2022 (9) TMI 1673 - AT - Income Tax

Penalty imposed u/s 158BFA(2) - scheme of block assessments u/s 158BC - as alleged assessment orders are time barred - HELD THAT - Undisclosed income in block assessment has to be determined on the basis of the seized material. Thus for assessing an assessee for a block period there should be a search conducted under Section 132. The search only would infuse jurisdiction to an AO over the assessee. The next step for the AO is to serve a notice upon the assessee under Section 158BC inviting it for furnishing the return. Chronological procedural requirement contemplates that an assessee (i) has to compute the undisclosed income on the basis of the seized material for filing the return in response to notice under s. 158BC (ii) if the assessee failed to compute true undisclosed income and the AO determined a different undisclosed income than the one returned by the assessee the assessee will be exposed to penalty (iii) if the assessee failed to file the return within the time-limit provided in the notice issued under s. 158BC an interest under s. 158BFA (1) would be imposed upon the assessee. What if there is a variation between the undisclosed income determined by the Assessing Officer and the undisclosed income returned by the assessee vis- -vis ultimately determined by the Assessing Officer in the assessment order u/s 158BC or 158BD of the Act then on that variation the Assessing Officer would levy a penalty either equivalent to the taxes computable on that amount or three times to such taxes. It can be explained by way of a simple example namely an assessee has filed his return of income disclosing Rs.100/- as undisclosed income the Assessing Officer determined undisclosed income at Rs.120/- then on this amount of Rs.20/- taxes are computable @ 60%. The penalty can also be computed @ 60% or it can be calculated at Rs.12/- or maximum at Rs.36/-. Assessee contended that all these Assessment Years are time barred but in the quantum proceedings - This plea was not raised by the assessee either before Assessing Officer or before the ld. CIT(A). It was raised first time before the Tribunal and the Tribunal has rejected this contention - HELD THAT - On due consideration of the above facts and circumstances we are of the view that penalty is an independent proceeding. If an assessee can absolve himself from visiting with penalty by raising any jurisdictional issue then the Tribunal and other adjudicating authorities are bound to take cognizance of that jurisdictional issue. It has been submitted before us that time limit to pass an assessment order is two years from the end of the month in which the last authorization for search u/s 132 of the Act was executed. This time limit has been provided u/s 158BE(1)(b) of the Act. The ld. Counsel for the assessee has reproduced this provisions in the application extracted supra. The last authorization in all these cases was on 08/12/1999. Assessment order ought to have been passed by 31/12/2001. We have noted the dates of assessment order in each case in para no. 3 of this order. They are beyond the due date i.e. 31/12/2001. These are time barred and there cannot be any consequential proceedings. Though we are not empowered to comment on the decision of the Coordinate Bench passed in the quantum proceedings it is pertinent to observe that the Tribunal has committed an error while adjudicating this ground of appeal in the quantum proceedings. The Tribunal has rejected the prayer of the assessee on the premise that its jurisdiction is based on the majority opinion while giving effect to the majority opinion. We do not have power to condone the delay for rectifying the mistake suo moto and therefore it has attained finality at the end of the Tribunal. But that does not mean that we cannot take cognizance of the preliminary grounds raised by the ld. Counsel for the assessee. Once an assessment order which is the very basis of all the consequential proceedings is barred by limitation then it is to be treated as nullity and on that basis no consequential order can be passed. Therefore no penalty can be imposed on the assessee. We allow all these appeals and quash all the orders passed u/s 158BFA(2) qua all the three assessees.

Summary

ISSUES:

Whether the penalty imposed under Section 158BFA(2) of the Income Tax Act is sustainable when the underlying block assessment orders under Section 158BC are barred by limitation.Whether the limitation period prescribed under Section 158BE(1)(b) for completion of block assessments applies to the assessment orders in question.Whether the Tribunal erred in rejecting the plea of limitation raised for the first time before it in the quantum proceedings.What is the scope and basis for determination of undisclosed income under the block assessment scheme in Chapter XIV-B of the Income Tax Act.Whether penalty under Section 158BFA(2) can be levied independently of the validity of the assessment order under Section 158BC.Whether additional grounds raising jurisdictional issues can be entertained at the stage of penalty proceedings after finality of the quantum proceedings.

RULINGS / HOLDINGS:

The penalty imposed under Section 158BFA(2) is liable to be quashed if the assessment order under Section 158BC on which it is based is barred by limitation and thus treated as nullity.The limitation period under Section 158BE(1)(b) runs from the end of the month in which the last search authorization under Section 132 was executed, and assessments passed beyond this period are time barred.The Tribunal erred in rejecting the limitation plea on the ground that its jurisdiction was confined to giving effect to the majority opinion on the referred issue, as it ought to have considered all jurisdictional grounds raised before it.The scheme of block assessment under Chapter XIV-B mandates that undisclosed income must be determined solely on the basis of evidence found as a result of search or requisition, and the Assessing Officer's jurisdiction arises only after such search.Penalty under Section 158BFA(2) is an independent proceeding but is contingent upon the validity of the underlying assessment order; if the assessment is void, no penalty can be sustained.Jurisdictional issues, including limitation, can be raised and must be considered even at the penalty stage despite finality of quantum proceedings, particularly if they affect the validity of the assessment order.

RATIONALE:

The Court applied the statutory framework of Chapter XIV-B of the Income Tax Act, particularly Sections 158BC (block assessment), 158BE (limitation), and 158BFA (penalty), interpreting the scheme as one where undisclosed income is assessed based on material found during search under Section 132.Precedents from various High Courts were relied upon to elucidate that block assessments are special proceedings in addition to regular assessments and must be completed within the prescribed limitation period to be valid.The Court identified a procedural error by the Tribunal in not entertaining the limitation plea during quantum proceedings, emphasizing that the Tribunal's jurisdiction when giving effect to the majority opinion is not confined solely to the issue referred but extends to all jurisdictional objections raised.The decision reaffirmed the principle that penalty proceedings cannot stand independent of a valid assessment order and that an assessment barred by limitation is a nullity, rendering consequential penalty orders unsustainable.Reference was made to the limitation provision under Section 158BE(1)(b) which mandates completion of block assessments within two years from the end of the month in which the last search authorization was executed, with the last authorization dated 08/12/1999 and assessments passed beyond 31/12/2001 being time barred.The Court noted that rectification of the Tribunal's error under Section 254(2) is time barred, but this does not preclude it from taking cognizance of jurisdictional objections in penalty proceedings.