Edifice of assessment cannot be created on foundation of a time-barred notice issued u/s 143(2)
The service of notice within a period of twelve months from the end of month in which return is filed is sine qua non for proceeding with the block assessment; if an assessment, in contravention of the provisions of proviso to section 143(2), is made, the same will be a nullity and not an irregular assessment.
ITAT, MUMBAI BENCHES 'B', MUMBAI
DCIT v. National Refinery Pvt. Ltd.
IT(SS) A. No. 347/Mum/2003
March 5, 2010
RELEVANT EXTRACTS:
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5. Section 158BC(b) provides that where any search has been conducted u/s.132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, apply. One of the important questions raised in this appeal is whether the proviso to section 143(2) applies to the block assessment also. In other words is it incumbent upon the AO to issue notice u/s 143(2) within the prescribed period of twelve months from the end of the month in which the block return is filed?
8. As against the above view in favour of the assessee that the issuance of notice within the time prescribed under proviso to section 143(2) is a mandatory requirement for framing of block assessment, a contrary view also came to be
expressed by some judicial forums. The stand of the Revenue remained that the proviso to section 143(2) did not apply to the block assessment proceedings inasmuch as clause (b) of section 158BC included the words "so far as may be" in the context of applicability of section 143(2) and hence even if no notice was issued within twelve months from the end of the month in which the return was furnished, the assessment proceedings could validly go on. Eventually this issue has been recently set to rest by the Hon'ble Apex court in the case of ACIT Vs. Hotel Bluemoon [2010-TIOL-08-SC-IT]. The facts of the case are that search action was taken against that assessee u/s.132 of the Act. Whereas the assessee argued that issuance of notice u/s.143(2) of the Act within the prescribed time for the purpose of block assessment was mandatory for the assessing authority, the department took a view that the notice u/s.143(2) was not an essential requirement in the block assessment. The Tribunal affirmed the decision of the CIT(A) that non-issuance of notice u/s.143(2) was only a procedural irregularity and the same was curable. The Hon'ble Gauhati High Court did not concur with the view expressed by the Tribunal that the issuance of notice u/s.143(2) within the prescribed time limit was not an essential requirement for the purposes of making block assessment. The Revenue took up the matter before the Hon'ble Supreme Court. Vide judgment dated 2.2.2010, the Hon'ble Apex Court has held that if an assessment is to be completed u/s.143(3) r.w.s. 158BC, notice u/s.143(2) should be issued within one year from the end of the month in which block return is filed. It has further been held that the omission on the part of the assessing authority to issue notice u/s.143(2) cannot be a procedural irregularity and the same is not curable. With the advent of this judgment from the Hon'ble Summit Court, now it becomes unambiguous that the provisions of section 143(2) are applicable to the block assessment. Since issuance of notice u/s 143(2) is an essential requirement for making block assessment, such notice has necessarily to be issued with the time prescribed under proviso to section 143(2). Thus the service of notice within a period of twelve months from the end of month in which return is filed is sine qua non for proceeding with the block assessment. If no notice is issued u/s.143(2) within the prescribed period, the Assessing Officer will have to accept the returned income and he cannot be allowed to go ahead with the assessment. If an assessment, in contravention of the provisions of proviso to section 143(2), is made, the same will be a nullity and not an irregular assessment.
9. Adverting to the facts of the instant case it is found as an undisputed fact that the assessee filed its return for the block period on 15.5.2000. Going by the mandate of proviso to section 143(2), notice u/s.143(2) could have been validly issued on or before 31.5.2001. If the Revenue's contention is accepted that notice u/s.143(2) issued on 16.5.2000 was served upon the assessee through registered post, then of course such notice will be in time and no infirmity can be found in the block assessment order on this count. If however the view point of the assessee is accepted that the notice u/s.143(2) was issued for the first time on 24.12.2001, then such a notice would be time barred. Now we need to examine if any notice u/s.143(2) dated 16.5.2000 was issued and served on the assessee. The Revenue's view point is that notice u/s.143(2) dated 16.5.2000 was issued and served on the assessee by registered post acknowledgement due. In support of this claim the Revenue has placed on record a copy of Postal Department acknowledgement at pages 6 and 7 of the paper book. On the perusal of these two pages it is found that the name of the assessee is mentioned against Sl.no.A-715. On the right side of this
page there is stamp impression of the Department of Posts which bears the date of 22.5.2000. The learned Departmental Representative canvassed the view that since the notice u/s.143(2) dated 16.5.2000 was sent through registered post, it may be deemed to be proper service. He relied on the following cases to bolster his submission that service of notice through Registered Post A.D. which was not received back unserved, raised the presumption of the service of notice on the assessee :-
(i) CIT Vs. Vins Overseas India Ltd. [(2008) 305 ITR 320 (Del.)]
(ii) CIT Vs. Yamu Industries Ltd. [(2008) 306 ITR 309 (Del.)]
(iii) CIT Vs. Madhsy Films P.Ltd. [(2008) 301 ITR 69 (Del.)]
(iv) CIT Vs. Shanker Lal Ved Prakash [(2008) 300 ITR 243 (Del.)]
14. Certain salient features of this case need to be taken note of –
(i). Block return was filed on 15.5.2000. According to section 143(2) at the relevant time : `Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer 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 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 there, any evidence on which the assessee may rely in support of the return'. Ordinarily it is only on the perusal of the return of income filed by the assessee that the Assessing Officer requires the attendance or production of some evidence in support of the assessee's claim. The filing of return on a Receipt counter on one day and the issuance of notice u/s.143(2) on the very next day would mean that all the steps from the receipt of return on the Receipt counter till the issuance of notice got completed within one day's time. Such steps would include the receipt of return on the Receipt counter of the department; the Receipt clerk, after entering the necessary particulars in the relevant register, handing over the same to the office of the concerned Assessing Officer; the office of the AO receiving it from the receipt clerk; placing of such return before the AO; the AO pursuing the return and all the accompanying documents; jotting down the points on which the explanation of the assessee is required ; finalizing such points and accordingly sending the notice. It is vital to note that it is a case of block assessment and the return was filed pursuant to the search action. It is but natural that before issuance of notice u/s.143(2) the Assessing Officer will take note of Appraisal Report of search and other relevant documents vis-Ã -vis the particulars disclosed in the return. It is difficult, if not impossible, to issue notice u/s.143(2) on the very next
day of the filing of the block return.
(ii). The Revenue has made out a case that the notice dated 16.5.2000 was issued u/s.143(2). The copy of said notice is available at page 4 of the paper book. No doubt such notice is shown as dated 16.5.2000, but against Column No.1 giving the date on which the return for the block period was filed, it has been mentioned as 15.11.2000. It is axiomatic that notice u/s.143(2) can be issued only when the return has already been filed. It is an admitted position that the assessee filed the block return on 15.5.2000. As against that the said notice dated 16.5.2000 mentions the date of return as 15.11.2000. Moreover the notice containing reference to return filed on 15.11.2000 can be issued only after such date and not prior to that. Hence it is impossible for the said notice dated 16.5.2000 to have reference to the return filed on 15.11.2000, which is a later date.
(iii). Even if we go ahead with the presumption that the notice, as contended by the Revenue, was actually issued on 16.5.2000 then it would have contained some requirements of the Assessing Officer supposed to be furnished in support of certain claims made by the assessee. Along with the said notice u/s.143(2) dated 16.5.2000, copy of which is available in the Departmental Paper Book, there is no reference for the production of any accounts / document or any particular information. Except for mentioning the date on which the attendance is required on 6.6.2000, it is silent on the documents or evidence required from the assessee in support of the claims made in the block return. On the contrary we find that the
notices dated 20.12.2001 issued on 24.12.2001, copy placed at pages 1 to 3 of the paper book, has a questionnaire requiring the assessee to tender explanation on various documents found at the time of search. This questionnaire is running into two pages.
(iv). According to the department it issued second notice u/s.143(2) on 24.12.2001 whereas according to the assessee that was only the first and the only notice. It is not understandable as to how the swiftness shown by the Assessing Officer in issuing notice u/s.143(2) on the very next day from the filing of the return on 16.5.2000 came to halt all of a sudden and it was only after a time gap of more than one and half years that the so called second notice was issued on 24.12.2001, against which the assessment was completed on 31.1.2002. If the Assessing Officer had been genuinely so fast in examining the return of the assessee and issuing notice u/s.143(2) on the next day, then he would have taken some action against the assessee for non-compliance and not kept quiet for such a long period in issuing the second notice requiring compliance by the assessee just a week ahead of the limitation period for the completion of block assessment.
(v). There is no reference, in the assessment order, to the said alleged notice dated 16.5.2000 issued u/s.143(2). Further when the assessee was called upon to be present on 6.6.2000, there should have been some reference, at least to the non- attendance of the assessee, in the assessment order. (vi). Order sheet is a record of proceedings, which is placed in the beginning of the file recording various dates on which the proceedings for assessment continued along with the requirements called for by the Assessing Officer from
time to time during the course of assessment. It is obligatory on the part of the Assessing Officer to mention the gist of proceedings in the Order sheet starting with the date of filing of the return up to the finalization of the assessment. Wherever some details are called for or case is adjourned to next date, the signature of the assessee or its representative is taken. This Order sheet also contains reference of all the notices issued from time to time by the A.O. In order to conclusively resolve the controversy about the issuance of the said notice u/s 143(2) on 16.5.2000, the Bench directed the learned Departmental Representative to produce the assessment record. Such record was produced before the Bench. Albeit the order sheet is there but the learned Departmental Representative could not point out any entry in the Order sheet of the A.O. for the issuance of the alleged notice on 16.5.2000. 15. The above discussed points in the foregoing para do go to show that no notice u/s.143(2) , as claimed by the Revenue authorities, was issued on 16.5.2000. Only the notice dated 20.12.2001 was served on the assessee on 24.12.2001. As the block return was filed on 15.5.2000 and according to the Hon'ble Supreme Court in Hotel Bluemoon (supra) the provisions of section 143(2) are attracted in the block assessment, it was mandatory for the AO to serve notice on the assessee on or before 31.05.2001. Since the only notice dated 20.12.2001 issued by the A.O. u/s.143(2) was served upon the assessee on 24.12.2001, the same became time barred. It is simple and plain that the edifice of the assessment cannot be created on the foundation of a time barred notice issued u/s.143(2). The resultant proceedings flowing out of such invalid notice cannot have legal legs to stand on. We, therefore, hold that the consequential block assessment order passed in this case deserves to be and is hereby quashed. In view of our decision on this legal ground raised by the assessee in its Cross objection, there is no need to dispose off the departmental appeal on merits.
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