2016 (8) TMI 960 - HC - Income Tax

Assessment for the block period - ITAT held that the assessment for the block period was barred by limitation on the ground that initial notice, wrongly issued under Section 158BC was a valid notice - Held that - In the present case, the first Notice u/s.158BC of the Act was issued to the assessee on 17.10.1996, which was served upon the assessee on 04.11.1996. Therefore, assessment could have been framed latest by 30.11.1997. However, on 29.08.1997, the Assessing Officer withdrew the Notice issued u/s.158BC of the Act and issued a fresh Notice u/s.158BD of the Act on 29.08.1997. On 17.10.1996 the Notice issued u/s.158BC of the Act was a valid notice. However, the proceedings initiated on the basis of this Notice stood concluded on 29.08.1997, when the A.O. informed the assessee of having withdrawn the Notice u/s.158BC of the Act, meaning thereby, that the proceedings initiated on 17.10.1996 was valid for all intent and purposes but, stood concluded on 29.08.1997. Therefore, there was no question of reviving those proceedings by way of issuing a fresh Notice under any other Section of the Act. On this count also, there could not have been any assessment on 01.12.1997. Thus, the Revenue s claim that Notice u/s.158BD of the Act issued on 29.08.1997 was a valid Notice and that the consequential assessment framed on 24.12.1997 was within limitation cannot be accepted and is void ab initio being barred by time. Thus, the action of the A.O. of withdrawing the Notice u/s.158BC and issuing fresh Notice u/s.158BD of the Act is illegal and bad in law. There is no provision in the Act for initiating reassessment proceedings for block period, either u/s.147 or 158BC or 158BD of the Act. Therefore, both the actions of the Assessing Officer are illegal and bad in law. Tribunal was completely justified in holding that the block assessment passed u/s.158BD r/w. Section 158BC was barred by time and therefore, void ab initio. Thus, we answer the question in the affirmative, i.e. in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Validity of the Notice issued under Section 158BC instead of Section 158BD.
2. Limitation period for completing the block assessment.
3. Legality of withdrawing a Notice under Section 158BC and issuing a fresh Notice under Section 158BD.

Detailed Analysis:

1. Validity of the Notice Issued under Section 158BC Instead of Section 158BD:

The primary issue revolves around whether the initial Notice issued under Section 158BC was valid when it should have been issued under Section 158BD. The assessee, a firm dealing in real estate and construction, was issued a Notice under Section 158BC on 17.10.1996, which was later withdrawn, and a new Notice under Section 158BD was issued on 29.08.1997. The Tribunal ruled that the initial Notice under Section 158BC was valid, but the subsequent Notice under Section 158BD and the assessment based on it were not.

2. Limitation Period for Completing the Block Assessment:

The assessment was completed on 01.12.1997, determining an undisclosed income of ?1,32,20,000. The Tribunal found that the assessment was barred by limitation. According to Section 158BE(ii), the assessment should have been completed within one year from the end of the month in which the Notice under Section 158BC was served, i.e., by 30.11.1997. The Tribunal concluded that since the assessment was framed on 24.12.1997, it was illegal and barred by time.

3. Legality of Withdrawing a Notice under Section 158BC and Issuing a Fresh Notice under Section 158BD:

The Tribunal also addressed the legality of withdrawing the initial Notice under Section 158BC and issuing a fresh Notice under Section 158BD. The Tribunal held that the proceedings initiated by the Notice under Section 158BC on 17.10.1996 were valid but stood concluded when the Notice was withdrawn on 29.08.1997. Therefore, issuing a fresh Notice under Section 158BD on 29.08.1997 and the subsequent assessment were illegal and void ab initio.

Conclusion:

The Tribunal's decision was upheld by the High Court, which agreed that the block assessment passed under Section 158BD read with Section 158BC was barred by time and therefore void ab initio. The High Court emphasized that there is no provision in the Act for initiating reassessment proceedings for the block period under Sections 147, 158BC, or 158BD. Consequently, the appeal filed by the Revenue was dismissed, and the question raised was answered in favor of the assessee and against the Revenue.