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2005 (5) TMI 240 - AT - Income TaxBlock Assessment in search case - technical mistakes - rectifiable u/s 292B - validity of the block assessment - Undisclosed income - Whether the provisions of section 158BC relating to issue of notice are substantive in nature or procedural in nature? - If they are held to be procedural in nature then can any defect in the notice or with regard to its issue render the block assessment proceedings to be null and void? - HELD THAT - If we analyze the provisions of Chapter XIV-B the first three provisions viz. section 158B section 158BA and section 158BB are substantive in nature. Clause (a) of section 158B defines block period as opposed to the previous year under the normal provisions. Clause (b) of section 158B defines undisclosed income as opposed to total income under the normal provisions. Section 158BA(i) empowers the Assessing Officer to assess the undisclosed income. Section 158BA(2) is the charging section to be read with section 4 of the Act as has been held by the Calcutta High Court in the case of Shaw Wallace Co. Ltd. 1999 (2) TMI 50 - CALCUTTA HIGH COURT . Section 158BB prescribes the manner in which the undisclosed income is to be computed. Having provided for these substantive provisions the actual procedure for block assessment starts from section 158BC as the heading to the said section suggests. Another important and vehement argument which was raised before us is that the provisions of section 148 are pari materia with the provisions of section 158BC and hence all the decisions pertaining to defective notices or service thereof in connection with section 147 proceedings apply with equal force to the notice issued u/s 158BC of the Act. In our considered opinion it is not so. The reasons for our saying so now follow. There is no jurisdictional fact in existence which straightaway empowers the Assessing Officer to enter jurisdiction. He can assume jurisdiction to reopen a completed assessment only on the basis of his own honest belief. Therefore though section 147 in essence is a machinery section it also affects the substantive right of the assessee which had accrued to him on completion of the original assessment. It cannot be said that the provisions of Chapter XIV-B substitute the provisions of section 147 and that notice u/s 158BC is akin to the one issued u/s 148. Therefore all the decisions relied upon by the learned counsel for the assessee and the interveners in which defective notice u/s 148 had rendered the assessments null and void cannot be made applicable to the defective notice under section 158BC. Further several Tribunal decisions in which assessments were quashed on account of defective notice u/s 158BC it was done so on the premise that the law in section 158BC is a substantive law. However we are holding it to be a procedural law and hence those decisions are also not applicable. We summarize our decision as follows (a) That the provisions of Chapter XIV-B provides for a special procedure for the assessment of undisclosed income found in the course of search; (b) That the concept of undisclosed income under Chapter XIV-B is narrower than and different from the concept of income escaping assessment u/s 147 of the Act; (c) Though broadly speaking Chapter XIV-B contains machinery provisions for the assessment of undisclosed income it does contain provisions which are in the realm of substantive law. At least sections 158B 158BA and 158BB are such provisions whereas section 158BC is in the realm of procedure law; (d) Section 158BA(1) gives power to the Assessing Officer to assess undisclosed income and such power is conferred on the Assessing Officer at the time when search is initiated in the case of a person. Thus the existence of the jurisdictional fact of search having been initiated gives power to the Assessing Officer to assess undisclosed income. (e) The acquisition of power by the Assessing Officer is not at all related to the formation of belief by the Assessing Officer that a person has not disclosed certain income; (f) The Assessing Officer can and has to activate his power only on the completion of search; (g) Since the action of issuing notice u/s 158BC is within the jurisdiction and not of assuming jurisdiction any error committed in such action cannot render the whole assessment a nullity and that such errors are rectifiable by section 292B of the Act. We answer the questions referred to the Special Bench as follows 1. The provisions of section 158BC are procedural in nature. 2. Any defect in the notice or with regard to its issue cannot render the block assessment proceedings to be null and void. On a careful perusal of the order of the CIT (Appeals) we find that the CIT (Appeals) has nowhere held the proceedings u/s 158BC to be pari materia with the proceedings u/s 148 of the Act. What all he has held is that a valid service of notice is crucial to the assessment . For this he has relied on the judgments which are with reference to proceedings u/s 148 and on the premise that like section 148 the provisions of section 158BC are substantive in nature. However we have already held the proceedings under section 158BC to be procedural in nature and hence the objection of the learned counsel does not remain. Thus all the grounds raised by the assessee challenging the validity of the block assessment are rejected. In the result the appeal of the assessee is partly allowed for statistical purposes.
Issues Involved:
1. Whether the provisions of section 158BC relating to the issue of notice are substantive in nature or procedural in nature? 2. If they are held to be procedural in nature, then can any defect in the notice or with regard to its issue render the block assessment proceedings null and void? Issue-wise Detailed Analysis: 1. Nature of Provisions of Section 158BC: The primary issue was to determine whether the provisions of section 158BC are substantive or procedural. The argument presented by Mr. Sudhir Sehgal, counsel for the assessee, was that the provisions of section 158BC were substantive because they directly affected the rights of the assessee. He relied on various judgments, including the Supreme Court's decision in CWT v. Sharvan Kumar Swarup & Sons and the Punjab & Haryana High Court's decision in CIT v. Mrs. Manjula Sood. Mr. Sehgal argued that changes in procedure affecting accrued rights must be treated as substantive law. He also referred to the Finance Minister's speech during the introduction of Chapter XIV-B, emphasizing that the assessment of undisclosed income at a higher rate affected substantial rights, making the provisions substantive. However, the Tribunal held that section 158BC is procedural in nature. It was reasoned that section 158BA(1) gives the Assessing Officer the power to assess undisclosed income upon the initiation of a search, and section 158BC merely sets in motion the machinery to quantify the liability of the assessee. The Tribunal differentiated between substantive provisions (sections 158B, 158BA, and 158BB) and procedural provisions (section 158BC). 2. Impact of Defects in Notice under Section 158BC: The second issue was whether defects in the notice under section 158BC could render the block assessment proceedings null and void. Mr. Sehgal argued that even if section 158BC was procedural, any casual approach could not be allowed, and section 292B could not rectify such defects. He contended that jurisdiction relates to power, and proper compliance with both sections 132 and 158BC was required. The Tribunal held that errors or defects in the notice under section 158BC do not render the block assessment proceedings null and void. It was reasoned that the Assessing Officer acquires jurisdiction under section 158BA(1) upon the initiation of a search, and any error in issuing the notice under section 158BC is an error "in but not of jurisdiction." Such errors are rectifiable under section 292B of the Act. The Tribunal emphasized that section 158BC is procedural, and the existence of a search is the jurisdictional fact necessary for the validity of the proceedings. Additional Analysis: The Tribunal also addressed the distinction between section 148 and section 158BC. It was noted that section 147 deals with income escaping assessment, which requires the Assessing Officer to form a belief that income has escaped assessment, whereas section 158BC deals with undisclosed income unearthed during a search. The Tribunal clarified that the provisions of section 158BC are not akin to section 148 and do not require the formation of belief by the Assessing Officer. The existence of a search itself confers jurisdiction under section 158BA(1). Conclusion: The Tribunal concluded that the provisions of section 158BC are procedural in nature and any defect in the notice or its issue does not render the block assessment proceedings null and void. The appeal of the assessee was partly allowed for statistical purposes, with specific directions for the Assessing Officer to reconsider certain additions on merits.
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