Search limitation turns on the last substantive panchnama; later formal visits do not extend block assessment time.

Only the effective conclusion of a search, as reflected in the last substantive panchnama, counts for limitation; later panchnamas drawn for formal continuation do not extend time, so the block assessment was quashed as time-barred. On merits, additions for stock valuation variation, alleged hawala/peak credits in bank deposits, estimated profit on supposed suppressed sales, double addition from section 132(4) disclosure differences, protective bank additions, and an unproven Karnataka sales tax penalty were deleted for lack of supporting material. The excess stock addition relating to M/s. Acryplast Pvt. Ltd. was restored, and surcharge was held not leviable in such search assessments.

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Issues: (i) Whether the block assessment was barred by limitation under section 158BE of the Income-tax Act, 1961 because the search had in substance concluded on 4/5-8-2000 and the later panchnamas did not extend time; (ii) whether the addition made on account of variation in stock valuation was sustainable; (iii) whether the addition based on deposits in the Corporation Bank account as alleged hawala transactions/peak credits was justified; (iv) whether the estimated profit addition on alleged suppressed sales was warranted; (v) whether additions on account of difference between disclosure under section 132(4) and the block return, protective bank additions, and penalty relating to Karnataka sales tax proceedings were sustainable; (vi) whether the addition on account of excess stock relating to M/s. Acryplast Pvt. Ltd. and the objection to surcharge were justified.

Issue (i): Whether the block assessment was barred by limitation under section 158BE of the Income-tax Act, 1961 because the search had in substance concluded on 4/5-8-2000 and the later panchnamas did not extend time.

Analysis: The search and seizure materials showed that the substantial search activity, inventory, and prohibitory order were completed on 4/5-8-2000. The later visits on 31-8-2000 and 20-9-2000 did not disclose any fresh search activity, new inventory, or any material development beyond repetition of the earlier inventory and lifting or continuation of the prohibitory order. A panchnama drawn only for such later formalities could not postpone the statutory starting point for limitation. The assessment period therefore had to be computed from the last effective search date reflected in the substantive panchnama.

Conclusion: The assessment was time-barred and was quashed on this ground in favour of the assessee.

Issue (ii): Whether the addition made on account of variation in stock valuation was sustainable.

Analysis: The assessee had placed a reconciliation of stock before the authorities, and the difference in valuation was explained as arising from stock attributable to M/s. Acryplast Pvt. Ltd. The reconciliation was not properly dealt with by the lower authorities. The addition could not be sustained merely on the original search estimate when the reconciled figures explained the discrepancy.

Conclusion: The addition of Rs. 11,05,364 was deleted in favour of the assessee.

Issue (iii): Whether the addition based on deposits in the Corporation Bank account as alleged hawala transactions/peak credits was justified.

Analysis: The bank entries were supported by materials indicating sale proceeds and not unexplained cash credits. The assessee had already offered income on a gross profit basis, and the peak credit approach adopted by the Assessing Officer was not the correct method on these facts. The sustained addition lacked a proper factual foundation once the transactions were accepted as sale receipts.

Conclusion: The balance addition sustained by the CIT(A) was deleted in favour of the assessee.

Issue (iv): Whether the estimated profit addition on alleged suppressed sales was warranted.

Analysis: No search material established suppression of sales. The addition rested only on estimates made by the sales tax authorities, and there was no independent seized material showing undisclosed turnover. A prior estimated sales tax figure could not by itself justify a block assessment addition of profit on supposedly suppressed sales.

Conclusion: The addition of Rs. 8,76,482 was deleted in favour of the assessee.

Issue (v): Whether additions on account of difference between disclosure under section 132(4) and the block return, protective bank additions, and penalty relating to Karnataka sales tax proceedings were sustainable.

Analysis: The difference between the composite disclosure and the block return could not be added twice when one component had already been brought to tax separately. The balance was covered by the conditional and composite nature of the disclosure, and no independent material justified further addition. Protective addition in block proceedings was also impermissible where the amount had already been taxed in another person's hands. As to the Karnataka sales tax penalty, the record only contained a show-cause notice and did not establish that the assessee had incurred or paid the penalty.

Conclusion: The additions on these counts were not sustained, and the assessee succeeded on these issues.

Issue (vi): Whether the addition on account of excess stock relating to M/s. Acryplast Pvt. Ltd. and the objection to surcharge were justified.

Analysis: The department's ground on excess stock was accepted on the basis of the connected facts and the assessee's concession, leading to restoration of that addition. On surcharge, the Special Bench view governing search assessments was applied, under which surcharge was not leviable in such cases.

Conclusion: The addition relating to excess stock was restored in favour of the Revenue, while the surcharge ground failed and the assessee succeeded on that aspect.

Final Conclusion: The assessment was annulled as time-barred, several substantive additions were deleted, one departmental ground on excess stock was allowed, and the surcharge issue was decided against the Revenue, resulting in a partly allowed outcome for both sides.

Ratio Decidendi: For limitation under section 158BE, only the effective conclusion of search reflected in the last substantive panchnama counts, and a later panchnama drawn merely for a prohibitory order or formal continuation does not extend the statutory time limit.

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