2019 (12) TMI 1114 - HC - Income Tax

Order of assessment u/s 158BC(c) - Procedure for block assessment - validity of search - undisclosed income determined - Authorisation and assessment in case of search or requisition - HELD THAT - From perusal of Section 158BC it is evident that the computation of undisclosed income should be based on such evidence which is seized during the search which is not accounted in the regular books of account. In the present case the warrant of authorization has not been produced before this Court despite order dated 13.10.2019. Therefore, it is open for this Court to draw an adverse inference. However, in the peculiar fact situation of the case, we deem it appropriate to grant liberty to the revenue to proceed afresh in accordance with law. However, on account of non-production of the warrant of authorization, the adverse inference has to be drawn. Therefore, the first substantial question of law is answered in favour of the appellant and against the revenue, however, with the liberty to the revenue to proceed against the appellant in accordance with law. Validity of search - Admittedly, the authorities were under an obligation to examine the validity of the search and thereafter only to proceed to initiate the block assessment proceeding, which has not been done in the instant case. Therefore, the second substantial question of law framed is also answered in favour of the assessee and against the revenue. Challenge the action of the AO to assess u/s 158BC when the condition precedent are not existing as much as for computation of income u/s 158BC - From perusal of the material on record, it is evident that there was no seizure with regard to the assessment year 1988-89 and 1989-90 during the course of the search and seizure operations. However, the Assessing Officer while computing the undisclosed income has taken into account the income in respect of the aforesaid case also and thus the order passed by the Assessing Officer is in violation of Section 158BC(c) of the Act and therefore, the Tribunal was not justified in holding that there is no merit to challenge the action of Assessing Officer to assess under Section 158BC(c) of the Act. Accordingly, the third substantial question of law is also answered in favour of the assessee and against the revenue. In view of preceding analysis, the impugned order dated 09.09.2011 insofar as it contains the findings against the appellant passed by the Income Tax Appellate Tribunal is hereby quashed and set aside. The order of assessment dated 28.11.2000 as well as the order of Commissioner of Income Tax (Appeals) dated 23.08.2002 are also hereby quashed and set aside. However, liberty is granted to the revenue to proceed against the appellant, if so advised in accordance with Section 158BC of the Act.

Summary

Issues:
1. Validity of assessment order passed for the block period under Section 158BC(c) of the Income Tax Act when the warrant of authorization was issued in the joint name.
2. Examination of the validity of search before initiating block assessment proceedings.
3. Justification of the Tribunal's decision in assessing under Section 158BC when conditions precedent are not met.

Analysis:

Issue 1:
The appellant, engaged in real estate business, filed returns for assessment years 1991-92 to 1998-99. A search under Section 132 of the Act was conducted, leading to the issuance of a notice under Section 158BC to file income returns. The Assessing Officer determined undisclosed income at ?1,63,54,846 under Section 158BC(c). The appellant challenged this assessment, arguing that the assessment was made against all persons despite the warrant being issued jointly. The court noted the requirement to consider seized evidence for undisclosed income computation.

Issue 2:
The court highlighted the obligation to validate the search before proceeding with block assessment, which was not done in this case. The failure to examine the search's validity before initiating block assessment proceedings favored the assessee against the revenue.

Issue 3:
Regarding the third issue, it was found that no seizure occurred for assessment years 1988-89 and 1989-90 during the search. However, the Assessing Officer included income from these years in the assessment, violating Section 158BC(c). The Tribunal's decision to uphold this action was deemed unjustified. The court ruled in favor of the assessee on this matter as well.

In conclusion, the court quashed the orders of the Income Tax Appellate Tribunal, Commissioner of Income Tax (Appeals), and the assessment order. The revenue was granted liberty to proceed in accordance with the Act. The appeals were disposed of in favor of the appellant.