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TMI Blog2016 (11) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... how-cause notice was issued along with a notice under section 142(1) of the Act on March 16, 1999 requiring the assessee to furnish explanation with regard to the assets found and seized from his premises and also to explain all the incriminating seized papers. The return was filed on April 29, 1999 declaring therein undisclosed income of Rs. 30 lakhs. While furnishing the return a brief note was annexed describing therein the history of the assessee and also the basis of showing such undisclosed income. The brief note so annexed is reproduced hereunder for ready reference : "1. The assessee was born in the year 1950 in a poor family. The assessee's father Sh. Mohd. Umar was doing cycle repairing work and to meet the livelihood the assessee started helping his father in his work at a very early age. Thereafter the assessee started his own cycle repairing centre in the year 1965 in Ramganj Bazar, Jaipur. He is still popularly known as Yasin Cyclewala in his area. The lady members of the family were also engaged in the job work of Purari and Bindai to support the family. 2. The assessee got married to Smt. Rahmat Bano in the year 1971. He has two daughters namely Yasmeen and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purpose investments held in the name of family members of the assessee are also considered in the hands of the assessee. In case of any such investment is considered in the hand of any other member, corresponding deduction be given in the assessee's case. This amount is equal to income since income is either spent or invested. On this basis the investment/expenditure for the block period is determined as under :- (a) Cash : Total cash found was Rs. 39,105 from the residence of the assessee. Out of which 19,105 was released and balance Rs. 20,000 is seized. The cash balance available as per cash book of M/s. Umar Gems as on May 16, 1997 is Rs. 21,301 and further a sum of Rs. 5,000 is considered as the savings of family members. The balance of Rs. 12,804 is considered as unexplained. (b) Stock : Total stock of precious and semi-precious stones were found and seized was valued at Rs. 19,27,778. Out of which the book stock as on March 31, 1997 is Rs. 96,586. The purchases from April 1, 1997 to May 15, 1997 amounts to Rs. 4,19,492. There is no sale during the period. Thus, stock as per books as on the date of search is Rs. 5,16,078. The balance stock of Rs. 14,11,700 is consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 30 lakhs is included in the block return of Mohd. Yasin in a fair and reasonable manner. If the Department wants to compute income in the individual hand of family members, then corresponding deduction be given in the case of the assessee. Further the total undisclosed income for the block period is offered to tax in the search year, i.e., assessment year 1998- 99 as the rate of tax is same for the entire block period. If the Department computes year-wise income then corresponding deduction be given in the assessment year 1998-99 to that extent." 3. This court while admitting the appeal framed the following substantial questions of law vide order dated March 6, 2002 : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that assessment order passed under section 158BC/143(3) dated August 16, 1999 is not barred by limitation as per Explanation 2 to section 158BE(1)(b) of the Act ? Whether on the facts and in the circumstances of the case, the Tribunal was justified in not allowing deduction under section 80HHC on account of export income from business for the assessment year 1996-97 at Rs. 4,23,073 and for assessment year 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of June, 1995, but before the 1st day of January, 1997 ; and (b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997." 6. The search warrant was issued on May 15, 1997 and search of factory premises concluded on May 16, 1997. However, on the panchnama prepared, a restraint order was passed on August 14, 1997 and again the factory was searched on July 14, 1997, valuation was done and the last panchnama was drawn on August 14, 1997, therefore, it would be valid on August 1, 1997 and limitation started on August 31, 1997. 7. He has taken us to the provisions of section 132(2) and also 158BE and contended that in view of the decision of the Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik reported in [2002] 253 ITR 534 (Bom) wherein it has been held as under (page 540 of 253 ITR) : "Admittedly, only the following officers were authorised to con duct the search. Their names were : 1. Shri K. Ramesh, DDIT (Investigation), Belgaum ; 2. Shri M. L. Karmarkar, ADIT (Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Appellate Tribunal rightly held that the proceedings on October 26, 1996, could not be considered as part of the execution of the search proceedings which concluded on October 20, 1996. Indeed, by simply stating in the panchnama that the search is temporarily suspended, the authorised officer cannot keep the search proceedings in operation by passing a restraint order under section 132(3). Reliance placed by the Department on the judgment of the Allahabad High Court in the case of Sriram Jaiswal v. UOI [1989] 176 ITR 261 (All), was correct. The restraint order in view of this authority cannot be cancelled and renewed from time-to-time. Action under section 132(3) of the Income-tax Act can be resorted to only if there is any practical difficulty in seizing the item which is liable to be seized. When there is no such practical difficulty the officer is left with no other alternative but to seize the item, if he is of the view that it represented undisclosed income. Power under section 132(3) of the Income-tax Act thus cannot be exercised so as to circumvent the provisions of section 132(3) read with section 132(5) of the Income-tax Act. The position has become much more clear aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search, certainly, one requires fresh authorisation ; however, no such authorisation is required to enter the premises to inspect the materials, which are the subject matter of prohibitory order or restraint order. The said order itself acts as an authorisation to enter the premises and inspect the materials, which are the subject matter of those orders. However, after entering the premises of such person, he has to con fine his actions only for inspection of the subject matter of prohibitory order or restraint order. He cannot search the premises over again. Any material seized after such inspection would be the undisclosed income for the purpose of the block assessment in pursuance of search under section 132(1) of the Act. Thus, the panchnama evidencing such inspection and seizure would be the last panchnama in respect of the said premises. But for the purpose of limitation under section 158BE, it would not be the last panchnama drawn in proof of conclusion of search, as defined in Explanation 2 to section 158BE. For the purpose of limitation, there can be only one search and one panchnama. Merely because, more than one panchnama is drawn in the given case on one authorisatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners were unable to give any valid explanation as demanded by the respondents, then the only power which could have been exercised or should have been exercised by the authorised officer was to effect seizure. It could not be said that, because no explanation is being offered by the petitioners, it is impracticable to effect seizure. When no explanation or an unsatisfactory explanation is offered and valuable articles are found at the time of search, then the authorised officer would be fully justified in effecting seizure. Once seizure is effected, the period of limitation starts and an order under sub-section (5) of section 132 has to be passed within the stipulated period. In our opinion, the power under section 132(3) cannot be so exercised as to circumvent the provisions of section 132(1) read with sub- section (5) thereof. When a search is conducted and valuable movable articles are found which are liable for seizure, then they should be seized. Because such seizure was not effected due to their physical characteristics, Parliament thought it necessary to enact the second proviso to section 132(1). Whereas previously due to the weight, volume or physical characteris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exercise was repeated on June 6, 1991. In our opinion, it is not permissible to do so. The orders which are passed under section 132(3) may have a very far-reaching effect on the business of an assessee. The order of restraint may adversely affect the business and, therefore, adequate safeguards are sought to be provided in the Act by the insertion of the provisions of sub-section (8A) in section 132. In order that the restraint order must not be continued indefinitely, sub-section (8A) of section 132 provides that the restraint order can be continued only if, before the expiry of 60 days, and for reasons to be recorded the Commissioner of Income-tax grants an extension. The provisions of sub-section (8A) cannot be by- passed or rendered nugatory by revoking an order under section 132(3) and thereafter passing another order on the same date. On February 11, 1991, an order under section 132(3) has been passed. The 60 days would expire on or about April 10, 1991. If the order under section 132(3) was to be continued, then the Commissioner of Income-tax should have granted approval under sub-section (8A). What was done in the present case was to cancel the order dated February 11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted." 9. Counsel for the respondent Mr. Mehta has taken us to the decision of the Supreme Court in the case of VLS Finance Ltd. v. CIT reported in [2016] 384 ITR 1 (SC) and contended that in view of the recent decision of the Supreme Court, the issue is now decided in favour of the Department. 10. In view of the concurrent finding of the authority, the search was continued and it concluded on August 14, 1997, therefore, the limitation starts from August 31, 1997. 11. Counsel for the assessee Mr. Jhanwar has drawn our specific attention to the paragraphs Nos. 27, 29 and 30 of the Income-tax Appellate Tribunal holding as under : "27. Rival submissions have been heard in the light of the material placed on record. The assessee's wife Smt. Rehmat Bano gave a statement that monthly household expenses of family are Rs. 15,000. She is not merely a Pardanshin lady but is found to have income from business. Contributions have also been claimed by her towards household expenses. Under such circumstances, the statement given by her constitutes information available with the Assessing Officer for the purpose of computation of undisclosed income of the block period of the assessee. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the block period. With this out of the total undisclosed income of Rs. 9,74,650 sustained by the Commissioner of Income-tax (Appeals) only Rs. 2,63,300 is confirmed and balance is directed to be deleted. On the other hand, the learned Departmental representative has opposed the submissions of the assessee and has also filed written submissions. He has relied upon the detailed findings given by the Assessing Officer as well as the Commissioner of Income-tax (Appeals) and contends that the facts mentioned in the order may be considered in detail. The learned Departmental representative also contends that there was sufficient material found as a result of search on the basis of which the Assessing Officer could have made estimation. Reliance has been placed on the decision of Rajendra Pd. Gupta v. CIT 25 Tax World 87 and certain other decisions, referred in the written submissions filed by him. 30. Rival submissions have been heard with reference to the case law relied upon. During the course of search, evidence with respect to expenditure incurred on celebration of marriage of two children namely, Yasmeen, daughter and Arif, son, during the block period has been found re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The Commissioner of Income-tax (Appeals) took note of all such glaring facts for holding that the Assessing Officer has made a bona fide estimate on the basis of seized documents, statements and surrounding circumstances. He has, however, observed that by its very nature estimate may be underestimate or over estimate. The assessee's counsel also has contended that certain expenses viz. on milk, electricity, tent and decoration, list of dowry items etc. have already been considered by the assessee in his estimates. Such a claim does support his plea to some extent that the estimates are excessive we, therefore, keeping in view the totality of the facts and circumstances as brought before us, consider the estimate of expenditure at Rs. 5,50,000 to be reasonable as against the estimates of Rs. 7,00,000 in the marriage of assessee's daughter and Rs. 2,50,000 in the marriage of assessee's son as against Rs. 3,00,000 confirmed by the learned Commissioner of Income-tax (Appeals). The assessee gets a total relief on Rs. 2,00,000." 12. He further contended that in view of the specific averments, the search concluded and therefore, this case is distinguishable in view of the ..... 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