Officer had computed undisclosed income, and the CIT(A) partly confirmed the addition. The issue revolved around the validity of the addition made by the Assessing Officer and confirmed by the CIT(A). The department's appeal was based on challenging the deletion of the investment amount.

2. Validity of Proceedings u/s 158BD of the Act:
The assessee appealed against the action of the Assessing Officer in initiating proceedings u/s 158BD of the Act. The main contention was that the proceedings were initiated after a lapse of about 5 years, which was considered unjustified. The assessee argued that the proceedings should be treated as invalid due to the delay in initiation. The issue focused on the timing and validity of the proceedings under section 158BD.

3. Time Limitation for Initiating Proceedings u/s 158BD:
The crux of the matter was whether the initiation of block assessment proceedings u/s 158BD against the assessee, after a significant delay following the completion of assessment in the case of the searched persons, was legally valid. The argument centered on the time limitation for initiating such proceedings and the consequences of delays in invoking section 158BD of the Income Tax Act.

4. Quashing of Block Assessment Proceedings:
The Tribunal analyzed various precedents and judgments related to the initiation of proceedings under section 158BD. Citing relevant cases, the Tribunal concluded that the initiation of block assessment proceedings against the assessee, long after the completion of assessment in the case of the searched persons, was not justified. Consequently, the Tribunal quashed the block assessment proceedings against the assessee. This decision was based on the principle that the action under section 158BD should be taken within a reasonable timeframe and in conjunction with the completion of assessments in related cases.

In summary, the judgment addressed multiple issues, including challenges to additions made by the Assessing Officer, the validity of proceedings under section 158BD, the time limitation for initiating such proceedings, and the quashing of block assessment proceedings. The decision emphasized the importance of timely and legally valid actions under the Income Tax Act, ultimately leading to the dismissal of the departmental appeal and the allowance of the assessee's appeal.