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2016 (12) TMI 745 - HC - Income TaxValidity of notice under Section 158 BC (a) - Held that - Notice under Section 158 BC (a) as well as under Section 158 BC (b) are mandatory. Notice under Section 158 BC (a) has a different intent and requirement of notice under Section 143(2) read with 158 BC (b) is with different intent. Two are mutually exclusive but both have to comply with. In the present case, Tribunal has held that no valid notice under Section 158BC was given to assessee and provision being mandatory block assessment made by Assessing Officer is illegal. Judgement of Bombay High Court in Shirish Madhukar Dalvi Vs. Assistant Commissioner of Income Tax and others 2006 (7) TMI 145 - BOMBAY High Court cannot help Revenue in view of law laid down by Supreme Court in M/s Hotel Blue Moon (2010 (2) TMI 1 - SUPREME COURT OF INDIA ), wherein notice under Section 158 BC (a) and (b) read with 143(2) of Act, 1961 have been held mandatory. Questions formulated above against Revenue and in favour of assessee
Issues Involved
1. Validity of Notice under Section 158BC of the Income Tax Act, 1961. 2. Equivalence of Notice under Section 158BC to Notice under Section 148. 3. Justification of actions taken under Sections 131 and 131(1A). 4. Legality of handling seized material by the Assistant Commissioner of Income Tax. 5. Requirement of hearing before approval under Section 158BG. 6. Deletion of additions regarding various financial discrepancies. Detailed Analysis 1. Validity of Notice under Section 158BC The court examined whether the notice issued under Section 158BC was valid and compliant with statutory requirements. The Tribunal found that the notice dated 12.12.1996 was not addressed to the Principal Officer, did not specify the status of the person, and did not clearly mention the assessment year. These defects rendered the notice vague and illegal. The Tribunal held that a valid notice under Section 158BC is a jurisdictional requirement and mandatory for block assessment, similar to the notice under Section 148. The court upheld this view, confirming that the notice under Section 158BC (a) is mandatory and its absence invalidates the block assessment. 2. Equivalence of Notice under Section 158BC to Notice under Section 148 The Tribunal and the court both held that a notice under Section 158BC is akin to a notice under Section 148. The Tribunal reasoned that both notices serve a similar purpose—initiating proceedings for reassessment or assessment of undisclosed income. The court agreed, emphasizing that the validity of a notice under Section 158BC should be tested with the same rigor as a notice under Section 148, as both are jurisdictional prerequisites. 3. Justification of Actions under Sections 131 and 131(1A) The court did not specifically address this issue in detail, focusing instead on the validity of the notice under Section 158BC. However, it implied that if the foundational notice under Section 158BC is invalid, subsequent actions under Sections 131 and 131(1A) would also be questionable. 4. Legality of Handling Seized Material by the Assistant Commissioner of Income Tax The Tribunal noted that the seized material could not be handed over to the Assistant Commissioner of Income Tax without proper authorization, as the term "Income Tax Officer" had been substituted by "Assessing Officer" by the Taxation Laws Amendment Act, 1987. The court did not delve deeply into this issue, given that the primary focus was on the validity of the notice under Section 158BC. 5. Requirement of Hearing Before Approval under Section 158BG The court did not specifically address whether a hearing is required before the Commissioner grants approval under Section 158BG. The primary concern was the validity of the notice under Section 158BC, which if invalid, would render subsequent approvals moot. 6. Deletion of Additions Regarding Various Financial Discrepancies The Tribunal had deleted several additions made by the Assessing Officer, including ?3,42,357 for investment in the factory building, ?1,53,28,028 for duplicate sets of accounts, ?18,00,000 for working capital, ?33,85,210 for undisclosed business income, ?21,99,000 for excess stock of scrap, and ?89,33,128 for unexplained cash introduction. The court upheld the Tribunal's decision, primarily because the invalid notice under Section 158BC rendered the entire block assessment process void. Conclusion The court confirmed the Tribunal's judgment that the notice under Section 158BC was invalid and mandatory for block assessment. This invalidity rendered the entire block assessment illegal, leading to the dismissal of the appeal with costs quantified at ?25,000. The court's decision emphasizes the importance of strict compliance with statutory requirements for notices in tax assessments.
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