2006 (2) TMI 202 - AT - Income Tax

Block Assessment in search case - authorization of search u/s 132 - whether the last of the authorization warrant was executed on 29-6-1998 or on 1-8-1998? - determine the start of time limitation provided u/s 158BE - HELD THAT - As stated, on 19-6-1998 an inventory was prepared of shares and debentures found at the residence of the assessee and the same were kept under PO. On the second visit of the search party i.e. on 1-8-1998 the said cupboard was opened, inventory of same shares and debentures was again prepared and those were released. The only difference in the two inventories prepared was that in the first inventory d distinctive numbers were not mentioned whereas in the second inventory the distinctive numbers were mentioned. Merely by mentioning distinctive numbers in the second inventory it cannot be held that the said shares and debentures were not appraised by the Search Party on 19-6-1998. No search proceedings as envisaged u/s 132(1) took place on 1-8-1998 only another inventory was prepared and the shares and debentures were release. The passing of prohibitory order u/s 132(3) is an administrative act and it is the domain of the authorized officer to decide during the course of search if any PO is required to be passed or not. However, in order to determine whether the search as come to end or not, what is required to be seen whether the documents or valuables being kept under PO have been appraised or not. The Explanation 2 of section 158BE does not mean that the time limitation will not start till PO passed u/s 132(3) is in operation. This view also finds support from the order of Special Bench in the case of C. Ramaiah Reddy v. Asstt. CIT 2003 (7) TMI 260 - ITAT BANGALORE . We are of the view that the last of the authorization was executed on 19-6-1998 and the Panchnama prepared on 1-8-1998 was only for the purpose of lifting of PO and cannot be treated as execution of the search warrants. Having held so we hold that the assessment order passed u/s 153BC on 28-8-2000 was barred by time limitation as provided u/s 158BE and same is quashed. The 1st Cross Objection of the assessee is allowed. Cross Objections from 2 to 5 are on merits. We do not see any need to go to the merits as the assessment has been quashed on legal grounds. In the result, assessee's Cross Objection is allowed and Revenue's appeal is dismissed.

Issues Involved:

1. Legality of the block assessment.
2. Merits of the case.

Detailed Analysis:

1. Legality of the Block Assessment:

The primary issue raised by the assessee was that the block assessment order was time-barred and hence illegal and bad in law. This issue was not raised before the CIT (A) but was brought up for the first time at this stage. The Tribunal admitted this legal question, citing the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383.

The facts of the case involved a search initiated on 18-6-1998, with the assessee claiming it concluded on 29-6-1998, whereas the Revenue contended it concluded on 1-8-1998. The block assessment was completed on 28-8-2000. The key question was determining when the last authorization for the search under section 132 was executed to establish the time limitation for completing the block assessment as provided under section 158BE of the Income-tax Act, 1961.

Several Panchnamas were drawn on different dates, with the search temporarily concluded on each occasion until 29-6-1998, when the search was stated to be finally concluded. Another Panchnama was drawn on 1-8-1998, but it only involved the inventory and release of shares and debentures previously inventoried on 19-6-1998.

The assessee argued that the last authorization was executed on 29-6-1998, and the Panchnama on 1-8-1998 could not be considered as execution of the authorization under section 132 since nothing new was done on that date. The Revenue contended that the last authorization was executed on 1-8-1998 because the distinctive numbers of the shares and debentures were not mentioned in the initial inventory.

The Tribunal examined section 158BE(1), which provides the limitation for completing the assessment, starting from the end of the month in which the last authorization for the search was executed. Explanation 2 of section 158BE states that the last authorization shall be deemed to have been executed on the conclusion of the search as recorded in the last Panchnama.

The Tribunal found that the search party visited the residential premises twice, on 19-6-1998 and 1-8-1998. On 19-6-1998, an inventory of shares and debentures was prepared, and a prohibitory order was passed under section 132(3). On 1-8-1998, the same shares and debentures were inventoried again, and the prohibitory order was lifted. The Tribunal held that the search was concluded on 19-6-1998, and the Panchnama on 1-8-1998 was only for lifting the prohibitory order.

The Tribunal relied on the case of Sandhya P. Naik, where it was held that merely stating in the Panchnama that the search is temporarily suspended does not extend the period of limitation. The Tribunal concluded that the assessment order passed on 28-8-2000 was barred by time limitation as provided under section 158BE and quashed the same.

2. Merits of the Case:

The Tribunal did not delve into the merits of the case as the assessment was quashed on legal grounds. Consequently, the cross objections from 2 to 5 were not addressed.

Conclusion:

The assessee's cross objection regarding the legality of the block assessment was allowed, and the assessment order was quashed due to being time-barred. The Revenue's appeal was dismissed as a result.

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