2010 (10) TMI 756 - HC - Income Tax

Search and seizure - Block assessment - Addition - Estimation of income - Depreciation and excise duty - Applicability of section 145(2) - Held that assessment based on material found during search could not be set aside only on the ground that section 145(2) of the Act was not applicable - Appeal is allowed by way of remand to Tribunal

Summary

Issues:
1. Interpretation of section 145(2) in block assessments.
2. Validity of assessment based on material found during search.
3. Applicability of section 145 of the Act to block assessments.

Interpretation of section 145(2) in block assessments:
The High Court considered the appeal by the revenue against the ITAT order for block assessment years 1986-87 and 1996-97. The substantial questions of law raised included the applicability of section 145(2) to block assessments, the Assessing Officer's power of estimation under section 143(3), and the allowance of depreciation and excise duty for a specific assessment year. The Tribunal had set aside the block assessment order, stating that it could not go beyond the searched material by invoking section 145 of the Act. The Court allowed the modification of the substantial question of law and directed the matter to be reconsidered in light of the express amendment to section 158BC(b) by the Finance Act, 2002, making section 145(2) applicable to block assessments.

Validity of assessment based on material found during search:
During the proceedings, the counsel for the revenue argued that the block assessment order was based on material found during the search, and the inference drawn from it was the basis for the assessment. The key issue raised was whether an assessment based on material found during search could be set aside solely on the ground that section 145(2) was deemed inapplicable. The Court answered this question in favor of the revenue, holding that the assessment could not be invalidated solely on the grounds of section 145(2) not being applicable. Consequently, the appeal was allowed, the Tribunal's order was set aside, and the matter was remanded for a fresh decision on merits in accordance with the law.

Applicability of section 145 of the Act to block assessments:
The counsel for the assessee highlighted the amendment to section 158BC(b) by the Finance Act, 2002, which made section 145(2) of the Act applicable to block assessments. Therefore, the Tribunal was directed to reconsider the matter in light of the applicability of section 145 of the Act. The Court ruled in favor of the revenue, emphasizing that the assessment based on material found during the search could not be invalidated solely due to the non-applicability of section 145(2). The parties were instructed to appear before the Tribunal for further proceedings as per the Court's directions.

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