Judgment:
1. These appeals have been filed by the assessee against block assessment orders under Section 158BC of the IT Act, 1961. These cases belonged to one group/family in which search and seizure operation under Section 132 of the Act were conducted on 24-8-1995 and were concluded on 28-8-1995. This group was engaged in the business of garments export, purchase and sale of farm houses etc. Since they are connected cases and common grounds are involved, they were heard together and are decided by this consolidated order.
2. The first common ground of contention of the assessee in these cases except in the case of Mrs. Lavina Bhatia is that the search and seizure operations conducted in their cases under Section 132 of the Act were improper invalid and illegal because there was no information in possession of the Director of Income-tax (Inv.)/Dy. Director of Income-tax (Inv.) for reasonable exercise of powers under Section 132 of the Act. It is also contended that since the search was invalid and illegal consequential assessments under Section 158BC were invalid and liable to be cancelled.
3. In the case of Smt. Lavina Bhatia it has been contended that the impugned block assessment order passed under Section 158BA was liable to be quashed because the Assessing Officer had failed to record clear finding as to the satisfaction that any undisclosed income belonged to the assessee being the other person as required under Section 158BD of the Act.
4. Again in all these four cases, common grounds have been taken against various additions of un-disclosed income made on the basis of jottings in the seized diary Annexure A-7 of the Panchnama.
5. We have gone through the materials on the file and heard the Ld. ARs of both the sides. The ld. AR of the assessee submitted that the search and seizure operation under Section 132 was improper, invalid and illegal because there was no information against the assessee in possession of the DIT (Inv.) for reasonable exercise of his powers under Section 132 of the Act. He added that the information was in respect of Mr. Vinod Kumar Bhatia having similar initial of Mr. V.K Bhatia and therefore by mistake a search was conducted on Mr. Virinder Kumar Bhatia (Mr. V.K. Bhatia). He further submitted that the Tribunal had directed the ld. DR to produce search papers to verify the fact and therefore the production of the search papers for verification of the fact must be insisted upon. He further submitted that since the Tribunal was sitting in judgment over the impugned block assessment it had to see the validity of the search. He contended that since the assessment proceeding was a consequence of the search and as under the special asstt. procedure under Section 158BC the assessee was liable to higher rate of tax, the Tribunal had to adjudicate upon the validity of the search. The ld. AR of the assessee contended that even if the question of validity of the search was not raised before the Assessing Officer the assessee could raise the same question before the appellate authority because the question of jurisdiction could be raised before the first time at any stage. He relied on the decisions in P. V. Doshi v. CIT [1978] 113 ITR 22 (Guj.) and Kiran Singh v. Chaman Paswan AIR 1954 SC 340.
6. The ld. AR of the assessee of the issues of various additions submitted that the Assessing Officer was not justified in making his own presumption and arbitrary interpretation of the jottings in the seized diary Annexure-A-7 of the Panchnama. There was no corroborative secondary evidence/ material in support of his presumptions and arbitrary interpretation. He contended that the Assessing Officer was not justified in ignoring the agreements and deeds and instead of making his own estimate of investment by the assessee in various properties. He added that no adverse material had been found in the course of search or even from the examination of the concerned parties to justify the presumption and conclusions made by Assessing Officer in the impugned block assessment orders. He further added that such additions based on presumptions were not valid and justified under the provisions of Section 158B(b) and 158BB of the Act. He contended that such additions could not be considered as un-disclosed income under Section 158B(b) and 158BB of the Act.
7. The ld. AR of the assessee further submitted that the Assessing Officer was wrong in taking judicial notice of the report of the Income-tax Inspector in respect of investment in the property without confronting the said report to the assessee.
8. He further submitted that the Assessing Officer was not justified in making arbitrary addition as undisclosed income from garments export business in Nepal by treating all Nepali parties to be benami on mere suspicion and surmises.
9. He further submitted that the Assessing Officer had not properly considered all the explanations and evidences furnished in the course of the proceeding before him. He has not even properly examined the jottings in the seized diary.
10. The ld. AR of the assessee also challenged the various other additions as mentioned in the ground of appeals including the addition as undisclosed income on account of investment in jewellery in the case of Smt. Lavina Bhatia.
11. The ld. Sr. counsel for the revenue, on the other hand, submitted that the Tribunal did not have the power to consider the validity of the search. He added that as the Assessing Officer did not have the power to consider the validity of search the Tribunal also did not have same powers because grounds of appeals and the consequent power of the Tribunal to adjudicate the same must arise out of the order of the Assessing Officer. He further added that what the Assessing Officer could not consider in his order, the Tribunal also was not competent to consider the same in appeal before it.
12. The ld. counsel further submitted that the Assessing Officer assumed jurisdiction under Section 158BC as a result of search. Search under Section 132 is under Chapter-XIII (I.T. Authorities-C-Powers), whereas Chapter XIV B under which the impugned block assessments had been made is under special procedure for assessment of search cases.
Power and procedure are separate. He contended that power could not be challenged under procedure and hence the exercise of powers on search could not be challenged under appeal before the Tribunal.
13. The ld. counsel for the revenue further submitted that the Assessing Officer had only to see whether search was initiated before issue of notice under Section 158BA/158BC. He was not competent to see whether search was valid or not. He argued that since the Assessing Officer under the law could not consider the validity of the search, the Tribunal also could not do so. What the Assessing Officer was not competent to do himself the Tribunal also could not do that.
14. The ld. counsel further submitted that the grounds raised by the assessee challenging the validity of search for the first time before the Tribunal was not a legal issue but it would require investigation of facts about the search which could not be possible at the Tribunal stage. He, therefore, urged that the grounds was liable to be dismissed.
15. The ld. counsel for the revenue further submitted that a valid search was initiated against the assessee and valid search warrant was issued in the case. There was no mistaken identity as submitted by the ld. ARs for the assessee's but there was a case of mistaken relationship which was not relevant for the validity of search. He added that his name was at number 1 in the search warrant. He, further submitted that no appeal was provided against search under Section 132 of the Act.
16. The ld. AR of the assessee, in reply submitted that the right to challenge the validity of search was inherent in right of appeal against the assessment. He relied on the decisions in 57 ITD 446 (Sic) 17. The ld. Sr. Counsel for the revenue showed us the search warrant and the grounds on which the search was authorised as per the DIT (Inv.) file.
18. The ld. AR of the assessee also made his submissions on the merits of various additions. He contended that the impugned additions were not borne out by the jottings in the seized diary because the Assessing Officer had made his own interpretation of the figures based on conjecture and surmises without having any relevant to the facts of the case and without there being any corroborative secondary evidence/material in support of the figures and interpretation made by the Assessing Officer. He argued that the additions made by the Assessing Officer could not lawfully be sustained either on facts or in accordance with law. He added that the Assessing Officer had completely ignored the various evidence like agreements/deeds for the purchase of the properties and made uncalled for and un-warranted additions on the basis of his personal presumptions. He further added that jottings in the seized diary did not support the figures adopted by the Assessing Officer to work out un-disclosed investment etc. He further submitted that the Assessing Officer had not formed any material nor the concerned parties had given any statement to support the Assessing Officer's assumption about the amount of investment in the property etc. He added what the Assessing Officer had added on account of undisclosed investment in property belonging to others without there being an iota of evidence in support of his action.
19. He further submitted that the Assessing Officer had relied upon the report of the Income-tax Inspector regarding investment in the properties without confronting the said report to the assessee.
20. The ld. AR further submitted that the impugned additions made by the Assessing Officer as un-disclosed income on presumption and surmises could not be covered under the definition of un-disclosed income given in Section 158B(6) because no materials were found in the course of search to show that the assessee had made any un-disclosed investment in the property etc. He added that addition could not be made in a block assessment under Section 158BC on the basis of estimate presumption and surmises.
21. The ld. AR of the assessee then took us through the jottings at page 34 of the seized diary and submitted that the presumptions and interpretations made by the Assessing Officer of the jottings for making the impugned additions were unfounded and misconceived. He then also took us through the written submissions and paper books filed.
22. The ld. Sr. counsel for the revenue on the other hand submitted that the seized diary did show that the assessee had made undisclosed investment in the property but complete and proper enquiries and verification could not be made by the Assessing Officer because of lack of time. He added that after filing of the return very short time was left for the limitation period to expire. The Assessing Officer had to complete the block assessments before the expiry of the limitation.
He further submitted that in the interest of justice and fair play the impugned block assessments may be set aside for fresh assessments after proper verification and reasonable opportunity to the assessees.
23. We have given careful consideration to the rival submissions and the materials on the file including the written submissions and paper book etc. As regards the grounds challenging the validity of the search we are of the considered opinion that the power of the Tribunal in this regard is limited. As rightly submitted by the ld. Sr. counsel for the revenue the Tribunal can only consider whether the Assessing Officer had validly and legally assumed jurisdiction under Section 158BA/158BC.For assuming jurisdiction and issuing notice under Section 158BA/158BC, the Assessing Officer is required to see whether search was initiated in the case. He has no power to go into the validity of search.
Similarly, in appeal the Tribunal can consider whether the search was initiated in the case and thereby the Assessing Officer had assumed jurisdiction to issue notice under Section 158BA/158BC. This power arises because the impugned assessment is based on the assumption of jurisdiction and the issue of notice and the issue of notice is based on the initiation of search in the case. Thus the question of validity of search is beyond the pale of power of the Assessing Officer and the Tribunal so far as the making of assessment and adjudication of appeal thereon are concerned. Every authority must act within his powers and jurisdiction. There is no appeal provided in the Act against the power under Section 132. If at all, the validity of search has to be challenged it can be challenged in a writ before the High Court.
24. After seeing the search warrant and the grounds for authorisation of search as given in the file of the DIT (Inv.) we are satisfied that there was proper search warrant in the case and the assessee's name was at number one in the said search warrant. The search warrant was authorised on certain grounds as given in the file of the DIT(Inv.).
There was no question of mistaken identity as alleged by the ld. AR of the assessee as there was direct link between the grounds for the authorisation of the search and the assessee's name in the search warrant. Mistaken relationship could not be a ground to challenge the validity of search. The search was intended and was authorised against the assessee and his name was properly noted in the search warrant.
25. We are also of the view that prolonged litigation on the question of validity of search would not serve any effective purpose in the case. Even if the search is to be declared as invalid and on that ground that impugned block assessment was also declared as invalid, the revenue could not be legally stopped from making use of the material and information which came into his possession in the course of search for taking action against the assessee under Section 147 of the Act.
Thus it would open floodgate of litigation in large number of assessments in the case. It is, therefore, in the interest of all concerned that dispute on the merits of the additions alone should be properly and judiciously adjudicated in the case to reach expeditious finalisation. In important matters particularly, prolongation of litigationis counter, productive both for the assessee and of the revenue and therefore, the approach should be quick and just adjudication.
26 and 27. [These paras are not reproduce here, as they involve minor issue.]