1. These two appeals by the different assessees relating to the same group of assessee and involving common grounds are being decided by a common order.
2. Originally, the assessee took several grounds to challenge the block assessment order dt. 30th Oct., 1996. However, finally the assessee has pressed only following grounds : "1. Because the learned AO has erred in law and on facts in treating the following : (a) Rs. 40,000 alleged unexplained investment in U.T.I. C.G.G.F..
Units Scheme, 1986, purchased in the name of appellant's minor daughter Km. Priyanka Jain.
(b) Rs. 16,300 alleged unexplained investment in Vijaya Bank cash certificates of Rs. 6,800 and Rs. 9,500 purchased in the name of minor daughter Km. Priyanka Jain.
(d) Rs. 10,90,200alleged unexplained investment in residential house.
3. Because there is an inherent lack of jurisdiction in the AO in the matter of passing the impugned order by reasons of: (a) non-issuance/non-service of notice under Section 158BC as per the provisions of law; (b) that the valuation report which was made the basis of addition of a sum of Rs. 10,90,200 was not capable of being treated as an evidence against the appellant.
4. Because the appellant is not a 'person' subjected to search under Section 132(1) as there existed no search warrant in his case and the block assessment order made by invoking the provisions contained in Chapter XIV-B is liable to be declared as null and void." 5. Because in any case the learned AO never acquired the jurisdiction to pass the block assessment order, as mandatory requirement of issuing notice under Section 143(2) was not fully valid.
3. S.K. Garg, FCA appeared on behalf of the assessee, whereas Ram Lal, the learned Departmental Representative represented the Department.
4. Before proceeding to consider the grounds of appeal, it would be proper to point out certain facts relating to the proceedings in this appeal, which are as follows.
5. Vide order dt. 17th April, 2000, the Bench was of the opinion that a remand report may be called from the AO and for this purpose, directed the AO to submit his remand report by 15th June, 2000, after allowing the assessee to cross-examine the valuation officer by 10th June, 2000.
This order of the Bench could not be implemented as on that very date, objection regarding authorization and competency of Mr. Ashok Kumar, as Departmental Representative was challenged by the learned counsel for the assessee and the Bench preferred to dispose of that objection. It may be pointed out that thereafter no order was passed for seeking remand report from the AO. However, a photocopy of the letter of Jt C1T, Special Range, Kanpur dt. 26th May, 2000, reveals that the assessee was called to cross-examine the Departmental valuer on 25th May, 2000.
6. On 15th Feb., 2000, the learned Departmental Representative produced original notice under Section 142 of IT Act dt. 29th Aug., 1986, for perusal of the Bench, but he was directed to file photocopy on the ground of the appeal. He was also directed to produce original search warrant and Panchnama relating to this case. For this purpose, a specific direction was given to the learned Departmental Representative for producing these documents on 12th March, 2001. However, on that date also, these documents were not filed before the Bench.
7. The assessee has filed report of approved valuer Ashok Goel, which is available at pp 1 to 9 of the paper book of the assessee. The assessee has also filed a copy of the report of the D.V.O. dt. 16th May, 1996, which is available on p. 10 to 28 of the paper book- The comments of the D.V.O. on the objections of the assessee are also available on pp. 29 to 40 of the paper book.
8. In the above background, we proceed to adjudicate legal grounds first. Ground Ho. 4 9. In support of this ground, learned counsel for the assessee, S.K.Garg submitted that since there was no authorization under Section 132(1) of IT Act for searching the person and premises of assessee Narendra Kumar Jain. The assessment order under Section 158BC is liable to be declared as null and void. The learned counsel pointed out that as found on perusal of the assessment order, the search warrant was in the name of Brij Katha company and another search warrant was in the joint name of Shelja Jain and Narendra Kumar Jain, which was in respect of locker No. 111 of S.B.I. Main Branch, Kanpur. According to the learned counsel before valid initiation of the assessment proceedings, and completion of the assessment, there has to be a valid authorization of search in the case of the assessee, because the assessment under Section 158BC can be made only on the basis of undisclosed assets found during the course of search. In support of his arguments, the learned counsel also placed reliance on the decisions in the case of: 1. Microland Ltd. v. Asstt. CIT (1999) 63 TTJ (Bang) 701 : (1999) 67 ITD 446 (Bang); 2. Verma Roadways v. Asstt. CTT (2001) 70 TTJ (All) 728 : (2001) 75 JTD 183 (All); 3. Decision of ITAT, Allahabad Bench in the case of Mongha Metals (P) Ltd v. Asstt. CIT [ITA No. 1377/A11/1997, dt. 30th June, 1999 [reported at (2000) 67 TTJ (All) 247]; and 4. The decision of ITAT, Patna Bench in the case of Shanti Complex v. ITO (1999) 237 ITR 27 (AT).
10. The learned Departmental Representative, on the other hand, submitted that there was a search warrant issued on 17th Oct., 1995, in the joint name of Shelja Jain and Narendra Kumar Jain and, therefore, it cannot be said that the assessment order is not valid. According to him, in pursuance of the search warrant in the case of Brij Kattha factory, incriminating materials relating to the accused was also disclosed.
11. We have carefully considered the facts and circumstances of the case and the relevant material and rival submissions. As has been already pointed out, despite specific directions, the Department has not been able to produce any search warrant in the name of the assessee Narendra Kumar Jain, for the purposes of searching his premises or person. In view of the provisions contained under Section 132(1) of the Act, before issuing any authorization under Section 132 of the Act, the authorities concerned empowered on this behalf by the Board must have reason to believe that any person to whom summons, etc. were issued or might be issued, would not produce the books of account or other documents, etc. or that any person is in possession of any money, bullion, jewellery or other valuable articles or things, which represents his undisclosed income. Thus, Section 132 casts a duty on the CIT to apply his mind and to proceed to take action under this provision only when ground for reason to believe exists. In the present case, since no authorization was issued for searching the premises of the assessee in his individual capacity, it cannot be said that there was a valid authorization under Section 132(1) of the Act in his individual capacity.
12. The scheme of Chapter XIV-B of the Act relating to block assessment makes it clear that in view of the specific provisions contained in Section 158BA, the assessment of undisclosed income is made as a result of search. It may be pointed out that it is only when a search is conducted under Section 132 or books of account, other documents, etc.
are requisitioned under Section 132 in the case of any person then the AO proceeds to assess the undisclosed income in accordance with the provisions of Chapter XIV-B.In the case of Verma Roadways (supra), the Allahabad Bench of Tribunal while considering a similar issue has held that validity of a search and seizure under Section 132 has to have a clear-cut nexus with the warrant of authorization, which is main foundation of entire proceedings on search and seizure.
13. The contention of the learned Departmental Representative that there was a search warrant in the case of M/s Brij Kattha, which warrant of search should also be taken to be a warrant of search in the case of the assessee cannot be accepted, because the authorization of search in the case of a company cannot be treated to be authorization of search in the case of individual directors. Likewise, the joint search warrant in the names of Smt. Shelja Jain and Narendra Kumar Jain for searching the locker in their joint names can also not justify any search in the case of the assessee. It may be pointed out during the course of hearing that the learned Departmental Representative was specifically asked to point out and specify the material or documents, which were found during the course of search and which were relating to the assessee. In any, case, even if some valuable assets or documents or any incriminating material was found relating to undisclosed income of the assessee during the course of search in the case of the company, then also proceedings for block assessment under Section 158BC cannot be sustained. In that situation, since the material recovered or discovered relates to 'other person', the proper course is to initiate assessment proceedings under Section 158BD of the Act, which course has not been adopted in the case of the present assessee.
14. To conclude, since there was no authorization of search in the name of Narendra Kumar Jain (Individual), in our view, there was no search in his case. Further, since the block assessment under Section 158BC is in consequence of a valid search conducted under Section 132 of the Act, the block assessment order under Section 158BC in the case of the assessee without such valid search cannot legally be sustained. In view of this factual and legal aspect of the matter, we allow ground No. 4 taken by the assessee and hold that the block assessment order in the case of the assessee is liable to be quashed on account of the illegality in the assessment proceedings under Section 158BC, as pointed above.
15. The contention of the learned counsel for the assessee, S.K. Garg, was that no valid notice under Section 158BC was issued to the assessee nor served upon him in accordance with law.
16. We have considered the issue. Neither of the parties have produced copy of notice issued under Section 158BC. The contention of the learned counsel for the assessee that notice under Section 158BC, presupposes a valid search under Section 132 or requisitioning of a document under Section 132A in the case of the assessee carries force.
While deciding ground No. 4 above, we have held that there was no authorization of search in the name of the assessee in his individual capacity and consequently no valid search was conducted in his case.
Hence, validity of issuance of notice under Section 158BC against the assessee cannot be sustained. Otherwise also, the Department has not been able to establish that the notice under Section 158BC was issued as per requirements of law and the same was also served on the assessee. The -Department has, thus, failed to prove valid issuance and service of notice under Section 158BC upon the assessee. Hence, this ground is decided in favour of the assessee. Consequently, the assessment order is liable to be quashed on this ground also.
17. The contention of the learned counsel for the assessee was that a valid notice under Section 143(2) was not issued by the AO to the assessee. Here again, it may be pointed out that the learned Departmental Representative was directed to file the copy of notice under Section 143(2) of Act, but the same could not be filed instead, the learned Departmental Representative in his report dt. 22nd March, .
2001 has submitted the following facts : "With regard to second additional ground given in para 2 of the objection, it is submitted that it is not ascertainable from the assessment records whether any notice under Section 143(2) was issued and served upon the assessee. However, in this regard it may be mentioned that if there was any omission on the part of the AO to issue notice under Section 143(2), the assessment would not be nullity. In this regard, reliance is placed in the case of Sant Baba Mohan Singh v. CIT (1973) 90 ITR 197 (All). A photocopy of the Hon'ble High Court order is enclosed." The above report of the learned senior Departmental Representative makes it clear that no notice under Section 143(2) was issued in the case of the assessee.
18. So far as the requirement of notice under Section 143(2) of the Act in block assessment proceedings under Chapter XIV-B is concerned, in the case of Rakesh S. Maidiya v. Dy. CIT (IT(SS) No. 30(Ahd) 2000 and ITA (SS) No. 30 (Ahd)/2000) [reported at (2002) 74 TTJ (Ahd) 836-Ed], the Ahmedabad Bench 'C' of Tribunal vide its order dt. 24th Oct., 2000 held that Section 143(2) along with, its proviso are applicable to block assessment proceedings also. According to the Bench, in-the absence of any specific provision restricting the scope of Section 143(2), the said section has to be applied along with proviso and the case of the AO for non-applicability of the proviso will not survive.
Regarding curability of the defect on account of omission on the part of the AO in not issuing a notice under Section 143(2), the Bench observed as follows : "9. As regards the reliance of the learned Departmental Representative on the provisions of Section 292B is concerned which deals with the ignoring of technical defects, we may observe that omission to consider statutory provisions laying down the period of limitation cannot be equated with, technical defects in the notice.
In the present case the contention raised by the learned authorised , representative of the assessee is not that the notice is defective but a glaring omission of the AO in ignoring or omitting to consider the statutory provisions viz. proviso to Section 143(2) which lays down limit of one year for commencement of proceedings for the purpose of block assessment. Since the statutory notice as required under Section 143(2) was not issued within the period of one year, as laid, down in the proviso, the entire assessments as made by the AO have been rendered barred by limitation. Therefore, taking into consideration the totality of the facts and circumstances of the case, we are of the opinion that as the AO having failed to initiate assessment proceedings within the time-limit prescribed under proviso to Section 143(2), the entire block assessments as made by the AO must be held to be without jurisdiction and the assessments have to be quashed. We accordingly quash the assessments framed by the AO in all the three cases." The issue regarding the applicability of Section 143(2) also came for consideration before the Allahabad Bench of Tribunal in the case of Smt. Surajwati Dew v. ITO In ITA No. 975/A11/1996 asst. yr. 1992-93, the Bench after considering the relevant case law on the point held that after the amendment became effective from 1st Oct., 1991, the legal position has changed and the effect of the proviso is that a notice under Section 143(2) if issued after the expiry of the period of limitation would be bad in law.
19. It may also be pointed out that notice under Section 143(2) incorporates essential rule of audi alteram partem with the object to give a reasonable opportunity to the assessee to explain its case.
Therefore, a service of notice under Section 143(2) is not a mere formality but is an imperative requirement of law. Since in the present case, no notice was issued under Section 143(2) of the. IT Act, the assessment order does not have the legal legs to stand. The same, therefore, deserves to be quashed on this ground alone.
20. In the result, this ground of the assessee is also allowed in favour of the assessee.
21. Since the assessment order has been quashed in view of the legal grounds decided in favour of the assessee, the other grounds, namely, grounds No. 1 and 3(a), which assail the assessment order on merits are not required to be disposed of. In view of the above, the assessment order passed under Section 158BC dt. 30th Oct., 1996, is quashed.
23. The assessee has taken five grounds in this appeal to challenge the block assessment order dt. 30th Oct., 1996.
24. S.K. Garg. F.C.A. appeared on behalf of the assessee, whereas Ram Lal, Departmental Representative represented the Department.
25. The assessee has taken five grounds which are finally pressed grounds of appeal. Out of these five ground, ground No. 2 has not been pressed at the time of hearing of the appeal. Hence, only remaining four grounds are to be adjudicated. Whereas ground No. 3(a), 4 and 5 assail the assessment order on legal grounds, the remaining grounds, viz., ground Nos. 1 and 3(c) challenge the block assessment order on merits.
26. The argument of the learned counsel for the assessee was that the issue of notice under Section 158BC is jurisdictional, because the AO assumes jurisdiction after receiving notice under Section 158BC.27. The learned counsel for the assessee pointed out that since there was no warrant of authorization in the case of the assessee and no valid search was conducted in her case, no notice under Section 158BC could be issued, because the undisclosed income is to be assessed in the case of 'any person', in whose case, search was conducted and in consequence of such search, undisclosed material was recovered. A similar ground was taken for the assessee in the case of Narendra Kuraar Jain in ITA No. 1853/All/1996 and after considering the entire relevant material, we have allowed the ground in favour of the assessee in that case. Since the facts and circumstances relating to this assessee on this issue are similar to the facts of that case, adopting the same approach and applying the same reasons, we decide this ground in favour of the assessee.
28. By taking this ground, the assessee has challenged the validity of the assessment order. It is contended on behalf of the assessee that since there was no search warrant in the case of the assessee, no valid search was conducted in her case and as the assessee/appellant is not a 'person' subjected to search, no proceedings under Section 158BC can be initiated against such a person. It may be pointed out that despite specific directions, the Department has not been able to produce any warrant of authorization issued under- Section 132 of IT Act, 1961, for conducting search. On 18th Feb., 2000, and on 15th Feb., 2001, specific directions were issued in ITA No. 1853/A11/1996 to the learned Departmental Representative for producing original search warrant.
However, the Department failed to produce the search warrant in the case of the assessee. Hence, it could not be established that any search warrant was issued in the case of the assessee for conducting search of her premises or her person. A copy of the warrant of authorization under Section 132 r/w Rule 112(1) of IT Rules, 1962, has been filed by the learned Departmental Representative on 4th June, 2001, but this warrant of authorization is in the name of Shelja Jain and Narendra Jain and not in the case of Smt. Radha Jain. Thus, on the basis of material available on record, it can be said that there was no search warrant in the case of the assessee, namely, Smt. Radha Jain. A perusal of assessment order also reveals that there was search in the residential premises of Ramesh' Chandra Jain, director of the company at 4/279, Tilak Nagar, and during the course of search of these premises, certain locker and keys were found, which were stated to be belonging to the locker in the joint names of Pradeep Jain, director of M/s Btij Kattha Industries and Smt. Radha Jain (wife of Pradeep Jain).
It is not the case of the Department that premises at 4/279, Tilak Nagar, belonged to the assessee. It is also not the case of the Department that any search warrant in the individual name of the present assessee, namely, Smt. Radha Jain or joint name of Radha Jain and Pradeep Jain was issued under Section 132 of the Act. Thus, it could not be proved that there was valid authorization of search in the case of the assessee. Since in our view, no valid search was conducted in the case of the assessee, the assessment order for the block period under Section 158BC, cannot be legally sustained. It may also be pointed out that if during the course of search of any premises of any person, the undisclosed income or assets of this assessee were discovered, then in such a situation, the block assessment could have been made by treating the assessee as 'other person' and then assessment should have been made under Section 158BD of IT Act.
29. In view of the above, we hold that the block assessment order is not legally justified. Ground No. 4 is, therefore, decided in favour of the assessee. Consequently, the assessment order is liable to be quashed on this ground also.
30. Through this ground, the assessee has pleaded that since notice under Section 143(2) was not issued in the case of the assessee, the block assessment order without making compliance of mandatory requirement of law cannot be justified 31. A similar ground was taken by the assessee in ITA No. 1853/All/1996 and after considering the entire relevant material, we allowed the ground in that appeal in favour of the assessee. Since the facts of this case on this issue is identical, by adopting the same reasons, we allow this ground in favour of the assessee in this appeal.
32. Since legal grounds taken by the assessee are allowed and on that basis, the block assessment order is quashed, we do not consider it proper to adjudicate the other grounds of appeal, namely, grounds Nos.
1 and 3(c), which assail the assessment order on merits.