1999 (10) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the Block Assessments
2. Legality of Seizure of Books and Records
3. Applicability of Chapter XIV-B and Section 158BD
4. Adequacy of Notice and Satisfaction under Section 158BD
5. Failure of Natural Justice in Block Assessment Procedure

Summary:

1. Validity of the Block Assessments:
The appellants challenged the validity of the block assessments u/s 158BD, arguing that the search warrant was issued only against Shri K.V. Laxmanan and not against them. The Tribunal held that the appellants have no locus standi to assail the validity of the search u/s 132, as the search was not against them. Therefore, ground No. 1 of the additional grounds of appeal was dismissed as not entertained.

2. Legality of Seizure of Books and Records:
The appellants contended that the seizure of their books and records found in the premises of Shri K.V. Laxmanan was illegal. The Tribunal referred to the Supreme Court's decision in ITO v. Seth Bros., which held that the seizure of books of account and documents in respect of other businesses carried on by the partners is valid if they are found in the premises searched. Hence, the objections of the appellants were rejected.

3. Applicability of Chapter XIV-B and Section 158BD:
The appellants argued that since there was no search on them u/s 132, the provisions of Chapter XIV-B are not applicable, and the block assessments made in their cases are void ab initio. The Tribunal upheld the contention of the departmental representative that block assessment can be made on any other person u/s 158BD even if such other persons are not subjected to search, provided the conditions mentioned in section 158BD are fulfilled.

4. Adequacy of Notice and Satisfaction under Section 158BD:
The appellants contended that there was no material before the Assessing Officer to reach satisfaction u/s 158BD and that the notices issued to them did not refer to section 158BD. The Tribunal held that recording of satisfaction is not specifically required under section 158BD, but the department should indicate the basis on which satisfaction was reached. The Tribunal found that the department failed to show the basis of satisfaction and hence set aside the block assessment orders, directing the Assessing Officer to frame the assessments afresh after giving adequate opportunities to the assessees.

5. Failure of Natural Justice in Block Assessment Procedure:
The appellant Shri K.V. Laxmanan contended that the block assessment order was passed without giving him an effective opportunity to state his objections to the proposed additions. The Tribunal held that the failure to furnish the draft (assessment) order and the appraisal report of the ADIT handicapped the assessee in making effective representations. The Tribunal set aside the draft assessment order along with the block assessment order and restored the case to the file of the Assessing Officer with a direction to give a full, fair, and effective opportunity to the assessee to make his representations.

Conclusion:
The appeals were partly allowed for statistical purposes, with directions to the Assessing Officer to frame the assessments afresh after giving adequate opportunities to the assessees. The block assessment in the case of M/s. Palagapandi Group Estates was cancelled as there was no incriminating document found at the time of search.