2002 (8) TMI 254 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the block assessment order.
2. Validity of search and seizure operations.
3. Compliance with section 132(9A).
4. Detection of undisclosed income.
5. Validity of notice u/s 158BC.
6. Additions made in the block assessment order.
7. Documentation of transactions.
8. Applicability of section 69.
9. Genuineness of transactions.
10. Reconciliation of items.
11. Addition on account of deposit in SB Account.
12. Income from Saree business.
13. Principles of natural justice.
14. Validity of the assessment order.

Summary:

1. Validity of the Block Assessment Order:
The block assessment order dated 27-11-1997 was challenged on the grounds of being wholly illegal due to the absence of a valid search or seizure operation, non-compliance with section 132(9A), and no detection of undisclosed income during the search operations. The Tribunal found that the search warrant was issued only in the name of Ashok Kumar and not the assessee-firm, making the assessment under section 158BC invalid.

2. Validity of Search and Seizure Operations:
The search and seizure operation conducted on 3rd November 1996 was deemed invalid as there was no valid authorisation in the name of the assessee-firm. The Tribunal concluded that the search was illegal and the subsequent proceedings under section 158BC were not applicable.

3. Compliance with Section 132(9A):
The assessee did not press ground No. 1(ii) regarding non-compliance with section 132(9A), and it was not considered in the appeal.

4. Detection of Undisclosed Income:
The Tribunal found that no undisclosed income was detected during the search operations. The entire process of transactions was documented in the books of account, and the additions made by the Assessing Officer were not maintainable.

5. Validity of Notice u/s 158BC:
The notice dated 9-10-1997 under section 158BC was found to be invalid as it was vague, non-specific, and not in accordance with the provisions of law.

6. Additions Made in the Block Assessment Order:
The Tribunal examined various additions made in the block assessment order, including unexplained investment in gold ornaments, cash, silver utensils, silver coins, silver bricks, and deposits in the bank account. All these additions were found to be documented in the books of account and not falling within the definition of "Undisclosed Income" u/s 158B(b).

7. Documentation of Transactions:
The entire process of transactions, including receipt of old ornaments, handing over to karigars, and receipt of newly made ornaments, was documented by related bills, vouchers, registers, and entries in the stock register and cash book. The Assessing Officer erred in treating these as "undisclosed income."

8. Applicability of Section 69:
The stock of gold ornaments found during the search was entered in the books of account, and the provisions of section 69 were not applicable. The onus was on the Department to prove the applicability of section 69, which was not discharged.

9. Genuineness of Transactions:
The genuineness of transactions was supported by summons served to customers, affidavits filed, and personal appearances before the Assessing Officer. The additions made were found to be illegal.

10. Reconciliation of Items:
The appellant submitted detailed reconciliation of each item, supported by documentary evidence. The additions made on account of unexplained investment in various items were not maintainable.

11. Addition on Account of Deposit in SB Account:
The addition of Rs. 5,000 on account of deposit in the SB Account of Ashok Kumar HUF was found to be illegal as the bank account did not belong to the appellant firm, and there was no material to show that the deposit was made by the appellant firm.

12. Income from Saree Business:
The Benarasi Saree Business was carried on by Smt. Ambika Devi with her own funds, and there was no material to hold that the firm carried this business. The addition of Rs. 1,02,300 was found to be illegal.

13. Principles of Natural Justice:
The assessment was completed against the principles of natural justice, and the additions were liable to be deleted.

14. Validity of the Assessment Order:
The assessment order was found to be bad both on facts and in law and was not maintainable.

Conclusion:
The Tribunal set aside and quashed the assessment order dated 27-11-1997 on preliminary issues as well as on merits, and the appeal of the assessee was allowed.