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 operations under Section 132 of the Act were conducted on 24th Aug., 1995, and were concluded on 28th Aug., 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 AO 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 undisclosed 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 learned authorised representative of both the sides. The teamed authorised representative 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 Director of IT (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 learned Departmental Representative 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 assessment procedure under Section 158BC the assessee was liable of higher rate of tax. The Tribunal had to adjudicate upon the validity of the search. The learned Authorised representative of the assessee contended that even if the question of validity of the search was not raised before the AO 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 reported in P.V. Doshi v. CTT (1978) 113 1TR 22 (Guj) and AIR 1954 (SC) 340.
6. The learned authorised representative of the assessee on the issues of various additions submitted that the AO 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 AO was not justified in ignoring the agreements and deeds and instead 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 AO in the impugned block assessment orders. He further added that such additions based on presumptions were not valid and justified under the provisions of Sections 158B(b) and 158BB of the Act. He contended that such additions could not be considered as undisclosed income under Sections 158B(b) and 158BB of the Act.
7. The learned authorised representative of the assessee further submitted that the AO 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 AO 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 AO 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 learned authorised representative of the assessee also challenged the various other additions as mentioned in the grounds of appeals including the addition as undisclosed income on account of investment in jewellery in the case of Smt. Lavina Bhatia.
11. The teamed senior 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 AO 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 consec-uent power of the Tribunal to adjudicate the same must arise out of the order of the AO.He further added that what the AO could not consider in his order, the Tribunal also was not competent to consider the same in appeal before it.
12. The learned counsel further submitted that the AO assumed jurisdiction under Section 158BC as a result of search. Search under Section 132 is under Chapter XIII (IT 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 learned counsel for the Revenue further submitted that the AO 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 AO under the law could not consider the validity of the search, the Tribunal also could not do so.
What the AO was not competent to do so himself the Tribunal also could not do that.
14. The learned 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 ground was liable to be dismissed.
15. The learned 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 learned authorised representative for the assessee 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 learned authorised representative 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 reported in 57 ITD 446 (sic).
17. The learned senior counsel for the Revenue showed us the search warrant and the grounds on which the search was authorised as per the Director of IT (Inv's.) file.
18. The learned authorised representative 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 AO had made his own interpretation of the figures based on conjecture and surmises without having any relevance 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 AO. He argued that the additions made by the AO could not law fully be sustained either on facts or in accordance with law. He added that the AO had completely ignored the various evidences like agreements/deeds for the purchase of the properties and made uncalled for and unwarranted 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 AO to work out undisclosed investment, etc. He further submitted that the AO had not formed any material nor the concerned parties had given any statement to support the AO's assumption about the amount of investment in the property, etc. He added that the AO 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 AO 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 learned authorised representative further submitted that the impugned additions made by the AO as undisclosed income on presumption and surmises could not be covered under the definition of undisclosed income given in Section 158B(b) because no materials were found in the course of search to show that the assessee had made any undisclosed 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 learned authorised of the assessee then took us through the jottings at p., 34 of the seized diary and submitted that the presumptions and interpretations made by the AO 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 learned senior 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 AO 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 AO had to complete the block assessments before the expire 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 learned senior counsel for the Revenue the Tribunal can only consider whether the AO had validly and legally assumed jurisdiction under Section 158BA/158BC.For assuming jurisdiction and issuing notice under Section 158BA/158BC, the AO is required to see whether search was initiated in the case. He has no power to go into the validity of search. Simiiarly, in appeal the Tribunal can consider whether the search was initiated in the case and thereby the AO 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 AO 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 Director of IT (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 Director of IT (Inv.). There was no question of mistaken identity as alleged by the learned authorised representative 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 pronloged litigation on the question of validity of search would not serve any effective purpose in the case. Even if the search was 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 matter particularly prolongation of litigation is counter-productive both for the assessee and for the Revenue and, therefore, the approach should be quick and just adjudication.
26. On the merits of the addition we are of the view that we have no alternative but to set aside the same for fresh order after proper verification and due consideration of the assessee's submissions and explanations. It must be kept in mind that the provisions of Chapter XIV-B requires that addition for undisclosed income can be made on the basis of any entry in the books of account or other documents or transaction found in the course of search which had not been or could not have been disclosed for the purpose of tax. The jottings in the seized diary must be considered in the light of the provisions of Sections 158B(b) and 158BB. There is no scope for making addition on estimate, conjecture and surmises in block assessments. There must be material/evidence in possession of the AO to support the additions. The jottings in the seized diary must be interpreted in logical and realistic manner, after due consideration of the books of accounts, agreements/deeds and any other evidence and after examining the concerned parties and confronting the assessee to their, statements and report of the Income-tax Inspector, etc. It would be wrong to make interpretation of the jottings in the seized diary in complete isolation of other material evidence, etc. Such interpretation in isolation may not stand the test of appeal. In the interest of justice and fair play and in order to arrive at the fair and just conclusion, both the parties must play their role and discharge their respective duties responsibly and adequately. The assessee must cooperate with the AO to explain the jottings in the. seized diary and furnish supporting evidence to reach fair and just conclusion. 27. With the above observations and directions, we set aside all the four appeals for block assessments.