Friday, 28 February 2014

Whether when assessee has responded to Sec 158BC notice & participated in proceedings, can later challenge jurisdiction of block assessment merely because search warrant was not issued in his name - NO: HC

THE issues before the Bench are - Whether the assessment made based on the materials seized in the course of the search operation of two other persons sharing the same premises with the assessee, can be considered as assessment made u/s 158BD of the Income Tax Act; Whether when the assessee has responded to the notice issued u/s 158BC, filed its return and participated in the assessment proceedings, can later challenge the jurisdiction of the block assessment merely because the search warrant u/s 132 was not issued in his name; Whether reference to Section 143(3) notice read with proceedings u/s 158BC does not make the
assessment as the one not falling u/s 158BD and Whether when the AO has to proceed for block assessment, the only chapter aplicable in a given set of circumstances is Chapter XIV-B. And the verdict goes against the assessee.
Facts of the case
The assessee carried on business as a proprietor in the name and style of M/s. Rekha Silk Industries. There was a search operation on 31.8.1995 in the premises of Shri. Sridhar Sarada and Shri. Ramachandran Sarada, which resulted in recovery of materials relating to several transactions in stock and shares. Incidentally, the assessee was also residing in the same, where the search was conducted. Based on the materials recovered pertaining to the assessee, notice u/s 158 BC(a) was sent to the assessee on 05.12.2005. In response to that notice, the assessee sought an extension of time to file returns for the block period by 15th January, 1996 since the papers relating to the search were being looked into by his Auditors. Subsequent to that, in 1996, the AO directed the assessee to produce certain more documents relevant to the business of the assessee. The assessee filed details through replies dated 9th August and 20th August, 1996 and based on those details, the assessment was completed on 26th August, 1996 u/s 143(3) read with Section 158BC. The assessment order referred to the search carried out in the premises and a demand was raised. The Tribunal heard this appeal along with similar appeals arising from other appeals and held that since there was no search operation, the block assessment was invalid. Aggrieved, the Revenue filed an appeal before the High Court. The Court held that the Tribunal had merely followed the order passed in certain other assesses's cases forming part of the same family group and has failed to apply its mind to the facts of the case. The matter was remanded to the Tribunal for de-novo consideration, which passed an order on 15.12.2004 after considering the contention of the assessee that the block period assessment was reappraisal of the facts or change of opinion from the original assessment order and not based upon any material found in the search. Thereafter, in the absence of appropriate materials on record for adjudication, the assessment order was set aside and remanded to the AO.
Aggrieved with this order, the assessee has filed this appeal before the High Court.
The Counsel of the assessee contended that there was no search operation in the premises of the assessee and that the search warrant not being in the name of the assessee, the assessment made u/s 158BC of the Income Tax Act was totally without jurisdiction. Further, he contended that when there was insufficient evidence on record, the Tribunal should have annulled the block assessment instead of remanding the matter to the AO. He also argued that Tribunal should have followed its earlier order, which, in fact, was set aside by the High Court and that in at least 41 other cases arising from the same search on the same day, the Tribunal set aside the assessments.
The Departmental Representative submitted that it was never the case of the Revenue that the search was on the assessee and that the assessment itself was based only on the materials gathered in the course of the search conducted in two other assesses' case residing in the same address as that of the assessee. The assessment, in effect, was only u/s 158BD; consequently, no issue can be raised by the assessee about the non-service of search warrant.
Having heard the parties, the High Court held that,
++ the search operation resulted in seizure of various documents pertaining to the assessee's transactions too. Thus, taking note of the information pertaining to the assessee, proceedings were initiated by the Revenue by calling for particulars as well as to file returns for the block year. The letter written by the assessee on 23rd December, 1995 makes no secret of the fact that notice was issued on 05.12.2995 calling upon the assessee to file returns within 15 days from the date of service of notice on block assessment proposed consequent on the seizure of materials in the course of search operation on other two persons. Thus the assessee is clear in his understanding of the provisions, under which the block assessment was made and was quite aware of the fact that the assessment under Chapter XIVB was as a result of seizure of materials in the course of search operation in the premises, where the assessee lived along with two other persons on whom the search warrant was issued. In the light of the above said fact, we do not find any justifiable ground to accept the plea of the assessee that the assessment made is bad in law;
++ as far as the contention of the assessee that the assessment made under Section 158BC of the Income Tax Act is bad in law, we find that Section 158BC lays down the procedure for block assessment. The fact that the assessment is made based on the materials seized in the course of the search operation of two other persons, does not, mean that the assessment is not under Section 158BD of the Income Tax Act. As pointed out earlier, since the procedure given under Section 158BC is the only procedure given under Chapter XIV-B for making block assessment, the reference to Section 143(3) notice read with proceedings under Section 158BC does not make the assessment as the one not falling under Section 158BD. We may note herein that to make things abundantly clearly, the reference to Section 158BC was specifically inserted under Section 158BD under Finance Act, 2002, with effect from 01.06.2002. But even without this insertion, it is clear that if the Officer has to proceed for block assessment, the only chapter that would apply in a given set of circumstances for block assessment is Chapter XIV-B. Thus, as per the procedure laid down under Section 158BC there is no confusion in the mind of the Officer as to the provision it is proceeded against nor in the mind of the assessee that the assessment was made consequent on the seizure of materials in the course of search operation in the premises of Shri.Sridhar Sarada and Shri.Ramachandran Sarada;
++ in the light of the above-said fact and as evident from the documents available in the assessment records as well as in the assessment order itself, we have no hesitation in rejecting the contention made by the assessee that the block assessment fails in this case for want of jurisdiction;
++ the judgment of the Apex Court, rested on facts narrated above, has no relevance to the facts herein. As already pointed out in the preceding paragraphs, notice was issued to the assessee consequent on the seizure of materials indicating the assessee's transaction in shares. The assessee had responded to the notice and accordingly, by entering into correspondence even as early as 23.12.1995 filed its return, participated in the assessment proceedings and suffered an assessment. Thus, in the background of the facts noted above, the decision relied on is a distinguishable one and has no relevance to the facts of the case herein. In the circumstances, we have no hesitation in confirming the order of the Tribunal remanding the matter for adjudication on merits. Accordingly, the Tax Case (Appeal) stands dismissed;

++ since the Tribunal remanded the matter to the Assessing Officer as early as 15.12.2004 and the Tax Case (Appeal) is of the year 2006, we direct the Assessing Officer to expedite the assessment at the earliest without any further delay in this regard.

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