2000 (1) TMI 136 - AT - Income Tax

Invalid Block Assessment: Lack of Authorization and Procedural Irregularities

The Tribunal found the search and subsequent block assessment to be invalid due to lack of proper authorization and procedural irregularities, rendering ... Warrant Of Authorisation Issues Involved:1. Legality and jurisdiction of the search and block assessment.2. Justification of additions made by the Assessing Officer (AO) on various grounds.Issue-wise Detailed Analysis:1. Legality and Jurisdiction:- Grounds of Appeal:- The assessee challenged the legality and jurisdiction of the search and subsequent block assessment under sections 132 and 158BC of the Income Tax Act.- It was argued that the search was initiated without proper basis or reason, as all relevant facts and documents were already known to the survey party before the search warrant was issued.- The assessee claimed that the block assessment was null and void as it was based on an invalid search.- Tribunal's Findings:- The Tribunal noted that the search was converted from a survey operation that started on 2nd August 1995 and continued until late hours on 3rd August 1995.- The Tribunal observed that the search warrant was issued by the CIT, Rajkot, but there was no evidence of proper satisfaction being recorded before authorizing the search.- The Tribunal found discrepancies in the search party's composition, noting the absence of a lady officer despite the search involving a Muslim lady, which violated guidelines and provisions of the CrPC.- The Tribunal concluded that the conditions necessary for initiating action under section 132 were not fulfilled, rendering the search invalid and the block assessment without jurisdiction.2. Justification of Additions:- Additions on Account of Construction and Renovation:- The AO made an addition of Rs. 50,000 for the construction and renovation of a residential house based on the assessee's disclosure, which was later retracted.- The Tribunal found no basis for this addition as no renovation was carried out by the assessee.- Additions Based on DVO's Report:- The AO made additions totaling Rs. 5,95,345 based on the DVO's report.- The Tribunal held that these additions were unjustified as the DVO's report was received after the CIT's approval of the assessment order, and no undisclosed income was found during the search.- Additions under Section 68:- The AO made additions of Rs. 7,00,000 on a substantive basis and Rs. 10,20,000 on a protective basis for alleged bogus gifts received through NRE accounts.- The Tribunal noted that the gifts were received by bank drafts through NRI accounts and were credited to bank passbooks, which were disclosed to the IT Department. Therefore, these additions were not justified.- Other Additions:- The AO made various other additions, including unexplained cash (Rs. 2,00,000), entries on loose papers (Rs. 4,69,961), and unexplained expenses (Rs. 15,846).- The Tribunal found that these additions were not supported by any new material found during the search and were based on retracted statements and regular account books.Conclusion:- The Tribunal concluded that the block assessment framed under section 158BC r/w section 143(3) was invalid due to the illegal search.- The Tribunal allowed the appeal, holding that the Departmental Authorities could utilize the material found during the search for regular assessments, as per the Supreme Court's decision in Pooran Mal vs. Director of Inspection (Inv.).Result:- The appeal was allowed, and the block assessment was declared invalid.