2002 (8) TMI 255 - 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) and Jurisdiction of AO.
4. Detection of Undisclosed Income.
5. Validity of Notice under Section 158BC.
6. Additions Made in Block Assessment Order.
7. Treatment of Gold Ornaments and Job Work.
8. Stock of Gold Ornaments and Applicability of Section 69.
9. Genuineness of Transactions and Summons to Customers.
10. Reconciliation of Additions and Documentary Evidence.
11. Addition on Account of Bank Deposit.
12. Income from Saree Business Shown by Smt. Ambika Devi.
13. Principles of Natural Justice.
14. Overall Validity of the Assessment Order.

Issue-Wise Detailed Analysis:

1. Validity of the Block Assessment Order:
The assessee challenged the block assessment order dated 27th November 1997, arguing it was wholly illegal due to lack of a valid search or seizure operation, non-compliance with Section 132(9A), and the absence of undisclosed income detected during the search operations. The Tribunal found that the search warrant was issued in the name of an individual and not the assessee-firm, rendering the block assessment order invalid.

2. Validity of Search and Seizure Operations:
The Tribunal examined the validity of the search and seizure operations conducted on 3rd November 1996. It was found that the search warrant was issued in the name of an individual, not the assessee-firm, making the search and subsequent assessment invalid.

3. Compliance with Section 132(9A) and Jurisdiction of AO:
The assessee argued that the provisions of Section 132(9A) were not complied with, and the AO lacked jurisdiction to make the assessment. The Tribunal agreed, noting that the AO did not have the jurisdiction to proceed against the assessee-firm under Section 158BC without a valid search warrant.

4. Detection of Undisclosed Income:
The Tribunal found that no undisclosed income was detected during the search operations. The AO's reliance on discrepancies in statements and documents was deemed insufficient to establish undisclosed income.

5. Validity of Notice under Section 158BC:
The notice dated 9th October 1997 under Section 158BC was challenged as being vague and non-specific. The Tribunal found the notice invalid as it was not in accordance with the provisions of law and was issued without a valid search warrant.

6. Additions Made in Block Assessment Order:
The Tribunal examined various additions made in the block assessment order, including unexplained investments in gold ornaments, cash, silver utensils, and silver coins. It was found that these additions did not fall within the definition of "undisclosed income" as given in Section 158B(b).

7. Treatment of Gold Ornaments and Job Work:
The entire process of receiving old ornaments from customers for remaking, handing them over to registered karigars, and documenting the transactions was found to be duly documented. The AO's treatment of these transactions as 'undisclosed income' was deemed erroneous.

8. Stock of Gold Ornaments and Applicability of Section 69:
The Tribunal found that the entire stock of gold ornaments was entered in the books of account and other records regularly kept by the assessee. The onus was on the Department to prove the applicability of Section 69, which was not discharged.

9. Genuineness of Transactions and Summons to Customers:
The genuineness of transactions entered in the books of account was supported by summons served to customers, their affidavits, and personal appearances before the AO. The Tribunal found that the additions made were illegal.

10. Reconciliation of Additions and Documentary Evidence:
The assessee provided detailed reconciliation of each item, supported by documentary and other evidence. The Tribunal found that the AO acted illegally in making the additions without proper consideration of the evidence.

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

12. Income from Saree Business Shown by Smt. Ambika Devi:
The Tribunal found that 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 deemed illegal.

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

14. Overall Validity of the Assessment Order:
The Tribunal concluded that the assessment order was bad both on facts and in law and was not maintainable. The appeal of the assessee was allowed, and the assessment order was set aside and quashed.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside and quashing the assessment order on both preliminary issues and merits. The additions made in the block assessment order were found to be illegal and not maintainable.