Search-linked assessment nexus under Kar Vivad Samadhan Scheme sustained where search material revealed misleading stock valuation practice.

The designated authority under the Kar Vivad Samadhan Scheme treated additions relating to closing stock for assessment year 1994-95 as connected with a search after the search material exposed the assessee's stock-valuation method and a misleading accounting practice. The Gujarat HC noted that the scheme did not require the assessment for that year to arise directly and exclusively from the search itself; it was enough that the relevant assessment was founded on material and information emerging from the search. On that basis, the nexus requirement was satisfied and the computation under the scheme was upheld.

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Issues: Whether the designated authority was justified in treating the additions relating to closing stock for assessment year 1994-95 as arising in consequence of the search so as to compute the amount payable under the Kar Vivad Samadhan Scheme.

Analysis: The declaration under section 89 of the Finance (No. 2) Act, 1998 was accepted by the designated authority after finding that the search led to examination of the assessee's method of valuing closing stock and that the investigation revealed a misleading accounting practice. On that basis, the authority treated the additions for the relevant assessment year as connected with the search for purposes of section 88. It was held that the scheme did not require the assessment for the particular year to be made directly and exclusively as a consequence of the search for that year. It was sufficient if the assessment for the relevant year was founded on material and information emerging from the search which established the necessary nexus.

Conclusion: The challenge to the authority's determination failed. The nexus between the search material and the assessment for the year in question was held sufficient, and the computation under the scheme was sustained.

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