TMI Blog2006 (7) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... directed against the order of the Income tax Appellate Tribunal, Bench-I, Mumbai ("the Tribunal" for short) dated July 28, 2003. The facts: The facts of the case are that the appellant is dealing in landed properties. He is regularly assessed to income-tax. Action under section 132 of the Income-tax Act, 1961 ("the Act" for short), for search and seizure was conducted at the residential and business premises of the appellant between June 11, 1998, and concluded on July 15, 1998. The Assessing Officer issued notice dated July 6, 1998, calling upon the appellant to file a return for the block period. However, the appellant disputes the receipt of the said letter/notice. The appellant admits to have received a letter dated September 17, 1998, from the Assessing Officer reminding him to file a return for the block period 1987-88 to 1997-98 which referred to the earlier notice dated July 6, 1998, though incorrectly and stated that the appellant did not file a return for the block period in response to the said notice dated July 6, 1998. The appellant by his letter dated September 28, 1998, denied receipt of the notice dated July 6, 1998, however, sought extension of time and, ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said expenditure related to the transactions undertaken and concluded earlier?" Submissions: Mr. Sathe, learned counsel for the appellant submits that the notice dated July 6, 1998, was never served on the appellant apart from the fact that the same was suffering from enormous infirmities and defects. Mr. Sathe went on to submit that the notice dated July 6, 1998, was not issued under correct provisions of the Act. That the block period mentioned therein was erroneous. That it did not provide 15 days clear notice. That it was issued much before the conclusion of search which, according to him, lasted till July IS, 1998, since the last panchanama was drawn on that date. That the notice was not in the prescribed format of ITNS-274. That it was never served on the appellant. In the submission of Mr. Sathe, all the above infirmities/defects in the notice dated July 6, 1998, go to the root of the jurisdiction of the Assessing Officer to initiate proceedings for block assessment much less to assess the total income including undisclosed income for the block period under section 158BC. According to him, service of legal and valid notice under section 158BC(a) is a condition preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alidity of the notice issued under section 158BC(a) must be tested with the same rigour with which the validity of notice under section 148(a) is required to be examined. Based on this foundation, Mr. Sathe submits that the very basis to assume valid jurisdiction to assess the total income including undisclosed income for the block period is : a valid search conducted under section 132 of the Act; finding of undisclosed income on the basis of material seized during the conduct of such search; and issuance coupled with the service of a valid notice under section 158BC(a). Mr. Sathe submits that the notice under section 158BC(a) is to be issued for the block period which is a maximum of 10 assessment years preceding the assessment year in which a search is conducted. The block period contemplated under section 158B is not necessarily all the 10 assessment years preceding the assessment year in which search is conducted, as undisclosed income for the block period is to be assessed is in the context of the material found during the search. He, thus, submits that the alleged notice dated July 6, 1998, which directed the appellant to file a return for the block period 1987-88 to 1997-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure could not have been assessed in the assessment year 1999-2000 holding that the search was conducted in the previous year corresponding to the assessment year 1999-2000. According to him, under the concept of block assessment under the provision of section 158BB(1) the total income including undisclosed income is to be computed for each of the previous years falling within the block period. That the expenditure of Rs. 3,85,196 ought to have been considered for the previous year in which the transactions leading to purchase of lands were entered into, i.e., the assessment year 1993-94 and not the assessment year 1999-2000. Mr. Sathe, thus, submits that considering his submission, the impugned order is liable to be set aside and the appeal deserves to be allowed. Per contra, Mr. Kotangale, learned counsel appearing for the Revenue, while replying to the submissions with respect to the validity of notice issued under section 158BC(a) and protection of section 292B, submits that nowhere in the Act it is made mandatory to issue notice in the prescribed format. The subject notice dated July 6, 1998, can very well be said to be a valid notice because the said notice bears the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings in filing the return for the block period. In view of this, Mr. Kotangale submits that the submissions made by the learned counsel for the appellant hold no water. So far as the third issue relating to deduction under section 37 of the Act in the sum of Rs. 3,85,196 is concerned, Mr. Kotangale submits that the question relating to this aspect of the matter can hardly be said to be a substantial question of law. In his submission, the Tribunal has confirmed the addition made by the Assessing Officer to the extent of Rs. 3,85,196 as the appellant could not establish the particular expenditure as business expenditure by producing cogent evidence. He further submits that unless it is proved that the expenditure in question was incurred for earning income which has been brought to tax, no deduction under section 37(1) could have been allowed. In support of his submission, he relied upon the judgment of the Calcutta High Court in the case of CIT v. Bhagwati Developers P. Ltd. [2003] 261 ITR 658 and the judgment of the Madras High Court in the case of R. Kanakammal v. CIT [2000] 244 ITR 152. He, thus, prayed for dismissal of the appeal holding it to be without any substance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. 158BC. Procedure for block assessment.-Where any search has been conducted under section 132 or books of account, other doctiments 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 person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years included in the block period. Generally, the disclosed income of a person was taxed in the regular assessment and undisclosed income found in the course of search was taxed in block assessment in the case of a person who was searched. A detailed procedure was laid down for computation as also for assessment of undisclosed income. Time-limit also was provided for completion of the block assessments and the authority competent to make such assessment was also defined. Special provisions were made for assessment of a third party's undisclosed income. No interest under sections 234A, 234B and 234C was levied in respect of undisclosed income. Similarly, no penalty for concealment of income as also for non-maintenance of accounts and audit thereof was leviable in respect of unaccounted transactions and undisclosed income. The block assessment was subjected to appeal under section 246A and could be rectified and/or revised. It was possible to file a petition before the Settlement Commission against the block assessment for the settlement of case. Separate provisions for levy of interest for delay in filing the return for the block period were provided. The provisions were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment shall be considered mandatory or directory. It is the duty of the court to try to get the real intention of the Legislature by carefully analysing the whole scope of the statute or section or a phrase under consideration. In the case of P. T. Rajan v. T. P. M. Sahir [2003] 8 see 498, the apex court has said that whether a statute would be directory or mandatory will depend upon the scheme thereof. Ordinarily, a procedural provision would not be mandatory even if the word "shall" is employed therein unless a prejudice is caused. In Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar [2005] 4: 2 SCC 188, the apex court has observed as under: "74. In this case, it is not necessary for us to go into the question as to whether section 83 is imperative in character or not inasmuch as it is settled law that even where the expression 'shall' is used, the same may not be held to be mandatory. Even a mandatory provision having regard to the text and context of the statute may not call for strict construction. 75. In U. P. State Electricity Board v. Shiv Mohan Singh [2004] 8 sec 402, this court stated the law in the following terms: '96. Ordinarily, although word "shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment Corporation [2006] 129 Comp Cas 929, the apex court has held that it is necessary for the person to show how he was prejudiced. It is, therefore, necessary for the person objecting to the validity of notice to demonstrate prejudice suffered by it. The same principle is reiterated in the case of State Bank of Patiala [1996] 3 SCC 364. Application of law to the case at hand: Having examined the factual matrix, the statutory provision, the law laid down by various courts presently holding the field, if one turns to the facts of the case at hand, it is not in dispute that notice dated July 6, 1998, did not mention the correct provisions of the Act; it did not mention the correct block period for which the return was required to be filed; it did not give 15 days clear notice. Though the said notice was defective, it did not cause any prejudice to the appellant. The undisputed factual matrix reveals that the appellant was served with another notice dated September 17, 1998, mentioning the block period for which the return was required to be filed incorporating the correct reference to the sections applicable to the case in question and it mentioned that the period of 45 days fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with Chapter XIV-B. Whereas section 158BA(2) is a charging section; section 158BB provides for computation of undisclosed income for the block period; whereas section 158BC provides procedure for block assessment. Section 158BA bestows jurisdiction on the Assessing Officer and not section 158BC as submitted by Mr. Sathe. Thus, notice under section 158BC(a) cannot be equated with that of notice under section 148. That notice under section 158BC(a) only provides for procedure to be adopted for block assessment. It does not confer jurisdiction to assess in favour of the Assessing Officer. In these circumstances, the submission made by Mr. Sathe is devoid of any substance. The judgment of the Calcutta High Court in the case of Shaw Wallace Co. Ltd. v. Asst. CIT [1999] 238 ITR 13 relied upon by Mr. Sathe is not at all applicable to the facts of the present case. In that case, the Calcutta High Court was dealing with the power of the Assessing Officer to make a regular assessment in respect of a financial year which formed the subject matter of the block period of assessment. While considering this question, the observations were made by the Calcutta High Court to say that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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