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2008 (6) TMI 224 - AT - Income TaxValidity of Block Assessment u/s.158BC - limitation to complete the assessment - Reference to limitation provisions of section 158 BE - incriminating materials found in the course of search - Difference of opinion between between AM and JM - Third member Order - Whether, the order u/s 158BC made by the AO is time-barred within the meaning of section 158BE of the Act? - Order Ld. J.M. - HELD THAT - The panchnama dated 8-9-1997 was not a valid panchnama in the eyes of law and, therefore, has to be ignored and consequently, period of limitation will commence from 31-7-1997 since the valid panchnama was prepared on 29-7-1997. Consequently, the block assessment could be completed by 31-7-1999. Since the impugned block assessment order was passed on 30-9-1999, it was clearly beyond the period of limitation prescribed u/s 158BE. Thus the impugned order of the AO was illegal being barred by the period of limitation. Therefore, the impugned orders of the lower authorities are cancelled. Since the assessee succeeded on the limitation issue, the Ld. JM did not deal with the grounds of the assessee on merits of the additions sustained by the CIT(A). Order Ld. A.M. - The search u/s 132(1) in the case of the assessee was concluded only on 8-9-1997 when the prohibitory order u/s 132(3) of the Act was lifted by the authorized officer concerned. Hence, it cannot be said that the impugned block assessment order has been made by the AO beyond the period of limitation prescribed u/s 158BE of the Act. Third Member Order - As per section 158BE(1), assessment u/s 158BC should be completed within one year from the end of the month in which last of the authorization for search u/s 132 was executed. In the case under consideration before me, search operation in pursuance to the warrant of authorization issued u/s 132 was carried out at the residential premises of the assessee on 28-7-1997 and it continued till 29-7-1997. Only one authorization for search was issued. However, prohibitory order u/s 132(3) was issued in respect of jewellery, and shares on 29-7-1997. The prohibitory order in respect of jewellery was revoked on 1-8-1997 while prohibitory order in respect of share certificates was revoked on 8-9-1997. On 8-9-1997, another panchnama was prepared wherein it was stated that search is finally concluded. Now the question is whether for the purpose of section 158BE, the warrant of authorization was executed on 29-7-1997 when the search was originally concluded though simultaneously prohibitory order u/s 132(3) was issued in respect of jewellery and shares, or on 8-9-1997 when the prohibitory order issued u/s 132(3) was withdrawn and a panchnama was prepared stating that the search was finally concluded. We find that the Hon'ble jurisdictional High Court has considered the similar issue in the case of Mrs. Sandhya P. Naik. 2000 (12) TMI 21 - BOMBAY HIGH COURT . In my opinion, the interpretation in the case of Mrs. Sandhya P. Naik. 2000 (12) TMI 21 - BOMBAY HIGH COURT to the provisions of section 132(3) would be applicable to all the cases falling within the jurisdiction of Hon'ble Bombay High Court. Their Lordships have clearly laid down that by passing a restraint order u/s 132(3), the time-limit available for framing the assessment cannot be extended. Thus, The revenue wants the period of limitation for the purpose of section 158BE to be reckoned from 8-9-1997 when the prohibitory order u/s 132(3) was revoked and a panchnama was prepared stating that the search is finally concluded. However, from the facts of the case it is evident that so far search is concerned, it was already completed on 29-7-1997 when the premises of the assessee was completely searched and all the assets found were inventorised and a panchnama prepared. Thereafter no action for further search had taken place and after the verification of the assessee's explanation with regard to jewellery and shares, the prohibitory order in respect of jewellery was revoked on 1-8-1997 and in respect of share certificates on 8-9-1997. Thus, on 8-9-1997 only the prohibitory order in respect of shares was revoked. Therefore, the panchnama prepared on 8-9-1997 cannot be said to be a panchnama prepared in pursuance to the warrant of authorization for search within the meaning of section 158BE(1) of the Act. If a panchnama prepared on the revocation of prohibitory order u/s 132(3) wherein the only thing mentioned is 'search is finally concluded', is held to be a panchnama prepared on the conclusion of search within the meaning of Explanation to section 158BE, it would amount to an extending the period of limitation for completion of assessment on account of restraint order u/s 132(3). It would be contrary to the decision of Hon'ble jurisdictional High Court in the case of Mrs. Sandhya P. Naik. Respectfully following the decision in the case of Mrs. Sandhya P. Naik hold that the order passed u/s 158BC by the AO is time-barred within the meaning of section 158BE of the Act. The Third Member vide order dated 16-6-2008 agreed with the view of the Judicial Member by expressing his opinion that the assessment made by the Assessing Officer was barred by the period of limitation prescribed under section 158BE of the Act. In view of the majority opinion, it is held that the block assessment confirmed by the AO was bad in law inasmuch as it was passed beyond the period of limitation prescribed u/s 158BE of the Act. Consequently, the orders of both the lower authorities are hereby quashed. Since the assessee succeeds on the preliminary ground, it is not necessary for us to adjudicate the other grounds relating to additions made by the AO. In the result, the appeal of the assessee stands allowed.
Issues Involved:
1. Whether the block assessment order dated September 30, 1999, is barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Whether the block assessment order dated September 30, 1999, is barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961. Facts: A search and seizure action under section 132 of the Act was conducted at the assessee's premises on July 28, 1997, continuing till July 29, 1997. The search resulted in the discovery of certain incriminating materials, including jewellery and shares. An inventory and a panchnama were prepared, and a prohibitory order under section 132(3) was issued for the jewellery and shares. The prohibitory order for the jewellery was revoked on August 1, 1997, and for the shares on September 8, 1997, on which date another panchnama was prepared stating that the search was finally concluded. The block assessment was completed on September 30, 1999, determining undisclosed income at Rs. 55,69,390. Arguments by the Assessee: The assessee contended that the block assessment order should have been completed by July 31, 1999, as per section 158BE, since the search was concluded on July 29, 1997. The revocation of prohibitory orders on later dates should not extend the period of limitation. The assessee relied on several judicial decisions, including Shahrukh Khan v. Asst. CIT and CIT v. Mrs. Sandhya P. Naik, to support their argument that the search was completed on July 29, 1997, and the panchnama dated September 8, 1997, was not valid for extending the limitation period. Arguments by the Department: The Department argued that the search continued until the prohibitory order was revoked on September 8, 1997. Various statements were recorded during the period, and the search was only concluded after considering the explanations for the jewellery and shares. Therefore, the period of limitation should commence from the end of September 1997. Tribunal's Analysis: The Tribunal analyzed section 158BE and Explanation 2, which states that the period of limitation commences from the end of the month in which the last panchnama is prepared. The Tribunal acknowledged that search and seizure are distinct actions, and the issuance of a prohibitory order under section 132(3) does not constitute a seizure. The Tribunal noted that the search was concluded on July 29, 1997, when the inventory was prepared, and nothing remained to be searched. The panchnama dated September 8, 1997, merely stated that the search was finally concluded without any further action, and hence, it was not a valid panchnama for extending the limitation period. Third Member's Analysis: The Third Member, referring to the decision of the hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik, held that by passing a restraint order under section 132(3), the time-limit for framing the assessment cannot be extended. The search was effectively concluded on July 29, 1997, and the panchnama dated September 8, 1997, prepared upon revocation of the prohibitory order, could not be considered for extending the limitation period. The order under section 158BC passed on September 30, 1999, was thus barred by limitation. Conclusion: The Tribunal concluded that the block assessment order dated September 30, 1999, was barred by the period of limitation prescribed under section 158BE of the Act. The Tribunal held that the search was concluded on July 29, 1997, and the panchnama dated September 8, 1997, was not valid for extending the limitation period. Consequently, the block assessment order was declared illegal and cancelled. The appeal was allowed in favor of the assessee.
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