2014 (11) TMI 607 - HC - Income Tax

High Court affirms Tribunal's decision on Income Tax Act Section 263, deems assessment void, rules Section 158BD time-barred.

Commissioner of Income Tax, Central-I Versus VD. Muralidharan, K. Venugopal, VP. Ullas

The High Court upheld the Tribunal's decision to quash the revision order under Section 263 of the Income Tax Act, as the original assessment order was ... Validity of assessment u/s 114 r.w section 158BD – revision order u/s 263 – evidences produced for claiming 50% of commission expenses or not – Held that:- Assessees are individuals engaged in the business of financing and commission agency with Sree Gokulam Chits and Finance Company Limited - the proceedings initiated u/s 158BD of the Act by issuance of notice to the assessees was beyond the period of two years of completion of assessment u/s 158BC of the Act in the case of Sree Gokulam Chits and Finance Company Limited - Revenue contended that there is no time limit prescribed in the statute for completion of block assessment in respect of persons other than the person on whom search was made and, therefore, the notices issued u/s 158BD of the Act by the AO are valid - where limitation is not prescribed, action must be taken within reasonable period. The reasonable period would depend upon the facts of each case and it would be open to the assessee to contend that it is bad on the ground of delay - block assessment in respect of the Sree Gokulam Chits and Finance Company Limited was proceeded under Section 158BC of the Act - It is only on the basis of the block assessment of the person with respect to whom search was made under Section 132 of the Act, proceedings under Section 158BD of the Act in respect of any other person can be initiated - the provisions of Sections 158BD and 158BC are intertwined - the jurisdiction to issue notice u/s 158BD of the Act to any person, other than the person with respect to whom search was made, and the consequent time limit prescribed under Section 158BE of the Act in respect of third parties, would certainly be included within the two years period given to the AO for completion of block assessment under section 158BE(1) of the Act - When such an inference can be drawn from a bare reading of the provisions which are explicit, it does not lie in the mouth of the Revenue to state that there is no time limit prescribed in the statute for initiation of proceedings under Section 158BD of the Act – in Commissioner of Income Tax v. Umesh Chandra Gupta [2014 (2) TMI 521 - DELHI HIGH COURT] also the same has been held – as such no substantial question of law arises for consideration – Decided against revenue. Issues Involved:1. Validity of quashing the revision order under Section 263 of the Income Tax Act.2. Time-barred status of block assessments under Section 158BD of the Income Tax Act.3. Applicability of the Special Bench judgment in Manoj Aggarwal v. DCIT.4. Requirement for adjudicating grounds of appeal raised before the Tribunal.Detailed Analysis:Issue 1: Validity of Quashing the Revision Order under Section 263The Tribunal quashed the revision order under Section 263 of the Income Tax Act on the grounds that the original assessment order made under Section 144 read with Section 158BD was quashed as ab initio void. The Tribunal found that the assessee had not produced any evidence for claiming 50% of commission receipt as expenditure to earn such commission income. The High Court upheld the Tribunal's decision, stating that the revision order was invalid since the original assessment order itself was void.Issue 2: Time-Barred Status of Block Assessments under Section 158BDThe Tribunal quashed the block assessment as time-barred, noting that the notice under Section 158BD was issued beyond the statutory period. The High Court emphasized that even in the absence of a prescribed time limit, actions must be taken within a reasonable period, which depends on the facts of each case. The Court referred to the Supreme Court decision in Government of India v. Citedal Fine Pharmaceuticals, Madras, and others, which held that every authority must exercise power within a reasonable period. The Court concluded that the block assessment notice under Section 158BD was issued beyond the reasonable period, thus rendering the block assessment void ab initio.Issue 3: Applicability of Special Bench Judgment in Manoj Aggarwal v. DCITThe Tribunal followed the Special Bench judgment in Manoj Aggarwal v. DCIT, which the Revenue argued was not applicable to the present case. The High Court, however, found that the Tribunal's reliance on this judgment was appropriate given the similarity in circumstances. The Court noted that the provisions of Sections 158BD and 158BC are intertwined, and the jurisdiction to issue notice under Section 158BD must be exercised within the time limit prescribed under Section 158BE.Issue 4: Requirement for Adjudicating Grounds of Appeal Raised Before the TribunalThe Revenue contended that the Tribunal cancelled the block assessment without adjudicating the grounds of appeal, contrary to the Madras High Court judgment in South India Surgical Cotton Ltd. The High Court found that the Tribunal had appropriately addressed the grounds of appeal by determining that the block assessment was void ab initio due to the time-barred notice under Section 158BD. Consequently, there was no need for further adjudication on other grounds.Conclusion:The High Court dismissed the appeals, finding no substantial question of law. It upheld the Tribunal's decisions on all issues, emphasizing the requirement for timely action within a reasonable period and the intertwined nature of Sections 158BD and 158BC. The Court also affirmed the Tribunal's reliance on the Special Bench judgment and its handling of the grounds of appeal.