Skip to content


Assistant Commissioner of Income Vs. White and White Mineral (P) Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Jodhpur
Decided On
Judge
Reported in(2008)114TTJ(Jodh.)405
AppellantAssistant Commissioner of Income
RespondentWhite and White Mineral (P) Ltd.
Excerpt:
.....it is averred by the learned authorised representative that in order to extend the time-limit of search, a prohibitory order under section 132(3) was again clamped on 21st dec., 2002 in relation to the same office room from which prohibition was lifted/revoked on 3rd jan., 2003 at 5:05 pm. on the contrary, the contention of the department is that as per law and in view of the special bench decision of the hon'ble bangalore bench in the ease of c. ramaiah reddy v. assll cit , the 'last panchnama' means an includes even the panchnama drawn to lift the prohibitory order. the learned departmental representative has also placed reliance on the observations of the learned cit(a) made in this regard.6. we have heard rival submissions and have perused the available materials on record,.....
Judgment:
1. These are cross-appeals arising out of the Order of the learned CIT(A) dt. 28th Nov., 2005 in relation to block assessment Order dt.

31st Jan., 2005 passed Under Section 158BC r/w Section 143(3) of the IT Act, 1961 (hereinafter referred to as 'the Act' for short).

2. Briefly stated, the facts of this case are that a search and seizure operation was conducted on 20th Dec, 2002 at the factory premises of M/s White & White Minerals (P) Ltd., Borunda, Jodhpur Under Section 132(1) of the Act. Simultaneously, a survey Under Section 133A of the Act was also covered at M/s White & White Minerals (P) Ltd., Jodhpur Tower at Jodhpur. The search and seizure operation at the factory premises situated at Borunda started on 20th Dec., 2002. During the course of search, inventory of stock was prepared after physical verification. Statements of the employees were recorded and the books of accounts found were seized as per the inventory. A cash amount of Rs. 1,46,000 was also found out of which Rs. 1,40,000 was seized. A notice Under Section 158BC was issued to the assessee on 31st March.

2003 for filing the return for the block within 35 days of the service of the notice and the same was further extended by 10 days on the application of the assessee. The return of income for the block period in Form No. 2B was finally filed on 1st Dec., 2004 declaring income of Rs. 2,00,000. The assessee derives income from manufacturing of Chuna, hydrated lime and Kali from limestone. The assessment was completed in this case on 31st Jan., 2005. The grounds raised by the assessee are reproduced herein as under: 1. The impugned Order passed by the learned CIT(A) is contrary to the provisions of law and against all cannons of natural justice and is also contrary to facts, material and evidence existing on records so far as it relates to the various grounds of appeal, which have been decided against the appellant.

2. The learned CIT (A) has erred in not accepting the assessee's contention that the assessment for block period made by the AO Under Section 158BC/143(3) is clearly barred by limitation of time. The learned CIT (A) ought to have annulled the impugned assessment as barred by limitation of time. The learned CIT (A) has failed to properly consider the elaborate submissions made before him including the written submissions dt. 26/27th Sept., 2005 and 12th Oct., 2005. The rejection of the assessee's claim that the impugned assessment is barred by limitation of time is clearly contrary to the provisions of law, facts, material and evidence existing on records and is also against the principles of law laid down in various cases. The learned CIT (A) ought to have held that the impugned assessment is barred by limitation of time, void and wholly without jurisdiction.

3. The learned CIT(A) has erred in not annulling the impugned assessment made by the AO Under Section 158BC/143(3), as the proceedings of search and seizure conducted Under Section 132 and the subsequent proceedings conducted Under Section 158BC were patently invalid, without jurisdiction and not in conformity with the relevant provisions of law.

4. The learned CIT(A) has erred in confirming an addition of Rs. 50,80,000 made by the AO as alleged unexplained investment under Section 69 of the IT Act, 1961. The aforesaid addition is patently illegal and is contrary to all cannons of natural justice. The said addition is also clearly contrary to the facts and material gathered during the course of search and during post-search investigation existing on records.

4(a) The learned CIT(A) has erred inconfirming the aforesaid addition of Rs. 50,80,000 by arbitrarily rejecting the assessee's explanations. which clearly prove that the said sum of Rs. 50,80,000 represented share capital of Lakhotia Group in the appellant company and the same fully tallies with the relevant seized records and books of accounts maintained in the seized computers. The learned CIT(A) has completely ignored such vital and significant facts verifiable from seized records, which were specifically brought to his notice in the written submissions dt. 12th Oct., 2005 and 27th Sept., 2005.

4(b) The learned CIT(A) on p. 25 of his Order has inter alia observed that the judgement of Hon'ble Supreme Court in the case of CIT v. Steller Investment Ltd. is not a binding precedent, as the said judgment did not lay down any proposition of law and was rendered without noticing the fact that judgement of Delhi High Court in the case of CIT v. Steller Investment Ltd. was overruled by Full Bench decision of Delhi High Such observations by the learned CIT(A) are contrary to the constitutional provisions, which clearly provide that the judgement of Hon'ble apex Court will be binding on all the subordinate Courts.

It will also be imperative to state that the Hon'ble Rajasthan High Court in the case of Barkha Synthetics Ltd. v. Asstt. CIT (2005) 197 CTR (Raj) 432 after making into consideration, the judgement of Full Bench of Delhi High Court in the case of CIT v. Steller Investment Ltd. (supra) has held that addition in respect of investment of directors/shareholders in share application money/share capital cannot be made in the hands of the company by following the judgement of Hon'ble Supreme Court in the case CIT v. Steller Investment Ltd. (supra). The facts and material existing in the case of the appellant, as revealed from the seized records, as well as from the findings given by the learned CIT(A) prove that the amount of Rs. 50,80,000 represents the investment made by Lakhotia Group towards share capital/share application money in the appellant company. The addition of Rs. 50,80,000 is even contrary to the principles of law laid down by the Hon'ble Full Bench of Delhi High Court in the case of Steller Investment (supra), as the identity and capacity of Lakhotia Group is well known and has not been disputed by the AO and the learned CIT(A). The learned CIT(A) ought to have deleted the impugned addition of Rs. 50,80,000, as the same is apparently invalid, arbitrary and most unjustified.

4(c) The addition of Rs. 50,80,000 made in the case of appellant company is patently invalid, as the same has been made on the basis of seized papers marked as Annex A2 (pp. 1 to 29) seized from the bedroom of Shri Om Prakash Lakhotia brother of the two directors of the appellant company, Shri Suresh Kumar and Shri Ratan Lakhotia and the relevant contents of the seized documents relate to the amount of share capital/share application money invested by persons of Lakhotia Group, as is completely supported and self-evident from the seized records itself. The impugned amount of addition in question, if warranted, could be considered only in the hands of persons belonging to Lakhotia Group and not in the hands of the appellant company. The addition of Rs. 50,80,000 is patently invalid, unjust and extremely arbitrary.

4(d) The addition of Rs. 50,80,000 being the amount of investment by Lakhotia Group in the share capital of the appellant company is grossly arbitrary and patently illegal, as the aforesaid addition was made by the AO without providing any opportunity whatsoever to the appellant. The fact that no show-cause notice was issued by the AO before making the aforesaid addition has been admitted by the AO in his remand report dt. 23rd Nov., 2005 submitted before the learned CIT(A). The huge addition of Rs. 50,80,000 made by the AO in apparent and deliberate disregard of the principles of natural justice and the provisions of law contained in IT Act is patently void and the same ought to have been deleted on account of breach of the provisions of law and principles of natural justice.

4(e) That the learned CIT(A) ought to have deleted the aforesaid addition of Rs. 50,80,000 made Under Section 69 of IT Act, 1961 also on account of the fact that the appellant company has made no investment and therefore, the question of making any addition on account of alleged unexplained investment which falls within the ambit of Section 69 does not arise. No such addition can be validly made under Section 69 or under any other provision of IT Act, 1961, in the hands of the appellant company.

4(f) That on the facts and circumstances of the appellant's case including the facts stated in written submissions submitted before the learned CIT(A), the impugned addition of Rs. 50,80,000 ought to have been deleted by the learned CIT(A).

5. The learned CIT(A) has erred in confirming the addition of Rs. 2,60,349 out of addition of Rs. 6,37,964 made by the AO on account of alleged excess stock of hydrated lime found during the course of search. The aforesaid addition is contrary to the provisions of law, facts, material and evidence existing on records and has been erroneously confirmed by the learned CIT(A) without properly appreciating the explanations submitted on behalf of the appellant before the AO as well as before him.

6. The learned CIT(A) has erred in confirming an addition of Rs. 72,765 on account of alleged excess stock of quick lime allegedly found during the course of search. The aforesaid addition is contrary to the provisions of law, facts, material and evidence existing on records and has been erroneously confirmed by the learned CIT(A) without properly appreciating the explanations submitted on behalf of the appellant before the AO as well as before him.

7. The learned CIT(A) has erred in confirming the addition of Rs. 8,000 out of addition of Rs. 1,33,000 made by the AO on account of alleged excess stock in work-in-progress allegedly found during the course of search. The aforesaid addition is contrary to the provisions of law, facts, material and evidence existing on records and has been erroneously confirmed by the learned CIT(A) without properly appreciating the explanations submitted on behalf of the appellant before the AO as well as before him.

8. The learned CIT(A) and the AO have erred in making several erroneous hypothetical presumptions and assumptions while making the addition on account of alleged unexplained difference in stocks found during the course of search. Such conclusions have been arrived at without properly considering the facts existing on records, letter and affidavits submitted before the AO and the detailed written submission submitted before the learned CIT(A). The entire additions referred in ground Nos. 5, 6 and 7 ought to have been wholly deleted by the learned CIT(A).

9. That the learned CIT(A) ought to have deleted the entire amount of interest charged Under Section 158BFA(1) of the Act, 1961.

The learned CIT(A) has erred in holding that the account maintained by Shri S.N. Pediwal as per p. 71 of Annex. A2-13 is forming part of amount transferred from head office of M/s White & White Minerals (P) Ltd., Jodhpur to factory premises at Borunda irrespective of the fact that the reciprocal figures do not match and the amounts transferred from head office are recorded in the books maintained at Borunda independently under the head office account without mention of Shri S.N. Pediwal.

4. From the memorandum of grounds it is apparent that the legal ground raised challenges the very initiation of action Under Section 158BC on the ground that it is time-barred as per the provisions of Section 158BE(1) of the Act. In this regard, ground Nos. (1), (2) and (3) of assessee's appeal are relevant. These being very important grounds, which go to the very root of the matter, we are proceeding to decide the same first of all.

5. The contention of the assessee is that the assessment framed for the block period in question is clearly barred by limitation. The further submission of the assessee is that the learned CIT(A) has failed to properly consider the elaborate submission made before him including the written submission dt. 27th Jan., 2005 and also of 12th Oct., 2005.

According to learned Authorised Representative the assessment made on 31st Jan., 2005 is clearly barred by limitation Under Section 158BE, as the time from which the starting point of limitation has to be reckoned is the time of valid Panchnama drawn by such party. According to learned Authorised Representative the valid Panchnama is that Panchnama which was drawn on 21st Dec, 2002 on which date the search was actually concluded. It is averred by the learned Authorised Representative that in Order to extend the time-limit of search, a prohibitory Order Under Section 132(3) was again clamped on 21st Dec., 2002 in relation to the same office room from which prohibition was lifted/revoked on 3rd Jan., 2003 at 5:05 PM. On the contrary, the contention of the Department is that as per law and in view of the Special Bench decision of the Hon'ble Bangalore Bench in the ease of C. Ramaiah Reddy v. Assll CIT , the 'last Panchnama' means an includes even the Panchnama drawn to lift the prohibitory Order. The learned Departmental Representative has also placed reliance on the observations of the learned CIT(A) made in this regard.

6. We have heard rival submissions and have perused the available materials on record, carefully.

7. The learned Departmental Representative Shri K.R. Meghwal has strongly contended that the issue in question stands clearly covered by the Special Bench's decision rendered in the case of C. Ramaiah Reddy (supra). At the same time, it was also stated that in any other case this issue was being considered again to be referred for Special Bench.

On the other hand, the learned Authorised Representative Shri Amit Kothari also relied on the above-mentioned Special Bench's decisions and in addition to that he has also filed a copies of a Orders of the Hon'ble Delhi Benches given in the case S.K. Katyal through L/H Mrs.

Ranjana Katyal v. Dy. CIT. Tribunal Delhi 'G' Bench, reported in (2007) 111 TTJ (Del) 8.

8. After considering the rival submissions, we are of the considered opinion that when both the parties have placed reliance on the Special Bench decision referred to above, there is no point in referring the same issue again for the constitution of a Special Bench. We have gone through the Orders relied before us. In this case the question of more than one authorisation is not involved. There is only one authorisation of search in this assessee's case and the issue simpliciter is regarding computation of limitation from the last valid Panchnama. The Delhi Bench decision has placed reliance on various other decisions of the Hon'ble High Courts including the case of B.K. Nowlakha v. Union of India , Mahesh Kumar Agarwal v. Dy. Director of ITCIT v. Mrs. Sandhya P. Naik . In all these cases the legal proposition has been laid down that the restraint Order not amounting to seizure cannot be taken into account for calculating period of limitation for framing an assessment. When various other Hon'ble High Court's decisions were also available in the Special Bench decisions and there is no contrary decision of Hon'ble jurisdictional High Court, we have to decide this issue as per available precedents. A Special Bench decision cannot overrule a High Court decision. Be that as it may, the undeniable facts of this issue are that the search was initiated in this case on 20th Dec, 2002. The block assessment Order was passed on 31st Jan., 2005.

The books of accounts and cash found during search were inventorised on 20th Dec, 2002. The office room situated near the main gate of the factory premises in which documents, loose papers and books of accounts were lying was put under prohibitory Order Under Section 132(3) of the Act on 21st Dec., 2002. The requisite investigation regarding stock of goods as per Annex. G was taken. However, this room was again put under prohibitory Order and was released on 3rd Jan., 2003 at 5:05 PM within 10 minutes without making any seizure, verification etc. The lifting of prohibitory Order on 3rd Jan., 2003 was merely a formality completed by the Asstt. Director of IT within 10 minutes. Now the dispute is with regard to fact: that what is the legal consequence of lifting of prohibitory Order on 3rd Jan., 2003. Whether it is to be considered as the last Panchnama drawn in the case as has been referred to in Section 158BC or it is to be taken as a mere formal action, which cannot be reckoned with for limitation purposes. If it is found that merely lifting of prohibitory Order without making any seizure is not a valid Panchnama then this assessment Order in question has to be held as barred by limitation because in that case the search has to be treated as finally concluded on 21st Dec., 2002 and the limitation would start on 31st Dec., 2004. To the contrary, if the lifting of prohibitory Order on 3rd Jan., 2003 is taken to be a valid 'last Panchnama' the limitation would obviously expire on 31st Jan., 2005. Therefore, the assessment Order has to be held within limitation.

9. In this case, search proceedings were initiated on 20th Dec., 2004.

The record of the assessee was collected in a room and prohibitory Order was issued Under Section 132(3) of the Act. This prohibitory Order was revoked on 3rd Jan., 2003 and a Panchnama was drawn on the same day. The provisions of Section 158BE(b) deal with the limitation provided for block assessments and read as under: (b) The Order of 158BC shall be passed within two years from the end of the month in which the last of the authorizations for search Under Section 132 or for requisition Under Section 132A, as the case may be, was executed in cases where a search is initiated or books of accounts or other documents or any assets are requisitioned on or after the 1st day of January, 1997. "The plain reading of the above Section shows that a block assessment Order Under Section 158BC has to be passed within two years from the end of the month in which the last of the authorisations of search Under Section 132 was executed in cases where search was initiated after first day of January, 1997.

10. According to learned Departmental Representative the time-limit of the completion of assessment Order started on 31st Jan., 2003 and ended on 31st Jan., 2005. As per learned Authorised Representative these dates are 31st Dec., 2002 and 31st Dec., 2004, respectively.

Undeniably, the search at the factory premises of the assessee company was conducted on 20th Dec., 2002 at 8:30 AM and was concluded on 20th Dec., 2002 at 8:15 PM. Subsequently, a prohibitory Order Under Section 132(3) was clamped in the office room situated near the main gate of the factory premises in which documents, loose papers and books of accounts were lying. On the next day, i.e., 21st Dec., 2002 again search proceedings were resumed at 3:15 PM which were concluded on the same day. Subsequently, on the same day in the presence of one Shri Om Prakash Sharma director of the assessee company, this prohibitory Order was released on 3rd Jan., 2003 by drawing a Panchnama. According to learned Departmental Representative the search party verified the books of accounts, loose papers, documents and thereafter did not consider it fit to seize them, and thus as per Section 158BE(1)(b), the block assessment Order can be passed within two years from the end of the month in which the last authorisation for search was executed which is on 3rd Jan., 2003. We may observe that there is no dispute within the parties with regard to the validity of the Panchnama insofar as their executing like presence of witness etc. is concerned. The only question to be decided by us, in view of these facts, is whether the last Panchnama drawn for lifting the prohibitory Order on 3rd Jan., 2003 without seizing any material, can be treated as the last valid Panchnama which has been referred to in the Section 158BE(1)(b) of the Act. First of all, we would examine the ratio of Hon'ble Special Bench in the case of C. Ramaiah Reddy (supra). In this case, the phrase 'last Panchnama' has, been held to mean a Panchnama drawn while executing an authorization Under Section 132. Nobody can dispute this proposition of law, We also accept the same. It is also correct that only when the search is concluded, a notice Under Section 158BC(a) can be issued to the assessee. It has been further held in the above case that search is deemed to be continuing so long as the materials and valuable are either not seized or released. The Hon'ble Special Bench has further observed that even at the time of the conclusion of search an Order Under Section 132(3) can be passed which in certain circumstances as per Section 132(8A) may operate even after completion of assessment.

Learned Departmental Representative interprets this finding in Revenue's favour whereas the learned Authorised Representative interprets this finding in assessee's favour.

11. We are of the considered opinion that if the legislature intended to treat the Order Under Section 132(3) r/w Section 132(5) of the Act, it would have clearly spelt out that even the Panchnama drawn for formally withdrawing the prohibitory Order would be treated as a valid Panchnama for limitation purposes. It is a fact that during search none of the documents, loose papers and books of accounts lying under the prohibitory Order was seized. No statement of the director Shri Hari Prasad, who was present at the time. Lifting of prohibitory Order on 3rd Jan., 2003 was merely a formality completed by the Asstt. Director of IT within 10 minutes. Hence, there is neither search nor any seizure on 3rd Jan., 2003. So, in our considered opinion the Panchnama dt. 3rd Jan., 2003 cannot be treated as the execution of the authorisation for search Under Section 132 of the Act. The learned Authorised Representative has correctly pointed out that the AO at the time of framing Order Under Section 271(1)(c) (sic) of the Act on 24th Nov., 2004 for levying penalty has mentioned "the assessee has not filed return for the block period till date though the proceedings are getting barred by limitation on 31st Dec., 2004". A copy of this has been placed before us.The Hon'ble Tribunal Vishakapatnam Bench in the case of M. Sivaramakrishnaiah and Co. v. Asstt. CIT (2005) 93 TTJ (Vishakha) 1035 has held that Panchnama prepared for lifting the prohibitory Order Under Section 132(3), simpliciter, cannot extend limitation Under Section 158BE. Recently, the Hon'ble Delhi High Court in the case of Shri S.K. Katyal (supra) has held that restraint Order not amounting to seizure cannot be taken into account for calculating period of limitation for framing an assessment. The restraint Order cannot extend the period of limitation. In that case jewellery was put under restraint and was released vide Order DT. 3rd Jan., 2001 and the Panchnama drawn to lift prohibition on that date was not treated as valid execution of the Panchnama. In yet another decision of Hon'ble Tribunal Bombay in the case of Dy. CIT v. Adolf Patric Pinto (2006) 101 TTJ (Mumbai) 1086 : (2006) 100 ITD 191 (Mumbai) it was held even after considering the Special Bench decision of C. Ramaiah Reddy (supra), that time-limit prescribed in Section 158BE will commence once all materials and valuables which were found during search are appraised and search comes to an end regardless of the fact that the prohibitory Order Under Section 132(3) continues. In this case it is evident from the records that the prohibitory Order was clamped at the office premises Under Section 132(3) on 20th Dec., 2002 which was revoked after examining the papers lying in the said office room on 21st Dec., 2002. Again, prohibitory Order Under Section 132(3) was clamped on 21st Dec., 2002 after examining all the papers before putting them in the same room. The search had thus virtually been concluded on 21st Dec., 2002 and the same could not be prolonged further without any justifiable reason. The AO has not given any reason to say that it was not practicable to seize the documents lying in the said office room where prohibitory Orders were clamped on 20th Dec., 2002 and 21st Dec., 2002. On 21st Dec., 2003 nothing was found and seized by the authorised officer but only the prohibitory Order was lifted. In yet another case of the Hon'ble Visakhapatnam Bench in the case of M. Shivramakrishnaiah & Company (supra), it is clearly held that if the purpose of Panchnama dt. 8th Dec., 1998 was only to lift the prohibitory Order this could not be taken as a Panchnama in execution of search. In yet another case the Hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P.Naik (supra) have affirmed the above propositions of the law. Their Lordships have mentioned that the power Under Section 132(3) of the Act cannot be exercised so as to circumvent the provisions of Section 132(3) r/w Section 132(5) of the Act. This position has become much more clear after the insertion of the Explanation to Section 132(3) effective from 1st July, 1995 that a restraint Order does not amount to seizure. Therefore, by passing a restraint Order, the time-limit available for framing of the Order cannot be extended. Hence, in view of our foregoing discussions, we are of the considered opinion that the assessment Order in question is patently time-barred and has to be struck down as illegal. As a result, we quash the impugned assessment Order and decide the legal issue in the favour of the assessee.

Consequently, there is no need to decide other grounds raised by the parties in their respective appeals, on merits of the cases.

14. In the result, the appeal of the assessee is allowed in part on legal issue in terms indicated hereinabove. The grounds taken by the Revenue remain only academic in nature. The grounds on merit in both the appeals now become.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //