2014 (11) TMI 692 - AT - Income Tax

Assessment Order Invalid Without Notice under Section 143(2)

M/s. M. Kantilal & Co. Ltd. Versus DCIT, Central Circle-2, Surat

The Tribunal found the assessment order invalid due to the absence of a notice under section 143(2) of the IT Act, emphasizing its mandatory nature for ... Validity of block assessment u/s 158BC – Order beyond period of limitation or not – Notice u/s 143(2) not provided to assessee - Held that:- There were a series of such correspondences through which the Revenue Department has fairly accepted the fact that there was no notice u/s 143(2) ever existed or issued or served - in a situation when a letter was issued by the Revenue Authority and that letter was responded by the assessee then whether there was a legal requirement to issue a notice u/s 143(2) of IT Act especially when the assessee has participated in the proceedings - on receiving that letter the assessee has responded on 07.11.2000 and requested the AO to issue notice u/s 143(2) of IT Act by specifically mentioning that in block assessment proceedings to be held u/s.158BC it is mandatory to issue a notice u/s.143(2) of IT Act - in the absence of the requisite notice u/s.143(2), the participation in the proceedings by the assessee was under protest. Even after pointing out to the AO about the mandatory requirement of the issuance of notice u/s. 143(2) of IT Act, the AO had not taken the cognizance and proceeded to finalize the assessment without issuing the said requisite notice u/s.143(2) of IT Act. The notice must have been served otherwise there was no occasion for the assessee's representative to attend the assessment proceedings before the AO - There was evidence that the assessee had participated in the assessment proceedings pursuant to the said notice; hence, it was held that the notice u/s. 143(2) was validly served - by virtue of the provisions of Section 147/148 itself the assessment must not be rendered as null and void - u/s.158BC(b) the AO should proceed to determine the undisclosed income of the Block Period in the manner laid down in the provisions of Section 143(2) and (3) of the Act so far as may apply. This section does not provide for accepting the return as provided u/s 143(1)(a) - The AO has to complete the assessment u/s 143(3) only - In case of default in not filing the return or not complying with the notice under s. 143(2)/142, But s. 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice u/s 143(2) - Omission on the part of the assessing authority to issue notice under s.143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under s. 143(2) cannot be dispensed with - The other important feature that requires to be noticed is that the s.158BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the AO while completing the block assessments under Chapter XIV-B of the Act - This legislation is by incorporation - This section even speaks of sub-sections which are to be allowed by the AO - A reading of the provision would clearly indicate if the AO, if for any reason, repudiates the return filed by the assessee in response to notice u/s 158BC(a), the AO must necessarily issue notice under s.143(2) of the Act within the time prescribed in the proviso to s.143(2) of the Act within the time prescribed in the proviso to s.143(2) of the Act. In a situation when the Tribunal Bench has given a number of opportunities to the Revenue Department to place on record any evidence of either existence or issuance/ service of notice u/s.143(2) of IT Act but no such evidence was placed and that the assessee himself has communicated to the AO during the assessment proceedings that the issuance of notice u/s.143(2) is a mandatory requirement and that the notice u/s.142(1) was not a notice after the return was filed but it was a notice served on the assessee before the block return was filed = Decided in favour of assessee. Issues Involved:1. Period of limitation for the block assessment order.2. Validity of additions based on seized documents.3. Profit from unaccounted labor payments.4. Profit on turnover recorded in books.5. Unaccounted production related to another entity.6. Estimated unaccounted initial investment.7. Benefit of telescoping in unaccounted initial investment.8. Estimated unaccounted initial investment.9. Alleged remittance of cash from head office.10. Purchases of diamond scaives.11. Deduction under section 80HHC(3).12. Deletion of additions made on a protective basis.Detailed Analysis:1. Period of Limitation for the Block Assessment Order:The assessee contended that the block assessment order dated 23.03.2001 was beyond the period of limitation and thus invalid. The Tribunal noted the procedural history, including multiple adjournments and the imposition of costs due to delays. The Tribunal emphasized the need to first address the legal issue of the validity of the assessment order before examining the merits of the additions.2. Validity of Additions Based on Seized Documents:The CIT(A) upheld an addition of Rs. 11,26,79,955 based on documents seized from the residence of Smt. Labhuben Zaverbhai Patel. The Tribunal examined the basis of these additions and the evidence presented but ultimately did not need to adjudicate on this issue due to the decision on the validity of the assessment order.3. Profit from Unaccounted Labor Payments:The CIT(A) upheld an addition of Rs. 10,76,61,299 as alleged profit from unaccounted labor payments. The Tribunal noted the arguments but did not need to address this issue in detail due to the decision on the validity of the assessment order.4. Profit on Turnover Recorded in Books:An addition of Rs. 3,94,20,598 was upheld based on seized Annexure LS/18, taking 18.44% profit on the turnover of Rs. 21,37,77,646. The Tribunal considered the arguments but did not need to decide on this issue due to the decision on the validity of the assessment order.5. Unaccounted Production Related to Another Entity:The CIT(A) upheld an addition of Rs. 29,94,73,761 based on seized Annexure A/10 and A/12, allegedly related to M/s. Premkumar & Co., Mumbai. The Tribunal examined the evidence but did not need to adjudicate on this issue due to the decision on the validity of the assessment order.6. Estimated Unaccounted Initial Investment:The CIT(A) upheld an addition of Rs. 26,96,96,060 as estimated unaccounted initial investment. The Tribunal noted the arguments but did not need to decide on this issue due to the decision on the validity of the assessment order.7. Benefit of Telescoping in Unaccounted Initial Investment:The CIT(A) upheld an addition of Rs. 3,94,20,598 without giving the benefit of telescoping. The Tribunal considered the arguments but did not need to decide on this issue due to the decision on the validity of the assessment order.8. Estimated Unaccounted Initial Investment:The CIT(A) upheld an addition of Rs. 3,54,87,889 as estimated unaccounted initial investment. The Tribunal noted the arguments but did not need to decide on this issue due to the decision on the validity of the assessment order.9. Alleged Remittance of Cash from Head Office:The CIT(A) upheld an addition of Rs. 40,56,46,294 as alleged remittance of cash from the head office. The Tribunal examined the arguments but did not need to adjudicate on this issue due to the decision on the validity of the assessment order.10. Purchases of Diamond Scaives:The CIT(A) upheld an addition of Rs. 3,54,31,555 on account of purchases of diamond scaives. The Tribunal noted the arguments but did not need to decide on this issue due to the decision on the validity of the assessment order.11. Deduction under Section 80HHC(3):The CIT(A) did not grant the deduction under section 80HHC(3) for various additions made. The Tribunal considered the arguments but did not need to decide on this issue due to the decision on the validity of the assessment order.12. Deletion of Additions Made on a Protective Basis:The Revenue appealed against the deletion of additions totaling Rs. 128,67,68,577 made on a protective basis. The Tribunal examined the arguments but did not need to adjudicate on this issue due to the decision on the validity of the assessment order.Conclusion:The Tribunal concluded that the assessment order was invalid due to the failure to issue a notice under section 143(2) of the IT Act. The Tribunal emphasized that the issuance of such a notice is mandatory for the validity of the assessment. As a result, the assessment was quashed, and the other grounds on the quantum additions were not adjudicated. The assessee's appeal was allowed, and the Revenue's appeal was dismissed.