2006 (12) TMI 165 - AT - Income Tax

Summary

Issues Involved:
1. Legality of assessment under section 158BD read with section 158BC.
2. Validity of search warrant and its implications.
3. Jurisdiction of the Assessing Officer.
4. Recording of satisfaction under section 158BD.
5. Block period discrepancies.

Detailed Analysis:

1. Legality of Assessment under Section 158BD Read with Section 158BC:
The revenue contended that the CIT(A) erred in quashing the assessment framed under section 158BD read with section 158BC. The CIT(A) held that the search on the assessee was direct, and thus, proceedings under section 158BD were not in accordance with law. The CIT(A) quashed the block assessment, concluding that the documents seized during the search belonged to the assessee and his connected companies, not to the persons named in the search warrant. Therefore, the assessment should have been completed under section 158BC, not section 158BD.

2. Validity of Search Warrant and Its Implications:
The search warrant was issued in the names of S/Sh. Rakesh Kumar, Ashok Kumar, and M/s. R.K. & Co. (Builders and Colonisers) for premises at 11/2, Grain Market, Jalandhar Cantt. During the search, incriminating documents related to the assessee were found. The assessee challenged the search action on the grounds that no search warrant was issued in his name. The Hon'ble Punjab & Haryana High Court upheld the validity of the search action, noting the incriminating documents found during the search.

3. Jurisdiction of the Assessing Officer:
The assessee argued that the ACIT, Inv. Cir. 2(2), Jalandhar, wrongly assumed jurisdiction as no order under section 127 was passed to transfer the case from Ward 2(6) to ACIT, Inv. Cir. 2(2). The CIT(A) rejected this submission, stating that the common jurisdictional order passed by the CIT, Jalandhar, on 7-10-1994, automatically transferred the jurisdiction over cases covered under search actions to ACIT, Inv. Cir. 2(2). The CIT(A) upheld the validity of the notice issued under section 158BD.

4. Recording of Satisfaction under Section 158BD:
The CIT(A) found that the Assessing Officer did not produce evidence of satisfaction recorded in the cases of S/Sh. Rakesh Kumar, Ashok Kumar, and M/s. R.K. & Co. (Builders and Colonisers). The CIT(A) held that the satisfaction recorded in the case of the assessee was contrary to the provisions of section 158BD. However, the Tribunal found that the Assessing Officer had recorded satisfaction based on the incriminating documents seized during the search, which indicated undisclosed income of the assessee. The Tribunal held that the satisfaction recorded by the Assessing Officer was valid.

5. Block Period Discrepancies:
The CIT(A) noted that the block period mentioned in the order was from 1-4-1988 to 23-12-1998, whereas the search against the persons named in the warrant concluded on 8-12-1998. The CIT(A) observed that the Assessing Officer treated the case of the assessee as an independent search, which conformed more with the provisions of section 158BC rather than section 158BD. The Tribunal, however, held that the action under section 158BD was correctly taken against the assessee and his two business companies.

Conclusion:
The Tribunal set aside the order of the CIT(A) and restored the appeals to the file of the CIT(A) for deciding the grounds relating to the merits of the additions after allowing reasonable opportunity to both parties. The Tribunal held that the action under section 158BD was correctly taken, the satisfaction recorded by the Assessing Officer was valid, and the jurisdiction was rightly assumed by the DCIT, Inv. Cir. 2(2), Jalandhar. The appeals of the revenue were treated as allowed for statistical purposes.