2014 (7) TMI 550 - AT - Income Tax

Validity of block assessment Non issue of notice u/s 143(2) for making assessment u/s 158BC validation u/s 292B - Held that - The appeal was filed in the year 1997 and for last so many years it remained pending for some or the other reasons including the evidence of issuance of notice u/s 143(2) by the AO - notices issued u/s. 142 and 143(2) of the Act operate in different fields and they have been incorporated in the Act for specific purposes-they are not substitute for the other Relying upon Virendra Dev Dixit Versus Assistant Commissioner of Income-tax 2010 (4) TMI 733 - Allahabad High Court - for assessing the income of the block period AO is required to issue notice u/s. 143(2) of the Act -AO has not followed the mandatory pre-condition for assessing the income of the block period, so, we quash the order passed by the AO. Also in Assistant Commissioner of Income Tax & Anr. Versus M/s. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT OF INDIA it has been held that assessment completed u/s. 158BC without issuing a notice u/s. 143(2) is illegal and has to be quashed, that notice issued u/s. 142 cannot be equated u/s. 143(2) of the Act, that provisions of section 292BB of the Act are curative in nature and are applicable from 2008 only - the AO had not complied with the mandatory provisions, as envisaged by the provisions of the Act i. e. not issuing the notice u/s. 143(2) within the stipulated time so order passed by him is quashed - the order passed by the AO was without jurisdiction - Decided in favour of Assessee.

Issues Involved:
1. Time-barred order
2. Non-issuance of mandatory notice under Section 143(2)
3. Incorrect block period for assessment
4. Lack of valid sanction from the Commissioner of Income-tax
5. Additions based on discrepancies found during survey
6. Computation of additions being arbitrary and excessive
7. Double addition and only net profit should be added

Detailed Analysis:

1. Time-barred order:
The assessee-firm challenged the block assessment order dated 30.04.1997 for the period 01.04.1993 to 29.03.1996, claiming it was time-barred. The Tribunal did not specifically address this issue in the judgment, focusing instead on the procedural lapses related to the issuance of notices.

2. Non-issuance of mandatory notice under Section 143(2):
The assessee argued that no notice under Section 143(2) was issued, rendering the order invalid. The Tribunal found that the Assessing Officer (AO) had not issued a notice under Section 143(2), which is mandatory for jurisdiction. The Tribunal cited several precedents, including the Hon'ble Supreme Court's decision in Hotel Blue Moon, which emphasized that the issuance of a notice under Section 143(2) is a prerequisite for a valid block assessment. The Tribunal concluded that the absence of such notice invalidated the assessment.

3. Incorrect block period for assessment:
The assessee contended that the assessment was framed for the wrong block period since the firm came into existence only on 01.11.1995. The Tribunal did not specifically address this issue, as the case was decided on the grounds of non-issuance of the mandatory notice under Section 143(2).

4. Lack of valid sanction from the Commissioner of Income-tax:
The assessee claimed that no valid sanction from the Commissioner of Income-tax was obtained as required under Section 158BG. The Tribunal did not delve into this issue, given the primary focus on the procedural lapse regarding the notice under Section 143(2).

5. Additions based on discrepancies found during survey:
The AO made several additions based on discrepancies found during a survey action under Section 133A, including unexplained investment in raw materials, gross profit on unaccounted sales, and excess stock of finished goods. The Tribunal did not address the merits of these additions due to the fundamental procedural flaw in the assessment process.

6. Computation of additions being arbitrary and excessive:
The assessee argued that the computation of the additions was arbitrary and excessive. The Tribunal did not evaluate this claim, as the assessment order was quashed on procedural grounds.

7. Double addition and only net profit should be added:
The assessee contended that the addition of Rs. 12 lakhs as unaccounted cash sales was arbitrary and amounted to double addition, suggesting that only the net profit should be added. The Tribunal did not address this issue due to the invalidity of the assessment order.

Conclusion:
The Tribunal quashed the assessment order due to the AO's failure to issue a mandatory notice under Section 143(2) within the specified time. The Tribunal emphasized that such a notice is a prerequisite for jurisdiction in block assessments, and its absence renders the assessment invalid. Consequently, the Tribunal did not address other issues raised by the assessee, as the order was deemed without jurisdiction. The appeal was allowed in favor of the assessee.

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