TMI Blog2006 (9) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... gularity and the assessment made could be irregular but not void or illegal. The learned CIT(A) ought to have taken note of the apex Court's opinion and sustained the assessment. 4. Any other ground that may be urged at the time of hearing. Grounds in cross-objection: 1. The learned CIT(A) ought to have held that there is no undisclosed income as contemplated under the provisions of Chapter XIV-B of the IT Act, under the circumstances that on the previous day of the search, a survey under s. 133A was carried out and the findings of the search and seizure and survey operations are one and same. 2. The learned CIT(A) ought to have held that the AO is not correct in assessing the voluntary donations given to the assessee society of Rs. 23 lakhs under the provisions of s. 68 of the IT Act. 3. The learned CIT(A) ought to have held that the AO has erred in adding the sum of Rs. 16.64 lakhs as unexplained income in the absence of any incriminating material found during the course of search. 4. The learned CIT(A) ought to have held that the AO is not correct in making the addition of Rs. 87,870 towards unexplained investment in purchase of land and Rs. 13,420 towards unexplaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,43,000 and pay taxes thereon. This action was followed by search operation carried under s. 132 of the Act on the same very day, when the Kucha slips and other incriminating documents found were seized. The assessee did not maintain books of account for the MCA course although substantial collections were made from students and expenditure was incurred without accounting for the same. In his statement recorded on 17th Dec., 1999 on oath by DDIT, Unit-1, Visakhapatnam, the secretary of society in reply to question No. 16, replied and made admission of undisclosed income of Rs. 11.43 lakhs as under: "In view of the defects pointed out above, I would like to offer as the undisclosed income of the society a sum of Rs. 11.43 lakhs which represents the excess amount over and above the stipulated fee of Rs. 21,000 per year per candidate collected by the society for the MCA admission, particulars of which are contained in the loose slips seized today. I also undertake to file the return of my undisclosed income and pay the taxes due thereon as soon as possible." 4. Consequent to issuance of notice under s. 158BC of the Act on 19th April, 2000, the respondent filed return of undisclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in C. Ramaiah Reddy vs. Asstt. CIT (Inv.) (2003) 81 TTJ (Bang)(SB) 1044 : (2004) 268 ITR 49 (Bang)(SB)(AT), held that the validity of the action taken under s. 132 of the Act could not be examined in the appeal filed before it. We see no reason to take a different view. Any appeal before the Tribunal against the block assessment made under s. 158BC does not take within its fold questions touching the validity of the search conducted under s. 132 of the Act. Whether or not the conditions precedent for a search stipulated under cls. (a), (b) and (c) of s. 132(1) of the Act were satisfied in a given case fall beyond the scope of assessment proceedings instituted under s. 158BC of the Act or any statutory appeal preferred against the order made under that provision. If the petitioner was keen to test the validity of the said proceedings, his remedy lay in a writ petition under Art. 226 of the Constitution." 8. It was further contended that material and evidence was found and seized under s. 132 of the Act, which gave jurisdiction to make assessment for the block period in terms of s. 158BA(1) of the Act. The respondent had not filed regular returns of income even though material was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o choose the right course depending upon the facts of each case." 10. Furthermore, there has been an amendment in the statute by the Finance Act, 2006 w.r.e.f. 1st Oct., 1991 and also an Explanation has been inserted below s. 148 as under: "Provided that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-s. (2) of s. 143 after the expiry of twelve months specified in the proviso to sub-s. (2) of s. 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time-limit for making the assessment, assessment or recomputation as specified in sub-s. (2) of s. 153, every such notice referred to in this clauses shall be deemed to be a valid notice: Provided further that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income for the block period. In this case, the assessee in particular, had admitted to make surrender of an income of Rs. 11.43 lakhs in survey proceedings. This amount cannot be taken as "not disclosed or would not have been disclosed" for the purpose of this Act, and as such, the same shall be outside the scope of undisclosed income defined in sub-s. (b) of s. 158B of the Act. An identical statement was recorded by the search party and nothing new other than what was already disclosed had come to their notice. In that view of the matter, the findings of surveyor disclosure made in survey could not be used for making block assessment of the assessee. The assessee made reference to para 8 of the order of learned CIT(A) where such glaring facts are duly recorded as under: "With regard to survey conducted under s. 133A on 9th Dec., 1999, converted into search on next day i.e. 10th Dec., 1999 which lasted about 15 minutes, it has been submitted that to establish undisclosed income it is essential that transaction must be discovered during the course of search and seizure operation. If the Department before the search already knows the transaction and then search proceedings w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich represents the differential amount over and above the stipulated fees of Rs. 21,000 per each candidate. The amount will be offered by me as an additional income of the society for the asst. yr. 2000-01 (financial year 1999-2000) and I will pay the advance tax due on the above additional income on or before 15th Dec., 1999. I am offering this additional income voluntarily to purchase peace with the Department and request that no penalty or prosecution proceedings are initiated against me. In order to prove my commitment for paying the taxes, I undertake to pay at least Rs. 1 lakh by Monday. i.e. 13th Dec., 1999." 14. The learned counsel for assessee placed reliance on certain decisions on the prepositions set out against each as under: (i) Words "has not been" in s. 158B(b) are to be considered in those cases where the disclosure has already been made by the assessee for any assessment year before the date of search and the words "would not have been disclosed" are to be considered in those cases where returns have not been filed by the assessee before the date of search as held in Vidya Madanlal Malani vs. Asstt. CIT (2000) 69 TTJ (Pune) 456 : (2000) 74 ITD 341 (Pune). ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the impugned order. 17. We have heard the parties with reference to precedents on record and perused the material carefully. The jurisdiction to make assessment for the block period vests with the AO immediately after an action under s. 132 is taken on a person. In this case, it is an admitted position that action under s. 132 was taken on 10th Dec., 1999 as is evident from copy of Panchnama placed at paper book pp. 48 and 49. The Special Bench of the Tribunal in the case of Nawal Kishore Sons Jewellers vs. Dy. CIT has already entertained a view that non-issuance of notice under s. 143(2) or under s. 142 of the Act within one year from the end of the month in which the block return is filed is not fatal to the jurisdiction to make assessment. Non-issuance of notice is merely an irregularity and if sufficient opportunity has been given by issuance of notices prior to completion of assessment, the same cannot be made a basis to quash the assessment. Moreover, there has been an amendment with respect to the issuance of notice beyond a period of one year which has been made w.r.e.f. 1st Oct., 1991. If the notice is issued beyond a period of one year from the end of the month in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not recorded the full receipts in the regular books of account, Kuccha slips for receipts were also found in his possession and regular returns had also not been filed by the assessee. All this information led to an action under s. 132 of the Act, on 10th Dec., 1999 when all such materials and evidence showing income having not been disclosed in the books of account were found and seized. The assessee has made assertion that it had agreed to declare an income of Rs. 11.43 lakhs in his statement recorded in survey proceedings. This statement was made on the basis of material or information found as a result of survey on 9th Dec., 1999. It has, therefore, been pleaded that the amount so admitted as assessee's income cannot be taken as the amount which would not have been disclosed for the purpose of the IT Act and as such, the amount of Rs. 11.43 lakhs could not have been taken as undisclosed income within the meaning of sub-s. (b) of s. 158B of the Act. We, however, are not inclined to agree with the proposition being laid down by learned counsel for the assessee. Under the peculiar facts of the case, it is evident that the assessee has not filed any return of income for any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings was treated as undisclosed income under s. 158BB of the Act but the CIT(A) excluded the income found in survey from the total income assessed as undisclosed income and his order also stood confirmed by the Tribunal. Before the Hon'ble High Court, it was contended that the material gathered in the course of survey under s. 133A of the Act can also have been regarded as a material for the purpose of making of block assessment under s. 158BB of the Act. The Hon'ble High Court agreeing with the CIT(A) and the Tribunal found that the decision taken by them was in accordance with the provisions of law. 21. From the aforesaid judgment, it is thus evident that the material gathered in the course of survey under s. 133A which is not found or seized in search carried out under s. 132 of the Act, cannot be made as a basis for making assessment of undisclosed income for the block period on a person. However, in the peculiar facts of the case at hand and as has also been found by us earlier, the AO assessed the undisclosed income on the basis of material found and seized as a result of search on the assessee and he did not rest his decision to include the evidence found as a result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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