THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM vs. SHRI.R.ANIL DAS

Aggrieved by the assessment order, Sri.Raghunathan filed an appeal before CIT (Appeals). The AO was directed by the CIT (Appeals) to re-examine the issue of assessability of the part of income at the hands of Sunil Das, as there was an issue regarding unexplained investment by Sunil Das. CIT (Appeals) had deleted the assessment at the hands of Raghunathan, on the issue of segregation of income of Raghunathan from that of Sunil Das. Another direction was to re-examine the issue of addition on account of credit in the bank account. Order is produced at Annexure-B. Assessment was completed afresh after the proceedings were initiated against Sunil Das, on 28.9.2006 as per Annexure-C.

The assessees were aggrieved and filed -5- appeals before the CIT (Appeals) raising a contention that the AO was not justified in issuing notice under Section 158BC after a period of more than five years, which is not at all a reasonable period, and beyond the scope of Section 158BE(2). Vide Annexure-D order, the CIT (Appeals) held that the order of the AO was void ab initio and cancelled the same.

The Department filed appeal before the Tribunal, and relying on the decision of the Gujarat High Court in (1999) 236 ITR 73 [Khandubhai Vasanji Desai and Ors. V. Deputy Commissioner Of Income Tax], the Tribunal held, vide impugned order at Annexure-E, that block assessments passed against the assessees were barred by limitation.

The Revenue is aggrieved by the impugned order of the Tribunal on the ground that the AO had passed the order pursuant to the direction of CIT (Appeals) and hence, there was no time limit, and that the reasonableness of the time should have been -6- calculated from the date of the order of CIT (Appeals).

We have heard the learned Standing Counsel for the appellant-Revenue as well as the learned Senior Counsel appearing for the assessees.

The question that arises for consideration is whether the order passed by the Assessing Officer (AO) under Section 158BC read with Section 158BD pursuant to the direction of the Commissioner of Income Tax (Appeals) is barred by limitation, and whether the time for completion of assessment should have been calculated from the date of the direction of the appellate authority as alleged?

What has to be borne in mind is that the search under Section 132 of the Act was conducted in the residential and business premises of the assessees on 27.7.1999 and block assessment was on 31.7.2001. Notice under Section 158BC of the Act was issued to the assessees on 24.1.2000 and the assessees filed return of income on 16.2.2001 -7- returning an undisclosed income of Rs.18,52,611/- for the block period. On challenging the order at Annexure-A dated 31.7.2001 before the CIT (Appeals), vide Annexure-B dated 27.2.2004, there was a remand, consequent to which notice was issued under Section 158BD on 27.9.2004 and block assessment completed on 2.2.2007. 10. The contention of the assessees is that there was a delay of more than three years after issuance of notice under Section 158BD and for completion of block assessment, there was a delay of seven years from the date of search. The argument of the learned Senior Counsel for the assessees is that since notices were issued after three years, they are barred by limitation.

In defence, the learned Standing Counsel for the Revenue submits that no time limit is prescribed for notice under Section 158BD in respect of a person other than searched person. The block assessment in respect of M.Raghunathan, under -8- Section 158BC was completed on 31.7.2001, who was the father of the present assessees, who had filed appeal at the first instance, which resulted in the matter being re-considered.

It is true that there is no time limit fixed for issuance of notice under Section 158BD of the Act in respect of persons other than searched. But, the Tribunal was right in observing that it would not mean that the proceedings could be delayed unreasonably. Involvement of the sons of Raghunathan was already found by the AO, as is evident from Annexure-A order and it is on that basis that the first appellate authority had, at the first instance, vide Annexure-B order cancelled the assessment with a direction. It was, therefore, essential that the AO should have taken the proceedings under Section 158BD within a reasonable time, and a period of three years for issuance of notice and seven years for completing block assessment is definitely not a reasonable time. We -9- find, absolutely, no illegality in the order of the Tribunal. The question of law is answered in favour of the assessees, and the appeals, accordingly, are dismissed. No order as to costs. K.VINOD CHANDRAN JUDGE ASHOK MENON JUDGE jg -10-