2007 (11) TMI 296 - HC - Income Tax

Court Invalidates Search: Lack of Authorization; Block Assessment Illegal

COMMISSIONER OF INCOME-TAX Versus SMT. CHITRA DEVI SONI

The High Court affirmed the Tribunal's decision that the search conducted was invalid due to the lack of proper authorization under section 132 of the ... Tribunal was fully justified in holding that when the authorisation to conduct the search based on reasons germane to section 132(1) does not exist the search becomes invalid with the obvious conclusion that the assessment order based on such search cannot stand and was rightly set aside. Even at the cost of repetition, it may be observed that in the absence of a legal search, in accordance with the provisions of section 132, “block period” or the previous year in which the search was conducted cannot be said to have come into existence and, therefore, if any assessment order is passed based on such search, it obviously cannot stand Issues Involved:1. Validity of search under section 132 of the Income-tax Act as a condition precedent for assessment under Chapter XIV-B.2. Tribunal's jurisdiction to examine the validity of the search authorization.Issue-wise Detailed Analysis:1. Validity of Search under Section 132:The primary issue in this case was whether a valid search under section 132 is a condition precedent for the assessment of the block period under Chapter XIV-B. The assessee challenged the assessment order on the grounds that it violated principles of natural justice, arguing that the order was based on the belief of the assessing authority without disclosing any material required under section 132. The Tribunal examined whether the authorization for the search was based on reasons duly recorded in writing, as required by section 132(1)(a) to (c). Despite multiple opportunities, the Revenue failed to produce the necessary records showing that the authorization was based on valid reasons. Consequently, the Tribunal held that in the absence of such authorization, the search was invalid, and the block assessment was illegal.2. Tribunal's Jurisdiction to Examine Validity of Search Authorization:The Revenue argued that the Tribunal did not have the jurisdiction to look into the validity of the search conducted under section 132. However, the Tribunal and subsequently the High Court held that the Tribunal was justified in examining whether the search was conducted based on valid authorization. The court emphasized that the existence of reasons to believe, based on information in possession of the authority, is a prerequisite for authorizing a search under section 132. The court referred to the definition of 'block period' under section 158B, which necessitates a search conducted under section 132 for the block assessment. The court concluded that if the authorization for the search did not meet the requirements of section 132(1), the search and the subsequent block assessment were invalid.The High Court affirmed that the Tribunal had the jurisdiction to examine whether there was any material to justify the reason to believe for the search authorization. The court cited a previous judgment in Kusum Lata v. CIT, which held that while the sufficiency of the material could not be questioned, the existence of some material was necessary. Since the Revenue failed to produce any record showing the existence of such material, the Tribunal's decision to invalidate the search and set aside the assessment was upheld.Conclusion:The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision that the search conducted was invalid due to the lack of proper authorization under section 132. Consequently, the block assessment based on such an invalid search was also deemed illegal. Both substantial questions of law were answered against the Revenue and in favor of the assessee.