TMI Blog1998 (12) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... 8BC, which is not sustainable in law. 2. The learned Assessing Officer has erred in making an assessment under section 158BC and his reference to the Valuation Officer and District Valuation Officer is erroneous in law and contrary to the provisions of Chapter XIV-B of the Income-tax Act, 1961. 3. The learned Assessing Officer has erred in determining the alleged undisclosed income contrary to the provisions of section 158B(b) arbitrarily." 3. It is submitted by Shri H.C. Sarda, the learned counsel of the assessee that the assessee is a private limited company engaged in the business of construction and sale of residential and commercial buildings. The business premises of the assessee-company is situated at 380, Jawahar Marg, Indore. He submitted that no search had been conducted at the business premises of the assessee-company and as such the Assessing Officer is wrong in stating in para 1 of the order that search was conducted in the business premises of the company on 21-11-1995. Our attention was drawn to the Panchnama appearing at page 1 of the assessee's compilation which clearly shows that warrant was issued in case of Shri Rameshwar R. Maheshwari and Smt. Lalitadevi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that since no search warrant was issued in the case of the assessee-company, the Assessing Officer had no jurisdiction to issue notice to the assessee company under section 158BC. Relying on the ITAT, Madras "B' Bench decision in Urmila Chandak vs Asstt. Commissioner of Income-tax [1998] 60 TTJ (Mad.) 758, Shri Sarda argued that the block assessment made by the Assessing Officer in the case of the assessee-company is void for want of jurisdiction on account of irregularity in issuing notice under section 158BC. Shri Sarda also referred to the Supreme Court decision in Commissioner of Income-tax vs Kurban Hussain Ibrahimji Mithibotwala [1971] 82 ITR 821, wherein in the context of notice under the old section 34, which is analogous to 147 of the Act, their Lordships held that if the notice issued by the Assessing Officer is invalid for any reason, the entire proceedings taken by him would become void for want of jurisdiction. Shri Sarda, therefore, submitted that the impugned block assessment is not sustainable in law. 4. Shri Sarda argued that reference to the DVO is erroneous in law and contrary to the provisions of Chapter XIV-B of the Act. Further, the additions have been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, M/s. Indore Constn. (P.) Ltd. He had received the valuation report of the DVO on 18-11-1996 and a letter dated 22-11-1996 seeking time of 15 days to produce the detailed technical objections to the valuation of the Varshadeep Apartments against report of DVO filed before the Assessing Officer. However, further time was not allowed and the case was closed for orders on 22-11-1996. It is further deposed that detailed technical comments which could not be filed during assessment proceedings appear at pp. 207-249 of the compilation. A request has been made to admit the same as additional evidence for the reason that it goes to the root of the case. In support of the contentions raised in the affidavit, reliance was placed on the following decisions : Commissioner of Income-tax vs M. N Sidaiman [1998] 145 CTR (Mad) 297; T. S Kumarasamy vs Asstt. Commissioner of Income-tax [1998] 65 ITD 188 (Mad); Express Movers (P) Ltd vs Dy. Commissioner of Income-tax [1997] 61 ITD 528 (Delhi); and Union of India vs Paras Laminates (P) Ltd [1990] 186 ITR 722 (SC). 7. Shri H.C. Sarda completed his arguments on the preliminary grounds on 18-9-1998, The case was adjourned for further heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas in the affidavit sworn on 29-9-1998 he changed his stand and has deposed that on the basis of loose papers at page Nos. 6, 97 and 138 of Annexure BS-29 he had issued notice under section 158BC on 6-2-1998, as these papers relating to M/s. Indore Constn. (P.) Ltd., the assessee company, were found in search at the residence of Shri Rameshwar R. Maheshwari. Referring to the letter of ADI dated 28-8-1998, Annexure 'C', Shri Sarda submitted that the ADI has rightly stated that the warrant of authorisation had not been issued in the case of Indore Constn. Co. (P.) Ltd, However, in the said letter, the ADI has stated that the claim made on behalf of the assessee that the seized books of account were called for from 380, Jawahar Marg to the residence at 2/5, South Tukoganj is not substantiated. According to Shri Sarda, this statement of ADI is based purely on his memory and cannot be relied upon. He again reiterated that no block assessment can be made in a case in which the search warrant is not issued and in such a case notice under section 158BC cannot be served upon such an assessee. He, therefore, again repeated that the impugned block assessment is illegal and deserves to be k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued for the assessment year 1995-96, the assessee presumed that the income returned for the assessment year 1995-96 has been accepted under section 143(1)(a). 9.3 Shri Sarda submitted that while making reference to the DVO, the Assessing Officer incorporated the desire of the Commissioner of Income-tax, Bhopal, that the DVO should specifically point out the discrepancy on account of any items of expenses like, cement, wages, bricks, iron etc., if any. This, according to Shri Sarda, indicated that the Assessing Officer did not make reference to the DVO after applying his own mind. Rather the reference was made at the instance of the Commissioner, which is not legally tenable. He pointed out that as a consequence to the said reference dated 14-10-1996 in respect of the three apartments, vide letter dt. 24-10-1996 to the Commissioner, Bhopal, the assessee objected to the reference being made to the DVO stating therein that the said reference is not in agreement with provisions of Chapter XIV-B. Without prejudice, it was also stated therein that the provisions of chapter XIV-B are at par with the provisions of section 147. It was brought to the notice of the Commissioner that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractor is by cheques and is verifiable. This has been ignored by the DVO, who has made high pitched report. In respect of Nayate Apartments, it was submitted that the report of the DVO was supplied to the assessee on 20-11-1996 and comments were required on 22-11-1996. There was, thus, lack of proper opportunity somehow or the other, the assessee obtained broad comments of the Regd. Valuer, Shri K. K. Doshi. It was pointed out that if reasonable time had been given, detailed valuation with quantity, analysis and the basis of Regd. Valuer's valuation would have been submitted. A request was made to obtain further comments from the DVO. It was also requested that the DVO should be made available for cross-examination. Similar submission was made in respect of Vineet Apartments. The comments of the Regd. Valuer in respect of Nayate Apartments and Vineet Apartments were enclosed with the letter. Copies , of such comments are available at pp. 169 to 206 of the paper book. Shri Sarda submitted that the comments and technical objections of the Regd. Valuer on DVO's report in respect of Varshadeep Apartments were submitted to the Assessing Officer after assessment, which needs to be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that there is no provision to levy surcharge. Referring to section 113, he submitted that the tax on undisclosed income of the block period is chargeable at the flat rate of 60%. 9.6 With regard to ground No. 16, Shri Sarda highlighted that no adequate opportunity was allowed to the assessee to give counter comments in respect of Varshadeep Apartments against the comments of the DVO. Further, no addition on the basis of the so-called clinching evidence annexed with the assessment order has been made. 10. Shri Brijesh Gupta, the Id. D.R., submitted that as per Panchnama, prepared at the time of search certain books belonging to the assessee were found and seized from the residence of the Director, Shri Rameshwar R. Maheshwari, in whose case the search warrant was issued. He submitted that as the books of the account of the company were kept at the residence of the Director, the Assessing Officer has mentioned that such books were seized from the business premises. In support of the above proposition, he referred to the provisions of section 133A of the Act. 10.1 As to the deposition of Shri Rameshwar Maheshwari in his affidavit sworn on 17-8-98 (copy at page 259A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional evidence filed by the revenue deserves to be admitted. 10.4 Shri Gupta further submitted that in case it is held that in the absence of issue of search warrant in the case of the assessee-company block assessment cannot be made in its case, then by way of alternate argument it is submitted that section 158BD provides for handing over of the seized material belonging to a person other than the person with respect to whom search was made to the Assessing Officer having jurisdiction over such other person and the same procedure shall follow as if that other person had been searched. He submitted that there is no requirement for recording reasons for satisfaction as per the provisions of section 158BD. Shri Gupta submitted that notice under section 158BC was issued to the assessee-company as also to the Director Shri Rameshwar Maheshwari on the same date ie. 6-2-1996. The block assessments were also made in the case of the company as also in the case of Shri Maheshwari on the same date 29-11-1996. Shri Gupta argued that the seizure of the books of account of the company, issue of notice under section 158BC and finalisation of assessment in the case of the company go to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 143(3) read with section 158BD and Explanation 2 thereunder as in such a case neither notice can be issued under section 158BC nor assessment can be made under section 158BC, as time limit for passing under sections 158BC and 158BD are provided separately. It is, therefore, necessary that in a case of a person other than the person in whose case the search warrant has been issued, separate notice under section 158BD and separate order under that section has to be made. Notice under section 158BD in the case of other persons (pages 476 and 477) proves that in the case of other persons notice under section 158BC cannot be issued. 12. On consideration of the above submissions, these documents were admitted and opportunity was allowed to the Id. D.R. to state his objections, if any, and to offer his comments thereon. 13. Shri Gupta, the Id. D.R., submitted that the papers appearing at pp. 433-451 were found and seized from the residence of Shri Maheshwari as no search had taken place at 380, Jawahar Marg, Indore. Regarding the documents at pp. 453 to 455, Shri Gupta submitted that survey was conducted on 21 -11 -1995 in the premises of R.R. Maheshwari Co. at 3 80, Jawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nviting our attention to the Assessing Officer's observations on page 4 of the assessment order, he submitted that the Assessing Officer had completed the assessments for the assessment years 1990-91 to 1994-95 under section 143(1) when the apartments were still under construction. If that be so, the Assessing Officer during the course of proceedings for block assessment could enquire into the investment and for that purpose he could make reference to the Valuation Cell. Relying on Daulatram vs Income-tax Officer [1990] 181 ITR 119 / 51 Taxman 248 (AP), he submitted that the property can be referred to the Valuation Cell for the purpose of estimating the cost of construction even under section 55A, though while making the references in the instant case the Assessing Officer had done so under section 131(1)(d). According to the Id. D.R., the Assessing Officer rejected the books for the reasons given by him on page 7 of the assessment order. 13.2 Shri Gupta heavily relied on the observations of the Assessing Officer in the assessment order on pages 8 9 thereof. Referring to section 158BH, Shri Gupta submitted that there is no bar to the application of the provisions of section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, submitted that the inventory of cash appearing at page 452, goes to reveal that this inventory was not prepared in survey but it was prepared in search of Indore Constn. Co. (P.) Ltd., the assessee at 380, Jawahar Marg, Indore when even search warrant had not been issued in the case of the company. This is also proved from the notice under section 158BC dated 6-2-1996 (copy at page 416 of the paper book) wherein it is mentioned that search was conducted in the month of November, 1995. In the assessment order in the opening paragraph also, the Assessing Officer says that the search was conducted in the business premises of the assessee company on 21-11-1995. Wrong averment has, thus, been made in the affidavit filed by the then Assessing Officer sworn on 29-9-1998. 14.1 Relying on T. S. Sujatha vs Union of India [1998] 149 CTR (Ker.) 343, Shri Sarda argued that for invoking the provisions under section 158BD, the satisfaction of the Assessing Officer is essential and a notice has to be issued under this section which has not been done in the case of the assessee-company, even if alternate argument of the Id. D.R. is accepted. Relying on the decision of Gujarat High Court in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A is the sine qua non of assessment under the new scheme envisaged under Chapter XIV-B. This is also clear from sub-section (1) of section 158BA, which provides that the Assessing Officer can proceed to assess the undisclosed income only if a search is initiated in the case of any person under section 132 or books etc. are requisitioned under section 132A. 17. The assessee before us is Indore Construction (P.) Ltd. situated at 380, Jawahar Marg, Indore, which is engaged in construction and sale of apartments. The Assessing Officer has made assessment in this case under Chapter XIV-B. This assessment has been challenged on the preliminary ground that search was not conducted in the business premises of the company as mentioned by the Assessing Officer in the opening paragraph of the order. Such observation of the Assessing Officer is only with a view to safeguard the assessment made under section 158BC. The facts which emerged from the documents brought on record are that no warrant of authorisation was issued in the case of the company. Warrant of authorisation was issued in the case of Shri Rameshwar R. Maheshwari and Smt. Lalitadevi to search the Ground floor of Surya Apartmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. If as stated earlier and as admitted by the revenue before us that no search was conducted at the business premises of the assessee-company on 21-11-1995, the question of seizure of incriminating account books and documents from the business premises of the assessee company on 21-11-1995 does not arise at all. 18. Let us pause for a moment and analyse the reason why the Assessing Officer mentioned wrong facts in the opening paragraph of the assessment order. Before that. we have to bear in mind that the Assessing Officer was not in the picture in the entire episode of search under section 132(1) in the case of the company's Director, R.B. Maheshwari and his wife and survey under section 133A at the business premises of the company at 3 80, Jawahar Marg, Indore. Nonetheless the Assessing Officer exercised jurisdiction over Shri R.B. Maheshwari, Director in the company as also over Indore Construction (P.) Ltd. On perusal of the form used for preparing inventory of cash found/seized, it is noticed that similar form is used in search under section 132(1) as also in survey under section 133A. This form was used for preparing the inventory of cash of Rs. 5,000 found but not sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee-company in whose case search warrant was not issued nor search had taken place at its business premises, then he should have framed the assessment under section 143(3) read with 158BD. This has not been done. As stated earlier, the notice was issued to the Company under section 158BC and the assessment has also been framed under section 143(3) read with 158BC. The averment made in affidavit sworn on 29-9-1998 by the Assessing Officer is clearly an afterthought. 20. The assessment had also been assailed on the second preliminary ground that reference to Valuation Cell is not in accordance with the provisions of Chapter XIV-B of the Act. Let us notice the relevant facts. The assessee had constructed three apartments, namely, Varshadeep Apartments from assessment years 1990-91 to 1994-95, Nayate Apartments from assessment years 1992-93 to 1995-96 and Vineet Apartments from assessment year 1994-95 which was still under construction on the date of search. It is, therefore, obvious that the construction of the Varshadeep Apartments and Nayate Apartments had already been completed in Assessment year 1994-95 and the assessment year 1995-96, respectively. Maximum constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded in the regular books. For the reason aforesaid, he referred the three apartments to the Valuation Cell for ascertaining the cost of construction. The question for our consideration is whether on these facts, the Assessing Officer was correct in law in referring these properties to the Valuation Cell for ascertaining the cost of construction in the context of assessment under Chapter XIV-B. 22. On consideration of the rival submissions of the parties, we are of the view that in the facts and circumstances of the assessee's case, reference to the Valuation Cell is not tenable. The assessee has maintained books of account in the course of carrying on its business of construction and sale of residential and commercial buildings. Such books of account were audited and the returns filed by the assessee for the assessment years 1990-91 to 1995-96 accompanied audit report and audited profit and loss a/c, balance sheet etc. Perusal of the audit report revealed that in notes on accounts, quantitative details of consumption of different items of building material have been given along with value thereof in respect of the years in which construction took place. The returns filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r examines the accounts of an assessee, he has to consider whether the assessee has regularly employed the method of accounting; whether the accounts are correctly maintained; and whether the accounts maintained are complete in the sense that there is no significant, omission therein. If the finding of the Assessing Officer on any of the aforesaid is in the negative, section 145(2) applies and the Assessing Officer may make a best judgment assessment in the manner provided in section 144. It is significant to note that even in such a situation, the books need not be discarded altogether. The assessment may be adjusted to cure the extent of the infirmity found, so as to make it a 'best judgment' assessment. In making the impugned assessment and that too under Chapter XIV-B, the Assessing Officer did not limit himself to cure the infirmity found as a result of search- He went far beyond which is not at all envisaged in Chapter XIV-B. 25. For the reasons aforesaid, we hold that the Assessing Officer was not justified in referring the impugned properties to the Valuation Cell. 26. The third preliminary ground on which the assessment is challenged is that the undisclosed income has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made by the assessee' and on receipt of reports of the Valuation Cell proceeded to compute income under section 69 as unexplained investment, adding thereto further undisclosed profit earned on sale of flats. To our mind, what the Assessing Officer did is beyond the scope of section 158BB. No addition can be made in any of the assessment year of the block period regarding which no material or information is available with the Assessing Officer. In a case where any material or information is found during search, the Assessing Officer has to cordate such material / information with regard to the regular assessment which have already been completed. At the cost of repetition we may state that Chapter XIV-B does not authorise the Assessing Officer to review the assessment completed unless and until there is any direct or clinching evidence to indicate that the assessee has withheld or had not disclosed any income. No additions can be made merely on the basis of presumption or hypothesis. This is what the Assessing Officer has actually done. 29. The assessee, thus, succeeds in its preliminary grounds. We, therefore, do not propose to deal with the ground Nos. 4 to 14 assailing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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