2015 (3) TMI 307 - AT - Income Tax

Invalid Notice Renders Assessment Void; Appeal Allowed; Assessment Order Cancelled;

Late Shri Ashok Anand, Through Legal Heirs, 1. Mrs. Sheeel Anand, 2. Ms. Neha Ashok Anand, 3. Mr. Akshay Ashok Anand, 4. Mrs. Meetu Ashok Anand, C/o Agarwal Vijay & Associates Versus Asst. Comm. of Income Tax

The Supreme Court held that the assessment framed based on the invalid notice under Section 158BC was void ab initio and bad in law, as it did not comply ... Validity of the assessment framed in pursuance of the notice issued u/s. 158BC - period of limitation - Held that:- In the present case the notice issued by the Assessing Officer u/s. 158BC(a) of the Act dated 30-11- 2000 did not give the minimum time of 15 days to the deceased assessee for filing his return of income for the Block Period, the said notice was notice in compliance with mandatory requirement of Sec. 158BC(a) of the Act and the assessment framed in consequence of the legally void notice u/s. 158BC r.w.s. 144 of the Income-tax Act vide order dated 22-08- 2002 is bad in law and we cancel the assessment order. - Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED Whether a notice issued under section 158BC(a) that does not give the minimum statutory period (not less than 15 days) to the searched person for filing the block return is invalid and consequently renders the block assessment void for want of jurisdiction. Whether any defect in an initial notice under section 158BC(a) is cured by a subsequent extension or notice in circumstances where only the defective notice was issued and relied upon for assumption of jurisdiction. (Ground challenging issuance of notice under section 143(2) beyond prescribed period was not pressed and therefore not considered on merits.) 2. ISSUE-WISE DETAILED ANALYSIS Issue: Validity of notice under section 158BC(a) that prescribes a filing period 'within 15 days' instead of 'not less than 15 days' Legal framework: Chapter XIV-B prescribes a special procedure for block assessments consequent to search/requisition. Section 158BC(a) requires service of a notice on the searched person to furnish a return for the block period within such time 'not being less than fifteen days' (and, for searches on/after 1-1-1997, not more than 45 days). CBDT Circular guidance (para 39.3(e)) reiterates the minimum 15-day requirement and Form 2B procedure. Precedent treatment (followed/distinguished/overruled): The Court follows the Supreme Court's exposition that a valid notice under section 158BC(a) is the foundation of the Assessing Officer's jurisdiction (as held in the authority referred to in the judgment) and follows the subsequent High Court decision which applied that principle to invalidate notices failing to grant the statutory minimum. The jurisdictional High Court decision earlier holding that a section 158BC(a) notice is purely procedural and not foundational was distinguished on the basis that later Supreme Court authority has clarified the mandatory character of the notice. Interpretation and reasoning: The phrase 'not being less than 15 days' in section 158BC(a) connotes a statutory minimum (i.e., the assesseee must be given at least 15 days, and where applicable up to 45 days). A notice stating that the return must be filed 'within 15 days' provides less than the statutory minimum and therefore fails to comply with the mandatory requirement. The Assessing Officer assumes jurisdiction only upon issuance of a valid notice under section 158BC(a); if the notice is invalid for non-compliance with the statutory time requirement, jurisdiction is not properly vested and subsequent assessment is void ab initio. The Court examined conflicting authorities and held that where only the defective notice was issued and relied upon (i.e., no subsequent valid notice cured the defect), the defect is fatal to jurisdiction. The earlier decision that tolerated technical defects where a subsequent valid notice was served and no prejudice resulted was found inapplicable to the present facts because no valid subsequent notice curing the minimum-time defect was relied upon. Ratio vs. Obiter: Ratio - A notice under section 158BC(a) that does not give the statutory minimum time (not less than 15 days) is invalid; the Assessing Officer acquires no jurisdiction by reference to such an invalid notice and any assessment made pursuant thereto is void ab initio. Obiter - Observations distinguishing other decisions that turned on factual features (such as issuance of a subsequent valid notice or absence of prejudice) are explanatory but not necessary to the primary holding. Conclusion: The notice which required filing 'within 15 days' failed to meet the statutory minimum of 'not less than 15 days'; therefore the notice was invalid and the block assessment framed thereunder was void and is to be cancelled. Issue: Effect of subsequent acts (extensions, subsequent notices) on curing a defective section 158BC(a) notice Legal framework: Valid assumption of jurisdiction under Chapter XIV-B requires compliance with the form and time requirements of section 158BC(a). Where defects exist, whether prejudice is caused and whether a subsequent valid notice is issued are controlling factual considerations addressed in prior authorities. Precedent treatment (followed/distinguished): Earlier decisions that upheld proceedings notwithstanding defects were assessed on the presence of a subsequent valid notice and lack of prejudice to the assessee. Those decisions are distinguished where no subsequent valid notice was issued and the initial notice alone was the foundation for the assessment. Interpretation and reasoning: Where the factual matrix shows issuance of only a single defective notice which fails to provide the statutorily mandated minimum period, principles of jurisdictional law apply and the defect cannot be treated as merely technical or cured by later conduct of the assessee. By contrast, when a valid subsequent notice is shown to have been served or the assessee has in fact been afforded the statutory time and suffered no prejudice, the defect in the initial notice may be treated as non-fatal; those factual permutations are to be contrasted with the instant case. Ratio vs. Obiter: Ratio - A defective section 158BC(a) notice is not cured by subsequent procedural acts unless a valid notice complying with statutory time requirements is in fact issued and relied upon; absent such curing, assessment is void. Obiter - Comments on precedents where no prejudice was shown are explanatory of when a defective notice might be sustained. Conclusion: In absence of a subsequent valid notice or other facts demonstrating that statutory requirements were effectively met, the initial defective notice cannot be treated as valid and does not confer jurisdiction; the assessment based solely on such notice is void. Disposition on remaining grounds The ground premised on service of a notice under section 143(2) beyond the prescribed period was expressly not pressed and is therefore dismissed as not pressed. Merits grounds were left open because the appeal succeeds on the legal ground concerning validity of the section 158BC(a) notice.