2010 (11) TMI 96 - HC - Income Tax

Court invalidates late notice for block assessment under Income Tax Act, overturning tribunal decision.

The High Court ruled in favor of the appellant in a case concerning the validity of a notice under Section 143(2) of the Income Tax Act for block ... Substantial question of Law - Whether the Income Tax Appellate Tribunal is justified by expressing an opinion that the assessee appellant was not entitled under law to raise a contention that the notice issued by the assessing officer under Section 143(2) was impermissible because of the proviso attached to the said provision on the ground that such an issue was not raised on the first round of appeal before the CIT(A) was barred by doctrine of merger - Relying on the decision of the apex Court rendered in Assistant Commissioner Income Tax and another vs. M/s. Hotel Blue Moon, (2010)3 SCC 259 contended that issuance of notice under Section 143(2) of the Act within the prescribed time for the purpose of block assessment under Chapter XIV-B of the Act is mandatory – It was held that the first substantial question of law formulated by this Court has to be answered in the negative and in favour of the assessee - Whether in the facts and circumstances of the case it can be held that the order passed by the assessing officer on the first occasion had merged in absolute terms in the order passed by the CIT(A) on the first occasion and further the order passed by the CIT(A) does not tantamount to open remand but a partial remand - In the case of Commissioner of Income Tax v. K.L.Rajput (supra) has held that order of the Income Tax Officer merges with the appellate order only to the extent it was considered and decided by the appellate authority but the matter which is not covered by the appellate order of the appellate authority is left untouched and to that extent assessment order survives – It was held that the order was an open remand Issues:1. Validity of notice under Section 143(2) of the Income Tax Act for block assessment.2. Doctrine of merger and the nature of remand order by Commissioner of Income Tax (Appeals).Issue 1: Validity of notice under Section 143(2) for block assessment:The case involved an appeal against the Income Tax Appellate Tribunal's order regarding the validity of the notice issued under Section 143(2) of the Income Tax Act for block assessment. The appellant contended that the notice was impermissible due to the proviso attached to the section and raised substantial questions of law regarding the timing and validity of the notice. The Commissioner of Income Tax (Appeals) ruled in favor of the appellant, stating that the notice was not issued within the prescribed time limit, thus barring the block assessments made by the Assessing Officer. The appellant was allowed to raise additional grounds regarding the notice's validity during the re-framing of the assessment. The High Court, after considering various legal precedents, upheld the appellant's right to challenge the validity of the notice under Section 143(2) and ruled in favor of the appellant on this issue.Issue 2: Doctrine of merger and nature of remand order:The second substantial question of law revolved around the doctrine of merger and the nature of the remand order issued by the Commissioner of Income Tax (Appeals). The High Court analyzed the orders passed by the Assessing Officer and the Commissioner of Income Tax (Appeals) to determine the extent of merger between the two orders. It was observed that the Commissioner's order set aside the Assessing Officer's order entirely, indicating an open remand rather than a partial remand. The High Court referred to legal principles and previous judgments to establish that in cases where an order is set aside, it ceases to exist, and the question of merger does not arise. Therefore, the High Court answered the second part of the substantial question of law by affirming that the order dated 19.02.2001 was an open remand. Consequently, the High Court concluded that the Income Tax Appellate Tribunal's order could not be sustained and allowed the appeal, setting aside the order under appeal.In summary, the High Court's judgment addressed the validity of the notice under Section 143(2) for block assessment and the doctrine of merger concerning the remand order issued by the Commissioner of Income Tax (Appeals). The High Court upheld the appellant's right to challenge the notice's validity and clarified the nature of the remand order, ultimately allowing the appeal and setting aside the Income Tax Appellate Tribunal's order.