Block Assessment Order Cancelled Due to Limitation Period Expiry u/s 158BE of the Income-tax Act, 1961.

The ITAT concluded that the block assessment order dated September 30, 1999, was barred by the limitation period under section 158BE of the Income-tax Act, 1961. The search was deemed concluded on July 29, 1997, and the subsequent panchnama dated September 8, 1997, was invalid for extending the limitation period. Consequently, the block assessment order was declared illegal and cancelled, resulting in the appeal being allowed in favor of the assessee.

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Issues Involved:
1. Whether the block assessment order dated September 30, 1999, is barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the block assessment order dated September 30, 1999, is barred by the period of limitation prescribed under section 158BE of the Income-tax Act, 1961.

Facts:
A search and seizure action under section 132 of the Act was conducted at the assessee's premises on July 28, 1997, continuing till July 29, 1997. The search resulted in the discovery of certain incriminating materials, including jewellery and shares. An inventory and a panchnama were prepared, and a prohibitory order under section 132(3) was issued for the jewellery and shares. The prohibitory order for the jewellery was revoked on August 1, 1997, and for the shares on September 8, 1997, on which date another panchnama was prepared stating that the search was finally concluded. The block assessment was completed on September 30, 1999, determining undisclosed income at Rs. 55,69,390.

Arguments by the Assessee:
The assessee contended that the block assessment order should have been completed by July 31, 1999, as per section 158BE, since the search was concluded on July 29, 1997. The revocation of prohibitory orders on later dates should not extend the period of limitation. The assessee relied on several judicial decisions, including Shahrukh Khan v. Asst. CIT and CIT v. Mrs. Sandhya P. Naik, to support their argument that the search was completed on July 29, 1997, and the panchnama dated September 8, 1997, was not valid for extending the limitation period.

Arguments by the Department:
The Department argued that the search continued until the prohibitory order was revoked on September 8, 1997. Various statements were recorded during the period, and the search was only concluded after considering the explanations for the jewellery and shares. Therefore, the period of limitation should commence from the end of September 1997.

Tribunal's Analysis:
The Tribunal analyzed section 158BE and Explanation 2, which states that the period of limitation commences from the end of the month in which the last panchnama is prepared. The Tribunal acknowledged that search and seizure are distinct actions, and the issuance of a prohibitory order under section 132(3) does not constitute a seizure. The Tribunal noted that the search was concluded on July 29, 1997, when the inventory was prepared, and nothing remained to be searched. The panchnama dated September 8, 1997, merely stated that the search was finally concluded without any further action, and hence, it was not a valid panchnama for extending the limitation period.

Third Member's Analysis:
The Third Member, referring to the decision of the hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik, held that by passing a restraint order under section 132(3), the time-limit for framing the assessment cannot be extended. The search was effectively concluded on July 29, 1997, and the panchnama dated September 8, 1997, prepared upon revocation of the prohibitory order, could not be considered for extending the limitation period. The order under section 158BC passed on September 30, 1999, was thus barred by limitation.

Conclusion:
The Tribunal concluded that the block assessment order dated September 30, 1999, was barred by the period of limitation prescribed under section 158BE of the Act. The Tribunal held that the search was concluded on July 29, 1997, and the panchnama dated September 8, 1997, was not valid for extending the limitation period. Consequently, the block assessment order was declared illegal and cancelled. The appeal was allowed in favor of the assessee.

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