2009 (11) TMI 959 - HC - Income Tax

Summary

Issues Involved:
1. Competency and correctness of the ITAT in entertaining the issue of validity of the search and quashing the block assessment.
2. Whether the assessment order was passed beyond the date of limitation specified in Section 158BE of the Act.
3. Validity of the warrant signed by the Additional Director of Income Tax.

Issue 1: Competency and Correctness of ITAT in Entertaining the Issue of Validity of the Search

The Tribunal found various infirmities in the warrants of authorization, such as incorrect or vague mention of the premises to be searched. For instance, in the case of M/s. Independent Courier Pvt. Ltd., the name was incorrectly mentioned, and the premises to be searched were left blank. Similarly, for M/s. Harmony Psychiatry Centre Pvt. Ltd., the premises were vaguely stated as "Citi Bank, New Delhi" without specifying the branch. The Tribunal held that non-mentioning or incorrect mentioning of the premises to be searched was a material illegality and relied on the Supreme Court judgment in I.T.O. v. Seth Brothers, which emphasized that search warrants must be specific to the premises and the assessee. The Tribunal also referred to the Search and Seizure Manual, which states that an authorization without the name of the party or the premises to be searched is invalid. The High Court agreed with the Tribunal's findings for M/s. Independent Courier Pvt. Ltd. but found that the description "Citi Bank, New Delhi" was not vague for other assessees as it was understood by both parties to refer to the same branch.

Issue 2: Limitation

The Tribunal set aside the block assessment on the ground of limitation, stating that the search warrants were executed in July 1996, and the block assessment had to be completed within one year from the end of the month in which the last search warrant was executed. The Department argued that the limitation period should start from the date of recovery of money from the bank on 20.9.1996. The High Court held that the date of the last Panchnama, which was 20.9.1996, should be considered for computing the limitation period. The Court referred to the case of M.B. Lal v. CIT, which held that the period of limitation should be reckoned from the date of revocation of the order passed u/s 132(3). Therefore, the assessment was completed within the prescribed period of limitation and was not time-barred.

Issue 3: Validity of the Warrant Signed by the Additional Director of Income Tax

The Tribunal quashed the warrants signed by the Additional Director of Income Tax on the ground that he had no power to do so u/s 132(1) of the Act. However, the High Court noted that Section 132 had been amended by the Finance (No.2) Act, 2009 with retrospective effect from 1.6.1994, enabling the Additional Director of Income Tax to issue authorizations. This legislative amendment rendered the Tribunal's ground invalid, and the High Court held that the warrants signed by the Additional Director of Income Tax were valid.

Consequential Order:

The appeal of the Revenue in the case of M/s. Independent Courier (ITA No.337/2009) was dismissed on the ground that the search warrants were vague for want of details in respect of the premises to be searched. Other appeals preferred by the Revenue were allowed, and the matters were referred back to the Tribunal for decision on merits.

No costs.