The Judgment of the Court was delivered by

Elipe Dharma Rao, J.:— The appellant, Ramaiah, is carrying on real estate business as a property developer in the name of M/s. Barath Building Constructions. He is also the managing director of M/s. BBC Associates Ltd. On March 15, 1996, a search action under section 132 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was conducted in the premises of M/s. Petro Plast group of companies controlled by three brothers, Anand Agarwal, Raju Agarwal and Omprakash Agarwal. According to the Revenue, during the course of the said search, certain incriminating documents were found relating to transactions of the above group with M/s. BBC Associates, the managing director of which is the appellant herein and, hence, the business premises of M/s. BBC Associates Ltd. at No. 23/1, Mylai Ranganathan Street, T. Nagar, Chennai, and the residential premises of the assessee, V. Ramaiah, and his family at No. 15, Neelakanta Mehta Street, T. Nagar, Chennai, were also subjected to search under section 132 on the same date, viz., March 15, 1996. According to the Department, the authorised officer seized four receipts for a value of Rs. 1.10 crores and 18 blank agreements signed by the assessee, proprietor of M/s. Barath Building Constructions (in short BBC) and the managing director of M/s. BBC Associates Ltd. during the search. The assessee had filed his returns of income, in his individual status, for the assessment years 1987-88 to 1996-97 and also block returns for the period 1986-87 to 1996-97. According to the Department, there are four unaccounted cash receipts issued by the appellant, V. Ramaiah, to four persons, totalling to Rs. 4,34,000; undisclosed payment made by him for one Prabhat Talkies to the extent of Rs. 1,61,843; unaccounted investment in shares in benami names to the tune of Rs. 4,13,000; unaccounted receipts to the tune of Rs. 1,60,00,000; unexplained cash credit of Rs. 4,50,00,000 and other unexplained cash credits to the tune of Rs. 87,84,107. The said amounts were arrived at as “undisclosed income” for the block period 1986-87 to 1996-97 and tax on the said undisclosed income at 60 per cent, was calculated at Rs. 4,24,75,770. The total undisclosed income for the aforesaid assessment years was arrived at Rs. 7,07,92,950 and the tax on the said sum was arrived at Rs. 4,24,75,770. Aggrieved, the assessee preferred an appeal before Income-tax Appellate Tribunal challenging the additions and also challenged the correctness of framing an order under section 158BC, on various grounds. Income-tax Appellate Tribunal, by its order in IT (SS) A. No. 157.MDS/1997, dated May 9, 2001, remanded the contested issues to the Assessing Officer for reconsideration with a direction to:

(a) enquire into the receipts given by the assessee as they are said to have been given in relation to the transaction of the immovable properties;

(b) provide a copy of statement of Shri Anand Agarwal and allow the assessee to examine/cross-examine Shri Anand Agarwal, as the assessee has claimed that no opportunity was given to him for cross examination;

(c) consider fresh material produced before the Tribunal in respect of cash credit; and

(d) consider objections raised by the assessee with regard to validity of proceedings and jurisdiction of the Assessing Officer.

2. Consequent upon the directions of the Tribunal, the matter was reheard by the Assessing Officer and passed an order on March 31, 2003, against which the assessee again preferred an appeal before the Income-tax Appellate Tribunal challenging the additions by raising the following objections:

“(i) The Assessing Officer has not given adequate opportunity of hearing, violating the principles of natural justice and failed to adhere to the directions given by the Tribunal and the Assessing Officer took up the fresh assessment proceedings after a long spell of time after the receipt of the order of the Tribunal, leaving proper opportunity or time for furnishing further details with a view to comply with the directions of the Tribunal.

(ii) The Assessing Officer is not justified in making addition as part of undisclosed income in relation to (a) unaccounted receipts from Mr. Anand Agarwal to the tune of Rs. 1,10,00,000; (b) unaccounted credit in the name of the late Mr. S.M Pandiyan to the tune of Rs. 3 crores; (c) unexplained credit in the name of M/s. Nikki Enterprises to the tune of Rs. 1,48,00,000 and other unexplained credits to the tune of Rs. 11,14,300, thus totalling to Rs. 5,69,14,300.

(iii) The Assessing Officer erred in levying interest under section 220(2) of the Income-tax Act to the tune of Rs. 3.36 crores as the assessee was deemed to be in default.

(iv) The learned Assessing Officer erred in omitting to follow the procedure laid down under section 158BB of the Act by erroneously making the combined assessment order on BBC Associates Ltd. against whom warrant of authorisation was issued under section 132 of the Act as well as the appellant and other persons against whom no warrant of authorisation under section 132 of the Act was issued and no assessment is made under section 158BD as required by law as the warrant of search was issued only in the name of Shri Anand Agarwal and the search at the place of the assessee is consequential.

(v) The learned Assessing Officer erred in making an assessment on the appellant in terms of section 158BC as the officer has no jurisdiction over the appellant.

(vi) The learned Assessing Officer who made the assessment for the block assessment on the appellant and M/s. BBC Associates Ltd. ought to have transferred and handed over the seized material relating to the appellant to the Assessing Officer having jurisdiction over the appellant and the Assessing Officer having jurisdiction over the appellant has to make and complete the assessment for the block period on the appellant.

(vii) In any event, the proceedings for levy and collection of tax on the undisclosed income as per the assessment order in appeal is legally invalid having regard to the provisions contained in section 158BD.

(viii) Even the assessment under section 158BC is invalid as the date of search was on March 15, 1996, and the assessment ought to have been completed on or before March 31, 1997, and the assessment is time barred as per section 158BE(1)(a) as assessment was concluded on June 30, 1997.

(ix) No addition could be made under section 68 in respect of the cash credits in the block assessment as the same could be done only in the regular assessment under section 143(3)/144 of the Act.”

3. The Tribunal, after hearing both the parties, rejected the appeal of the assessee in all aspects, except with regard to the interest charged under section 220(2) by holding that:

“In the present case, the Assessing Officer has charged interest under section 220(2) from the date of original demand notice issued along with the assessment order dated June 30, 1997. The original assessment order passed on June 30, 1997, was scrapped or set aside to the file of the Assessing Officer by the Tribunal, vide order dated May 9, 2001, to re-do the assessment afresh, after taking into consideration fresh evidence. As such, there was no demand in force ab initio as a result of direction by the Tribunal (supra). The demand came into existence only with the assessment order dated March 31, 2003. As such, only after issue of fresh demand notice under section 156, the Revenue is entitled to charge interest under section 220(2) of the Act, after giving specified time as envisaged under section 156. In view of this position, we direct the Assessing Officer to recompute the interest under section 220(2) as discussed above. Accordingly, all the grounds excepting concerning charging of interest under section 220(2) of the Income-tax Act are hereby rejected.”

The aforesaid order is under challenge before this court at the instance of the assessee.

4. This court has admitted this tax case appeal on the following substantial questions of law for consideration:

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the block assessment made on the appellant under section 158BC of the Income-tax Act, 1961, is valid in law and in accordance with the provisions of Chapter XIV-B of the Act?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that even without a search warrant under section 132 of the Income-tax Act against the appellant the block assessment under section 158BC without invoking section 158BD is valid and sustainable?

3. Is the Income-tax Appellate Tribunal correct in law in taking the view that the failure to issue notice under section 158BD of the Act to the appellant is only an irregularity in the assessment and not a nullity of the block assessment?

4. Is the Income-tax Appellate Tribunal justified in invoking the provisions of section 292B of the Act to cure the defect in not issuing notice to the appellant under section 158BD of the Income-tax Act and hence the block assessment on the appellant under section 158BC is legal and valid in law?

5. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the block assessment made on the appellant is not time barred under section 158BE(1)(a) of the Income-tax Act?

6. Whether the Appellate Tribunal is correct in law in holding that addition under section 68 of the Income-tax Act in respect of the cash credits can be made in the block assessment made under Chapter XIV-B of the Income-tax Act?

7. Whether the Appellate Tribunal is correct and had valid materials and evidence in upholding the additions to the extent of Rs. 5,69,14,300 in the block assessment?”

5. We heard at length the erudite arguments of Mr. Firoze B. Andhyarujina, the learned senior counsel appearing for the appellant-assessee who has taken us through the entire materials placed on record with relevant case law on the subject. We also heard the learned standing counsel appearing for the Revenue at length on all the issues.

Substantial questions of law Nos. 1 to 5

6. The substantial questions Nos. 1 to 5 revolve around section 158B of the Act and those being legal issues are dealt with together.

7. Chapter XIV-B of the Income-tax Act, 1961, deals with the “Special procedure for assessment of search cases”. Under section 158B(b), ‘undisclosed income’ is defined in the following words.

“‘undisclosed income’ includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.”

8. As per section 158BA, when a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XTV-B. Since strong reliance has been placed on sections 158BC, 158BD and 158BE by either side, for better appreciation, they are extracted hereunder:

“158BC. Procedure for block assessment.— Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,—

(a) the Assessing Officer shall—

(i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;

(ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days.

as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142, setting forth his total income including the undisclosed income for the block period:

Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter:

Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;

(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, apply;

(c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;

(d) the assets seized under section 132 or requisitioned under section 132A shall be dealt with in accordance with the provisions of section 132B.

158BD. Undisclosed income of any other person.— Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly.

158BE. Time limit for completion of block assessment.— (1) The order under section 158BC shall be passed,—

(a) within one year from the end of the month in which the last of the authorisations 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 account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997;

(b) within two years from the end of the month in which the last of the authorisations 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 account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.

(2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be—

(a) one year 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 requisitioned after the 30th 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 the 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.

Explanation 1.— omitted as not necessary

Explanation 2.— For the removal of doubts, it is hereby declared that the authorisation referred to in sub-section (1) shall be deemed to have been executed,—

(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;

(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.”

9. So far as substantial questions of law Nos. 1 to 5 are concerned, learned senior counsel appearing for the assessee contended as follows:

(i) The Assessing Officer has committed error by making an assessment in terms of section 158BC as the officer has no jurisdiction over the appellant. In this context, he has contended that the Assessing Officer who made the assessment on the appellant ought to have transferred and handed over the seized material relating to the appellant to the Assessing Officer having jurisdiction over the appellant and the order of assessment made by the officer having no jurisdiction is bad in law and liable to be interfered with.

(ii) When no notice was issued under section 158BD, the assessment officer cannot proceed on the particular person.

(iii) When search was made in respect of Petro Plast group of companies, M/s. BBC Associates Ltd. and Bharat Building Construction, the assessee could not be proceeded against under section 158BC and even assuming for a moment that there was any undisclosed income, at the most, the Assessing Officer could only proceed under section 158BD and not under section 158BC and, therefore, the block assessment made on the appellant is a nullity and non est in law.

10. As per section 158BC of the Income-tax Act, when any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A after issue of relevant notice, the Assessing Officer shall complete the assessment as per the requirements of the provisions of Chapter XIV-B of the Income-tax Act. Section 158BD contemplates that when an Assessing Officer is satisfied that any undisclosed income belongs to any person, “other than the person” with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the said books of account should be handed over to the Assessing Officer having jurisdiction over such other person and the concerned Assessing Officer shall proceed against such other person. Therefore, one has to go by the execution of the warrant under section 132 to decide as to whether the block assessment has to be completed under section 158BC or under section 158BD of the Act.

11. In the present case, two search warrants dated March 15, 1996, have been issued. First one in the name of M/s. Petro Plast group of companies, Anand Agarwal and Om Prakash Agarwal at No. 23/2, Mylai Ranganathan Street, T. Nagar, Chennai. The second warrant was issued for the search of the premises at No. 15, Neelakanta Mehta Street, T. Nagar, Chennai-17. Admittedly, no search warrant was issued in the name of the present assessee, Mr. Ramaiah. First warrant was issued in the name of a company and the second one was issued without any name, but there was only mention about the address where the assessee was carrying on business under the name and style of M/s. BBC Associates Ltd. and Bharat Building Construction. When there was no search warrant in the name of the appellant, Ramaiah, whether the procedure contemplated under section 158BC has to be followed or section 158BD has to be proceeded is the question to be decided.

12. According to the Department, though the name of the appellant was not found in the search warrant, he being the managing director of M/s. BBC Associates and the proprietor of M/s. Bharat Building Construction, which are located in the address mentioned in the authorisation of warrant, there is nothing wrong in following the procedure contemplated under section 158BC.

13. It is not in dispute that the first search warrant was issued for searching the business place of M/s. Petro Plast group of companies, of which Anand Agarwal and Om Prakash Agarwal are the managing partners. During the search made in the aforesaid business place, after coming to know that there are incriminating materials, i.e, four receipts in the name of the present appellant for a sum of about Rs. 1.10 crores, the authorities proceeded to search the business place of the appellant on the same day. It is not as if the authorities have obtained search warrant in the name of the appellant or its proprietary concern or BBC Associates and on search they found the receipts in the name of the assessee. When the search of the business place of the appellant is a consequential one, i.e, after the search of M/s. Petro Plast group of companies, we are not in a position to understand as to how section 158BC would be applicable to the present case since the appellant, at best, can be called only as “other person”. It would have been entirely a new issue had no name was found in the search warrant but only address was found. As stated above, for invoking the provisions of section 158BC or section 158BD, one has to go with the execution of the search warrant. When the search warrant made on the business place of the appellant was a consequential one and when the appellant was made liable to addition in view of the documents (4 receipts) found in the place where the first search took place, in our considered view, invocation of the provisions of section 158BC instead of section 158BD is illegal since the appellant is a “person other than the person with respect to whom search was conducted”.

14. This issue can be looked into from another angle. The authorities decided to search M/s. Petro Plast group of companies, the business place of M/s. Anand Agarwal and Om Prakash Agarwal. During the search the authorities have found and seized 18 blank agreements along with four receipts signed by the assessee in his letter-head, for a sum of about Rs. 1.10 crores. After seizure of such receipts, the authorities proceeded to the business place of the appellant (it is to be noted that neither the name of the appellant nor his concern find a place in the search warrant) and “found” some undisclosed income of the assessee. Though the Tribunal, in its judgment, has accepted that no warrant was issued in the individual name of the appellant, without assigning any reason to justify the action of the Revenue in taking to task the appellant, has simply come to a conclusion that the assessment made by the Revenue under section 158BC is justified. The observation of the Tribunal in this regard is as follows:

“Regarding validity of invoking the section 158BC we observe that two search warrants were issued on March 15, 1996, in the name of M/s. Petro Plast group of companies, Anand Agarwal and Om Prakash Agarwal at No. 23/2, Mylai Ranganathan St., T. Nagar, Chennai. The second warrant was issued for search of the premises, at No. 15, Neelakanta Mehta St., T. Nagar, Chennai-17, where the business of BBC Associates Ltd. and Bharat Building Construction are conducted for which the assessee is the managing director and proprietor respectively and no two warrants was issued in the individual name of the assessee but warrants were issued at the business and residential premises of the assessee. In view of this, the assessment under section 158BC is justified.”

15. From the above, it is apparent that the Tribunal without offering any justifiable grounds for invoking section 158BC by the Revenue, has simply concluded that “In view of this, the assessment under section 158BC is justified”. At this juncture, we feel it apt to mention the difference between sections 158BC and 158BD. While section 158BC lays down the procedure for conducting a search in a block assessment, section 158BD specifies the procedure to be followed when there is any material found during the search under section 132 against a person “other than the person” with respect to whom the search was made under section 132.

16. While for the case under section 158BC, for which the corresponding limitation is prescribed under section 158BE(1)(a) and the period of limitation shall count from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed, the limitation under section 158BE(2)(a) (for a case falling under section 158BD) commences from the end of the month in which the notice was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after June 30, 1995, but before January 1, 1997.

17. Therefore, these two sections cannot be confused or applied interchangeably in view of clear use of language by the Legislature and it cannot be said that both these sections convey the same meaning and can be applied to one and the same situation.

18. In view of our discussion in the preceding paragraphs, we have no difficulty in concluding that admittedly the appellant being a “person other than the person with respect to whom the search was conducted”, if at all, only the provisions under section 158BD would apply and the provisions of section 158BC have no application to his case. It is so since the facts clearly indicate that a warrant has been issued not in the name of the appellant but in some other name and only on the basis of the alleged seizure of documents in other case, action has been resorted to against the appellant by the Revenue.

19. But, the Tribunal, in order to justify the action of the Revenue in resorting to the provisions of section 158BC to the case on hand, has proceeded further to hold that even if the Assessing Officer has committed any procedural irregularity, that could be cured by the provisions of section 292B of the Act. Now, therefore, the stage is set to see as to whether the irregularity, if any, can be rectified in view of section 292B. Section 292B is as follows:

“292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished, or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

20. A reading of the aforesaid provision makes it clear that this provision enables an invalid assessment or a proceeding as valid for three reasons, viz., mistake, defect or omission. Even if the assessment order suffers from any mistake or any defect or any omission, such assessment order/proceeding cannot be stated to be invalid. Now, one has to see whether the assessment order passed by the Assessing Officer invoking section 158BC suffers from any procedural irregularities as contemplated under section 292B so as to make such assessment order valid. According to the Tribunal, by applying section 292B the procedural irregularity, if any, can be rectified and, on that score, confirmed the decision of the Assessing Officer in invoking section 158BC to the case of the appellant. It is not the case of the Revenue, at any stage, that the assessment order suffers from mistake or defect or any omission. But, the Tribunal itself has assumed that section 292B would apply in case of any defect in the procedure. Section 292B itself is having its own limitations of applications with three exceptions stated in section 292B. Certainly passing an order of assessment under section 158BC instead of section 158BD (in spite of clear terminology used in both the sections) would not amount to a mistake, a defect or an omission, much less a curable one. When different contingencies are dealt with under different sections of the Act, allowing an illegality to be perpetrated and then taking a plea by the Revenue that such an action adopted on their part would not nullify the proceedings, cannot be appreciated since by virtue of such actions, the Revenue has attempted to nullify the scheme of things of limitations legally propounded under the Act. At this juncture, we feel it apt to quote a judgment of the Allahabad High Court in Monga Metals P. Ltd. v. Asst. CIT, [2000] 111 Taxman 175 (All) (Mag.), wherein, under similar circumstances, it has been held as follows:

“Validity of the notice is not saved by the provisions of section 292B because the contents of the notice, as far as sum and substance is concerned, are not in conformity with the provisions of the Act. Since, for the assumption of jurisdiction to proceed with the making of an assessment for block period, service of a valid notice in terms of provisions of section 158BC is a prerequisite mandatory requirement, meaning thereby that the Assessing Officer cannot have jurisdiction to make an assessment for block period if there is no service of a notice under section 158BC or if the notice so served is found to be bad in law or invalid or vague. Consequently, the assessment framed under any of these conditions shall be bad in the law and void ab initio for want of jurisdiction.”

21. We are in perfect agreement with the above findings of the Allahabad High Court for the simple reason that to meet out different circumstances and contingencies, the Legislature has framed different sections in the Act and as already stated supra, having committed an illegality, the Revenue cannot be permitted to clothe their illegality seeking aid from section 292B. Therefore, the observation of the Tribunal that the procedural irregularity can be rectified by applying the provisions of section 292B is unwarranted and cannot be accepted.

22. When it is found that the assessment should have been proceeded only as contemplated under section 158BD, instead of section 158BC and the invocation of section 292B is by the Tribunal is wrong, the next question to be dealt with is regarding the period of limitation.

23. According to the assessee, if the assessment proceeds in the manner provided under section 158BC, it is definitely barred by limitation in view of section 158BE(1)(a). The stand of the Revenue is that as per section 158BE(2)(a), the period of limitation for completion of block assessment is one year from the end of the month in which the notice was served and in the present case as the notice was served on the assessee on December 13, 1996, and the assessment order was passed on June 30, 1997, it is well within time.

24. To find out as to whether the assessment is barred by limitation in view of section 158BE(1)(a) or saved by limitation as per section 158BE(2)(a), one has to go by the provisions contemplated in section 158BE. The relevant portion of section 158BE, which stipulates time limit for completion of block assessment, is as follows:

“158BE. (1) The order under section 158BC shall be passed,—

(a) within one year from the end of the month in which the last of the authorisations 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 account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997;

(b) omitted as not necessary to the present case.

(2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be—

(a) one year 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 requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; and

(b) omitted as not necessary to the present case.”

25. The aforesaid provision has amply made it clear that the assessment order under section 158BC should be passed within one year from the end of the month in which the last of the authorisations for search under section 132 was made or for requisition under section 132A was executed. Had the assessment proceeded under section 158BD, then the period of limitation for completion of the block assessment is one year from the end of the month in which the notice was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned.

26. The case of the appellant from day number one is that since the authorisations for search was not issued in his name, the provisions of section 158BC ought not to have been invoked in his case, instead, if at all, as the appellant was “such other person” as contemplated under section 158BD, only the provisions of section 158BD should have been followed. The finding tendered by the Assessing Officer is that section 158BC has been rightly invoked in the case of the assessee as the search was made in the business premises of the assessee. However, the Assessing Officer has not dealt with the question of applicability of either section 158BE(1)(a) or 158BE(2)(a).

27. A specific point was raised before the Tribunal by the appellant-assessee with regard to limitation and it is as follows:

“Even the assessment under section 158BC is invalid as the date of search was on March 15, 1996, and the assessment ought to have been completed on or before March 31, 1997, and the assessment is time barred as per section 158BE(1)(a) as assessment was concluded on June 30, 1997.”

28. Before answering the aforesaid question, the Tribunal dealt with the validity of invoking section 158BC to the present proceedings. While upholding the action of the Assessing Officer in invoking section 158BC, calling in aid the provisions of section 292B, the Tribunal has held that though none of the warrants were issued in the individual name of the appellant, they were issued with the address of the business and residential address of the assessee and, hence, the assessment under section 158BC is justified. Thereafter, while answering the question regarding limitation, the Tribunal observed as follows:

“… An order of block assessment is required to be passed only under section 158BC on or before December 30, 1997, as per section 158BE(2)(a), the period of limitation for completion of block assessment is one year from the end of the month in which the notice under chapter XIV-B was served on such person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997. In the present case, the Assessing Officer passed the Assessment Order on June 30, 1997, which was within the time prescribed under section 158BE(2)(a) and no assessment could be made under section 158BD and thereby the block assessment order passed by the Assessing Officer is legally valid.”

29. We are unable to appreciate the above reasoning of the Tribunal. When the assessment order was passed under section 158BC, the order under that section shall be passed within one year from the end of the month in which the last of authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed. For example, if the authorisation for search was made on January 10, 1996, the block assessment order need to be passed before January 31, 1997, i.e, the end of the month of the date of the authorisation. In other words, if the assessment order is the one to be passed under section 158BC, the period of limitation contemplated under section 158BE(1)(a) would apply and if the assessment order has to be passed in the case of “other person” referred to in section 158BD, the limitation of one year stipulated in section 158BE(2)(a) will come into play, in which case the period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be one year from the end of the month in which the notice was served on such other person.

30. In the present case, admittedly, the assessment order was passed by the Assessing Officer on June 30, 1997, after a notice was issued under section 158BC, as could be seen from page 1 of the typed set of papers. When Income-tax Appellate Tribunal, by the order dated May 9, 2001, remanded the matter back to the Assessing Officer, the Assessing Officer has passed the order on March 28, 2003, again under the provisions of section 158BC, as could be seen from page 154 of the typed set of papers. When, thus, the provisions of section 158BC alone have been invoked, then automatically the period of limitation contemplated under section 158BE(1)(a) alone are applicable and not the period of limitation provided under section 158BE(2)(a) since the said period of limitation is applicable to the “other person” referred to in section 158BD (which provision has not been invoked by the Revenue). As already stated, the Tribunal has rejected the claim of the appellant-assessee that if at all his case should have been dealt with only under section 158BD and definitely not under section 158BC. Having thus rejected the claim of the appellant-assessee and having upheld the action of the Revenue in invoking section 158BC, the Tribunal should have followed the limitation contemplated under section 158BE(1)(a) but not the one provided for under section 158BE(2)(a). One cannot be allowed to follow a particular procedure contemplated in one section and borrow the limitation contemplated in the other section. When the Assessing Officer as well as the Tribunal proceeded on the footing that invocation of section 158BC is justifiable and the appellant-assessee is liable for action under section 158BC, they should have noted whether order has been passed within the period stipulated under section 158BE(1)(a). Issuance of notice in respect of search initiated would not save the period of limitation under section 158BC because it is not the case of the Revenue that section 158BD is the provision to be invoked rather than 158BC. The assessment order passed in this case, under section 158BC, is invalid as it has not been passed within the prescribed period of limitation—the date of search being March 15, 1996, the assessment order ought to have been passed on or before March 31, 1997. Hence, the assessment made in this case is hopelessly time barred as per section 158BE(1)(a) since, admittedly, the assessment was concluded much after the period of limitation, i.e, only on June 30, 1997. In any event, the proceedings for levy and collection of tax on the undisclosed income as per the assessment order in appeal is legally invalid having regard to the provisions contained in section 158BD and as discussed supra by us. Substantial questions of law Nos. 1 to 5 are, thus answered in favour of the appellant/assessee and against the Revenue. Even though on this finding, the appeal filed by the appellant-assessee is entitled to be allowed, to give a quietus to the other issues, we proceed to discuss them hereunder.

Substantial questions of law Nos. 6 and 7

31. After deciding the legal issues in the above manner, now the stage is set to discuss the factual aspects, i.e, the additions made in the block assessment. Though the Assessing Officer has made additions under seven different heads to compute the undisclosed income, the appellant-assessee has chosen to contest only four additions, which are as follows:

Rs. (a) Unaccounted receipts from Shri Anand Agarwal 1,10,00,000 (b) Unaccounted credit in the name of late Shri S.M Pandiyan 3,00,00,000 (c) Unexplained credit in the name of M/s. Nikki Enterprises 1,48,00,000 (d) Other unexplained credits 11,14,300 Total 5,69,14,300

32. So far as the first addition of Rs. 1.10 crores is concerned, it is the strong contention of the learned senior counsel for the appellant that even though the Tribunal has directed to furnish a copy of cash receipts seized from Anand Agarwal's residence to the assessee and afford an opportunity of cross examining him, the impugned order passed by the Assessing Officer without affording such opportunity to the appellant is against the canons of the principles of natural justice and, therefore, liable to be set aside. This contention of the appellant was rejected by the Assessing Officer as well as the Tribunal on the ground that from the various materials produced it is confirmed that adequate opportunity was afforded to the assessee as directed by the Tribunal.

33. The Tribunal, while setting aside the order of assessment in the appeal preferred by the assessee, vide order dated May 9, 2001, issued the following directions:

(a) enquire into the receipts given by the assessee as they are said to have been given in relation to the transaction of the immovable properties.

(b) provide a copy of statement of Shri Anand Agarwal and allow the assessee to examine/cross examine Shri Anand Agarwal as the assessee has claimed that no opportunity was given to him for cross examination.

(c) Consider fresh material produced before the Tribunal in respect of cash credit; and

(d) Consider the objections raised by the assessee with regard to validity of proceedings and jurisdiction of the Assessing Officer.”

34. Pursuant to the aforesaid order, the Department, vide letter dated February 24, 2003, had requested the assessee to make further submissions, if any, regarding addition of Rs. 1.60 crores in view of the order of the Tribunal. It is further indicated in the said letter as follows:

“You are also requested to note that vide order-sheet noting dated June 24, 1997, you were given an opportunity to cross examine Mr. Anand Agarwal but you had chosen not to avail of the opportunity.

You are requested to please treat the opportunity as final one to make further submissions/produce evidence, etc.”

35. In the order of assessment, the Assessing Officer in paragraph 13.4(iv), while discussing the evidence of Shri Anand Agarwal, has observed as follows:

“To cross verify the facts, an opportunity to cross-examine Shri Anand Agarwal was given to the assessee, vide order sheet entry dated June 24, 1997, but assessee did not choose to avail of this opportunity.”

36. In the subsequent paragraph (vi), the Assessing Officer has further observed as follows:

“(vi) It is pertinent to mention that Shri Ramaiah was given an opportunity to cross-examine Shri Agarwal on June 24, 1997, which he chose not to avail of.”

37. The Tribunal, while dealing with this issue, has observed as follows:

“33… As per the order-sheet record, in addition to opportunity given on June 24, 1997, the assessee was given an opportunity to cross examine Anand Agarwal, vide letter No. IT/Int. Cir-I(4)/Enquiry/VR/Block/2002-03, dated February 24, 2003, which was not availed by the assessee. In view of this, we are of the considered opinion that the Revenue has given adequate opportunity of hearing to the assessee and the ground relating to not giving adequate opportunity of hearing to the assessee is dismissed.”

38. A reading of the above observations made by the Assessing Officer, the Tribunal and the contents of the letter dated February 24, 2003, would prove that the direction given by the Tribunal, vide order dated May 9, 2001, directing to afford an opportunity to the appellant to cross-examine Shri Anand Agarwal was not at all complied with by the Assessing Officer. But, the Tribunal has simply thrown away the objection raised by the appellant, stating that the opportunity to cross-examine Shri Anand Agarwal given, vide letter dated February 24, 2003, but it was not utilized by the assessee. In the said letter, there was mention that an opportunity would be given, however, the opportunity given on June 24, 1997, was not availed of by the assessee. It is not the case of the Revenue either before the Assessing Officer or the Tribunal that on a particular date the assessee was allowed to cross-examine Shri Anand Agarwal. There is not even a scrap of paper or material to substantiate the claim of the Revenue that the opportunity of cross-examination was provided to the assessee. In the absence of any material on record to show that such opportunity was given to the assessee as directed by the Tribunal at the time of remand, we hold that the order passed by the authorities as well as the Tribunal is against the principles of natural justice and liable to be set aside.

39. The next issue is regarding addition of Rs. 3 crores. On this aspect, the observations of the Tribunal, being relevant, is extracted hereunder:

“37…. On the above, we observe that an amount of Rs. 2.98 crores was received from M/s. Venkateswara Agencies, vide pay order dated November 3, 1994, bearing No. 014573 drawn on Catholic Syrian Bank, II Line Beach Branch, Madras 1. The said current account No. 1349 was opened by one Mr. V.M Kumar on October 19, 1994, which was introduced by V.S Natarajan. As such, this is a propriety concern of V.M Kumar. Further, the amount of Rs. 2.98 crores was generated in the account within 15 days from the date of opening the above account and the account was closed on September 24, 1997, and the entire transaction was under the cloud of suspicion. This in our opinion is only a benami concern of the assessee. To say this is benami concern of Mr. S.M Pandiyan, no transaction was reflected in the return of the late Mr. S.M Pandiyan and no amount of this Rs. 2.98 crores was brought to tax in the assessment proceedings of the late Shri S.M Pandiyan. Hence, there is no meaning in the argument of the assessee to say that it is the ‘paper concern’ of the late Shri Pandiyan….”

40. It is well settled that the burden of proving that a transaction was benami is on the Revenue and the ordinary presumption of law is that the apparent state of fact is real unless the contrary is proved and, therefore, the burden of proving that a transaction is sham or that the person in whose name the property stands is not the real owner but is only a benamidar for another, is on the taxing authorities. In the present case, the Assessing Officer has opined that the amount of Rs. 3 crores credited in the account of Shri S.M Pandian on November 5, 1994, really constitutes the undisclosed income of the assessee and requires to be assessed under section 68 of the Income-tax Act for the block period. However, the Tribunal, by going one step ahead, had observed that the very transaction is a benami transaction, which we are not able to appreciate.

41. As the subsequent additions of Rs. 1,48,000 and Rs. 11,14,300 are interconnected with the above issue regarding M/s. Nikky Enterprises Ltd., the discussions made by us already supra, would also apply to these additions equally.

42. The next question which falls for consideration is whether the addition under section 68 of the Act in respect of the cash credits can be made in the block assessment made under Chapter XTV-B of the Income-tax Act or not.

43. section 68 of the Income-tax Act is as follows:

“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

44. According to the Revenue, at the time of search, certain receipts were seized and on scrutiny it was found that certain sums were not disclosed and no satisfactory explanation was forthcoming from the assessee and therefore such amounts were treated as income from other sources and accordingly taken as cash credits for the block assessment made under Chapter XIV-B of the Act.

45. As per the aforesaid section, when the assessee has no explanation about the nature and source for the sum found credited in the books of account maintained to the satisfactory of the Assessing Officer, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. For attracting section 68, two conditions to be satisfied, first is that the sum in dispute should be reflected in the books of account and second is that when the Assessing Officer questions about the said sum, the explanation offered by the assessee towards the source of the said sum should be satisfactory to the Assessing Officer. It is not the case of the Revenue that the undisclosed income is reflected in the books of account. Section 14 of the Act gives the heads of income and they are (A) Salaries, (B) Interest on securities (omitted with effect from April 1, 1989), (C) Income from house property, (D) Profits and gains of business or profession, (E) Capital gains, and (F) Income from other sources.

46. On a thorough perusal of the entire materials placed on record, we are unable to accept the contention that section 68 is applicable to the present case branding the same as a benami one. The Assessing Officer, in spite of clear explanations and production of voluminous documents by the appellant, has held that the assessee has not explained the cash credits. Even though a specific request was made on the part of the assessee requesting for cross-examination of Mr. Anand Agarwal, by producing various documents to explain the credits and specifically pointing out that additions proposed are not tenable, the same was not afforded to him by the Revenue. Further, at the cost of repetition, we also state that even though the Tribunal, by the order dated May 9, 2001, has specifically directed to afford opportunity and consider all materials, it was freely taken for a violation by the Revenue since no such opportunity was ever afforded to the appellant.

47. A perusal of the order of the Tribunal shows that regarding the additions made with respect to the receipts from M/s. Venkateswara Agency and M/s. Nikky Enterprises, the Tribunal has confirmed the same made by the Assessing Officer, vide I.T (S.S) A. No. 72.Mds/1997 on the ground that it is the primary onus of the assessee to make out a prima facie case that he did not receive the sums from genuine sources. But, in his anxiety to fix and tax the appellant, the Assessing Officer has failed to follow the directions issued by the Tribunal in the remand order to the effect that:

“However, with such documents are produced before us, in all fairness we feel that the Assessing Officer should be given an opportunity to consider those documents. As such we are of the view that this issue also has to be remanded back to the Assessing Officer who will decide the issue afresh after giving reasonable opportunity of being heard to the assessee.”

48. Therefore, the findings of the Tribunal in the impugned order, ignoring the aforesaid documents is clearly perverse. While arriving at such conclusions, the Tribunal has, unjustifiably and illegally, fixed onus on the assessee to establish such credits. At this juncture, we feel it apt to quote a judgment of the honourable apex court in Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd.., [1986] 159 ITR 78 (SC); [1986] 52 CTO (SC) 138, wherein the scope and nature of section 68 of the Act was explained in detail as follows (page 81):

“Section 68 of the 1961 Act was introduced for the first time in the Act. There was no provision in the 1922 Act corresponding to this section. The section states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The section only gives statutory recognition to the principle that cash credits which are not satisfactorily explained might be assessed as income. The section enacts that if a sum is found credited in the books of an assessee maintained for any previous year (which might be different from the financial year), the cash credit might, in case where it is assessed as undisclosed income, be treated as the income of that previous year, and the financial year may not be taken as the previous year for such a cash credit even if the undisclosed income was not found to be from the assessee's regular business for which the books were maintained. The cash credit might be assessed either as business profits or as income from other sources.”

49. In Commissioner Of Income-Tax v. Mahim Udma, [2000] 242 ITR 133 (Ker); [2000] 158 CTR (Ker) 100, the Kerala High Court has held as follows (page 136 of 242 ITR):

“The decision whether a benami transaction was involved is one of fact. The burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person asserting it to be so and this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of benami is the intention of the parties, and not unoften, such intention is shrouded in a thick veil which cannot be easily pierced through. But, such difficulties do not relieve the person asserting the transaction to be benami of the serious onus that rests on him, nor justify the acceptance of mere conjectures or surmises as a substitute for proof. It is not enough merely to show circumstances which might create suspicion, because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence.”

50. In the light of the above decisions, we have no hesitation to hold that the Tribunal has committed a legal error in fixing onus on the assessee, for the plea raised by the Revenue. Therefore, this point is also answered in favour of the assessee and against the Revenue. An argument has been advanced on the part of the Revenue that the order of remand of the Department was not challenged by the assessee and only the assessment order has been challenged and since the remand order attained finality, this appeal is bad in law. In support of their contentions, the Revenue has relied on a judgment of this court in Lakshmi Jewellary v. Deputy Commissioner Of Income-Tax, [2001] 252 ITR 712 (Mad); [2002] 172 CTR (Mad) 719, wherein it has been held as follows:

“Section 158BE(1) only specifies the period within which the Assessing Officer must complete the assessment. It does not come in the way of the appellate authorities, who find the assessment order to be defective for any reason, remanding the matter to the Assessing Officer for making a proper order in relation to the matters with respect to which the matter is remanded by the appellate authority. The limitation of one year is only for the assessment and it is not a limitation which fetters the discretion of the appellate forum. There can be no dispute and there is none regarding the extent of the power of the appellate authority that it has the power not only to uphold or set aside the assessment order but also has the power to modify or remit. The Tribunal, therefore, was well within its powers in directing the Assessing Officer to redo the assessment in respect of certain items, after giving a copy of the report that it had relied on, to the assessee. There was no breach of section 158BE in making that order.”

51. It is to be pointed out that the Revenue has raised this plea of the remand order not being challenged by the appellant-assessee for the first time before us and they have not raised this plea before the Tribunal. In our considered view, raising of such a new ground at this stage of appeal that too in the appeal preferred by the appellant-assessee is untenable. Further, in the decision relied on by the Revenue, after the search, the assessment order was made within the period allowed by law. But, in the case on hand, as has already been discussed supra, the assessment order came to be passed much after the limitation period of one year. Therefore, the above judgment of this court, is not applicable to the facts of the case on hand. For the reasons stated above, these substantial questions of law are also answered in favour of the assessee and against the Revenue.

52. In the result, the tax case appeal is allowed and the impugned orders of the Assessing Officer as well as the Tribunal are set aside. There shall be no order as to costs.