2011 (2) TMI 956 - HC - Income Tax

Block assessment - Addition - Time barred - Held that - Following the judgment of Asstt. Commissioner of Income Tax and another v. M/s Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT OF INDIA it was held that since statutory notice under Section 143(2) had not been issued within the stipulated time assessment itself was liable to be set aside - appeal of the revenue challenging setting aside of further addition by the CIT(A) has been rendered infructuous and is accordingly dismissed.

Issues:
1. Whether the Tribunal erred in concluding that providing a photocopy of a letter to the counsel for the assessee and not directly to the assessee did not amount to granting a reasonable opportunity?
2. Whether the Tribunal overlooked the fact that the counsel representing the assessee had replied to the letter on behalf of the assessee, indicating the exercise of the right of hearing before the enhancement of the assessed income?
3. Whether there was a violation of the principles of natural justice or procedural errors as per Section 251(2) of the Income Tax Act?
4. Whether the Tribunal was justified in quashing the enhanced addition to the assessed income instead of remanding the matter to the file of CIT(A) to grant a proper opportunity before enhancement?

Analysis:
1. The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal, Amritsar, for the block period from 1.4.1989 to 22.7.1999. The Tribunal had set aside the addition made by the CIT(A) on the grounds that the procedure under Section 251(2) was not followed before making further additions. The Tribunal's decision was based on the issue of providing a reasonable opportunity, where the Tribunal concluded that providing a photocopy of a letter to the counsel for the assessee, and not directly to the assessee, did not amount to granting a reasonable opportunity. The Court examined whether this conclusion was valid, considering the representation by the counsel and the exercise of the right of hearing before the enhancement of the assessed income.

2. The Tribunal's decision was also challenged on the grounds of natural justice and procedural errors under Section 251(2) of the Income Tax Act. The Court analyzed whether there was a violation of the principles of natural justice or procedural errors in the proceedings. Additionally, the Court assessed whether the Tribunal was justified in quashing the enhanced addition to the assessed income instead of remanding the matter to the CIT(A) to grant a proper opportunity before enhancement. This issue raised questions about the appropriateness of the Tribunal's decision in handling the matter and the subsequent actions taken.

3. The Court further discussed the assessment process, noting that the assessment for the block period was initially processed under Section 143(1)(a) of the Act and later assessed under Section 143(3), with additional additions made. The CIT(A) upheld the assessment but made further additions, which were later set aside by the Tribunal due to procedural irregularities. The Tribunal also dismissed the cross-appeal of the assessee challenging the assessment itself based on the service of notice under Section 143(2) within the stipulated period before the block assessment. The Court referred to a previous judgment related to the issuance of statutory notices under Section 143(2) and its impact on the validity of the assessment.

4. Ultimately, the Court found that since the statutory notice under Section 143(2) had not been issued within the stipulated time, the assessment itself was deemed illegal, leading to the setting aside of the assessment. Consequently, the appeal of the revenue challenging the setting aside of further additions by the CIT(A) was considered infructuous and dismissed. The judgment highlighted the importance of adhering to procedural requirements and principles of natural justice in income tax assessments to ensure fairness and legality in the process.

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