2005 (5) TMI 237 - AT - Income Tax

Summary

Issues Involved:

1. Validity of Notice u/s 158BC.
2. Proper Service of Notice u/s 158BC.
3. Additions of Share Capital and Cash Credits as Undisclosed Income.

Summary:

1. Validity of Notice u/s 158BC:

The notice issued by the AO under s. 158BC was challenged on the grounds that it mentioned an incorrect block period and was not addressed to the "Principal Officer" as required under s. 282(2)(b) of the IT Act. The Tribunal held that the notice was valid despite these procedural defects, as they were curable under s. 292B of the IT Act. However, the notice was ultimately deemed invalid due to improper service.

2. Proper Service of Notice u/s 158BC:

The notice was served on an advocate who was not authorized by the assessee-company to receive it. The Tribunal concluded that proper service of notice is a jurisdictional requirement and cannot be waived by the assessee's participation in the assessment proceedings. Since the notice was not properly served, the AO did not have the jurisdiction to complete the block assessment, rendering the assessment void.

3. Additions of Share Capital and Cash Credits as Undisclosed Income:

The AO made additions to the assessee's income based on share capital and cash credits, treating them as undisclosed income. The Tribunal held that:

- For the assessment years 1993-94 to 1996-97, the additions were not sustainable as they were based on materials seized from a third party (M/s Jalan Enterprises) without following the procedure prescribed under s. 158BD.
- The share capital and cash credits for the assessment years 1995-96 and 1996-97 were already recorded in the assessee's books of account, and the due date for filing returns had not expired by the date of the search. Therefore, these amounts could not be treated as undisclosed income.

Conclusion:

The Tribunal quashed the block assessment order dated 27th November 1996, as the notice under s. 158BC was not properly served, and the additions made by the AO were not sustainable. The appeal filed by the assessee was allowed in full.