TaxTMI 
TaxTMI 
2005 (5) TMI 240
X X X X Extracts X X X X
X X X X Extracts X X X X
....: 1. Whether the provisions of section 158BC relating to issue of notice are substantive in nature or procedural in nature? 2. If they are held to be procedural in nature, then can any defect in the notice or with regard to its issue, render the block assessment proceedings to be null and void? The reply to the above questions have a direct bearing on the facts of the case before and hence we straightaway proceed to answer the above questions. At the outset, Mr. Sudhir Sehgal, the learned counsel for the assessee sought to clarify that the CIT (Appeals) had held the provisions of section 148 to be pari materia with the provisions of section 158 BC. Against this decision of the CIT(Appeals), the department is not in appeal and hence the assessee should not be put in a worse position vis-a-vis what the CIT(Appeals) has held in favour of the assessee. With this preface, the learned counsel embarked on making elaborate arguments on the issues posed before the Special Bench and which we now proceed to record in the paragraphs that follow. 2. Taking cue from the wordings of the first question, Mr. Sehgal attempted to explain the distinction between the expressions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh Court in the case of Shaw Wallace & Co. Ltd. v. Asstt. CIT [1999] 238 ITR 13 wherein it was held that the provisions of section 158BC substituted the provisions of section 148. 3. Mr. Sehgal then referred to the provisions of section 158BA which, he contended, undoubtedly, gave the power to the Assessing Officer to assess the undisclosed income, but the assessment proceedings cannot commence without issue of notice under section 158BC, Emphasis was laid on the word "shall" appearing in section 158BC and to emphasize the purport of the word "shall", reliance was placed on the judgment of the Supreme Court in the case of Hemalatha Gargya v. CIT [2003] 259 ITR 1. The importance of issue of notice was stressed upon in more ways than one. It was argued that filing of return under section 158BC was not voluntary as it was in the case of returns filed under section 139(1) where time-limits were specified. Further, it was argued that search under section 132 was not the only foundation because even search having taken place, the assessee would not know where to file the return unless notice under section 158BC was issued, and therefore, jurisdiction by the Assessing Officer to assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the proceedings, it did not confer jurisdiction on the Assessing Officer which was never there. In support of all these arguments, the learned counsel relied on the following decisions: 1. Urmila Chandak v. Asstt CIT [1998] 60 TTJ 758 (Mad.) 2. V.V.S. Alloys Ltd. v. Asstt CIT 68 TTJ 516 (All.) (sic) 3. Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 67 TTJ 247 (All.) Many other decisions were relied upon but we shall deal with them later, if necessary. 5. On the second question referred to the Special Bench, Mr. Sehgal contended that even if the provisions of section 158BC were held to be procedural, casual approach cannot be allowed and section 292B cannot set it right. It was contended that vested right acquired by the assessee cannot be taken away. Mr. Sehgal concluded his arguments by stating that vested right acquired by the assessee cannot be taken away. Mr. Sehgal concluded his arguments by stating that jurisdiction relates to power and section 158BC gave the power to the Assessing Officer to assess undisclosed income. Section 132 merely provided the information but to assume proper jurisdiction, proper compliance of both the provisions, i.e. s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all the four ingredients were necessary to assume valid jurisdiction, and that there could not be any waiver of jurisdiction merely by participating in the proceedings. Not only that, any mistake in the issue of notice under section 148 was not rectifiable under section 292B of the Act. Similarly, before issuing notice under section 158BC also, the Assessing Officer was required to satisfy himself about a valid search having been conducted and that some material was found during the search. Mr. Patil, in support of the above contentions referred to several authorities to which we shall advert to later, if necessary. 8. In reply, Mr. R.K. Goel, the learned DR, at the outset, referred to the heading of Chapter XIV-B which according to him, suggested that the provisions contained therein were procedural in nature. He then drew our attention to the opening line of section 158BC, i.e. "where any search has been conducted....", and submitted that the provision itself indicated that carrying out of the search was the foundation for the procedure to be followed thereafter under Chapter XIV-B. Referring to the first proviso to section 158BC, it was contended that when the intention was t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irmities. Relying on the judgment of the Punjab & Haryana High Court in the case of CIT v. Smt. Aruna Luthra [2001] 252 ITR 76, it was contended that only the dead makes no mistakes. Referring to the judgment of the Kerala High Court in the case of Tity Thomas v. TRO [1994] 207 ITR 1072, it was contended that the provisions relating to quantification of tax were in essence to give effect to the intention of the Act. It was argued that liability to pay tax arose by the charging section alone, whereas quantification was postponed by the assessment procedure. In this connection, the learned DR drew support from the judgments listed below: 1. CIT v. National Taj Traders [1980] 121 ITR 535 (SC) 2. India United Mills Ltd v. CEPT [1955] 27 ITR 20 (SC). 3. United Provinces Electric Supply Co. Ltd. v. CIT [1993] 204 ITR 794 (Cal.) 4. CWT v. Jagdish Prasad Choudhary [1995] 211 ITR 472 (Pat.)(FB). 5. CWT v. Pachigolla Narasimha Rao [1982] 134 ITR 640 (AP) 6. G. Ekambarappa v. EPTO [1967] 65 ITR 656 (SC) 7. Neptune Assurance Co. Ltd. v. LIC of India [1963] 48 ITR 144 (SC) 8. M.L.M. Muthiah Chettair v. CIT [1959] 35 ITR ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....und in the course of search. Thus, the argument was that the provisions of section 158BC were procedural in nature. 13. In his counter-reply, Mr. Sehgal, the learned counsel for the assessee, submitted that search did not determine the tax liability. If section 158BC was redundant, Legislature would have stopped at section 158BA only. It was further submitted that interest under section 158BFA was reckoned not from the date of search but was reckoned from the date of filing of return. Similarly, penalty was with reference to income returned. Thus, entire liability of the assessee under Chapter XIV-B was determined with reference to the return filed only in response to notice under section 158BC and hence the said provision was in the realm of substantive law. In response to the argument of Mr. Goel that due revenue of the Government should not get thwarted on account of technical reasons, Mr. Sehgal contended that under Article 265 of the Constitution, no tax can be collected save by authority of law and under Article 308, no person can be deprived of his property save by procedure of law. Referring to the judgment in AIR 1936 PC 263, it was contended that when a statute require....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the said provision was meant only for correcting mistakes and was not applicable where jurisdiction was to be acquired. It was contended that a person had a right to defend himself if he was wrongly roped in. It was finally submitted that all the judgments cited by the learned DR were distinguishable. 16. We have duly considered the rival contentions and the material on record. In the controversy before us, we are primarily concerned with the concept of jurisdiction. Hence, let us first understand the meaning of the term "jurisdiction". Some of the meanings given in the Law Lexicon by P. Ramanatha Aiyar (1997 edition-page 1021) are as follows: "(1) The power to hear and determine the particular case involved; (2) The power of a Court or a judge to entertain an action, petition, or other proceedings: (3) The legal power of hearing and determining controversies; (4) The term imports authority to expound or apply the laws, and excludes the idea of power to make the laws; (5) It means, (a) the right to adjudicate on a given point, (b) the local extent within which the court can and does exercise the right when ascertained." In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he authority to decide the cause. Every error committed by the IAC in the exercise of his own jurisdiction cannot be treated as outside his jurisdiction and they are all errors in but not of jurisdiction. Accordingly, the error if any, committed by the IAC in issuing notices under section 269D(2)(a) before the publication of the notice in the gazette was an error within his own undoubted jurisdiction and was not a case of assumption of jurisdiction and the Tribunal in holding otherwise and invalidating the proceedings on that ground was clearly in error. 17. Now let us consider the provisions of section 158BC in the light of the above discussion. For immediate reference, we reproduce the said provision below: 158BC "Procedure for block assessment-- Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then- (a) the Assessing Officer shall - (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not." Sub-section (1) of section 158BA provides that where a search is initiated in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. Sub-section (2) of section 158BA makes provision of the rate of tax at which the undisclosed income is to be charged. 18. We now proceed to analyze the above two provisions. It is true that the heading of Chapter XIV-B is "Special Procedure for Assessment of Search Cases." If we go merely by the heading of the chapter, it may lead us to say that the entire Chapter XIV-B is procedural in nature. But as is the rule of interpretation of statutes, one....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ert back to the analysis of section 158BA(1) and section 158BC which we had left incomplete in para 18 above. It is very clear from the provisions of section 158BA(1) that it is from this provision, the Assessing Officer derives power to assess the undisclosed income of a person who has been subjected to search under section 132 or in whose case there is a requisition under section 132A of the Act. This, in turn, is in consonance with the provisions of section 120 which deals with the jurisdiction of income-tax authorities. Again, it is interesting to note that the Assessing Officer acquires this power once the search is "initiated" under section 132 of the Act. On the other hand, the word used in section 158BC is "conducted". It is just logical that the Assessing Officer cannot serve notice unless he has the specific power to do so. Here the word "conducted" has to be understood to mean that where a search was initiated is now conducted, or that where the process of conducting a search was initiated is now conducted. In other words, the event of initiating a search is anterior in point of time to Search conducted. Thus, the Assessing Officer acquires the power to assess undisclose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the machinery for the quantification of the charge and the levying and collection of the tax in respect of the charge so imposed. Machinery provisions do not impose a charge or extend or restrict a charge elsewhere clearly imposed." Still further, in the same judgment, Their Lordships have referred to Salmond's Jurisprudence at page 892 wherein the law of procedure has been described as the law of action jus quod ad actiones pertinet - using the term action in a wide sense to include all legal proceedings, civil or criminal. All the residue is substantive law, and relates, not to the process of litigation, but to its purposes and subject-matter. Thus, sections 158B, 158BA and 158BB spell out the purposes and subject-matter of Chapter XIV-B, whereas with section 158BC the action to achieve these purposes start. Taking guidance from the judgment in the case of Pearl Mech. Engg. discussed in paragraph 16 above, we may, without any hesitation, say that the Assessing Officer having acquired jurisdiction under section 158BA(1), if commits any error or mistake while issuing or serving the notice under section 158BC, it is "in but not of jurisdiction". 21. Another important and v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o tax in another assessment year. The process, therefore, entails the reopening of a completed assessment. This infringes on the sanctity of a completed assessment. Therefore, it is incumbent upon the Assessing Officer to act in a fair manner and not in a partisan manner. There is no jurisdictional fact in existence which straightaway empowers the Assessing Officer to enter jurisdiction. He can assume jurisdiction to reopen a completed assessment only on the basis of his own honest belief. Therefore, though section 147, in essence, is a machinery section, it also affects the substantive right of the assessee which had accrued to him on completion of the original assessment. This again is an example of what Chief Justice Venkatachaliah said in the case of Sharvan Kumar Swarup & Sons that a substantive right can be found secreted in the interstices of procedure. This process of formation of belief by the Assessing Officer seeks to extend the liability of the assessee. To give effect to this belief, the Assessing Officer assumes jurisdiction by issuing notice under section 148. Thus, again referring to the judgment of the Karnataka High Court in the case of A. Premchand and approved b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al fact which will give jurisdiction to the Assessing Officer over the subject-matter, that is, to assess the undisclosed income of the person searched. The issue of notice under section 158BC is merely an act within this jurisdiction and hence any error in issuing such notice will not render the entire proceedings invalid. 24. In paragraphs 22 and 23 we have made an attempt to show the difference between the provisions of sections 148 and 158BC. However, one more aspect touching upon this issue remains to be dealt with. In their course of arguments, the learned counsel for the assessee as well as for the interveners had laid stress on the first proviso to section 158BC and for which reliance was also placed on the judgment of the Calcutta High Court in the case of Shaw Wallace & Co. Ltd. We proceed to deal with this aspect now. The first proviso to section 158BC reads as follows: "Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter." Though there is a fundamental difference between section 148 and section 158BC, there is one commonality which one cannot lose sight of and that is that both the provisions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case of Shaw Wallace & Co. Ltd. when it said that if notice under section 148 is issued, one would be faced with the double consequence of there being one block period assessment and may be even several other 148 reopenings in regard to completed assessments. The learned counsel are banking on the observation of the High Court that "it substitutes the procedure under section 148". Yes, it is true, it does substitute, but only the procedure, that too in respect of only the undisclosed income. But it does not whole hog substitute the concept of income escaping assessment. It substitutes the procedure because the premise under which the notices are to be issued under the two provisions are different. Issue of notice under section 158BC does not affect any substantive right of the assessee, whereas the notice under section 148 does. Hence, no confusion can be allowed to prevail, which can be created if both notices were to be issued by the Assessing Officer. This is our understanding of the judgment in Shaw Wallace & Co. Ltd.'s case. Therefore, we see no force in the argument that because a defective notice under section 148 can render the assessment invalid, so can a defective n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....son to believe that some income has escaped assessment for the assessment year concerned, issues notice under section 148 on the assessee to furnish a return in the prescribed form. The form prescribed for block assessment is different though it is the same for the one who is raided and the person other than the raided person to whom any undisclosed income belongs. The special procedure for block assessment of undisclosed income is thus devised on an intelligible differentia and a separate provision for assessment of undisclosed income of the block period has a direct and reasonable nexus with the object sought to be achieved by the provisions of Chapter XIV-B, namely, to provide a less cumbersome and more efficient machinery for assessing undisclosed income of the block period in search cases". Therefore, in the light of the above discussion, it cannot be said that the provisions of Chapter XIV-B substitute the provisions of section 147 and that notice under section 158BC is akin to the one issued under section 148. Therefore, all the decisions relied upon by the learned counsel for the assessee and the interveners in which defective notice under section 148 had rendered the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... each ground raised in the present appeal on merits. In the first three grounds, the assessee has challenged the validity of the block assessment mainly on the ground that the block period was wrongly mentioned in the notice and that it was not duly served on the assessee. Instead, it was served on Shri R.K. Dhawan, Advocate who was not holding a valid power of attorney on behalf of the assessee. In view of our decision in para 27 above, these grounds have to be rejected. However, before doing so, some discussion may not be out of place. 29. So far as block period is concerned, the same is defined in clause (a) of section 158B. It has reference to the date of commencement of search and then one has to count ten or six assessment years backwards, as the case may be. No authority acting under the Act has any power to change the block period. When the date of search is known, every authority under the Act as well as the assessee knows which years would be covered under the block period. There can be no mistake in this except an error in counting backwards. But such mistake cannot override the provisions of law and even if the Assessing Officer has committed an error, the assessee, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the assessee challenging the validity of the block assessment are rejected. 31. In ground No. 4, the assessee has challenged the additions made by the Assessing Officer. It is noticed that total additions of Rs. 16,35,644 are challenged in ten different grounds. Majority of these additions are made on account of unexplained jewellery. It is also noticed that the main reason for making these additions is the inadequate withdrawals shown by the assessee. According to the revenue authorities total withdrawals of the assessee amounted to Rs. 4,70,000 only. On the other hand, the main contention of the assessee was that total withdrawals of the family were of Rs. 13,05,104. It was also the contention of the assessee that some of the jewellery were old jewellery which were remade and only the difference was paid. In support of this contention, the wealth-tax return for assessment year 1985-86 was placed on record. It appeals that the authorities have not considered the total withdrawals of the family and have proceeded on the presumption that the assessee did hot have enough old jewellery to support the contention that most of the jewellery was remade. Therefore, in our view, th....