By TIOL News Service

NEW DELHI, DEC 05, 2015: THE issue is - Whether block assessment proceedings have a limitation that assessment can only be done on basis of evidence found as a result of search or requisition of books of account. YES is the answer.

Facts of the case

The Assessee is a Company, engaged in the manufacture and trading of high tensile fasteners. A search and seizure operation was conducted on the Assessee and other group companies. On the basis of the material seized during the search, proceedings were initiated by the issue of notice to the Assessee u/s 158BC of the Act. The Assessee filed its block return declaring 'nil' undisclosed income. For relevant AY, the Assessee had filed a regular return of income which was two months after the search but within the prescribed time. This return was processed u/s 143(1)(a) of the Act. The AO made certain additions in the block assessment order. Assessee filed appeal against those additions. Tribunal deleted the said additions on the ground that the said additions could have been made only in a regular assessment and not in the block assessment proceedings. Aggrieved Revenue filed appeal in the HC.

After hearing parties, HC held that,

++ the principal question is no longer res integra and stands covered against the Revenue in a large number of judgments including CIT v. Ravi Kant Jain (2001) 250 ITR 141 (Del) in which inter alia it was held:"The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to sections 132 and 132A." The said decision has been subsequently followed in CIT v. Jupiter Builders P. Ltd. and CIT v. Bluechip Construction Co. (P) Ltd. 213 CTR 530.

++ factually, the Revenue has not been able to dispute that the additions sought to be made by the AO were not on account of any material unearthed during the search but as a result of enquiry made subsequently. In the circumstances, the Court finds no legal infirmity in the order of the ITAT deleting the additions in question. Consequently, the questions are answered in the affirmative i.e. in favour of the Assessee and against the Revenue.

(See 2015-TIOL-2723-HC-DEL-IT)