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2005 (5) TMI 240 - ITAT AMRITSARBlock Assessment in search case - technical mistakes - rectifiable u/s 292B - validity of the block assessment - Undisclosed income - Whether the provisions of section 158BC relating to issue of notice are substantive in nature or procedural in nature? - 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? HELD THAT:- If we analyze the provisions of Chapter XIV-B, the first three provisions viz., section 158B, section 158BA and section 158BB are substantive in nature. Clause (a) of section 158B defines "block period" as opposed to the "previous year" under the normal provisions. Clause (b) of section 158B defines "undisclosed income" as opposed to "total income" under the normal provisions. Section 158BA(i) empowers the Assessing Officer to assess the undisclosed income. Section 158BA(2) is the charging section to be read with section 4 of the Act as has been held by the Calcutta High Court in the case of Shaw Wallace & Co. Ltd.[1999 (2) TMI 50 - CALCUTTA HIGH COURT]. Section 158BB prescribes the manner in which the undisclosed income is to be computed. Having provided for these substantive provisions, the actual procedure for block assessment starts from section 158BC as the heading to the said section suggests. Another important and vehement argument which was raised before us is that the provisions of section 148 are pari materia with the provisions of section 158BC and hence all the decisions pertaining to defective notices or service thereof in connection with section 147 proceedings apply with equal force to the notice issued u/s 158BC of the Act. In our considered opinion, it is not so. The reasons for our saying so now follow. 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. It cannot be said that the provisions of Chapter XIV-B substitute the provisions of section 147 and that notice u/s 158BC is akin to the one issued u/s 148. Therefore, all the decisions relied upon by the learned counsel for the assessee and the interveners in which defective notice u/s 148 had rendered the assessments null and void cannot be made applicable to the defective notice under section 158BC. Further, several Tribunal decisions in which assessments were quashed on account of defective notice u/s 158BC, it was done so on the premise that the law in section 158BC is a substantive law. However, we are holding it to be a procedural law and hence those decisions are also not applicable. We summarize our decision as follows: (a) That the provisions of Chapter XIV-B provides for a special procedure for the assessment of undisclosed income found in the course of search; (b) That the concept of undisclosed income under Chapter XIV-B is narrower than and different from the concept of income escaping assessment u/s 147 of the Act; (c) Though, broadly speaking, Chapter XIV-B contains machinery provisions for the assessment of undisclosed income, it does contain provisions which are in the realm of substantive law. At least, sections 158B, 158BA and 158BB are such provisions, whereas section 158BC is in the realm of procedure law; (d) Section 158BA(1) gives power to the Assessing Officer to assess undisclosed income and such power is conferred on the Assessing Officer at the time when search is initiated in the case of a person. Thus, the existence of the jurisdictional fact of search having been initiated gives power to the Assessing Officer to assess undisclosed income. (e) The acquisition of power by the Assessing Officer is not at all related to the formation of belief by the Assessing Officer that a person has not disclosed certain income; (f) The Assessing Officer can and has to activate his power only on the completion of search; (g) Since the action of issuing notice u/s 158BC is within the jurisdiction and not of assuming jurisdiction, any error committed in such action cannot render the whole assessment a nullity and that such errors are rectifiable by section 292B of the Act. We answer the questions referred to the Special Bench as follows: 1. The provisions of section 158BC are procedural in nature. 2. Any defect in the notice or with regard to its issue cannot render the block assessment proceedings to be null and void. On a careful perusal of the order of the CIT (Appeals), we find that the CIT (Appeals) has nowhere held the proceedings u/s 158BC to be pari materia with the proceedings u/s 148 of the Act. What all he has held is that "a valid service of notice is crucial to the assessment". For this, he has relied on the judgments which are with reference to proceedings u/s 148 and on the premise that like section 148, the provisions of section 158BC are substantive in nature. However, we have already held the proceedings under section 158BC to be procedural in nature and hence the objection of the learned counsel does not remain. Thus, all the grounds raised by the assessee challenging the validity of the block assessment are rejected. In the result, the appeal of the assessee is partly allowed for statistical purposes.
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