2013 (7) TMI 419 - HC - Income Tax

Court overturns block assessment, citing improper invocation of Section 158BC & lack of natural justice.

The court allowed the appeal, setting aside the block assessment due to improper invocation of Section 158BC, failure to issue a notice under Section ... Block assessment - Notice u/s 158BD not issued - Undisclosed income - Tribunal made addition on account of undisclosed income - Held that:- Two search warrants have been issued - First warrant was issued in the name of a company and the second one was issued without any name - Consequently, no search warrant was issued in the name of the Assessee - It is not as if the authorities have obtained search warrant in the name of the appellant or its Proprietary concern and on search they found the receipts in the name of the assessee. When the search of the business place of the appellant is a consequential one, i.e. after the first search of, Section 158BC would not be applicable since the appellant, at best, can be called only as 'other person' - During the first search the authorities have found and seized 18 blank agreements along with four receipts signed by the assessee in his letter-head. After seizure of such receipts, the authorities proceeded to the business place of the appellant without search warrant and 'found' some undisclosed income of the assessee - Tribunal 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 limitations legally propounded - Following decision of Monga Metals (P) Ltd. vs. Asst. Commissioner of Income Tax [1999 (6) TMI 47 - ALLAHABAD HIGH COURT] - Decided in favour of Assessee. Limitation period - Whether assessment is barred by limitation as per Section 158BE(1)(a) or saved by limitation as per Section 158BE(2)(a) - Held that:- When 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 - One cannot be allowed to follow a particular procedure contemplated in one Section and borrow the limitation contemplated in the other Section - The assessment order passed in this case, under Section 158BC, is invalid as it has not been passed within the prescribed period of limitation - Decided in favour of assessee. Violation of principle of natural justice - Held that:- Tribunal directed to afford an opportunity to the appellant to cross-examine was not at all complied with by the Assessing Officer - But Tribunal simply thrown liability on assessee that it was utilized by the assessee - Therefore, order passed by the authorities as well as the Tribunal is against the principles of natural justice and liable to be set aside - Decided in favour of assessee. Benami Transaction - Application of Section 68 - Held that:- Assessing Officer, in spite of clear explanations and production of voluminous documents by the appellant, has held that the assessee has not explained the cash credits - Tribunal has confirmed the order of addition on account of benami transaction made by the AO, on the ground that it is the primary onus of the assessee to make out a prima facie case that he did not receive the sums from genuine sources - Therefore, Tribunal has, unjustifiably and illegally, fixed onus on the assessee to establish such credits - Following decision of CIT vs. Orissa Corporation [1986 (3) TMI 3 - SUPREME Court] and CIT vs. Mohim Udma [1999 (10) TMI 45 - KERALA High Court] - Decided in favour of Assessee. Issues Involved:1. Validity of block assessment under Section 158BC of the Income Tax Act, 1961.2. Requirement of notice under Section 158BD for block assessment.3. Application of Section 292B to cure procedural defects.4. Limitation period for completion of block assessment under Section 158BE.5. Additions made in the block assessment.6. Applicability of Section 68 for cash credits in block assessment.7. Adequacy of opportunity for cross-examination and principles of natural justice.Analysis:1. Validity of Block Assessment under Section 158BC:The court examined whether the block assessment made on the appellant under Section 158BC was valid. It was noted that the search warrant was issued in the name of M/s. Petro Plast Group of Companies and not in the individual name of the appellant. The court concluded that since the appellant was a 'person other than the person with respect to whom the search was conducted,' the provisions of Section 158BD should have been invoked instead of Section 158BC.2. Requirement of Notice under Section 158BD:The court highlighted that the assessment officer should have proceeded under Section 158BD when dealing with a person other than the one named in the search warrant. The absence of a notice under Section 158BD rendered the block assessment invalid.3. Application of Section 292B:The court rejected the Tribunal's application of Section 292B to cure the procedural defect of not issuing a notice under Section 158BD. Section 292B could not rectify the fundamental illegality of invoking the wrong section for assessment.4. Limitation Period for Completion of Block Assessment:The court clarified that the assessment under Section 158BC should have been completed within one year from the end of the month in which the last search authorization was executed, as per Section 158BE(1)(a). Since the assessment order was passed beyond this period, it was held to be time-barred.5. Additions Made in the Block Assessment:The court examined the additions made under different heads, including unaccounted receipts, unexplained credits, and benami transactions. The court found that the Assessing Officer failed to provide the appellant with an opportunity to cross-examine Shri Anand Agarwal, as directed by the Tribunal, violating principles of natural justice.6. Applicability of Section 68 for Cash Credits in Block Assessment:The court held that Section 68, which deals with unexplained cash credits, was not applicable in the context of block assessment under Chapter XIVB. The court emphasized that the burden of proving a transaction as benami lies with the Revenue, which was not satisfactorily discharged in this case.7. Adequacy of Opportunity for Cross-Examination and Principles of Natural Justice:The court noted that the Assessing Officer and the Tribunal failed to provide the appellant with a proper opportunity to cross-examine Shri Anand Agarwal. This failure was against the principles of natural justice and rendered the assessment invalid.Conclusion:The court allowed the appeal, setting aside the impugned orders of the Assessing Officer and the Tribunal. The court held that the block assessment was invalid due to the improper invocation of Section 158BC, failure to issue a notice under Section 158BD, and non-compliance with the principles of natural justice. The court also found that the assessment was time-barred and that the additions made were not justified.