1998 (12) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Validity of search conducted and jurisdiction of the Assessing Officer.
2. Legality of reference to the Valuation Officer and District Valuation Officer.
3. Determination of alleged undisclosed income.
4. Levy of surcharge at 15%.
5. General procedural aspects and fairness of the assessment process.

Summary:

1. Validity of Search Conducted and Jurisdiction of the Assessing Officer:
The assessee challenged the jurisdiction of the Assessing Officer (AO) u/s 158BC, arguing that no search was conducted at the business premises of the assessee-company. The AO erroneously recorded that a search was conducted on 21-11-1995. The Panchnama showed that the search warrant was issued for individuals, not the company. The Tribunal found that no search warrant was issued for the assessee-company, and the AO lacked jurisdiction to issue notice u/s 158BC. The assessment was void for want of jurisdiction, supported by the ITAT Madras decision in Urmila Chandak vs Asstt. Commissioner of Income-tax.

2. Legality of Reference to the Valuation Officer and District Valuation Officer:
The AO's reference to the DVO was challenged as contrary to Chapter XIV-B. The AO made additions based on the DVO's report without positive evidence. The Tribunal held that additions based solely on estimates without direct evidence from the search were impermissible under Chapter XIV-B. The reference to the DVO was found to be erroneous and not legally tenable.

3. Determination of Alleged Undisclosed Income:
The AO determined undisclosed income based on loose papers and estimates from the DVO's report. The Tribunal emphasized that u/s 158BB, undisclosed income must be based on evidence found during the search. The AO's approach was beyond the scope of Chapter XIV-B, which does not permit roving enquiries into completed assessments without direct evidence of undisclosed income.

4. Levy of Surcharge at 15%:
The assessee challenged the levy of surcharge at 15%. The Tribunal did not specifically address this issue as the primary grounds for appeal were upheld, rendering the surcharge issue moot.

5. General Procedural Aspects and Fairness of the Assessment Process:
The assessee argued that adequate opportunity was not provided to counter the DVO's comments, and the AO's actions were arbitrary. The Tribunal found procedural lapses and lack of judicious application of mind by the AO, further supporting the assessee's case.

Conclusion:
The Tribunal allowed the appeal, holding that the AO lacked jurisdiction to issue notice u/s 158BC, the reference to the DVO was erroneous, and the determination of undisclosed income was contrary to the provisions of Chapter XIV-B. The assessment was set aside on these preliminary grounds.