2011 (2) TMI 1418 - AT - Income Tax

Whether the issue of notice u/s158BD r.w.s.158BC after expiry of more than 3 years from the date of completion of the block assessment in the case of person searched was valid or not - HELD THAT - The observation of the Special Bench in Manoj aggrawal 2008 (7) TMI 446 - ITAT DELHI-A shows that the time limit provided u/s158BE is also applicable for initiating proceedings u/s 158BD. In the case before us also admittedly the search proceedings was initiated and assessee was subject to search. However the Revenue authorities found material against the assessee with regard to undisclosed income. The AO ought to have completed the assessment on or before 2.11.2003. This date also was not disputed by the Revenue. Therefore the AO ought to have issued the notice u/s 158BC r.w.s.158BD against the assessee within a reasonable time after completion of block assessment was subjected to tax. Unfortunately the AO has not taken any steps for more than three years and 7 months. there was a unreasonable delay on the part of the AO for initiating proceedings by issuing notice u/s158BD r.w.s.158BC. Therefore the issue of notice after expiry of 3 years and 7 months is unreasonable which cannot be a basis for completing the assessment against the assessee. Therefore in our opinion the CIT(A) has rightly quashed the proceedings. Regarding the contention of the Department that the assessee has not challenged the notice before the AO therefore he cannot challenge the same in view of section 292BB. Admittedly section 292BB was inserted by Finance Act 2008 with effect from 1.4.2008. The notice u/s 158 r.w.s. 158BC was issued in this case on 7.7.2006. Since the provisions of section 292BB curtail the right of the assessee it would operate prospectively as held in Kuber Tobacco Products (P) Ltd. vs. DCIT 2009 (1) TMI 304 - ITAT DELHI . Therefore section 292BB may not be applicable to the notice issued on 7.7.2006.

Summary

Issues Involved:
1. Validity of the notice issued under section 158BC read with section 158BD of the Income-tax Act, 1961.
2. Limitation period for issuing notice under section 158BC read with section 158BD.
3. Applicability of section 292BB of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 158BC Read with Section 158BD:
The appeal concerns the validity of the notice issued under section 158BC read with section 158BD of the Income-tax Act, 1961. The Assessing Officer completed the block assessment based on materials found during a search operation on 19.06.2008. However, the CIT(A) quashed the assessment proceedings because the notice under section 158BC was issued beyond two years. The learned DR argued that there is no provision in the Income-tax Act that prescribes a limitation for issuing a notice under section 158BC when the material found relates to a person other than the one searched. The DR relied on the decisions of the Amritsar Bench in Vijay Sehgal (HUF) vs. ACIT and the Gujarat High Court in Khandubhai Vasanji Desai & Ors. vs. DCIT.

2. Limitation Period for Issuing Notice Under Section 158BC Read with Section 158BD:
The learned counsel for the assessee contended that there was an unreasonable delay in issuing the notice under section 158BD read with section 158BC, which was issued 3 years and 7 months after the due date for completing the assessment in the case of the person searched. The counsel relied on the Special Bench decision in Manoj Agarwal vs. DCIT, which held that the time limit prescribed under section 158BE should be read along with section 158BD. The Tribunal in various cases, including P. Mahender Reddy vs. ACIT and Tahilram Mulchandani vs. ACIT, held that notices issued after a significant delay were barred by limitation.

The Tribunal examined the provisions of sections 158BD and 158BE, noting that section 158BE provides a period of two years from the end of the month in which the notice was served for completing the assessment. The Tribunal observed that the Income-tax Act does not prescribe a specific period for issuing a notice under section 158BC for a person not subjected to search. However, it emphasized that the time limit for completing the assessment under section 158BE should logically apply to the issuance of the notice under section 158BD.

The Tribunal referred to the Special Bench decision in Manoj Agarwal, which found that the time limit under section 158BE applies to both sections 158BC and 158BD, as they are interlinked. The Tribunal also considered the Gujarat High Court's judgment in Khandubhai Vasanji Desai, which stated that the Assessing Officer must act swiftly and issue the notice within a reasonable time after reaching the requisite satisfaction.

In the present case, the Tribunal found that the notice was issued after an unreasonable delay of more than 3 years and 7 months, which was not justified. Therefore, the CIT(A) rightly quashed the proceedings.

3. Applicability of Section 292BB of the Income-tax Act, 1961:
The Department argued that the assessee did not challenge the notice before the Assessing Officer and, therefore, could not challenge it later under section 292BB. However, the Tribunal noted that section 292BB was inserted by the Finance Act, 2008, with effect from 1.4.2008, and the notice in this case was issued on 7.7.2006. The Tribunal referred to the Special Bench decision in Kuber Tobacco Products (P) Ltd. vs. DCIT, which held that section 292BB operates prospectively. Therefore, section 292BB was not applicable to the notice issued in this case.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, confirming the order of the CIT(A) that quashed the assessment proceedings due to the unreasonable delay in issuing the notice under section 158BC read with section 158BD. The Tribunal emphasized that the time limit for completing the assessment under section 158BE should apply to the issuance of the notice under section 158BD, and section 292BB was not applicable in this case.