2006 (2) TMI 213 - AT - Income Tax

Validity of the assessment framed in pursuance of the notice issued u/s. 158BC - period of limitation - Block Assessment in search case - HELD THAT - As in the present case, the assessing authority did not provide clear period of 15 days for filing the return, in our considered opinion, the basic and prerequisite conditions of law or mandatory requirement of legal provision was not satisfied. Such a notice is illegal and void and neither the departmental authorities are capable to cure the defect nor the assessee can waive such a prerequisite requirement of law. Thus, the notice is held to be illegal, void and the assessment order passed in consequence of such illegal notice is void ab initio and such assessment is to be quashed. Ground No. 2, taken by the assessee is therefore allowed. It is observed that the foundation for assumption of jurisdiction is the satisfaction to proceed u/s 158BD against a person not searched. The issuance of notice, after record of such satisfaction, is another requirement, which entitles the Assessing Officer to assume jurisdiction to assess the undisclosed income of such person. Thus, if necessary satisfaction has not been recorded prior to making of assessment u/s 158BD, such assessment cannot be legally justified. Thus, on this basis the assumption of jurisdiction to assess u/s 158BD is on different footing than the assumption of jurisdiction u/s 158BC. It can, therefore, be concluded that if the Assessing Officer does not record satisfaction prior to the making of assessment u/s 158BD, such assessment has to be quashed, as was done in the case of Amity Hotels (P.) Ltd 2004 (10) TMI 27 - DELHI HIGH COURT . In the case of R.K. Upadhayaya v. Shana Bhai P. Patel 1987 (4) TMI 5 - SUPREME COURT , the Hon'ble Supreme Court, has held that there is a clear distinction between issuance of notice and service of notice. It was observed in that case that service under the new Act is not a condition precedent to the confirmation of jurisdiction on the ITO but it is a condition precedent for making the order of assessment. Thus, the service of a valid and legal notice requiring the assessee to furnish return after fifteen days is a necessary condition and mandatory requirement for assuming jurisdiction for making assessment u/s 158BD and if such condition is not satisfied then the assumption of jurisdiction for making assessment u/s 158BD cannot be legally justified. Hence, we allow the plea of the assessee for challenging the assessment order on the basis of a defective notice, which is to be treated as no notice in the eye of law. It is to be repeated here that the assessee has not acquiesced in the exercise of jurisdiction by the Assessing Officer in the present case nor did he filed any return in pursuance or in compliance to the notice issued to him, rather he challenged the very validity of the notice and also of the jurisdiction of the Assessing Office - Thus, the assessment made in this case is liable to be quashed on the ground mentioned above. Hence, the assessment is quashed on this ground itself. Consequently, ground No. 1 as taken by the assessee stands allowed. As we have quashed the assessment order on the ground as mentioned above, we are not required to dispose off other grounds of appeal on merit. In the result, assessee's appeal stands allowed accordingly.

Issues Involved:
1. Jurisdiction of the ACIT to assess the assessee.
2. Compliance with mandatory provisions of law.
3. Treatment of various investments as undisclosed income.
4. Consideration of income from STD Booth and M/s. Spreadcom.
5. Set-off of incomes against alleged undisclosed investments.

Issue-wise Detailed Analysis:

1. Jurisdiction of the ACIT to Assess the Assessee:
The assessee contended that the ACIT, Range-I, Faridabad, lacked jurisdiction to assess them, as no order for transferring jurisdiction was passed by the competent authority. The Tribunal found that the assessee was not previously assessed to tax, and hence, the question of transfer of jurisdiction did not arise. The CIT concerned had territorial jurisdiction over the assessee, justifying the assessment made. The Tribunal held that the validity of the assessment could not be challenged on jurisdictional grounds before the ITAT, as it was an administrative matter. This ground was rejected.

2. Compliance with Mandatory Provisions of Law:
The assessee argued that the notice issued under section 158BD did not provide the mandatory minimum period of 15 days for filing the return, rendering it invalid. The Tribunal agreed, noting that the notices issued provided less than 15 days for compliance, which violated the clear and unambiguous provisions of section 158BC(a). The Tribunal emphasized that the requirement of a clear notice period of more than 15 days was a precondition for making a valid assessment. The assessment was quashed on this ground, as the notice was deemed illegal and void.

3. Treatment of Various Investments as Undisclosed Income:
The assessee challenged the CIT(A)'s decision to treat various investments as undisclosed income from unexplained sources. These included investments in M/s. Nasa Systems, agricultural land, PUNB Building, a plot in Faridabad, and a plot in Gurgaon. The Tribunal did not address these grounds on merit, as the assessment order was quashed on jurisdictional and procedural grounds.

4. Consideration of Income from STD Booth and M/s. Spreadcom:
The assessee argued that the income from STD Booth and M/s. Spreadcom was not considered, and the set-off of these incomes against alleged undisclosed investments was denied. The Tribunal did not address this issue on merit due to the quashing of the assessment order on other grounds.

5. Set-off of Incomes Against Alleged Undisclosed Investments:
Similar to the previous issue, the Tribunal did not delve into the merits of the set-off of incomes against alleged undisclosed investments, as the assessment was quashed on procedural and jurisdictional grounds.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the assessment order on the grounds of invalid notice under section 158BD, which did not provide the mandatory minimum period of 15 days for filing the return. Consequently, other grounds of appeal were not addressed on merit.

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