TMI Blog2010 (7) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 158BC(c) of the said Act made in pursuance of such a notice was bad in law – decided in favor of assessee - ITA 884/2009 - - - Dated:- 5-7-2010 - Advocates who appeared in this case: For the Appellant: Mr M.P. Rastogi with Mr R. Kumar and Mr K.N. Ahuja For the Respondent: Ms Prem Lata Bansal CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE V.K. JAIN BADAR DURREZ AHMED, J 1. This is an appeal under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as the said Act') and it arises out of the order dated 30.01.2009 passed by the Income-tax Appellate Tribunal in ITA 385/Del/05 in respect of the block period 01.04.1990 to 18.01.2001. The following substantial questions of law arise for consideration in this appeal:- 1. Whether, in the facts and circumstances of the case, the notice under Section 143(2) of the Income Tax Act, 1961 was issued beyond the prescribed period of limitation and as a consequence thereof the block assessment order under 158 BC(c) of the said Act was bad in law? 2. Whether, if the notice under Section 143(2) of the Income Tax Act, 1961 is held to have been issued within time, the block ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the block assessment order was beyond time in itself inasmuch as the last date for framing the assessment under Section 158BC(c) was 31.03.2003 in view of the provisions of Section 158BE. 4. Ms Bansal, appearing on behalf of the revenue, contended that an important circumstance has been left out by the learned counsel for the appellant / assessee and that is the filing of an application by the assessee before the Settlement Commission under Section 245C of the said Act. Such an application had been filed by the appellant / assessee on 10.01.2003 and the same had been rejected by the Settlement Commission by passing an order under Section 245 D(1) of the said Act on 25.05.2004 which was received by the Commissioner of Income-tax on 03.06.2004. Consequently, she placed reliance on clause (iv) of Explanation 1 to Section 158BE to submit that the period between 10.01.2003 and 03.06.2004 has to be excluded in computing the period of limitation for completion of the assessment proceedings. She submitted that if this exclusion is granted, then the revenue would, in the minimum, have at least 60 days time to complete the same after the order under Section 245D(1) is received by the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deen Dayal Didwania v. Union of India and others: 160 ITR 12(Del) to submit that the filing of an application before the Settlement Commission does not amount to an automatic stay of the assessment proceedings during the period when the Settlement Commission is deciding whether or not to proceed with the settlement application. He also placed reliance on a decision of the Supreme Court in the case of CIT v. Damani Brothers: 259 ITR 475, wherein a similar view has been expressed that the income-tax authorities are free to proceed in the prescribed manner till the Settlement Commission decides to proceed with the settlement application. 6. Relying on the aforesaid decision, the learned counsel appearing on behalf of the appellant / assessee, submitted that, first of all, the decision in Auto Metal Engineers (supra), which was cited by the learned counsel for the revenue is distinguishable and would not be applicable to the facts and circumstances of the present case. Secondly, he submitted that since there was no bar to the Assessing Officer proceeding with the assessment proceedings and which meant that he could have issued the notice under Section 143(2), the fact that he did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, xxxxx xxxxx xxxxx xxxxx shall be excluded: Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-sections (1), [(1A), (1B),] [(2), (2A) and (4)] available to the Assessing Officer for making an order of assessment, reassessment or recomputation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. The above provisions fall in Chapter XIV which deals with the procedure for assessment in the regular course. Chapter XIV-B provides the special procedure for assessment in search cases. Section 158-BC, which falls within this Chapter, lays down the procedure for block assessment. Section 158BC(b) requires that the Assessing Officer shall proceed to:- "… determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded: xxxx xxxx xxxx xxxx 10. Now we come to the provisions of Chapter XIX-A, which deals with the settlement of cases and comprises of Sections 245A to 245L. Section 245A, as applicable to the period of this appeal, gives the definitions of various words and expressions used in Chapter XIX-A. Section 245A(b) defines ¯case as under:- 245A. Definitions. - In this Chapter, unless the context otherwise requires,— (a) xxxxx xxxxx xxxxx xxxxx (b) ¯case means any proceeding under this Act for the assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under sub-section (1) of section 245C is made. xxxxx xxxxx xxxxx xxxxx 11. Section 245C provides that an assessee may, at any stage of a ¯case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case: xxxxx xxxxx xxxxx xxxxx xxxxx 13. We may also point out that in case of applications made under Section 245C on or after 01.06.2007, two provisos have been made applicable by virtue of the Finance Act, 2007 with effect from 01.06.2007. The two provisos to sub-section (2) read as under:- "Provided that where an application has been made under section 245C on or after the 1st day of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made: Provided further that where— (i) an application made on or after the 1st day of June, 2007, is rejected under sub-section (1) of section 245D; or (ii) an application is not allowed to be proceeded with under sub-section (2A) of section 245D, or, as the case may be, is declared invalid under sub-section (2C) of that section; or (iii) an application is not allowed to be further proceeded with under sub-section (2D) of section 245D, the Settlement Commission, in respect of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded in computing the period of limitation for, inter alia, making an order of assessment under Section 143 of the said Act. This clause, will obviously apply in a case where an application is made before the Income-tax Settlement Commission under Section 245C and in the event such an application is rejected by the said Settlement Commission or is not allowed to be proceeded with by it. It is pertinent to note herein that the exclusion of time consumed before the Settlement Commission is in respect of computing the period of limitation, for making an order of assessment under Section 143. It does not pertain to exclusion of time for the purposes of serving a notice on the assessee under Section 143(2) of the said Act. It is also important to keep in mind the expression "assessment proceeding" in clause (2) to Explanation 1 of Section 153. We shall deal with this aspect while discussing the case law cited by the parties. 15. It is also clear from a plain reading of the provisions pertaining to the procedure for assessment in search cases to the extent set out above that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udiates the return filed by the assessee in response to notice under Section 158BC(a), the Assessing Officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. … 17. Thus, it is clear that not only is a notice under Section 143(2) mandatory in a case where the Assessing Officer does not agree with the block return filed by the assessee, it is also essential that such a notice must be served upon the assessee within the time prescribed in the proviso to Section 143(2) of the said Act. This requirement of serving the notice within the prescribed time is independent of the requirement of completion of the assessment proceedings within the time prescribed under Section 153 in the case of regular assessments under Chapter XIV and under Section 158 BE in the case of the block assessment under Chapter XIV-B. 18. We may now examine the other three decisions cited by the learned counsel for the petitioner, namely, the Supreme Court decisions in the cases of Hindustan Bulk Carriers (supra) and Damani Brothers (supra) as also the decision of this court in the case of Deen Dayal Didwania (supra). Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission formally allows the application for being considered for "settlement" that the regular assessment proceedings and recoveries initiated for tax, penalty or interest pursuant thereto, shall become subject to the powers of the Commission and not prior to the same. In other words, it means that mere filing of an application by the assessee for settlement and before the same is formally allowed for consideration would have no adverse effect on the proceeding of assessment or recovery pending or initiated against the assessee under the regular procedure for assessment and recovery of dues under the Income Tax Act. 21. The Supreme Court in Damani Brothers (supra) noted that the scheme of Chapter XIX-A shows that the filing of an application by an assessee under Section 245C is an unilateral act and the department may not be aware of the same. It was further observed that an application for settlement filed under Section 245C, is not automatically admitted and that Section 245D deals with the procedure to be followed by the Settlement Commission on receipt of such an application. Section 245D(1) provides that the Commission, after following the prescribed procedure, can allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued till 12.08.1974, when the writ petitions were dismissed by this court. Thereafter, the income-tax officer issued notices to the assessee firm as well as its partners under Sections 142(1), 143(2) and 143(3) of the said Act in respect of the assessment years referred to above. The replies were filed to the said notices by the assessees on 21.11.1974 and soon thereafter, the writ petitions were filed before the Punjab Haryana High Court. The plea taken by the assessees / petitioners therein was that under the interim order dated 23.11.1971 passed by the Delhi High Court, there was no stay of the assessment proceedings and, therefore, Explanation 1 to Section 153 of the said Act could not be invoked and that after the expiry of the period prescribed under Section 153, the income-tax officer was not competent to issue the notice in the assessment proceedings against the assessees. The view taken by a learned single Judge of the Punjab Haryana High Court was that the expression "assessment proceeding" in Explanation 1 to Section 153 would include the passing of the order of assessment and since the passing of the order of assessment had been stayed by the Delhi High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer of the notice to file the return under Section 142(1) and it culminates with the issuance of the notice of demand under Section 156. The making of the order of assessment is, therefore, an integral part of the process of assessment. Having regard to the fact that the object underlying the explanation is to extend the period prescribed for making the order of assessment, the expression "assessment proceeding" in the explanation must be construed to comprehend the entire process of assessment starting from the stage of filing of the return under Section 139 or issuance of notice under Section 142(1) till the making of the order of assessment under Section 143(3) or Section 144. Since the making of the order of assessment under Section 143(3) or Section 144 of the Act is an integral part of the assessment proceeding, it is not possible to split the assessment proceeding and confine it up to the stage of inquiry under Sections 142 and 143 and exclude the making of the order of assessment from its ambit. An order staying the passing of the final order of assessment is nothing but an order staying the assessment proceeding. Since the passing of the final order of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(2) should be served on the assessee, has been introduced by virtue of the proviso to Section 143(2) as it now stands and which has been extracted in the earlier part of this judgment. For the assessment years 1967-68, 1968-69 and 1969-70, which were before the Supreme Court in Auto Metal Engineers (supra), the only period of limitation was with regard to the making of an assessment order and the period therefor was provided in Section 153(1) of the said Act. Obviously, in the situation prevailing then, the notice under Section 143(2) could be served on the assessee at any point of time prior to the terminal date for making the assessment order under Section 143(3). This is not the case any longer. Now, by virtue of the proviso to Section 143(2), it is mandatory that no such notice can be served on the assessee after the expiry of the stipulated time period. Such a requirement has been held to be mandatory by the Supreme Court, as mentioned above, and if such notice is not served within the prescribed time, it would not be a mere irregularity or a curable defect. The fact that such a notice is not served within the stipulated time, is fatal to the assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.04.1976. Explanation 1 to Section 158BE relates to the manner of computing the period of limitation for, inter alia, passing an order under Section 158BC(c) of the said Act, when an application has been made before the Settlement Commission under Section 245C and such an application is either rejected or is not allowed to be proceeded with by the Settlement Commission. In such an eventuality, the period commencing on the date on which the application is made and ending with the date on which the order under Section 245D(1) is received by the Commissioner under sub-section (2) of Section 245D, is to be excluded. The exclusion of time is in relation to the computation of the period of limitation for the passing of an order of assessment under Section 158BC(c) and not with regard to computation of the period of limitation for the purposes of serving a notice on the assessee under Section 143(2) of the said Act. We have already noted the decisions of this court as well as of the Supreme Court which clearly indicate that the filing of an application under Section 245C before the Settlement Commission does not create any bar on the Assessing Officer in proceeding with the assessment in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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