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2021 (4) TMI 467 - HC - Income TaxAssessment u/s 153C - whether a notice under Section 143(2) of the Act is to be mandatorily issued prior to completion of an assessment in consequence of a notice under Section 153C? - Denial of natural justice - HELD THAT - The difference in the language of Section 158 BC and Section 153A must be attributed sufficient weightage. While there is specific reference to the provisions of Section 143(2) in Section 158 BC, such reference is conspicuous by its absence in Section 153A. Section 153A only states that an assessment in terms thereof shall be completed in terms of the provisions of the Income Tax Act, 1961 as if such return were a return required to be furnished under Section 139. It would thus suffice that in framing an assessment under Section 153A, due regard must be given to the principles of natural justice, which requirement will stand satisfied either by issuance of notice under Section 143(2) or a questionnaire under Section 142(1). In this case, a questionnaire has been issued.Thus in agreement with the ratio of the decisions cited answer this legal issue in favour of the revenue. Adherence to the principles of natural justice - The relevant sequence of dates and events is that a notice under Section 153C was issued on 25.10.2019 in regard to a search conducted in 2017. Unfortunately neither the affidavit filed in support of the writ petitions nor the impugned orders of assessment anywhere mention the date of search and it was only in the course of the submissions made orally that the date of search was noted by me as 07.11.2017. The limitation for completion of assessments would be the 31st of December, 2019. The impugned orders state that centralization of the assessments took place only on 24.09.2019 and pursuant to the centralization, notices under Section 153C were issued on 25.10.2019, leaving barely a period of a little over two months for completion of six search assessments. The notice under Section 153C called upon the petitioner to file returns within a period of 8 days from service of the notice and the returns have been filed on 07.12.2019, in all cases, beyond the period granted by the respondent. On the same date a questionnaire under Section 142(1) has been issued calling for various particulars in response to which the petitioner has filed replies dated 13.12.2019 furnishing some of the particulars sought. The impugned orders have come to be passed on 30.12.2019 without further reference to the petitioner. In respect of batch-1, dealing with Assessment Years (AY) 2012-13, 2013-14, 2014-15 and 2017-18, the impugned assessments proceed on the basis that the petitioner has purchased certain immovable properties, which were not admitted in the petitioner s returns of income. The purchase cost has come to be added as undisclosed investment. The questionnaire issued notice under Section 142(1) called for various particulars such as a brief note on the activities carried out during the relevant year, a copy of computation of income, statement of gross profit, audited financials, details of movable and immovable assets, details of sundry debtors and creditors, bank statements and documentary evidences for remittance of statutory liabilities. The petitioner has stated that all details of movable and immovable properties have been disclosed in the return of income filed. It was thus incumbent upon the respondent, to have, in the aforesaid circumstances issued a show cause notice putting the petitioner to notice of the properties of which he appears to have collated information found reflected in the order of assessment, and the purchase cost of which, have been added as undisclosed income. Such details however, findj mention only in the impugned order and no opportunity has been furnished to the petitioner, prior to passing thereof, which in my view, constitutes a violation of the principles of natural justice. AY 2015-16 and AY 2016-17 - Assessments have certainly been completed in haste. When the search has been completed on 07.04.2017, there was no necessity to have waited till 20.09.2019 for centralization, and issue notices under Section 153C only on 25.10.2019. Any delay on the part of the petitioner in responding to the notices appears insignificant in the face of the enormous delay by the Income Tax Department in taking stock of the search material, centralizing the cases and issuing the notices in time, particularly, since it is their case that the assessment get time barred on 31.12.2020. The petitioner has, for AY 2015-16 and AY 2016-17, specifically sought more time to make his submissions on the merits of the matter, relating to alleged undisclosed income from quarrying operations and seigniorage fee. The respondent officer has, in making additions as aforesaid, simply ignored this request. The Investigating officer is thus, empowered to refer an issue to valuation even during the process of search. However, such report has to be put to the assessee and his full and complete response sought prior to using the same against him. This has not been done in the present case. Thus, while the reference to valuation is in order, the decision making process is flawed and in violation of the principles of natural justice. There is no explanation set forth in counter or at the time of hearing to explain why the assessment had been taken up for completion, at the very fag end of limitation and for this reason, I believe I would have been justified, had I annulled the assessments, as a second innings is not to be granted to the department, merely as a matter of rote. However, and solely as a matter of prudence, I set aside the assessments with a direction to the respondent to issue notices afresh, hear the petitioner and pass orders of assessments within a period of eight (8) weeks from today, with sufficient time being given to the petitioner to putforth his submissions on merits.
Issues Involved:
1. Whether a notice under Section 143(2) of the Income Tax Act is mandatory prior to the completion of an assessment following a notice under Section 153C. 2. Whether the principles of natural justice were satisfied in the given cases. 3. Whether the Assessing Authority was correct in relying on a valuation report obtained by the investigating officer post-search proceedings. Issue-Wise Detailed Analysis: 1. Mandatory Notice under Section 143(2): The petitioner argued that a notice under Section 143(2) is mandatory before completing an assessment under Section 153C, relying on the Supreme Court’s judgment in Assistant Commissioner of Income Tax vs. Hotel Bluemoon. The Supreme Court had held that the issuance of a notice under Section 143(2) is mandatory for assessments under Section 158BC. However, the revenue contended that the language of Section 158BC is different from Section 153C, which does not specifically mandate a notice under Section 143(2). The High Court agreed with the revenue's position, noting that Section 153A only requires that the assessment be completed in accordance with the provisions of the Act, without specifically mandating a notice under Section 143(2). The Court concluded that the issuance of a questionnaire under Section 142(1) suffices to meet the principles of natural justice, thus answering this issue in favor of the revenue. 2. Principles of Natural Justice: The Court examined whether the assessments adhered to the principles of natural justice. For the first batch of writ petitions (AY 2012-13, 2013-14, 2014-15, 2017-18), the Court found that the petitioner was not given an opportunity to respond to the details of properties and purchase costs added as undisclosed income. This lack of opportunity constituted a violation of natural justice. For the second batch (AY 2015-16, 2016-17), although a show cause notice was issued, the assessments were completed in haste without giving the petitioner adequate time to make submissions on the merits. The Court criticized the delay by the Income Tax Department in centralizing the cases and issuing notices, which left insufficient time for the petitioner to respond. 3. Reliance on Valuation Report: The petitioner challenged the reliance on a valuation report obtained post-search. The Court noted that while the Investigating Officer is empowered to refer issues to valuation during the search process under Section 132(9D), the report must be shared with the assessee, and their response must be sought before using it against them. This procedural step was not followed, rendering the decision-making process flawed and in violation of natural justice. Conclusion: The Court set aside the assessments due to violations of natural justice and procedural flaws. It directed the respondent to issue fresh notices, hear the petitioner, and pass new assessment orders within eight weeks, ensuring sufficient time for the petitioner to present their submissions on merits. The writ petitions were disposed of accordingly, with no order as to costs.
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