Validity of search conducted by AO couldn’t be challenged for first time during appeal after 3 years of search
Rajan Jewellery v. CIT –  109 taxmann.com 104 (Kerala)
The assessee was a partnership firm engaged in the jewellery business. During the search conducted at the business premises and residence of partners, huge stock of silver and gold ornaments were found. Such stock was not disclosed in the books of account of the assessee. The documents recovered during search showed a consistent practice of selling ornaments by estimate slips and reflecting only 10% in the books of account. The Assessing Officer (AO) made additions to the income of the assessee by estimating the turnover at 10 times from that shown in books of account.
In first appeal, the assessee raised a contention for the first time that the panchas were not present during the search and recording of the statement, thus the impugned search was invalid. The appellate authority negatived the assessee’s contention. On cross appeal, the ITAT found that the CIT(A) could examine the validity of a search, but on facts refused to accept the contention of the assessee.
On further appeal, the High Court held that the panchas had specifically stated that they were present during search and recording of statement. The assessee had not raised his contention before AO and it was raised before first appellate authority for the first time that too after a period of 3 years from search conducted. Thus, it was held that assessee’s contention regarding the panchas presence couldn’t be raised in the appeal unless it was raised before AO.