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Issues: (i) Whether the assessee could be permitted to raise for the first time an additional ground challenging the validity of the notice under Section 143(2) of the Income-tax Act, 1961 in block assessment proceedings, and whether such notice was mandatory within the prescribed time. (ii) Whether the earlier assessment order had merged with the appellate order, and whether the order of remand made by the appellate authority was an open remand.
Issue (i): Whether the assessee could be permitted to raise for the first time an additional ground challenging the validity of the notice under Section 143(2) of the Income-tax Act, 1961 in block assessment proceedings, and whether such notice was mandatory within the prescribed time.
Analysis: A question of law can be raised at any stage if it arises on admitted facts and no fresh factual enquiry is necessary. The appellate authority had discretion to allow an additional ground, and that discretion had been exercised on relevant reasons. In block assessment proceedings, issuance of notice under Section 143(2) within the prescribed period is mandatory, and failure to do so vitiates the proceedings.
Conclusion: The additional ground was rightly entertained, and the challenge to the notice under Section 143(2) succeeded in favour of the assessee.
Issue (ii): Whether the earlier assessment order had merged with the appellate order, and whether the order of remand made by the appellate authority was an open remand.
Analysis: The doctrine of merger applies only to the extent an issue is considered and decided by the appellate authority. Where the earlier assessment order is set aside, it ceases to survive, and merger does not arise in respect of matters not adjudicated. The remand order in question set aside the assessment in its entirety and only indicated parameters for fresh consideration, which showed that it was not a limited remand.
Conclusion: The doctrine of merger did not bar the assessee's plea, and the remand was an open remand.
Final Conclusion: The appellate tribunal's order could not be sustained, and the assessee succeeded on both substantial questions of law.
Ratio Decidendi: A legal ground arising on admitted facts may be raised at the appellate stage, and in block assessment proceedings the notice under Section 143(2) must be issued within the prescribed time; an assessment order that is set aside in entirety does not survive for merger beyond issues actually decided.
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