2011 (7) TMI 543 - HC - Income Tax

Block assessment - Whether Tribunal was right in setting aside the block assessment without verifying whether the assessee was a partner during the block assessment period from 1.4.1984 to 23.1.1996 - Held that - As the Tribunal found that there was no search warrant in the case of the assessee & that there was a search under Section 132 of the Income Tax Act only as regards the premises of M.H.Jewellers, Tirunelveli - Since, at the material point of time, the assessee was not at all a partner in the firm, the block assessment made was not sustainable and that the income for 1995-96 should have been taken up under the normal assessment procedure - It is clear that there was no search warrant on the assessee to conclude that the case would fall under Section 158BC of the Income Tax Act. If the case has to come under Section 158BD then in respect of the search conducted in the premises of M/s.M.H.Jewellers, the materials recovered ought to have been handed over to the territorial Officer having jurisdiction over the assessee for considering any undisclosed income in accordance with Section 158 BC - Decided against the revenue.

Summary

Issues:
1. Validity of block assessment under Section 158BC read with Section 158 BG.
2. Verification of the assessee's partnership during the block assessment period.

Analysis:
1. The appeal before the High Court challenged the Tribunal's order regarding the block assessment period from 1.4.1984 to 23.1.1995. The primary issue raised was the validity of the block assessment framed by the Assessing Officer under Section 158BC read with Section 158 BG. The Tribunal set aside the block assessment, questioning its validity.

2. The assessee, involved in the jewellery business, underwent a search in January 1996, leading to the discovery of jewellery and a completed commercial building. The Assessing Officer issued a notice under Section 158 BC for the block period from 1.4.1985 to 23.1.1996, to which the assessee filed a 'nil' return. Subsequently, the Assessing Officer assessed undisclosed income related to jewellery and construction.

3. During the proceedings, the assessee contended that the income could not be treated as undisclosed income under Section 158B. The Tribunal noted that there was no valid search warrant for the assessee, as the search was limited to M.H.Jewellers' premises. Since the assessee was not a partner in the firm at the time, the block assessment was deemed unsustainable, leading to the setting aside of the assessment.

4. The High Court reviewed the records and arguments presented by the Revenue. It was highlighted that the search was only conducted at M.H.Jewellers, Tirunelveli, and there was no valid search warrant for the assessee. The Tribunal's decision to set aside the block assessment was supported by the absence of valid search proceedings for the assessee.

5. The Court emphasized that without a valid search warrant for the assessee, the assessment under Section 158BC could not stand. However, it noted the provision under Section 158 BD, allowing undisclosed income of another person to be assessed under block assessment. The Court clarified the procedure for handling materials recovered during a search in premises other than the assessee's.

6. Based on the factual findings and absence of proper handover of materials from the search at M.H.Jewellers, the Court upheld the Tribunal's decision to dismiss the Tax Case Appeal. The judgment confirmed that the assessment, even under Section 158 BD, could not be sustained due to procedural lapses.