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TMI Blog2013 (7) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal also accepted that no warrant was issued in the individual name of the appellant - appellant being a 'person other than the person with respect to whom the search was conducted', if at all, only the provisions under Section 158BD would apply and the provisions of Section 158 BC have no application - Decided in favour of Assessee. Rectification of irregularity - whether the assessment order passed by the Assessing Officer invoking Section 158BC suffers from any procedural irregularities as contemplated under Section 292B so as to make such assessment order valid - Held that:- Section 292B itself is having its own limitations of applications with three exceptions - passing an order of assessment under Section 158BC instead of Section 158BD would not amount to a mistake, a defect or an omission, much less a curable one - When different contingencies are dealt with under different Sections of the Act, allowing an illegality to be perpetrated and then taking a plea by the Revenue that such an action adopted on their part would not nullify the proceedings, cannot be appreciated since by virtue of such actions, the Revenue has attempted to nullify the scheme of things of limitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der for Ms. R. Vidhya For the Respondent : Mr. T. Ravi Kumar Standing Counsel for Income Tax JUDGMENT Elipe Dharma Rao, J. The appellant Ramaiah is carrying on real estate business as a property developer in the name of M/s.Barath Building Constructions. He is also the Managing Director of M/s.BBC Associates Limited. On 15.3.1996, a search action under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was conducted in the premises of M/s.Petro Plast Group of Companies controlled by three brothers, Anand Agarwal, Raju Agarwal and Omprakash Agarwal. According to the Revenue, during the course of the said search, certain incriminating documents were found relating to transactions of the above group with M/s.BBC Associates, the Managing Director of which is the appellant herein and hence, the business premises of M/s.BBC Associates Limited at No.23/1, Mylai Ranganathan Street, T.Nagar, Chennai and the residential premises of the assessee V.Ramaiah and his family at No.15, Neelakanta Mehta Street, T.Nagar, Chennai were also subjected to search under Section 132 on the same date viz. 15.3.1996. According to the Department, the Authorised Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising the following objections:- "(i) The assessing officer has not given adequate opportunity of hearing, violating the principles of natural justice and failed to adhere to the directions given by the Tribunal and the Assessing Officer took up the fresh assessment proceedings after a long spell of time after the receipt of the order of the Tribunal, leaving proper opportunity or time for furnishing further details with a view to comply with the directions of the Tribunal. (ii) The Assessing Officer is not justified in making addition as part of undisclosed income in relation to (a) unaccounted receipts from Mr.Anand Agarwal to the tune of Rs.1,10,00,000/=; (b) unaccounted credit in the name of late Mr.S.M.Pandiyan to the tune of Rs.3 crores; (c) unexplained credit in the name of M/s.Nikki Enterprises to the tune of Rs.1,48,00,000/= and other unexplained credits to the tune of Rs.11,14,300/=, thus totalling to Rs.5,69,14,300/=; (iii) The Assessing Officer erred in levying interest under Section 220(2) of the IT Act to the tune of Rs.3.36 crores as the assessee was deemed to be in default; (iv) The learned Assessing Officer erred in omitting to follow the procedure laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no demand in force ab initio as a result of direction by the Tribunal (supra). The demand came into existence only with the assessment order dated 31.3.2003. As such, only after issue of fresh demand notice under Sec.156, the Revenue is entitled to charge interest under Sec.220(2) of the Act, after giving specified time as envisaged under Sec.156. In view of this position, we direct the Assessing Officer to recompute the interest under Sec.220(2) as discussed above. Accordingly, all the grounds excepting concerning charging of interest under Sec.220(2) of the I.T.Act are hereby rejected." The aforesaid order is under challenge before this Court at the instance of the assessee. 4. This Court has admitted this Tax Case Appeal on the following Substantial Questions of Law, for consideration :- "1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the block assessment made on the appellant under section 158BC of the Income Tax Act, 1961 is valid in law and in accordance with the provisions of Chapter XIVB of the Act? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false." 8. As per Section 158BA, when a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. 9. Since strong reliance has been placed on Sections 158BC, 158BD and 158BE by either side, for better appreciation, they are extracted hereunder :- "158BC. Procedure for block assessment.- Where any search has been conducted under section 132 or books of account, other documents or assets are requestioned under section 132A, in the case of any person, then, - (a) the Assessing Officer shall - (i) in respect of search initiated or books of account or other documents or any assets requestioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; (b) within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997. (2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be - (a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; and (b) two years from the end of the month in which the notice under the Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January. 1997. Explanation 1. - omit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 132A, then, the said books of account should be handed over to the Assessing Officer having jurisdiction over such other person and the concerned Assessing Officer shall proceed against such other person. Therefore, one has to go by the execution of the warrant under Section 132 to decide as to whether the block assessment has to be completed under Section 158BC or under Section 158BD of the Act. 12. In the present case, two search warrants dated 15.3.1996 have been issued. First one in the name of M/s. Petro Plast Group of Companies, Anand Agarwal and Om Prakash Agarwal at No.23/2, Mylai Ranganathan Street, T.Nagar, Chennai. The second warrant was issued for the search of the premises at No.15, Neelakanta Mehta Street, T.Nagar, Chennai-17. Admittedly, no search warrant was issued in the name of the present Assessee-Mr.Ramaiah. First warrant was issued in the name of a company and the second one was issued without any name, but there was only mention about the address where the assessee was carrying on business under the name and style of M/s.BBC Associates Ltd. and Bharat Building Construction. When there was no search warrant in the name of the appellant Ramaiah, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search the authorities have found and seized 18 blank agreements along with four receipts signed by the assessee in his letter-head, for a sum of about Rs.1.10 crores. After seizure of such receipts, the authorities proceeded to the business place of the appellant (it is to be noted that neither the name of the appellant nor his concern find a place in the search warrant) and 'found' some undisclosed income of the assessee. Though the Tribunal, in its judgment, has accepted that no warrant was issued in the individual name of the appellant, without assigning any reason to justify the action of the Revenue in taking to task the appellant, has simply came to a conclusion that the assessment made by the Revenue under Section 158BC is justified. The observation of the Tribunal in this regard is as follows :- "Regarding validity of invoking the section 158BC we observe that two search warrants were issued on 15.3.96 in the name of M/s.Petro Plast group of companies, Anand Agarwal and Om Prakash Agarwal at No.23/2, Mylai Ranganathan St., T. Nagar, Chennai. The second warrant was issued for search of the premises, at No.15, Neelakanta Mehta St., T.Nagar, Chennai-17 where the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments in other case, action has been resorted to against the appellant by the Revenue. 20. But, the Tribunal, in order to justify the action of the Revenue in resorting to the provisions of Section 158BC to the case on hand, has proceeded further to hold that even if the Assessing Officer has committed any procedural irregularity, that could be cured by the provisions of 292B of the Act. Now, therefore, the stage is set to see as to whether the irregularity, if any, can be rectified in view of Section 292B. Section 292B is as follows:- "292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished, or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act." 21. A reading of the aforesaid provision makes it clear that this provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make an assessment for block period if there is no service of a notice under Section 158BC or if the notice so served is found to be bad in law or invalid or vague. Consequently, the assessment framed under any of these conditions shall be bad in the law and void ab initio for want of jurisdiction." 22. We are in perfect agreement with the above findings of the Allahabad High Court for the simple reason that to meet out different circumstances and contingencies, the legislature has framed different Sections in the Act and as already stated supra, having committed an illegality, the Revenue cannot be permitted to clothe their illegality seeking aid from Section 292B. Therefore, the observation of the Tribunal that the procedural irregularity can be rectified by applying the provisions of Section 292B is unwarranted and cannot be accepted. 23. When it is found that the assessment should have been proceeded only as contemplated under Section 158BD, instead of Section 158BC and the invocation of Section 292B is by the Tribunal is wrong, the next question to be dealt with is regarding the period of limitation. 24. According to the assessee, if the assessment proceeds in the mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t since the authorisations for search was not issued in his name, the provisions of Section 158BC ought not to have been invoked in his case, instead, if at all, as the appellant was 'such other person' as contemplated under Section 158BD, only the provisions of Section 158BD should have been followed. The finding rendered by the Assessing Officer is that Section 158BC has been rightly invoked in the case of the assessee as the search was made in the business premises of the assessee. However, the Assessing Officer has not dealt with the question of applicability of either Section 158BE (1)(a) or 158BE(2)(a). 28. A specific point was raised before the Tribunal by the appellant/assessee with regard to limitation and it is as follows :- "Even the assessment u/s.158BC is invalid as the date of search was on 15.3.1996 and the assessment ought to have been completed on or before 31.3.1997 and the assessment is time barred as per sec.158BE(1)(a) as assessment was concluded on 30.6.1997." 29. Before answering the aforesaid question, the Tribunal dealt with the validity of invoking section 158BC to the present proceedings. While upholding the action of the Assessing Officer in invoki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 158BC, as could be seen from page No.1 of the typed set of papers. When ITAT, by the order dated 9.5.2001 remanded the matter back to the Assessment Officer, the Assessing Officer has passed the order on 28.3.2003, again under the provisions of Section 158BC, as could be seen from Page No.154 of the typed set of papers. When, thus, the provisions of Section 158BC alone have been invoked, then automatically the period of limitation contemplated under Section 158BE(1)(a) alone are applicable and not the period of limitation provided under Section 158BE(2)(a) since the said period of limitation is applicable to the 'other person' referred to in Section 158BD (which provision has not been invoked by the Revenue). As already stated, the Tribunal has rejected the claim of the appellant/assessee that if at all his case should have been dealt with only under Section 158BD and definitely not under Section 158BC. Having thus rejected the claim of the appellant/assessee and having upheld the action of the Revenue in invoking Section 158BC, the Tribunal should have followed the limitation contemplated under Section 158BE(1)(a) but not the one provided for under Section 158BE(2)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.5,69,14,300 33. So far as the first addition of Rs.1.10 crores is concerned, it is the strong contention of the learned Senior Counsel for the appellant that even though the Tribunal has directed to furnish a copy of cash receipts seized from Anand Agarwal's residence to the assessee and afford an opportunity of cross examining him, the impugned order passed by the Assessing Officer without affording such opportunity to the appellant is against the canons of principles of natural justice and, therefore, liable to be set aside. This contention of the appellant was rejected by the Assessing Officer as well as the Tribunal on the ground that from the various materials produced it is confirmed that adequate opportunity was afforded to the assessee as directed by the Tribunal. 34. The Tribunal, while setting aside the order of assessment in the appeal preferred by the Assessee, vide order dated 9.5.2001, issued the following directions :- (a) enquire into the receipts given by the assessee as they are said to have been given in relation to the transaction of the immovable properties. (b) provide a copy of statement of Shri Anand Agarwal and allow the assessee to exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Shri Anand Agarwal was not at all complied with by the Assessing Officer. But, the Tribunal has simply thrown away the objection raised by the appellant, stating that the opportunity to cross examine Shri Anand Agarwal given vide letter dated 24.2.2003 but it was not utilized by the assessee. In the said letter, there was mention that an opportunity would be given, however, the opportunity given on 24.6.1997 was not availed of by the assessee. It is not the case of the Revenue either before the Assessing Officer or the Tribunal that on a particular date the assessee was allowed to cross-examine Shri Anand Agarwal. There is not even a scrap of paper or material to substantiate the claim of the Revenue that the opportunity of cross-examination was provided to the assessee. In the absence of any material on record to show that such opportunity was given to the assessee as directed by the Tribunal at the time of remand, we hold that the order passed by the authorities as well as the Tribunal is against the principles of natural justice and liable to be set aside. 40. The next issue is regarding addition of Rs.3 crores. On this aspect, the observation of the Tribunal, being relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act is as follows :- "68. Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 45. According to the Revenue, at the time of search, certain receipts were seized and on scrutiny it was found that certain sums were not disclosed and no satisfactory explanation was forthcoming from the assessee and therefore such amounts were treated as income from other sources and accordingly taken as cash credits for the block assessment made under Chapter XIVB of the Act. 46. As per the aforesaid Section, when the assessee has no explanation about the nature and source for the sum found credited in the books of accounts maintained to the satisfactory of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. For attracting Section 68, two conditions to be satisfied, first is that the sum in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue afresh after giving reasonable opportunity of being heard to the assessee." 49. Therefore, the findings of the Tribunal in the impugned order, ignoring the aforesaid documents is clearly perverse. While arriving at such conclusions, the Tribunal has, unjustifiably and illegally, fixed onus on the assessee to establish such credits. At this juncture, we feel it apt to quote a judgment of the Honourable Apex Court in CIT vs. Orissa Corporation [(1986) 52 CTR (SC) 138], wherein the scope and nature of Section 68 of the Act was explained in detail as follows: "Section 68 of 1961 Act was introduced for the first time in the Act. There was no provision in 1922 Act corresponding to this section. The section states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The section only gives statutory recognition to the principle that cash credits which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wellary vs. Deputy Commissioner of Income-tax [2002) 172 CTR (Mad) 719], wherein it has been held as follows: "Section 158BE(1) only specifies the period within which the assessing officer must complete the assessment. It does not come in the way of the appellate authorities, who find the assessment order to be defective for any reason, remanding the matter to the assessing officer for making a proper order in relation to the matters with respect to which the matter is remanded by the appellate authority. The limitation of one year is only for the assessment and it is not a limitation whcih fetters the discretion of the appellate forum. There can be no dispute and there is none regarding the extent of the power of the appellate authority that it has the power not only to uphold or set aside the assessment order but also has the power to modify or remit. The Tribunal, therefore, was well within its powers in directing the assessing officer to redo the assessment in respect of certain items, after giving a copy of the report that it had relied on, to the assessee. there was no breach of Section 158BE in making that order." 53. It is to be pointed out that the Revenue has raised t ..... 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