2012 (12) TMI 164 - HC - Income Tax

Validity of assessment made u/s 158BC - limitation period prescribed u/s 158BE - Revenue herein conducted search initiation operation on 12.12.2001 - A Prohibitory order was issued on 13.12.2001 and panchanama evidencing the seizure of materials was also drawn - On 08.02.2002 15.02.2002, further panchanamas were drawn evidencing issuing of prohibitory order without being in pursuance of any fresh authorisation Assessee contended that assessment order was passed on 27.02.2004, hence, beyond the period of limitation - Revenue took the view that the assessment made u/s 158BC on 27.02.2004 was within the limitation prescribed u/s 158BE read with Explanation 1 for passing the order u/s 158 BC. Held that - Once the warrant of authorisation has been issued and the premises is searched and the search party leaves the premises, there is the end of the search and what could be postponed is only seizure of the articles and issuance of prohibitory order ; however, limitation for the completion of the block assessment begins on the conclusion of the search and issuance of panchanama and in case of single authorisation, the moment such party leaves the premises by drawing of the panchanama noting conclusion of the search, the limitation period begins As to the search completed on 13.12.2001 with drawing of the panchanama and the search party leaving the premises, the mere fact that the panchanama contain the observation that search continues per se would not enable the search party to keep the search in a suspended animation to carry on the search in future date to contend that the limitation has to be worked out on the last panchanama drawn ie. 15.02.2002, thus calculating the limitation from 15.02.2002. Accepting the case of the assessee that the limitation ends on 31.12.2003. In favour of assessee

Summary

Issues Involved:
1. Legality of the block assessment under Section 158BC of the Income Tax Act.
2. Limitation period for passing the assessment order under Section 158BE.
3. Determination of Rs.40 lakhs as undisclosed income under Chapter XIV B.
4. Tribunal's discretion in refusing additional evidence.
5. Allowance of bad debt claim in block assessment.

Detailed Analysis:

1. Legality of the Block Assessment Under Section 158BC:
The assessee challenged the legality of the block assessment made under Section 158BC, arguing that the assessment lacked legally acceptable evidence. The Tribunal upheld the block assessment, but the High Court did not address this issue directly, focusing instead on the limitation period for passing the assessment order.

2. Limitation Period for Passing the Assessment Order Under Section 158BE:
The primary issue was whether the assessment order dated 27.02.2004 was within the limitation period prescribed under Section 158BE. The Revenue argued that the limitation should be calculated from the last panchanama dated 15.02.2002, while the assessee contended that it should be from 13.12.2001, the date when the initial search was concluded.

The High Court referenced previous decisions, including those of the Karnataka High Court in C. Ramaiah Reddy Vs. ACIT and Delhi High Court in Commissioner of Income-Tax Vs. Anil Minda, which held that the limitation period should be calculated from the last panchanama indicating the conclusion of the search. The Court noted that the search was completed on 13.12.2001, and the subsequent panchanamas were related to prohibitory orders, not fresh searches. Thus, the limitation period ended on 31.12.2003, rendering the assessment order dated 27.02.2004 invalid.

3. Determination of Rs.40 Lakhs as Undisclosed Income:
The Tribunal held that the sum of Rs.40 lakhs constituted undisclosed income under Chapter XIV B of the Income Tax Act. The High Court did not delve into this issue in detail, as the case was decided on the grounds of limitation.

4. Tribunal's Discretion in Refusing Additional Evidence:
The assessee argued that the Tribunal did not exercise its discretion judicially when it refused to entertain additional evidence, treating it as an afterthought. The High Court did not address this issue specifically, focusing on the limitation aspect.

5. Allowance of Bad Debt Claim in Block Assessment:
The Tribunal held that the bad debt claim could not be allowed while computing undisclosed income in a block assessment, as there cannot be any books of account maintained. The High Court did not discuss this issue in detail.

Conclusion:
The High Court allowed the appeal based on the limitation issue, setting aside the order of the Income Tax Appellate Tribunal. The Court held that the limitation period for passing the assessment order began on 13.12.2001, concluding on 31.12.2003. Therefore, the assessment order dated 27.02.2004 was beyond the prescribed limitation period and invalid. The other issues raised by the assessee were not addressed in detail, as the case was decided on the limitation grounds.