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TMI Blog2013 (1) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ling his objection on 25.2.1998, when we look at the next date of hearing, it fell on 5.3.1998 and immediately on 13.3.1998 the assessment order was made. We do not find from the order that sufficient opportunity was granted to the assessee on the materials gathered. The Revenue should have afforded sufficient opportunity of hearing to the assessee to substantiate his case. In the absence of compliance of the principles of natural justice, setting aside the order of the Tribunal. Remand the matter back to the A.O. - Tax Case (Appeal) No.1172 of 2005 - - - Dated:- 19-7-2012 - MRS. CHITRA VENKATARAMAN AND MR. K. RAVICHANDRABAABU JJ. For Appellant: Dr.Anita Sumanth For Respondent: Mr.T.Ravi Kumar Standing Counsel JUDGMENT CHITRA VENKATARAMAN, J. The assessee is on appeal as against the order of the Income Tax Appellate Tribunal raising the following substantial questions of law relating to the Block Assessment covering the assessment years 1987-88 to 1997-98 (Upto 2.9.1996). " 1. Whether on the facts and in the circumstances of the case, the Tribunal did not err in holding that there was no violation of the principles of natural justice or of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a publication, which publishes two magazines, one a weekly and the other a fortnightly. On 24.9.1996, there was a search in the business premises as well as in the residence of the assessee leading to recovery of certain documents. A notice under Section 158BC was issued to the assessee on 4.11.1996 and the same was served on 19.11.1996. Subsequently, a notice dated 28.2.1997 was issued under Section 142(1) by the Income Tax Officer calling for certain particulars. In the meantime, on 2.7.1997 the case was transferred to another Assessing Officer, viz., the Assistant Commissioner of Income Tax, Central Circle II (4), Chennai. Again, a notice under Section 142(1) was issued calling for certain particulars, the details for which were enclosed along with the notice. Admittedly, the assessee was granted permission to take copies of the seized materials. Finally on 5.9.1997, the assessee filed his return of income under Section 158BC, wherein the assessee had admitted the total undisclosed income of Rs.3,80,000/-. The assessment proceedings were initiated by issuance of notice under Section 143(2) on 9.9.1997 fixing the date of hearing on 12.9.1997. The assessee received the notice on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue in the course of the assessment proceedings, the assessee is stated to have answered the queries. The issues on which the such details were called for primarily related to the circulation of magazines and the subscribers' interest free deposits. Based on the materials and the special Audit report, the assessment was thus finalised determining the total undisclosed income at Rs.3,77,41,760 and the tax payable thereon at Rs. 2,26,45,056/-. 4. Aggrieved by the same, the assessee went on appeal before the Income Tax Appellate Tribunal where the assessee took a specific plea as regards the violation of principles of natural justice that sufficient opportunity was not granted in respect of the additions made under different heads before framing the assessment order. The assessee further pointed out that the materials collected behind the back of the assessee had been used against the assessee without even making an indication that they would be used against the assessee. Thus, when the assessment order rested on the materials collected behind the back of the assessee and which were not placed before the assessee to disprove or repudiate the same the assessment suffered fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the purchase of newsprint was referred to the Special Audit. The terms of the audit was already extracted in the preceding paragraph. Before appointing the Chartered Accountant, there was absolutely no compliance of principles of natural justice in the sense no notice was issued by the Revenue before making reference to the Special Auditor. Thus placing reliance on the decisions of the Apex Court reported in (2006) 287 ITR 91(SC) (Rajesh Kumar and others Vs. Deputy Commissioner of Income Tax and Others) and (2008) 300 ITR 403 ( Sahara India (Firm) Vs. Commissioner of Income Tax and Another), learned counsel contended that failure to give opportunity to the assessee before appointing the Special Auditor strikes at the very root of the proceedings before the Special Auditor and hence the reference is bad in law . (ii). The second aspect of the violation of principles of natural justice is that when the proceedings are already there before the Assessing Officer, there was a parallel proceedings before the Special Auditor. Thus, the assessee had to face enquiries on two sides one from the Assessing Officer and the other from the Special Auditor. Considering the parallel pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured in the seized materials. Hence the same cannot form part of an assessment relating to block assessment. In this connection she placed before this court the details regarding the panchanama relating to the seized materials. A perusal of the panchanama evidencing seized materials clearly pointed out that the documents relating to the genuineness of the dealings in newsprint was not a document seized at the time of search. In the circumstances, learned counsel submitted that the block assessment on the issue of alleged non-genuineness of the purchase of newsprint is illegal and unsustainable. 11. As regards the genuineness of the subscribers' deposits are concerned, she pointed out that there was one sided enquiry to hold that the deposits were not genuine and hence it represented undisclosed income. Even here also, there were no materials available among the seized materials. But they were collected at the time of enquiries made subsequent to the search. Since the learned counsel for the appellant raised an issue that the block assessment had been made based on materials other than the seized materials also, this Court called for the files from the Revenue, particularly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, an affidavit has been filed by the Assistant Commissioner of Income Tax before this Court on 18.7.2012. In paragraph 4 the said Officer has stated as follows:- 4. I state that though it appears that the disallowance of purchases as in paras 5.1 to 5.9 of block assessment order is primarily based upon enquiry and Special Audit report u/s.142(2A), since there is no specific reference in the said block assessment order, of the seized material relied upon while dealing with the issue of purchases, considering that the seized material has been relied upon for holding credits as unexplained u/s 68 to the extent of Rs.1,40,47,360/- and that separate addition was not made only due to the fact that it was telescoped into the purchases disallowed, if a view is taken that seized material is not used for the purpose of making disallowance of purchases, atleast to the extent of Rs.1,40,47,360/- it may be construed as addition in respect of which seized materials are relied upon. The relevant seized material referred to in para 4.9 is RLN/B D/17 18 and will be produced, if required. 13. In paragraph 5 it is further stated that the assessee's claim of purchases to the tune of Rs.2.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the subject matter of assessment in respect of genuineness of the newsprint purchase has to be excluded from the block assessment procedure and it can only be considered under the regular assessment. To that extent we agree with the assessee's contention. 16. As far as the plea on the violation of the principles of natural justice is concerned, learned Standing Counsel appearing for the Revenue pointed out that the assessment order itself records the number of hearings granted to the assessee and the text of the order refers to the various consideration given to the various materials filed by the assessee. As regards the contention that the assessment had been made hurriedly without granting the assessee an opportunity to place the materials, learned Standing Counsel submitted that rightly the Tribunal held that there is no violation of principles of natural justice. 17. As far as this aspect is concerned, we differ from the line of reasoning of the Tribunal. As already pointed out, the assessee's residential and business premises were subjected to search on 24.9.1996. While the hearing before the Assessing Officer was in progress, the Revenue had referred the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue, the Assessing Officer should have complied with the principles of natural justice. The factual position is that the notice issued on 13.2.1998 was received by the assessee on 19.2.1998 and the special audit report was submitted to the Assessing officer on 24.2.1998, which even according to the Revenue is a very elaborate one. Quite apart from that fact, even in respect of the enquiry made with the depositors' account, we do not find from the order that sufficient opportunity was granted to the assessee on the materials gathered with reference to the depositors' account or circulation account. We may note that even though learned counsel for the assessee at the closing stage pointed out that as far as the estimate made on the undisclosed income of the subscribers' deposit was not based on any seized materials, she stood corrected on going through the Panchanama copy produced before this court that the cheques relating to the subscribers' deposit account was also one of the seized documents and hence could be considered for making block assessment. 19. In these circumstances, on going through the assessment order as well as the order of the Tribunal, without expres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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