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TMI Blog2010 (7) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the block assessment order dated 30.07.2004 was barred by limitation? 2. To appreciate the pleas taken by the parties, it would be necessary to set down the factual position. A search was conducted on 18.01.2001 and it was said to have been completed in March 2001. The notice under Section 158BC of the said Act was served on the assessee on 03.12.2001 and the assessee filed the return on 31.12.2002. According to the learned counsel for the assessee / appellant, the notice under Section 143(2) of the said Act read with the provisions of Section 158BC(b) could have been issued by 31.12.2003, i.e., within the period of twelve months from the end of the month in which the return was filed. The return having been filed on 31.12.2002, according to the learned counsel for the appellant, the notice under Section 143(2) ought to have been issued by 31.12.2003. The learned counsel further submitted that the notice under Section 143(2) was, in fact, issued much later, i.e., on 05.07.2004. The block assessment order under Section 158BC (c) was also passed later, on 30.07.2004, when, in fact, according to the provisions of Section 158BE, the order should have been passed by 31.01.2003. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Commissioner. The assessment proceedings were completed on 30.07.2004 and, therefore, in view of the said provisions with regard to exclusion of time, the block assessment had been completed within time. She also submitted with reference to the decision of the Supreme Court in the case of Auto & Metal Engineers and Ors. v. Union of India (UOI) and Ors.: 229 ITR 399 (SC) that the notice under Section 143(2) was an integral part of the assessment itself and once there is exclusion of time for making an assessment order and completing the assessment, the exclusion of time would also be applicable to the issuance of a notice under Section 143(2). 5. That learned counsel for the appellant / assessee, in rejoinder, drew our attention to the Supreme Court decision in the case of CIT v. Hindustan Bulk Carriers: 259 ITR 449 (SC), wherein the Supreme Court held that the mere filing of an application by the assessee before the Settlement Commission would have no adverse effect on the proceedings of assessment or recovery pending or initiated against the assessee under the regular procedure for assessment and recovery of dues under the said Act. Relying upon these observations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he did not issue the notice under Section 143(2) within the time prescribed would be fatal to the assessment proceedings. He also submitted that the exclusion of time, which is referred to in Section 158 BE [Explanation 1, clause (iv)] applies only to the passing of an order under Section 158 BC and does not extend to the issuance of a notice under Section 143(2). 7. Let us examine the statutory provisions. Section 143(2), as applicable in the present case, to the extent relevant, is as under:- 143. Assessment.-(1) xxxx xxxx xxxx xxxx (2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,- (i) xxxx xxxx xxxx xxxx (ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return: Provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Section 158BC(c) stipulates as under:- "158BC. Procedure for block assessment.- xxxxxx xxxxxx xxxxxx xxxxxx (c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment; xxxxxx xxxxxx xxxxxx xxxxxx The time limit for completion of block assessment is prescribed in Section 158BE. Sub-section (1) of the said Section 158BE and Explanation 1 thereto is relevant for our purposes. They are set out hereinbelow:- "158BE. Time limit for completion of block assessment.- (1) The order under section 158BC shall be passed— (a) within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; (b) within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me has been derived, the additional amount of income-tax payable on such income and such other particulars, as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner provided in the said Act. The procedure to be followed on receipt of an application under Section 245C is given in Section 245D, which, to the extent relevant and as applicable in the present case, is set out hereinbelow:- "245D. Procedure on receipt of an application under section 245C. - (1) On receipt of an application under section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission, shall, where it is possible, by order, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made under section 245C: Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction upto the date on which the application is rejected, or, not allowed to be proceeded with, or, declared invalid, or, not allowed to be further proceeded with, as the case may be. 14. An analysis of the above provisions indicates that in the course of regular assessments under Chapter XIV of the said Act, if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed the assessee's loss or has not underpaid the tax in any manner, serve on the assessee a notice under Section 143(2) of the said Act requiring the assessee, on a date to be specified therein, either to attend his office or to produce or cause to be produced any evidence on which the assessee may rely in support of the return. Importantly, the proviso to Section 143(2) stipulates that no such notice could be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished. Thus, a specific time period has been prescribed under the proviso to Section 143(2) for serving a notice under the said provision on the assessee. If such a notice is not served within the period of limitation pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings under Section 158 BC by virtue of Section 158 BC(b). At this juncture itself, it would be necessary to point out that this court in CIT v. Pawan Gupta (supra) observed as under:- '37. …We are of the view that Section 143(2) is a mandatory provision whether we look at it from the standpoint of a regular assessment or from the standpoint of an assessment under chapter XIV B. … "40. Thus, we are of the clear view that where the assessing officer is not inclined to accept the return of undisclosed assessment filed by the assessee issuance of a notice under Section 143(2) is a prerequisite for framing the block assessment order under chapter XIV B of the Income Tax Act, 1961. We are also of the view that if an assessment order is passed in such a situation without complying with Section 143(2), it would be invalid and not be merely irregular. 16. This view has been confirmed by the Supreme Court in the case of Hotel Blue Moon (supra). The question before the Supreme Court was whether service of notice on the assessee under Section 143(2) within the prescribed period of time was a pre-requisite for framing the block assessment under Chapter XIV-B of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine it first. In Deen Dayal Didwania (supra), a Division Bench of this court was confronted with two prayers made in a writ petition. The first prayer was to direct the Settlement Commission to proceed expeditiously with the application moved by the petitioners under Section 245C of the said Act. The second prayer was for a direction from this court to the Income-tax Officer, not to proceed with the case. We are concerned more with the manner in which this court dealt with the second prayer which essentially related to the question as to whether the income-tax authorities could proceed with the assessment proceedings while the Settlement Commission was contemplating whether to proceed with an application under Section 245C or to reject the same. Since the case before the Division Bench of this court in Deen Dayal Didwania (supra) related to regular assessment proceedings, the provisions of Explanation 1 to Section 153 were considered. Clause (v) of the said Explanation, which dealt with the cases where an application before the Settlement Commission is made, was specifically referred to. The Division Bench observed as under:- "2. … We have examined the provisions of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and that it is only after the Settlement Commission allows the petition to be proceeded with that the said Commission exercises power of settlement. The Supreme Court observed as under:- "Before the Commission decides to proceed with the petition, it cannot complete assessment in respect of a return which is pending before the Assessing Officer or even cannot act as an appellate or revisional authority. … xxxx xxxx xxxx xxxx xxxx "… That being the position, the income-tax authorities are free to proceed in the prescribed manner till the Commission decides to proceed with the petition. … 22. From the above discussion, it is clear that a notice under Section 143(2), where the Assessing Officer does not agree with the block return filed by an assessee in block proceedings, is a mandatory requirement of law and it must be served upon the assessee within the period stipulated in the proviso to Section 143(2) of the said Act. If that is not done, the block assessment order passed pursuant thereto would be invalid and would not be a mere irregularity. It is also clear that the filing of a settlement application under Section 245C of the said Act does not, by itself, amount to any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court. The writ petitions were, therefore, dismissed by the learned single Judge of the Punjab & Haryana High Court and the Letters Patent Appeals preferred before a Division Bench of that High Court were also dismissed. It is against the said dismissal of the appeals by the Division Bench of the Punjab & Haryana High Court that the matter was taken further before the Supreme Court. The plea taken by the assessees before the Supreme Court was that only the passing of the final order of assessment had been stayed by virtue of the Delhi High Court's order dated 23.11.1971 and that the assessment proceedings as such had not been stayed and, therefore, it was open to the income-tax officer to proceed with the income-tax proceedings during the pendency of the writ petitions and since he failed to do so, he could not take any steps in the assessment proceedings by issuing notices under Sections 142 and 143 of the said Act after 31.03.1972, when the assessment became time barred. This plea was rejected by the Supreme Court. Explanation 1 to Section 153, as was applicable in respect of the assessment years 1967-68, 1968-69 and 1969-70, was as under:- "Explanation 1. In computing the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23-11-1971 in the writ petitions, it must be held that there was a stay of assessment proceedings for the purpose of Explanation I in Section 153. The High Court, in our opinion, was right in holding that the period during which the said stay order passed by the Delhi High Court was in operation has to be excluded for the purpose of computing the period of limitation for making the order of assessment and the appeals are liable to be dismissed. 24. As pointed out above, Ms Bansal had placed great reliance on the observations of the Supreme Court in the case of Auto & Metal Engineers (supra). She had argued that the assessment proceedings involve all the steps till the making of the assessment order and, therefore, when time has been specifically excluded in respect of the making of an assessment order under Section 158BC(c) by virtue of the Explanation 1 to Section 158BE, such exclusion of time would also relate to any part of the assessment proceeding. Consequently, it was her submission that time would also get excluded for the purposes of not only making the assessment order, but also issuing the notice under Section 143(2). 25. We cannot agree with the submission made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings under Chapter XIV-B. This much is abundantly clear from the decision of this court in the case of Pawan Gupta (supra) and the decision of the Supreme Court in the case of Hotel Blue Moon (supra). 27. Secondly, because of the fact that no separate periods of limitation were prescribed for service of a notice under Section 143(2) and making of an assessment order under Section 143(2), the Supreme Court in the case of Auto & Metal Engineers (supra) was merely concerned with the limitation for the making of an assessment order and the question of limitation for serving a notice under Section 143(2) of the said Act was not, at all, in the contemplation of the Supreme Court. Therefore, the decision of the Supreme Court in Auto & Metal Engineers (supra) would not apply to the facts and circumstances obtaining in the present case and, particularly when a specific time limit has been introduced subsequently for service of a notice under Section 143(2) of the said Act. 28. Thirdly, the decision in Auto & Metal Engineers (supra) is also distinguishable because it concerned itself with the interpretation of the expression "assessment proceeding" as appearing in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 30. Consequently, 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. It is also not a case where a stay order or an injunction had been passed by any court and, therefore, the question of construing the issuance of a notice as a part of an "assessment proceeding" does not arise at all in the present case. The mandatory requirement of law of service of a notice under Section 143(2), within time, not having been complied with, the block assessment order made pursuant thereto would be bad in law. The exclusion of time stipulated in clause (v) of Explanation 1 to Section 158BC would not be applicable in respect of service of notice under Section 143(2) of the said Act inasmuch as it relates only to the computation of the period of limitation for passing an order under Section 158BC(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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