2006 (9) TMI 244 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment due to non-issuance of notice under sections 142 and 143(2) within the prescribed time.
2. Use of information gathered during survey operations for block assessment.
3. Assessment of voluntary donations and unexplained income.
4. Exemption from tax under section 19(23C)(vi).
5. Levying of surcharge under section 113.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Due to Non-Issuance of Notice:
The Revenue contended that the non-issuance of notice under section 143(2) within the prescribed 12-month limit is a technical flaw and does not invalidate the assessment. The CIT(A) quashed the assessment on the grounds that notices under sections 142 and 143(2) were issued beyond the 12-month period. However, the Tribunal referred to the decision in Nawal Kishore & Sons Jewellers vs. Dy. CIT, which held that non-issuance of notice under section 143(2) is a curable irregularity and not a nullity. Additionally, the Tribunal noted the amendment by the Finance Act, 2006, which retrospectively validated such notices. Consequently, the Tribunal set aside the CIT(A)'s decision on this count.

2. Use of Information Gathered During Survey Operations for Block Assessment:
The assessee argued that the findings from the survey under section 133A cannot be used for block assessment under Chapter XIV-B. The CIT(A) supported this view, citing that the findings of a survey are outside the scope of block assessment, which should be based on evidence found during a search under section 132. However, the Tribunal observed that the AO made the block assessment based on material seized during the search on 10th Dec., 1999, and not solely on the survey findings. The Tribunal emphasized that material found in a survey cannot be used for block assessment unless it is related to evidence found during the search. The Tribunal set aside the CIT(A)'s decision, noting that the AO's assessment was based on evidence from the search.

3. Assessment of Voluntary Donations and Unexplained Income:
The assessee challenged the AO's addition of Rs. 23 lakhs as unexplained income under section 68 and Rs. 16.64 lakhs as unexplained income due to lack of incriminating material found during the search. The CIT(A) did not adjudicate on these grounds. The Tribunal restored the matter back to the CIT(A) for a decision on the merits of these grounds, providing the assessee with a reasonable opportunity to be heard.

4. Exemption from Tax Under Section 19(23C)(vi):
The assessee claimed that the society is exempt from tax under section 19(23C)(vi). The CIT(A) did not address this ground. The Tribunal directed the CIT(A) to adjudicate on this matter upon remand, ensuring a fair hearing for the assessee.

5. Levying of Surcharge Under Section 113:
The assessee contested the AO's levy of a surcharge of Rs. 2,43,917, arguing that the provisions of section 113 were not applicable. The CIT(A) did not provide a decision on this ground. The Tribunal instructed the CIT(A) to consider this issue on remand, allowing the assessee to present their case.

Conclusion:
The Tribunal set aside the CIT(A)'s decision to quash the assessment based on the non-issuance of notices within the prescribed period and the use of survey findings for block assessment. The matter was remanded to the CIT(A) for a decision on the merits of the other grounds raised by the assessee, ensuring a reasonable opportunity for the assessee to be heard. The appeal by Revenue and the cross-objection by the assessee were allowed for statistical purposes only.