2001 (1) TMI 204 - AT - Income Tax

Summary

Issues Involved:
1. Validity of proceedings for block assessment.
2. Jurisdiction of the Assessing Officer (AO) to issue notice under section 158BC.
3. Compliance with the requirements of section 158BD.
4. Timeliness of the block assessment order.

Analysis:

1. Validity of Proceedings for Block Assessment:
The assessee objected to the block assessment framed under section 158B read with section 158BC of the Income Tax Act, 1961, arguing that the order dated 23rd December 1997 was illegal and without jurisdiction. The search operation commenced on 28th February 1996, and the notice dated 23rd December 1996 was issued under section 158BC. The jurisdiction to act upon this notice lapsed on 28th December 1997, making any proceedings based on this notice invalid. The AO erroneously held that the notice was under section 158BD, thus extending the time limit to pass an order until 31st December 1997.

2. Jurisdiction of the AO to Issue Notice under Section 158BC:
The AO issued a notice captioned "Notice under section 158BC of the IT Act, 1961" to the appellant-HUF on 23rd December 1996. The appellant argued that this notice could not be considered as a notice under section 158BD because the AO with jurisdiction over the case of the person searched (the firm) had not transferred any material to the AO with jurisdiction over the appellant's case by that date. The AO completed the block assessment on 23rd December 1997, treating the notice as one under section 158BD read with section 158BC, which was contested by the appellant.

3. Compliance with the Requirements of Section 158BD:
The appellant contended that there was no evidence of compliance with section 158BD, which requires that the AO having jurisdiction over the case of the person searched must first record satisfaction that the seized materials disclose undisclosed income of a third person and then transfer the material to the AO having jurisdiction over that third person. The Departmental Representative admitted that no search warrant was issued in the name of the appellant-HUF and no communication or material was received from the AO at Calcutta by 23rd December 1996. The Tribunal found that only one notice under section 158BC was issued and served, and no material was received from the AO at Calcutta by that date, rendering the notice invalid.

4. Timeliness of the Block Assessment Order:
The Tribunal held that even if the notice was considered valid, the block assessment order dated 23rd December 1997 was barred by time. According to section 158BE, the assessment should have been completed by the end of February 1997, one year from the date of the search operation on 28th February 1996. Therefore, the block assessment completed on 23rd December 1997 was invalid.

Conclusion:
The Tribunal concluded that the notice issued under section 158BC on 23rd December 1996 was without compliance with the requirements of section 158BD, rendering it and all subsequent proceedings, including the block assessment order dated 23rd December 1997, invalid and void ab initio. The appeal was allowed, and the block assessment order was quashed for being illegal, without jurisdiction, and barred by time.