2006 (4) TMI 581 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice under section 158BD.
2. Limitation and delay in issuing notice.
3. Requirement of incriminating material for block assessment.
4. Validity of assessment based on survey under section 133A.
5. Applicability of section 249(4) regarding self-assessment tax.
6. Delay in filing appeal and its condonation.
7. Levy of interest under section 158BFA.
8. Merits of additions made in block assessment.
9. Approval of assessment order by competent authority.

Detailed Analysis:

1. Validity of Notice under Section 158BD:
The notice issued under section 158BD was deemed invalid as it covered only a part of the block period and was issued beyond a reasonable time, which was more than four years after the search. The Tribunal relied on the case of Sukhdeo Prasad v. Asstt. CIT and other judicial pronouncements that emphasized the necessity of incriminating material found during the search for a valid block assessment.

2. Limitation and Delay in Issuing Notice:
The notice under section 158BD was issued more than four years after the search, which was considered unreasonably delayed and thus barred by limitation. The Tribunal noted that the satisfaction of the existence of undisclosed income should have been recorded within a reasonable time after the search, as per the case law cited.

3. Requirement of Incriminating Material for Block Assessment:
The Tribunal highlighted the absence of incriminating material found during the search in the case of K.R. Prabhu that could indicate undisclosed income of the assessee. The assessment was based on regular books of account impounded during a survey under section 133A, which cannot be equated with a search under section 132. The Tribunal referred to various cases, including CIT v. Vinod Danchand Ghodawat and CIT v. Ravi Kant Jain, to support this view.

4. Validity of Assessment Based on Survey under Section 133A:
The Tribunal held that the impounding of regular books of account during a survey under section 133A cannot be the basis for a block assessment under Chapter XIV-B. The income assessed from the share in the film 'Indian' and alleged cash credits were part of regular books of account and not from any incriminating material found as a result of a search.

5. Applicability of Section 249(4) Regarding Self-Assessment Tax:
The Tribunal found that the provisions of section 249(4) apply to appeals filed before the Commissioner (Appeals) and not to the Tribunal. This view was supported by the decision of the Special Bench in Anil Sanghi v. Asstt. CIT.

6. Delay in Filing Appeal and Its Condonation:
The delay in filing the appeal was attributed to the improper advice by the Assessing Officer, who advised the assessee to file the appeal before the CIT(A). The Tribunal condoned the delay as it was accidental and not without reasonable cause.

7. Levy of Interest under Section 158BFA:
The Tribunal noted that the provision of section 158BFA was not applicable as it came into force only on 1-1-1997, while the search was conducted on 11-10-1996. Hence, the levy of interest was without legal authority and liable to be canceled.

8. Merits of Additions Made in Block Assessment:
The Tribunal found that the income from the film 'Indian' and the alleged cash credits were part of the regular books of account and not undisclosed income as defined under section 158B(b). The income was also covered by advance tax payments, which cannot be considered as undisclosed income. The Tribunal deleted the additions made in respect of unexplained cash credits as no material was found during the search to suggest they were ingenuine or bogus.

9. Approval of Assessment Order by Competent Authority:
The assessment order was not approved by the prescribed competent authority under section 158BG. The Tribunal emphasized that the approval/consent of an experienced authority, such as a Commissioner, is required for assessing undisclosed income taxed at the highest rate.

Conclusion:
The Tribunal set aside the assessment order, deeming it invalid due to the invalid notice, lack of incriminating material, and procedural defects. The appeal was allowed in favor of the assessee.