2012 (6) TMI 517 - AT - Income Tax

Search & Seizure - Block assessment - Period of limitation - search conducted at bhatta premises of the assessee vide first authorization dated 17.12.2002 of which panchnamas was drawn on 20.12.02, 21.12.02(order u/s 132(3)), and 03.01.03 and search conducted at office premises vide last authorisation dated 20.12.2002 of which panchnama was drawn on 27.12.2002 - assessee contended that search was concluded on 21.12.2002 itself and panchnama dated 3.1.2003 was merely for revocation of order u/s 132(3) - Held that - In the present case panchnama dated 3.1.2003 is not a panchnama which finds mentioned in Explanation 2 to section 158BE. Hence, the limitation cannot be governed by the said panchnama. The search essentially was concluded and completed vide panchnama dated 21.12.2002, when order under the second proviso to section 132(1) was passed for deemed seizure of stock of goods, statement of one person was recorded and a restrain order u/s 132 was passed. Panchnama dated 21.12.2002 was the last panchnama as described in Explanation 2 to section 158BE and, therefore, the limitation has to be commenced from the said panchnama, rendering time limit to frame assessment u/s 158BC to be 31.12.2004. As against that, the impugned assessment is passed on 31.1.2005 which is not passed within the limitation described in section 158BE. The assessment, therefore, is bad in law and has to be quashed. It is also held that the point of time of issue of authorization will not have any relevance but it is a point of time when last panchnama is drawn in respect of authorization whether it is first authorization or it is last authorization. Last panchnama as relevant for Explanation 2 to Section 158BE will be the panchnama which show the conclusion of the search. Hence, assessment is barred by limitation and is not a valid assessment in the eyes of law - Decided against the Revenue.

Issues Involved:
1. Reduction of addition on account of payment of salaries.
2. Deletion of addition on account of manufacturing, salary, and wages.
3. Deletion of addition on account of rejection of books of accounts.
4. Validity and time-bar of the block assessment order.
5. Sustenance of disallowance of salary expenses.
6. Sustenance of trading addition.
7. Interest charged under section 158BFA(1).
8. Opportunity for furnishing additional grounds of appeal.

Issue-wise Detailed Analysis:

1. Reduction of Addition on Account of Payment of Salaries:
The revenue contested the CIT (A)'s decision to reduce the addition made on account of payment of salaries from Rs. 5,03,867/- to Rs. 1,19,333/-, thereby allowing a relief of Rs. 3,84,534/-. The Tribunal reviewed the CIT (A)'s findings and upheld the reduction, noting that the initial addition was not substantiated with sufficient evidence.

2. Deletion of Addition on Account of Manufacturing, Salary, and Wages:
The revenue argued that the CIT (A) erred in deleting the addition of Rs. 29,87,374/- made by the AO based on loose papers and books of accounts found during the search. The Tribunal examined the evidence and found that the CIT (A) correctly deleted the addition as it lacked a solid basis.

3. Deletion of Addition on Account of Rejection of Books of Accounts:
The revenue contended the deletion of Rs. 3,00,000/- added by the AO due to the rejection of books of accounts under section 145(3). The Tribunal upheld the CIT (A)'s decision, agreeing that the rejection of books was unwarranted without substantial grounds.

4. Validity and Time-bar of the Block Assessment Order:
The assessee challenged the block assessment order on the grounds of being time-barred. The Tribunal analyzed the dates and events surrounding the search authorizations and panchnamas. It was concluded that the last valid panchnama was dated 21st December 2002, and the assessment order passed on 31st January 2005 was beyond the statutory time limit, rendering the assessment invalid.

5. Sustenance of Disallowance of Salary Expenses:
The assessee contested the disallowance of salary expenses to the extent of Rs. 1,19,333/-. The Tribunal reviewed the CIT (A)'s findings and upheld the disallowance, noting that it was justified under the provisions of Chapter XIV-B of the IT Act, 1961.

6. Sustenance of Trading Addition:
The assessee also challenged the sustenance of trading addition to the extent of Rs. 1,86,090/-. The Tribunal found that the CIT (A) correctly sustained the addition based on the facts and circumstances of the case.

7. Interest Charged Under Section 158BFA(1):
The assessee sought consequential relief from the interest charged under section 158BFA(1). Given the Tribunal's decision to quash the assessment as time-barred, the interest charged under this section was also deemed invalid.

8. Opportunity for Furnishing Additional Grounds of Appeal:
The assessee requested the opportunity to furnish additional grounds of appeal. However, given the Tribunal's decision to quash the assessment, this request became moot.

Conclusion:
The Tribunal concluded that the block assessment order was invalid due to being time-barred, thereby dismissing the revenue's appeal and allowing the assessee's cross-objections. The other grounds of appeal became academic following this decision. The order was pronounced in the open court on 11/06/2012.

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