1999 (11) TMI 101 - AT - Income Tax

Block Assessment in search case, Income, Tax Authorities, Appellate Tribunal, Powers Of, Jurisdiction Of

Issues Involved:
1. Jurisdiction of the Assessing Officer to make the assessment.
2. Validity of the search operation.
3. Disclosure of the "satisfaction note" forming the "reason to believe" for the search.
4. Powers of the Appellate Tribunal to adjudicate the validity of the search.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Make the Assessment
The assessee challenged the jurisdiction of the Assessing Officer (AO) to make the assessment, arguing that the search operation was not validly initiated as there was no material leading to the formation of belief that the case fell under any of the categories mentioned in Section 132(1) of the Income-tax Act, 1961.

The Tribunal noted that the block assessment had to be completed strictly in accordance with the provisions of Chapter XIV-B, which provided a special procedure for assessment of search cases. The sine qua non for the completion of the assessment included:
- A search conducted under Section 132.
- Issuance of a requisite notice to the assessee.
- Determination of undisclosed income by the AO within the stipulated period, culminating in an assessment order with the previous approval of the Commissioner.

The Tribunal concluded that if any of these links was missing or legally deficient, it would vitally affect the assessment order, making it bad and ineffective in law.

2. Validity of the Search Operation
The assessee contended that the search operation was initiated without any material leading to the formation of belief as required under Section 132(1). The Tribunal examined the submissions and noted that the search could be conducted only in consequence of information in the possession of the specified officers who should have "reason to believe" that any of the conditions enumerated in clauses (a), (b), or (c) of sub-section (1) of Section 132 existed.

The Tribunal found that the assessee was legally entitled to challenge the existence of the conditions for conducting the search and that the AO had the legal competence to examine the validity of the search, including the existence of the "reason to believe."

3. Disclosure of the "Satisfaction Note"
The assessee demanded the "satisfaction note" recorded by the authorising officer. The Tribunal held that both the AO and the Tribunal were under a legal obligation to call for the relevant records and provide a copy of the "satisfaction note" to the assessee if the validity of the search was challenged. The Tribunal directed the department to produce such material and provide a copy to the assessee.

4. Powers of the Appellate Tribunal to Adjudicate the Validity of the Search
The Tribunal examined whether it had the jurisdiction to adjudicate the validity of the search. It noted that the introduction of Chapter XIV-B brought significant changes in the assessments relating to search cases. The Tribunal held that it had the legal competence to examine the validity of the search and the existence of the "reason to believe."

The Tribunal referenced various judicial decisions supporting the view that the AO and the Tribunal could go behind the search to examine its validity. The Tribunal also invoked the "doctrine of implied authority," holding that the AO, vested with the jurisdiction to pass an assessment order, must have the implied power to examine all aspects of the assessment, including the validity of the search.

Conclusion:
The Tribunal concluded that the AO and the Appellate Tribunal had the jurisdiction and were duty-bound to examine the validity of the search, including the existence of the "reason to believe" and the satisfaction of the conditions enumerated in Section 132(1). The Tribunal directed the department to produce the relevant records and provide a copy of the "satisfaction note" to the assessee. The matter was decided in favor of the assessee, allowing the challenge to the validity of the search and the jurisdiction of the AO to make the assessment.

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