2008 (3) TMI 696 - AT - Income Tax

Tribunal Invalidates Block Assessment, Cites Precedents

The Tribunal invalidated the block assessment under Section 158BD as it was not based on any undisclosed income found during the search, citing ... - Issues Involved:1. Validity of Block Assessment under Section 158BD.2. Legality of Notice Issued under Section 158BC.3. Timeframe for Issuing Notice under Section 158BD.4. Use of Third-Party Statements in Assessments.5. Levy of Surcharge on Tax.Detailed Analysis:1. Validity of Block Assessment under Section 158BDThe assessee challenged the validity of the block assessment under Section 158BD, arguing that no undisclosed income was found during the search. The Tribunal noted that no incriminating material relating to the assessee was found during the search at Manoj Aggarwal's premises. The transactions recorded in the documents found were already disclosed in the assessee's regular books of account. The Tribunal cited several precedents, including CIT vs. Ravi Kant Jain and CIT vs. Jupiter Builders, which held that block assessments should be based on documents found during the search. The Tribunal concluded that the assessment under Section 158BD was invalid as it was not based on any undisclosed income found during the search.2. Legality of Notice Issued under Section 158BCThe assessee argued that the notice under Section 158BC was invalid as it failed to provide the statutory period for filing the return. The Tribunal found that the assessee had availed more than the statutory period for filing the return, and the assessment was made based on the return filed. Therefore, this ground was rejected.3. Timeframe for Issuing Notice under Section 158BDThe assessee contended that the notice under Section 158BD was issued beyond a reasonable period, rendering it invalid. The Tribunal referred to the Gujarat High Court's decision in Khandubhai Vasanji Desai & Ors. vs. Dy. CIT, which emphasized that notices should be issued within a reasonable time, ideally within 60 days. In this case, the notice was issued 83 days after the assessment order in Manoj Aggarwal's case, which was deemed unreasonable. The Tribunal held that the notice was invalid due to the delay, making the subsequent assessment null and void.4. Use of Third-Party Statements in AssessmentsThe Tribunal noted that the AO extensively used Manoj Aggarwal's statements without providing the assessee an opportunity to cross-examine him. Citing the principle of natural justice, the Tribunal held that evidence cannot be used against a person without allowing them to confront it. The Tribunal referenced a similar case where the Delhi Bench of the Tribunal deleted an addition based on such statements, which was upheld by the High Court. Consequently, the Tribunal found the assessment invalid due to reliance on third-party statements without cross-examination.5. Levy of Surcharge on TaxThe assessee challenged the levy of surcharge on the tax amount. However, since the Tribunal quashed the assessment order, this issue was rendered moot and was not adjudicated.Conclusion:The Tribunal allowed the assessee's cross-objection, quashing the assessment order under Section 158BD due to invalid notice and improper reliance on third-party statements. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the income should be assessed in the hands of NITS and not the assessee.