2010 (7) TMI 40 - HC - Income Tax

Assessment u/s 158BC Block assessment notice u/s 143(2) issued after the expiry of period of limitation necessity to issue of notice u/s 143(2) for the purpose of block assessment calculation of period of limitation and exclusion of certain period u/s 153 - Held that - the filing of an application under Section 245C before the Settlement Commission does not create any bar on the Assessing Officer in proceeding with the assessment in the normal course. Therefore there is no question of any exclusion of time when there was no impediment in proceeding with the assessment by issuing and serving upon the assessee a notice under Section 143(2) etc. In fact there was no impediment in even passing an assessment order. - no exclusion of time having been provided for issuance / service of notice under Section 143(2) of the said Act in the Explanation 1 to Section 158BE the notice under Section 143(2) which was issued on 05.07.2004 was clearly beyond time. - since the notice under Section 143(2) was issued beyond the prescribed period of limitation the block assessment order under Section 158BC(c) of the said Act made in pursuance of such a notice was bad in law decided in favor of assessee

Summary

Issues Involved:
1. Validity of notice under Section 143(2) of the Income Tax Act, 1961 issued beyond the prescribed period of limitation.
2. Whether the block assessment order dated 30.07.2004 was barred by limitation if the notice under Section 143(2) was issued within time.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 143(2):
The court examined whether the notice under Section 143(2) of the Income Tax Act, 1961, was issued within the prescribed period of limitation. The notice under Section 158BC was served on the assessee on 03.12.2001, and the assessee filed the return on 31.12.2002. According to the appellant, the notice under Section 143(2) should have been issued by 31.12.2003, but it was issued on 05.07.2004. The appellant argued that the issuance of a notice under Section 143(2) is mandatory and must be within the prescribed period as per the Supreme Court's decision in Hotel Blue Moon. The court agreed, stating that the notice under Section 143(2) is mandatory and must be served within the prescribed time. Failure to do so renders the block assessment order invalid.

2. Limitation Period for Block Assessment Order:
The court addressed whether the block assessment order dated 30.07.2004 was barred by limitation. The respondent argued that the period between the filing of an application before the Settlement Commission (10.01.2003) and the receipt of the order rejecting it (03.06.2004) should be excluded from the limitation period as per Explanation 1 to Section 158BE. The appellant countered, citing the Supreme Court's decision in Hindustan Bulk Carriers, that the filing of an application before the Settlement Commission does not bar the Assessing Officer from proceeding with the assessment. The court agreed with the appellant, stating that the filing of a settlement application does not stay the assessment proceedings, and the Assessing Officer could have issued the notice under Section 143(2) within the prescribed time.

Statutory Provisions and Case Law:
The court examined various statutory provisions, including Sections 143(2), 153, 158BC, and 158BE, and relevant case law. The court reiterated that the notice under Section 143(2) is mandatory for block assessments and must be served within the prescribed time. The court also clarified that the exclusion of time under Explanation 1 to Section 158BE applies only to the period for passing the assessment order, not for issuing the notice under Section 143(2).

Conclusion:
The court concluded that since the notice under Section 143(2) was issued beyond the prescribed period of limitation, the block assessment order under Section 158BC(c) was invalid. Consequently, the court did not need to address the second issue. The impugned order was set aside, and the appeal was allowed with no order as to costs.