2011 (9) TMI 50 - AT - Income Tax

Addition - Block assessment - Under section 158BC read with section 158BD and section 144 of the Income-tax Act, 1961 - Held that - whether regular assessment is actually made or not or whether any addition in regular assessment is actually made or not is also not relevant and if any addition is required to be made in regular assessment, it cannot be added in block assessment only for this reason that no regular assessment was made or that no addition was made in such regular assessment. No addition is justified in the present case, either in respect of deposits in various bank accounts or various other additions made by the Assessing Officer, which are not relatable to any evidence found in course of search. In the absence of any incriminating material having been found in course of search, there is no basis to make any addition in the hands of any other person also under chapter XIV-B - Hence, the additions made is deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of search and seizure.
2. Compliance with principles of natural justice.
3. Requirement and issuance of notice under section 143(2) of the Income-tax Act.
4. Basis of additions in block assessment.
5. Treatment of deposits in bank accounts.
6. Protective assessment of Jharkhand Mukti Morcha (JMM).

Issue-wise Detailed Analysis:

1. Validity of Search and Seizure:
The appellants argued that the search warrant under section 132(1) was issued in the name of Punjab National Bank (PNB) and not the assessee, and no panchnama was drawn. The Tribunal noted that the validity of search cannot be contested in appellate proceedings, as per the decision of the Delhi High Court in M.B. Lal v. CIT. The Tribunal emphasized that search is "assessee based" and "premises based," and the authorization in the name of the assessees justified the search of their bank accounts.

2. Compliance with Principles of Natural Justice:
The appellants contended that they were not provided adequate opportunity for cross-examination and that the principles of natural justice were violated. The Tribunal observed that the assessee was provided multiple opportunities to present their case, including the chance for cross-examination, which they did not avail. The Tribunal concluded that there was no denial of adequate opportunity to the assessee.

3. Requirement and Issuance of Notice under Section 143(2):
The appellants argued that no notice under section 143(2) was issued after filing the return of income, rendering the assessment order invalid. The Tribunal noted that detailed questionnaires and notices under sections 142(1) and 143(2) were issued prior to the filing of the return, and a notice under section 144 was issued subsequently. The Tribunal held that the notice under section 144 could be presumed to be a notice under section 143(2), and thus, the assessment was valid.

4. Basis of Additions in Block Assessment:
The Tribunal emphasized that additions in block assessment can only be made based on evidence found as a result of search or requisition of books of account or other documents. The Tribunal found that the other additions made by the Assessing Officer were not based on evidence found in the course of search and were not sustainable. The Tribunal cited various judicial pronouncements, including Vishal Aggarwal, G.K. Senniappan, and Jupiter Builders, to support this view.

5. Treatment of Deposits in Bank Accounts:
The Tribunal examined whether the deposits in the bank accounts could be considered undisclosed income. It was noted that the details of these bank accounts were already known to the department before the search, and the assessees had disclosed these accounts in their statements recorded under section 131. The Tribunal held that the existence of these bank accounts could not be considered incriminating material found as a result of search. Therefore, no addition could be made in the block assessment based on these deposits.

6. Protective Assessment of Jharkhand Mukti Morcha (JMM):
The Tribunal held that since no incriminating evidence was found in the course of search justifying any addition under section 158BC in the hands of the four individuals, the protective addition in the case of JMM also could not be sustained. The Tribunal deleted the additions made in the case of JMM, as there was no basis for making any addition under chapter XIV-B without incriminating material found in the course of search.

Conclusion:
The Tribunal allowed all five appeals, holding that no addition made by the Assessing Officer was sustainable either in respect of deposits in various bank accounts or other additions not based on evidence found in the course of search. The Tribunal did not adjudicate on other contentions raised by the appellants as they were of academic interest only after holding that no addition was justified.