2010 (10) TMI 158 - AT - Income Tax

Search and seizure - no search was conducted in the assessee s hand and even there was no requisition in assessee s case - assessment framed in the assessee s hands considering the amount found in the possession of three persons and the assessment made in assessee s hands only on the basis of statement given by those three persons no notice under section 158BD was issued to the assessee - assessment framed under section 158BC in the hands of the assessee was illegal - assessment was framed under section 158BC, which is not applicable to the assessee s case since the assessee was neither searched nor requisitioned under section 132A of the Act. Even there was no warrant of authorisation in the name of the assessee - assessment framed under section 158BC in the hands of the assessee was invalid Appeal allowed

Issues Involved:
1. Validity of the order under section 158BC(c) of the Income-tax Act, 1961.
2. Legality of proceedings under section 158BC against the appellant.
3. Justification of adding seized cash in the appellant's hands.
4. Jurisdiction of the Commissioner of Income-tax to issue a warrant of authorization under section 132.
5. Legality and validity of the procedure adopted by the Assessing Officer.
6. Ignorance of relevant judicial decisions by the Commissioner of Income-tax (Appeals).
7. Binding nature of decisions of the Jurisdictional High Court and Apex Court on the Commissioner of Income-tax (Appeals).
8. Justification of adding Rs. 17,00,000 found from three persons in appellant's hands.
9. Incorrectness of adding Rs. 17,00,000 in the appellant's hands.
10. Applicability of section 69 for adding the amount in the appellant's hands.
11. Misinterpretation of facts by lower authorities regarding the ownership of the amount.
12. Justification of interest charged under section 158BFA(1).
13. Opportunity provided before charging interest.
14. Right to take any fresh ground before the hearing of the appeal.

Detailed Analysis:
1. Validity of the order under section 158BC(c) of the Income-tax Act, 1961:
The appellant challenged the order dated 31-5-2000 under section 158BC(c) on both factual and legal grounds. The Tribunal noted that the proceedings were initiated based on the seizure of Rs. 17,00,000 from three individuals, who claimed the money belonged to the appellant. However, the Tribunal found that the appellant was not searched, nor was there a warrant issued in his name, making the proceedings under section 158BC invalid.

2. Legality of proceedings under section 158BC against the appellant:
The appellant argued that he was not the person searched, and no cash was seized from his possession. The Tribunal agreed, noting that the search warrant was issued in the names of three other individuals, and no requisition under section 132A was made in the appellant's name. Therefore, the notice under section 158BC was deemed illegal and without jurisdiction.

3. Justification of adding seized cash in the appellant's hands:
The Tribunal found that the amount of Rs. 17,00,000 seized from the three individuals was added to the appellant's income without proper justification. The appellant contended that the money belonged to a firm, M/s Chaddha & Others, and was recorded in their books. The Tribunal ruled that the addition was unwarranted as the appellant was neither searched nor was there a warrant in his name.

4. Jurisdiction of the Commissioner of Income-tax to issue a warrant of authorization under section 132:
The appellant argued that the authorization under section 132 was issued based solely on police information without proper satisfaction recorded by the department. The Tribunal concluded that the Commissioner of Income-tax had no jurisdiction to issue the warrant as the necessary conditions were not met.

5. Legality and validity of the procedure adopted by the Assessing Officer:
The Tribunal found the entire procedure adopted by the Assessing Officer to be illegal and invalid. The Assessing Officer did not record satisfaction about the existence of undisclosed income before proceeding against the appellant, making the notice under section 158BC vague and the proceedings illegal.

6. Ignorance of relevant judicial decisions by the Commissioner of Income-tax (Appeals):
The appellant argued that several judicial decisions were ignored by the Commissioner of Income-tax (Appeals). The Tribunal noted that decisions from the Jurisdictional High Court and Apex Court were binding and should have been considered, making the action of the Commissioner of Income-tax (Appeals) incorrect.

7. Binding nature of decisions of the Jurisdictional High Court and Apex Court on the Commissioner of Income-tax (Appeals):
The Tribunal emphasized that the decisions of the Jurisdictional High Court and Apex Court are binding on the Commissioner of Income-tax (Appeals). The failure to consider these decisions rendered the appellate authority's action non-judicious.

8. Justification of adding Rs. 17,00,000 found from three persons in appellant's hands:
The Tribunal ruled that the addition of Rs. 17,00,000 in the appellant's hands was unwarranted as the amount was found in the possession of three individuals, not the appellant. The books of M/s Chaddha & Others were duly examined and verified by the police.

9. Incorrectness of adding Rs. 17,00,000 in the appellant's hands:
The Tribunal found the addition incorrect as the money was found with three persons, two of whom were partners of the firm and one an employee. Thus, the addition in the appellant's hands was unjustified.

10. Applicability of section 69 for adding the amount in the appellant's hands:
The Tribunal noted that section 69 was not applicable as no amount was recovered from the appellant. The amount was seized from three different persons, making the addition under section 69 unjustified.

11. Misinterpretation of facts by lower authorities regarding the ownership of the amount:
The Tribunal found that the lower authorities misinterpreted the facts. The three persons from whom the cash was recovered never stated that the amount belonged to the appellant, making the addition highly unjustified.

12. Justification of interest charged under section 158BFA(1):
The Tribunal did not provide a separate finding on the justification of interest charged under section 158BFA(1) as the assessment itself was held invalid.

13. Opportunity provided before charging interest:
The Tribunal did not address this issue separately due to the invalidity of the assessment.

14. Right to take any fresh ground before the hearing of the appeal:
The Tribunal allowed the appeal, rendering the need to take any fresh ground moot.

Conclusion:
The Tribunal concluded that the assessment framed under section 158BC in the appellant's hands was invalid due to the lack of a search warrant in the appellant's name and the improper application of section 158BC. The appeal was allowed, and the assessment was deemed illegal.

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