2007 (2) TMI 169 - HC - Income Tax

Validity Of assessment proceeding - Non-compliance with the provisions of section 153A - search and seizure u/s 132 - whether the assessment proceeding for the year 2004-05 and the final order passed in the said assessment proceeding is vitiated in law for non-compliance with the provisions of section 153A of the Act? - HELD THAT - The second proviso to section 153A makes it clear that assessment or reassessment relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search u/s 132 or requisition u/s 132A shall abate. In other words if on the date of initiation of search or requisition u/s 132 or section 132A any assessment or reassessment proceeding is initiated relating to any assessment year falling within the period of six assessment years it shall stand abated and the assessing authority cannot and shall not proceed with such pending assessment after initiation of search or requisition as contemplated hereinabove. The search and seizure was initiated by the respondents on August 24 2006 which was carried out by various authorised officials. Thereafter as admitted by the respondents in their counter affidavit no notice as required u/s 153A was issued to the petitioner for the six assessment years i.e. from 2001-02 to 2006-07. It has not been disputed by the respondents that the date on which the search was initiated the assessment proceeding was pending on the basis of the return furnished by the petitioner. Consequently therefore the pending assessment proceeding stood abated by virtue of the second proviso to section 153A of the said Act. Instead of complying with the requirements of section 153A of the Act the respondents proceeded with the pending assessment proceeding for the assessment year 2004-05 and passed an assessment order during the pendency of the instant writ application. The said impugned order has also been challenged by the petitioner by filing amendment petition. In the aforesaid facts and circumstances of the case I am of the definite opinion that the entire action of the respondents in proceeding with the assessment after search in contravention of the provisions of section 153A is vitiated in law. Consequently the impugned assessment order dated December 28, 2006 purportedly passed u/s 143(3) of the Act in a pending assessment proceeding which stood abated is a nullity. As discussed continuation of the impugned assessment proceeding after the initiation of search without giving any notice u/s 153A of the Act and passing the impugned final order of assessment is illegal arbitrary and wholly without jurisdiction. Thus this writ application is allowed and the impugned notice and the final order of assessment are set aside. The concerned authorities of the respondents are directed to proceed with the block assessment after issuing notices as contemplated u/s 153A of the Act and pass order in accordance with law after giving opportunity of hearing to the petitioner.

Summary

Issues Involved:
1. Validity of the impugned notice issued under Section 142(1) of the Income-tax Act, 1961.
2. Jurisdiction and legality of the assessment proceedings for the assessment year 2004-05 post-search and seizure operations.
3. Compliance with the provisions of Section 153A of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Notice Issued Under Section 142(1):
The petitioner, an assessee, challenged the notice issued under Section 142(1) of the Income-tax Act, 1961, seeking to quash it. The petitioner argued that the notice was invalid as it pertained to an assessment year for which the return had already been filed voluntarily under Section 139(1), along with relevant financial documents. The court examined Section 142, which empowers the assessing authority to make inquiries before assessment by issuing notices to the assessee. However, the court noted that the issuance of such a notice must comply with the procedural requirements specified in the Act.

2. Jurisdiction and Legality of the Assessment Proceedings for the Assessment Year 2004-05 Post-Search and Seizure Operations:
The petitioner contended that the assessment proceedings for the year 2004-05 were illegal and without jurisdiction, as no notice under Section 153A had been issued. The court reviewed the sequence of events, including the search and seizure operations conducted on August 24, 2006, and subsequent notices issued under Section 142. The court emphasized that Section 153A mandates the issuance of a notice to the assessee for furnishing returns for six assessment years preceding the year of the search. The respondents admitted that no such notice was issued, which led the court to conclude that the pending assessment proceedings for 2004-05 should have abated as per the second proviso to Section 153A.

3. Compliance with the Provisions of Section 153A of the Income-tax Act, 1961:
The court delved into the provisions of Sections 153A, 153B, and 153C, which deal with assessments in cases of search and requisition. Section 153A requires the Assessing Officer to issue a notice for filing returns for six assessment years prior to the year of the search. The court noted that the pending assessment proceedings for these years would abate upon the initiation of a search. The court further explained that the term "abate" means to nullify or put an end to ongoing proceedings. Given that no notice under Section 153A was issued, the court held that the continuation of the assessment proceedings and the final assessment order for 2004-05 were illegal and without jurisdiction.

Conclusion:
The court concluded that the entire process adopted by the respondents in continuing with the assessment proceedings post-search without issuing the requisite notice under Section 153A was vitiated by law. Consequently, the impugned assessment order dated December 28, 2006, was declared a nullity. The court allowed the writ application, setting aside the impugned notice and the final assessment order. The respondents were directed to proceed with the block assessment after issuing notices as required under Section 153A, ensuring compliance with legal provisions and providing the petitioner an opportunity to be heard.