1998 (3) TMI 169 - AT - Income Tax

Tribunal cancels assessment, ruling in favor of assessee due to invalid search warrant and time limitation.

The Tribunal ruled in favor of the assessee, canceling the assessment as invalid, illegal, and barred by limitation. It found that the search warrant was ... Block Assessment in search case Issues Involved:1. Validity of the search.2. Limitation period for assessment.3. Definition and scope of 'block period.'4. Requirement of hearing before CIT's approval.5. Consideration of undisclosed income.6. Merits of the claim of depreciation and interest.Summary:1. Validity of the Search:The assessee contended that the search warrant was not in its name but in the name of its Managing Director, Mr. Pradeep Kar. The Tribunal examined the photocopy of the search warrant and noted that the name of the assessee-company appeared to be interpolated later. The Tribunal directed the Department to produce the original search records, but the Department failed to comply, claiming privilege. The Tribunal held that the search in the assessee's case was not valid, rendering the assessment u/s 158BC invalid.2. Limitation Period for Assessment:The search commenced on 29-3-1996 and was temporarily concluded on the same day with a prohibitory order u/s 132(3). The search resumed on 30-3-1996 and finally concluded on 23-5-1996. The assessee argued that the search proceedings were unnecessarily prolonged to extend the assessment period. The Tribunal agreed, noting that the seized materials were not utilized in the assessment. Thus, the assessment order passed on 30-5-1997 was barred by limitation.3. Definition and Scope of 'Block Period':The assessee argued that since it was incorporated in 1989, there were not ten clear previous years to form a valid 'block period.' The Tribunal referred to the definition of 'block period' in section 158B and held that the intention of the Legislature was to consider as many previous years as were available, but not exceeding ten. The Tribunal rejected the assessee's contention, stating that the block period should include all available previous years.4. Requirement of Hearing Before CIT's Approval:The assessee contended that the CIT should have given an opportunity of being heard before approving the assessment. The Tribunal held that the CIT's approval was administrative and meant for monitoring the assessment process. Since the CIT did not enhance the assessed income and the assessee had enough opportunities before the Assessing Officer, the Tribunal concluded that not granting a hearing did not constitute a denial of natural justice.5. Consideration of Undisclosed Income:The Tribunal examined the definition of 'undisclosed income' in section 158B and noted that the seized materials were not utilized in the assessment. The additions were based on the Assessing Officer's presumption and insufficient evidence. The Tribunal held that the additions did not represent undisclosed income discovered as a result of the search, making the assessment under Chapter XIV-B invalid.6. Merits of the Claim of Depreciation and Interest:The assessee provided documentary evidence supporting the genuineness of the purchase and lease transactions, including invoices, delivery challans, lease agreements, and inspection reports. The Tribunal found that the Assessing Officer's disallowance was based on general presumption and insufficient evidence, such as a letter from Sri Krishna Mohan. The Tribunal concluded that the assessee had discharged its primary onus, and the Department failed to rebut the evidence. The Tribunal allowed the claim of depreciation and interest, rejecting the addition of discounting charges as they were neither debited nor claimed by the assessee.Conclusion:The Tribunal canceled the assessment as invalid, illegal, and barred by limitation. It held that there was no undisclosed income with reference to the search and seizure proceedings, and on merits, the Department lacked sufficient grounds to disallow the assessee's claims. The appeal filed by the assessee was allowed.