2016 (11) TMI 1495 - HC - Income Tax

Assessment order passed u/s 158BC/143(3) - period of limitation - Held that - It will not be out of place to mention that the search proceeding under section 132(3) was continued up to August 16 1997 however by subsequent restraint order where only for the purpose of seizure no further search material was found and specifically panchnama was drawn. In that view of the matter relying on the decision of the Madras High Court in the case of A. Rakesh Kumar Jain v. Joint CIT reported in 2012 (12) TMI 164 - MADRAS HIGH COURT and decision of the Delhi High Court in B. K. Nowlakha v. UOI reported in 1991 (8) TMI 78 - DELHI High Court we are of the opinion that the search has commenced on May 16 1997 no further search was conducted therefore limitation was started on August 31 1997. - Decided in favour of the assessee and against the Department.

Summary

Issues Involved:
1. Limitation for completion of block assessment under section 158BC/143(3).
2. Deduction under section 80HHC for export income.
3. Credit for purchases made between March 31, 1997, to May 16, 1997.
4. Credit of income for various family members without filed returns.

Detailed Analysis:

1. Limitation for Completion of Block Assessment:
The primary issue was whether the assessment order dated August 16, 1999, was barred by limitation as per Explanation 2 to section 158BE(1)(b) of the Income Tax Act. The search operations began on May 16, 1997, and a restraint order was passed on August 14, 1997. The assessee argued that the limitation period started from August 31, 1997, based on the last panchnama dated August 14, 1997. The court referred to various judgments, including CIT v. Mrs. Sandhya P. Naik and B. K. Nowlakha v. Union of India, which emphasized that the limitation period starts from the conclusion of the search and issuance of the panchnama. The court concluded that the search concluded on August 14, 1997, and therefore, the limitation period started on August 31, 1997. Consequently, the assessment order was deemed to be barred by limitation.

2. Deduction under Section 80HHC:
The second issue was whether the Tribunal was justified in not allowing the deduction under section 80HHC on account of export income for the assessment years 1996-97 and 1997-98. The assessee claimed deductions based on export sales, arguing that the income from these sales was not chargeable to tax. The Tribunal, however, did not allow these deductions in view of the provisions of section 158BA(3), which pertain to block assessments. Since the primary issue of limitation was decided in favor of the assessee, this issue was rendered moot and not addressed further.

3. Credit for Purchases Made Between March 31, 1997, to May 16, 1997:
The third issue involved the Tribunal's decision not to allow credit for purchases amounting to Rs. 4,19,495 made between March 31, 1997, and May 16, 1997. The assessee argued that these purchases should be credited against the stock found during the search. However, this issue was also not addressed further due to the decision on the primary issue of limitation.

4. Credit of Income for Various Family Members:
The fourth issue was whether the Tribunal was justified in holding that credit of income cannot be given for various family members for whom no returns were filed. The Tribunal had held that contributions for household expenses by family members were not substantiated with cogent material, and no returns were filed before the date of the search. The court upheld the Tribunal's findings, noting that the statements and estimates provided by the assessee's wife were indicative of current expenditure but did not cover the entire block period. The court confirmed the estimation of household expenses for the period immediately preceding the search.

Conclusion:
The court decided the primary issue of limitation in favor of the assessee, concluding that the assessment order was barred by limitation. Consequently, the other issues were not addressed further, and the appeal was allowed, setting aside the orders passed by the Tribunal and the Assessing Officer.