2010 (11) TMI 597 - HC - Income Tax

Block assessment - Search and seizure - a notice under section 142(1) of the Act, was issued to the assessee requiring him to furnish the block return positively by 20-7-1998 - A penalty notice was also subsequently issued and thereafter, a proposal was sent to the assessee for completion of the block assessment ex parte by proceedings dated 22-10-1998 along with a notice under section 142(1) of the Act - A perusal of the order of the assessing authority discloses that there was no such evidence, which was available and unearthed in the course of the search held on 21-3-1996 or such information, which was relatable to such evidence found in such material - Held that the reliance placed upon any other material, which did not form part of such search material based on the search conducted under section 132 of the Act, of the assessee s premises on 21-3-1996, can form the basis for making the block assessment - Decided in favor of the assessee

Summary

Issues:
1. Validity of quashing block assessment under Income-tax Act.
2. Consideration of judgments from other High Courts in similar cases.
3. Validity of evidence for completion of block assessment.

Issue 1: Validity of Quashing Block Assessment:
The judgment revolves around the validity of quashing a block assessment under sections 158BC and 158BD of the Income-tax Act. The case involved a search at the assessee's premises leading to proceedings for block assessment. Despite various notices and summons, the assessee failed to respond adequately. The Tribunal set aside the block assessment, prompting the appellant to appeal. The High Court noted that the assessing authority primarily relied on statements rather than search materials. It emphasized that for a block assessment, evidence must be linked to the search. As no such evidence was found, the Tribunal's decision to set aside the assessment was upheld.

Issue 2: Consideration of Judgments from Other High Courts:
The second issue raised was the Tribunal's failure to consider judgments from the Kerala High Court and the Madhya Pradesh High Court regarding assessments without direct searches at the assessee's premises. The appellant argued that these judgments supported the Assessing Officer's jurisdiction based on material from searches elsewhere. However, the High Court did not find these arguments persuasive, emphasizing the need for evidence directly linked to the searched premises for a valid block assessment.

Issue 3: Validity of Evidence for Block Assessment:
Lastly, the judgment addressed the validity of evidence used for the block assessment. It highlighted that the Tribunal correctly set aside the assessment as the evidence relied upon was not directly connected to the search conducted at the assessee's premises. The High Court reiterated the requirement for evidence found during a search or related information for a lawful block assessment. Consequently, the Tribunal's decision to allow a regular assessment or reassessment based on available information under the IT Act was upheld, leading to the dismissal of the appeal in favor of the assessee.

In conclusion, the High Court's judgment upheld the Tribunal's decision to set aside the block assessment due to the lack of evidence directly linked to the search at the assessee's premises. The importance of valid evidence for block assessments under the Income-tax Act was reiterated, resulting in the dismissal of the appeal in favor of the assessee.