2004 (12) TMI 623 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under section 158BD.
2. Timeliness of the notice issuance under section 158BD.
3. Proper service of notice under section 158BD.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 158BD:

The assessee raised a preliminary objection disputing the validity of the notice issued under section 158BD. The Tribunal decided to address this preliminary issue before considering the merits of the case. The essential ingredients of section 158BD include the satisfaction of the Assessing Officer (AO) that undisclosed income belongs to a person other than the one searched, and the need to hand over seized materials to the AO having jurisdiction over that other person. In this case, the AO did not act on the return filed by M/s. Aditya Builders and implicitly agreed to close the proceedings under section 158BC. Consequently, the AO did not form a prima facie view that undisclosed income belonging to other persons had escaped assessment. Therefore, the notices issued under section 158BD were deemed invalid as the AO had not initiated any assessment proceedings in the case of the person searched.

2. Timeliness of the Notice Issuance under Section 158BD:

The notices under section 158BD were issued more than three years after the completion of the block assessment under section 158BD in the case of the two A.O.Ps and four years after the search proceedings. The Tribunal held that there was an abnormal delay in issuing the notices. Although no specific time limit is prescribed under section 158BD, the Tribunal emphasized that proceedings must be initiated within a reasonable time. Citing various judicial precedents, the Tribunal concluded that the notices were unduly delayed and thus barred by limitation. The Tribunal referenced the case of Shri S. Sankara Reddy, where it was held that reassessment proceedings commenced after considerable delay were barred by limitation.

3. Proper Service of Notice under Section 158BD:

In the case of Shri P. Mahender Reddy, the assessee claimed that the notice was not properly served on him. The Revenue produced a notice stating it was served on one Shri P. Venkat Reddy, a relative of the assessee, but failed to provide evidence of the relationship or proper authorization. The Tribunal highlighted that proper service of notice is a sine qua non for valid assessment proceedings. The burden of proof lies with the Revenue to establish that the notice was served on the assessee or someone duly authorized by him. In the absence of such proof, the substituted service was deemed invalid. The Tribunal cited the Punjab & Haryana High Court's decision in CIT v. Har Parshad, which held that an assessment is invalid if completed without properly serving a notice.

Conclusion:

The Tribunal concluded that the notices issued under section 158BD in all six cases were bad in law due to the AO's failure to initiate assessment proceedings in the case of the person searched and the unreasonable delay in issuing the notices. Additionally, the service of notice in the case of Shri P. Mahender Reddy was found to be invalid. Consequently, the assessments were canceled, and the appeals of the assessees were allowed.