2000 (12) TMI 21 - HC - Income Tax

Block assessment time-barred: assessment after limitation despite officers' knowledge of 45 kg silver; s.132(3) restraint ineffective

The HC held the block assessment was barred by limitation: the search concluded on Oct 20, 1996, so the one-year period for assessment expired Oct 31, ... Block assessment - assessment barred by limitation - search u/s 132 - no warrant of authorisation for search - Non compliance with the rules of natural justice - The case of the assessee was that the search started on October 16, 1996, and the same concluded on October 20, 1996. Since the assessment ought to have been concluded within a period of one year, i.e., on or before October 31, 1997, and since it was completed on December 31, 1997, the assessment was barred by limitation - HELD THAT:- In the present case at hand, the cupboard in which 45 kgs. of silver articles were kept was sealed by making an order under section 132(3) of the Income-tax Act. The authorised officers were obviously very much aware of the contents of the cupboard and the nature of the articles in view of the inventory made by them. They had also come to the conclusion that the said 45 kgs. of silver articles need not be seized. There was no practical impediment to seizure of the said 45 kgs. of silver, if it was considered by the authorised officer as necessary. The contention of learned counsel for the Department that it was not practical to seize huge quantity of silver at odd hours, was rightly held to be untenable by the Income-tax Appellate Tribunal, because at the same odd hour, the search party seized and removed from the premises of the assessee 5,729 gms. of gold ornaments, cash of Rs.1,69,000 and books of account, weighing nearly 500 kgs. on October 26, 1996, 6 kgs. of silver articles in the said cupboard were released, a panchanama was made and a further order under section 132(3) passed with respect to the said sealed cupboard and the seal was placed again. Thus, the Income-tax Appellate Tribunal rightly held that the proceedings. On October 26, 1996, could not be considered as part of the execution of the search proceedings which concluded on October 20, 1996. Indeed, by simply stating in the panchanama that the search is temporarily suspended, the authorised officer cannot keep the search proceedings in operation by passing a restraint order under section 132(3). The position has become much more clear after the insertion of the Explanation to section 132(3) effective from July 1, 1995, that a restraint order does not amount to seizure. Therefore, by passing a restraint order, the time limit available for framing of the order cannot be extended. In fact, the Department itself has admitted that there were many defects in the panchanama. They were repeatedly saying that there were many defects in the panchanama and still were saying that 'believe in it and accept it', is not acceptable. Appeals are dismissed in limine. Issues Involved:1. Whether the assessment was barred by limitation.2. Validity of the panchanama and search proceedings.3. Compliance with the provisions of section 132(3) and section 158BE of the Income-tax Act.Summary:1. Limitation of Assessment:The primary issue was whether the assessment was barred by limitation. The search u/s 132 of the Income-tax Act was conducted from October 16, 1996, to October 20, 1996. The assessee contended that the assessment should have been completed by October 31, 1997, but it was completed on December 31, 1997, thus barred by limitation. The Income-tax Appellate Tribunal (I.T.A.T.) concluded that the search was completed on October 20, 1996, and the subsequent proceedings were related to the restraint order u/s 132(3), which does not amount to seizure. Therefore, the assessment was barred by limitation.2. Validity of Panchanama and Search Proceedings:The Department argued that the search concluded on December 13, 1996, when the last panchanama was drawn. However, the I.T.A.T. found that the search concluded on October 20, 1996, when the seizure of valuables was made, and a valid panchanama was drawn. The subsequent actions, including the restraint order on the cupboard containing silver articles, were not part of the search execution. The Tribunal noted defects in the panchanama drawn on December 13, 1996, including the absence of panch witnesses and the lack of an authorisation warrant for Mr. Ashish Abrol, who conducted the deemed seizure.3. Compliance with Section 132(3) and Section 158BE:The Tribunal held that the restraint order u/s 132(3) does not extend the time limit for assessment. The Explanation to section 132(3) clarifies that a restraint order does not amount to seizure. The Tribunal observed that the authorised officers were aware of the contents of the cupboard and chose not to seize the silver articles, indicating no practical difficulty in seizing them. The Tribunal relied on the decision in Kirloskar Investments and Finance Ltd. v. Asst. CIT and Sriram Jaiswal v. Union of India to conclude that the restraint order cannot be used to extend the search proceedings.Conclusion:The High Court upheld the I.T.A.T.'s decision that the assessment was barred by limitation and invalid. The defects in the panchanama and the lack of authorisation for Mr. Abrol further invalidated the search proceedings. Consequently, all tax appeals were dismissed in limine.