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TMI Blog2004 (6) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... o. HP-03/3313 in which seven persons, the present five assessee's and two others were travelling. Since these five assessee's were carrying silver ornaments/silver with them, the police at the check post presumed that these persons were carrying the goods after stealing from somewhere and to verify the genuineness of the ownership, the police detained the jeep as well as these assessee's. The details of persons travelling in the jeep and the quantum of silver ornaments/silver owned by them and accepted by the Revenue to be correct were as under: (i) Not relevant (ii) Not relevant (iii) Subhash Chand Sharma 45.865 kgs. (iv) Satish Chandra 125.438 kgs. silver, 61.840 German silver (Gillat). (v) Kishan Lal 55.295 kgs. silver jewellery (vi) Vinod Kumar 79.271 kg. silver jewellery (vii) Ram Kumar Agarwal 104.891 kgs. silver jewellery 4.1 After verification, the concerned police authorities found that the silver ornaments and silver found in the possession of aforesaid five persons were their own and were being carried for sale. The police also found that these five persons were regular manufacturer of silver ornaments and were carrying on relevant business. Thereafter, the polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad, Hathras. "In pursuance of the provisions of s. 158BC of the IT Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you as individual/HUF/firm/company/AOP/BOI/local authority are assessable for the block period mentioned in s. 158B(a) of the IT Act, 1961. The return should in the prescribed Form No. 2B and be delivered in this office within 15 days of service of this notice, duly verified and signed in accordance with the provisions of s. 140 of the IT Act, 1961." Sd/ (L.R. Singh) Dy. CIT, Circle-l, Aligarh." 4.5 All these appellants/assessees furnished their returns of undisclosed income on 21st June, 2001, each declaring 'nil' undisclosed income. 4.6 During the proceedings of block assessments, the appellants furnished evidence for having purchased the relevant silver ornaments/silver, the details of which are as under: (i) Shri Vinod Kumar furnished the evidence for having purchased the relevant silver ornaments on 1st April, 2000, from M/s Rajendra & Co., Chawk Bazar, Mathura. (ii) Shri Ram Kumar Agarwal furnished the evidence for purchase of silver ornaments from Raghunath Das ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition.' Therefore, I hold that the block period constituted upto the date of requisition, i.e., upto 16th Feb., 2001. It is a settled law that in any case even if the notice suffered from any such kind of mistake (though no such mistake was apparent in the instant case in the notice issued under s. 158BC of the IT Act, 1961), the same does not vitiate the proceedings as a result of such notice and the same cannot be held as illegal or without jurisdiction as has wrongly been challenged by the appellant." 4.11 On merits, the CIT(A) upheld the orders of the AO except that the payments found to have been made after 16th Feb., 2001, were deleted out of undisclosed income. 5. It was in view of the above facts and circumstances of the case that the counsel for the assessees, first of all, submitted that so far as the notice under s. 158BC of the Act in case of Vinod Kumar was concerned, it was invalid because of wrong mentioning of the block period. According to the learned counsel, the block period as per provisions of s. 158B(a) means the previous years rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the Act issued in case of other four assessee's namely, Ram Kumar Agarwal, Subhash Chandra, Satish Chandra and Kishan Lal. 5.3 In view of above submissions the counsel submitted that the block period mentioned in the notices under s. 158BC of the Act in case of all the five present appellants was not correct. 5.3.1 So far as notices under s. 158BC of the Act in cases of Ram Kumar Agarwal, Subhash Chandra, Satish Chandra and Kishan Lal are concerned, the learned counsel submitted that in these notices the status in which they were required to furnish the returns of undisclosed income was also not mentioned. 5.3.2 The learned counsel further pointed out that in case of these four assessee's the mandatory period of "not being less than 15 days" as prescribed under s. 158BC(a)(ii) for furnishing the return of undisclosed income was not allowed. 5.4 In view of above submissions, the learned counsel submitted that the notice under s. 158BC of the Act in case of Sh. Vinod Kumar is invalid notice because the block period mentioned therein is not the correct period and the notices in case of rest of the four assessee's are invalid because of the following defects in the notices: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioning of status or wrong mentioning of block period are concerned the requirement of issuance of notice under s. 158BC of the Act being procedural in nature, are curable defects and do not render either the subsequent proceedings or the consequential assessments for block period nullity. According to him, the defect was simply an irregularity which can be set right by setting aside the assessments and directing the AO to reframe the same after complying with the procedure required. 6.1 With regard to the assessee's objection of invalidity of notices on the ground of not allowing of alleged period of 15 days for furnishing the returns of undisclosed income, the learned Departmental Representative submitted that first of all, the distinction tried to be made by the counsel for the assessees in term "not being less than 15 days" and the term "within 15 days" is not correct. According to him the meaning of both the terms is same. The learned Departmental Representative further submitted that even otherwise, so far as the present cases are concerned all these assessee's had furnished their returns of undisclosed income declaring nil undisclosed income on 21st June, 2001, in response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any requisition was made under s. 132A. and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition." 9.2(b) Provisions of s. 158BE(2)(b) and Expln. 2(b): "158BE(1) ....................... (2) The period of limitation for completion of block assessment in the case of the other person referred to in s. 158BD shall be- (a) ............... (b) Two years from the end of the month in which the notice under this chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997. Explanation 2 : For the removal of doubts, it is hereby declared that the authorisation referred to in sub-s. (1) shall be deemed to have been executed- (a) ................... (b) in the case of requisition under s. 132A. on the actual receipt of the books of accounts or other documents or assets by the authorised officer." 9.3 After considering the aforesaid provisions, I am of the opinion that in the block period in case of requisition under s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction and procedure." "(ii) A notice is said to be illegal/invalid if it has not been addressed in accordance with the provisions of s. 282 and status of the person has not been mentioned. It is a condition precedent for initiation of assessment proceedings for block period that the status of the assessee should be clearly stated in the notice under s. 158BC and, therefore, if the status of the person for whom a notice of 158BC is issued, is not clearly mentioned, the notice shall be invalid, For a notice under s. 158BC to be a valid notice, the assessment year covered by the block period, in a given case, must be also be specified clearly.-Y. Narayana Chetty & Anr. vs. ITO (1959) 35 ITR 388 (SC), CIT vs. Naraindas Dwarkadas (1976) 102 ITR 767 (Bom) and CIT vs. Kurban Hussain Ibrahimji Mithiborwala 1973 CTR (SC) 454: (1971) 82 ITR 821 (SC) applied." "(iii) It is quite evident that (i) the notice under s. 158BC has not been addressed to the principal officer as required under s. 282 of the Act; (ii) status, in which the return of so-called undisclosed income was required to be furnished has not been mentioned; and (iii) 'assessment year', i.e., previous years relevant to asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be vague, can the assessment for block period be quashed as a nullity? 6.1 To decide the first question, we consider it necessary to discuss the provisions of ss. 147, 148 and 149 on one hand, provisions of s. 143(2) and (3), on the other hand, and provisions of ss. 158B, 158BA, 158BB and 158BC, .on the other hand, and for that purpose we would like to extract the relevant portion of the provisions. (a) Sec. 143(2) and 143(3) of the Act: '143. Assessment-(1) (a) ......... (2) Where a return has been made under s. 139, or in response to a notice under sub-s. (1) of s. 142, the AO shall, 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 underpaid 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 there, any evidence on which the assessee may rely in support of the return : Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished. (3) On the day spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn were a return required to be furnished under S. 139. (2) The AO shall, before issuing any notice under this section, record his reasons for doing so.' (d) Sec. 149 of the Act: '149. Time-limit for notice-(1) No notice under S. 148 shall be issued for the relevant assessment year.- (a) in a case where an assessment under sub-s. (3) of S. 143 or s. 147 has been made for such assessment year.' (e) Chapter XIV-B-Special procedure for assessment of search cases Important provisions are contained in ss. 158B, 158BA, 158BB and 158BC which are in the following terms: '158B. Definitions-In this chapter, unless the context otherwise requires: (a) 'block period' means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under S. 132 or any requisition was made under S. 132A and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition: (b) 'Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen day; . (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under cl. (i) of sub-s. (1) of s. 142, setting forth his total income including the undisclosed income for the block period: Provided that no notice under s. 148 is required to be issued for the purpose of proceeding under this chapter: Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BB and the provisions of s. 142, sub-ss. (2) and (3) of s. 143 and s. 144 shall, so far as may be, apply; (c) the AO, on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 has to be served upon the person and (iii) within the limitation prescribed under s. 149, whereas in the later scheme, the prerequisite mandatory requirements before the AO can assume jurisdiction to make assessment of undisclosed income are that: (i) there should have been a search action under s. 132 of the Act or a requisition for books or documents under s. 132A of the Act, which is analogous to the requirement of taxing of escaped income in the earlier scheme. It is only on fulfilment of this condition that the AO gets clothed with the jurisdiction to proceed for making a block assessment of undisclosed income, meaning thereby that the AO is said have jurisdiction to proceed with under the provisions of Chapter XIV-B of the Act. The second required prerequisite condition before proceeding to make assessment under s. XIV-B, and assessment of block period is that the AO has to serve a notice in conformity with the requirement of s. 158BC of the Act upon the person in whose case search has been conducted and in whose case the AO wants to make an assessment under Chapter XIV-B, meaning thereby that as in the case of assessment of escaped income, the AO can proceed to assess th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f required conditions such as an escapement of income or action under s. 132 of the Act, as the case may be. (ii) In both the cases service of a valid notice is a mandatory prerequisite condition before proceeding to make a reassessment or assessment of block period, as the case may be. 7.1 Coming to the various decisions relied upon by the parties, the ratio of the decisions, in brief, is as under: (a) Case law relied upon by the assessee's counsel: (i) Y. Narayana Chetty & Anr. vs. ITO 'The notice prescribed by s. 34 cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the ITO would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void.' (ii) CIT vs. Kurban Hussain Ibrahimji Mithiborwala 'It is well-settled that the ITO's jurisdiction to reopen an assessment under s. 34 depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of notice prescribed by s. 34 of the IT Act for the purpose of commencing proceedings for reassessment, is not a mere procedural requirement it is a condition precedent to the initiation of proceeding for assessment under s. 34. If no notice is issued or if the notice issue is shown to be invalid, then the proceedings taken by the ITO, without a notice or in pursuance of an invalid notice, would be illegal and void see Narayana Chetty vs. ITO Nellore'. (vi) R.N. Sasi Kumar vs. CIT 'It is settled-law that the issue of a notice under s. 148 of the IT Act, 1961, is a condition precedent to the validity of any assessment order to be passed under s. 147 of the Act. It is also settled law that if no such notice is issued or if the notice issued is invalid or not in accordance with tile law or is not served on the proper person in accordance with law, the assessment would be illegal and without jurisdiction. The notice should specify the correct assessment year and should be issued to the particular assessee.' 7.2 The next decision relied upon by the assessee is that of Tribunal, Allahabad, in the case of Prakash Spun Pipe, in which it has been held that the provisions of s. 292B canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val submissions we are of the opinion that as in the case of initiation of reassessment, the proceedings commence with the issue of notice under s. 148 of the Act as held by the Hon'ble High Court of Allahabad in case of Onkar Dutt Sharma vs. CIT (1967) 65 ITR 359 (All) and the service of the notice is a condition precedent for making a valid assessment. Likewise, the proceedings for the assessment for block period commence on the service of notice under s. 158BC and, therefore, the service of "valid" notice under s. 158BC is a condition precedent for making a valid assessment, meaning thereby that if there is no valid notice, there can be no valid assessment and it is because there is a clear-cut distinction between jurisdiction and procedure. 10.2 Further, since the issuance of and service of notice under s. 148 are not mere procedural requirement, but a condition precedent for the validity of reassessment, if in a given case it is established that a notice under s. 148 has not been issued or if issued it is established to be invalid, the subsequent proceedings taken for making assessment would be illegal and void and this view is fully supported by the decision referred to in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed form and be delivered in this office within 15 days of service of notice, duly verified and signed in accordance with the provision of s. 140 of the IT Act, 1961. Sd/- (Illegible) (Dr. Sub hash Chandra) Asstt. CIT Central Circle-II Kanpur" Seal of the office of Central Circle-II, Kanpur 11.2 (b). If we test the validity of the notice dt. 12th Dec., 1996, issued in assessee's case, in the light of aforesaid settled principles, it is quite evident that: (i) The notice has not been addressed to the principal officer as required under s. 282 of the Act. (ii) Status in which the return of so-called undisclosed income was required to be furnished has not been mentioned. (iii) 'Assessment year', i.e., previous years relevant to assessment year failing within the block period, which in a way is an assessment year for the purpose of assessment of the block period, has not been mentioned. On the contrary, the notice specifies the 'definition' of the block period, i.e., assessment years for this purpose, which could not be equated to the specifying of the specific previous years falling within the block period. 11.3 In view of the abovementioned illegalities in the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BC cannot be said to be a valid notice. 11.5 We are further of the opinion that validity of the notice is not saved by the provisions of s. 292B of the Act because the contents of the notice, as far as sum and substance is concerned, are, not in conformity with the provisions of the Act. This proposition finds support from the Tribunal's order in case of M/s Prakash Spun pipe. 12. The next question for our decision, after having found the notice under s. 158BC dt. 12th Dec., 1996, a vague and illegal notice, is that can the assessment framed as a result of such notice be quashed? 12.1 The answer to this question is self-evident, since, for the assumption of jurisdiction to proceed with the making of an assessment for block period, service of a valid notice in terms of provisions of s. 158BC is a prerequisite mandatory requirement, meaning thereby that the AO cannot have jurisdiction to make an assessment for block period if there is no service of a notice under s. 158BC or if the notice so served is found to be bad in law or invalid or vague. Consequently, the assessment framed under any of these conditions shall be bad in the law and void ab initio for want of jurisdiction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same as that of notice under s. 148 and, therefore, as the assessee cannot waive either the notice under s. 148 or the defects in notice under s. 148, the assessee cannot waive the notice under s. 158BC or the defects therein and consequently, as in the case of assessment under s. 147, the service of a valid notice under s. 148 is the prerequisite mandatory condition, the service of valid notice under s. 158BC of the Act is prerequisite mandatory condition, meaning thereby that unless and until a valid notice under s. 158BC of the Act is served upon the assessee (in accordance with the provisions of law), the AO cannot have jurisdiction to proceed to make assessment of block period. I am, therefore, of the opinion that the requirement of service of a valid notice under s. 158BC is a prerequisite mandatory condition for the AO to proceed to make an assessment of block period. 13.2 Even otherwise, I am of the opinion that every notice requiring the assessee to furnish the return of income or of wealth is of mandatory nature, i.e., the valid service of a valid notice, requiring the assessee to furnish the return of income or wealth is prerequisite mandatory requirement for an AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal base for the purpose of surtax. The Tribunal held that only the last instalment of Rs. 16 lakhs could be included in the capital base. On a reference at the instance of the respondent-company, the High Court held that the entire amount of Rs. 50 lakhs could be included in the capital base. On appeal to the Supreme Court: Held, reversing the decision of the High Court (i) that the whole of the term loan of Rs. 50 lakhs was repayable within a period of seven years and the term loan did not qualify for inclusion in the capital base under r. 1(v): (ii) That, however, since the Department had not challenged the order of the Tribunal granting relief to the respondent to the extent of Rs. 16 lakhs, only the balance of Rs. 34 lakhs could not be included in the capital base of the respondent-company. Decision of the Calcutta High Court in Braithwaite & Co. (India) Ltd. vs. CIT (1978) 111 ITR 825 (Ca1) reversed on this point." 14.1(b) In case of New India Industries Ltd., the Hon'ble Supreme Court again had a chance to consider the term "during a period of not less than 7 years" as appearing in the proviso to cl. V of r. 1 of Sch. II to the Companies (Profits) Surtax Act, 1964. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsequent correspondence between the parties which resulted in the modification of the agreement did not suffer from any infirmity and that the decision of the High Court was correct" 14.1(c) In case of Mir Iqbal Hussain, the Hon'ble High Court has held a notice under s. 25 r/w s. 15(3) of the UP Agrl. IT Act providing a period of not being less than 30 days to be invalid and the requirement of notice as mandatory requirement. The headnotes read as under: "A notice requiring a person to furnish a return the next day when the provision of the statute under which the notice is served is that the assessing authority may serve a notice on a person requiring such person to furnish a return within such period, not less than 30 days, as may be specified in the notice, is not a valid notice. The mere fact that the person upon whom such a notice was served, furnished a return the next day, would not prevent him from objecting to the validity of the notice on the ground that it did not comply with the law. The issue of a valid notice is a condition precedent to the assumption of jurisdiction to reassess escaped income under s. 34." 15.1 These two terms were also the subject-matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se pf making the assessment does not, in our opinion, cure the defect-that initially lay in the notice." 15.3(a) It was in view of above facts and circumstances that the Hon'ble, the then Chief Justice, Sir Leonard Stone, answered the question referred to the Court in the negative by observing as under: "I agree with that statement in the judgment of the Tribunal, computation of period of time has given rise to a great many cases, both in this country and in England. Time can be infinitely divided. There is no fraction of second, which is so short in duration that it cannot be divided into something smaller. In my judgment, expressions 'within thirty days' and 'not less than thirty days' are two quite different things. 'Within thirty days' is within two points of time, one at which the period begins and the other at which it expires. On the other hand, 'not less than thirty days' is outside these two points of time. There must be an interval of not less than thirty days and that means thirty days clear In. The period must continue beyond the expiration of the stated time, whereas 'within' the stated period must mean what it says, something less than the moment of expiration. In m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays" is concerned, I am of the opinion that answer to this question/Departmental Representative's plea is clear from the decision of Hon'ble High Court of Allahabad in case of Mir Iqbal Hussain and of High Court of Bombay in the cases of Commr. of Agrl. IT vs. Ram Kuvar & Ors. (1983) 141 ITR 85 (Bom) and in the case of Asstt. CIT vs. Ekbal & Co., as well as of the Hon'ble Supreme Court, which are discussed as under: (i) Commr. of Agrl. IT vs. Ram Kuvar & Co.: The facts of this case were that a notice under s. 41 was issued to the assessee in respect of the asst. yr. 1962-63 on 7th March, 1967, and was enclosed along with another notice bearing the same date. As per the notice, the assessee was called upon to produce his books and other documents on 25th March, 1967, and to show cause as to why he should not be assessed under s. 41 and why penalty for non-submission of returns should not be imposed. The assessee attended before the Agrl. ITO on the 25th March, with his books and documents. On the 27th of March, 1967, he submitted his returns. On 31st March, 1967, the Agrl. ITO passed an order of assessment. In express terms it began by stating that it was an order of assessment un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been made under s. 23. It was, however, made under s. 41 and was, therefore, invalid. The order of assessment was invalid whichever way it was considered'." (ii) Decision in case of Asstt. CIT vs. Ekbal & Co. has been discussed in para Nos. 15.1 to 15.3(b) above (iii) Decision in case of Mir Iqbal Hussain has been discussed in para 14.1 (c) above. 18. After having considered the facts and circumstances of the case and aforesaid decisions, I have no hesitation to hold that the term "a period not being less than 15 days" and the term "within a period of 15 days" are all together not only different but effects the jurisdiction of the authorities as well as the rights of subjects. The earlier term, i.e., the term "a period not being less than.... days" specifies that the period allowed will be more than the number of days, i.e., it will start after the expiry of the number of days mentioned therein, whereas the later term, i.e., "within a period of...... days" specifies that the period allowed will end at the click of last minute of the last day. This difference, in my opinion, in these two terminologies is of a great significance because it may affect the jurisdiction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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