All these appeals are filed by different assessees directed against the block assessment order passed by the assessing officer for the block period 1986-87 to 1996-97 in the first three appeals and 1987-88 to 1997-98 in the next four appeals under section 158BD read with section 158BC of the Income Tax Act, 1961.
As the search and seizure operation was on 5-8-1996, first appeals are filed before this Tribunal and as the issue arising out of these appeals are common, for the sake of convenience, they are heard together and disposed of by this common order.
The assessee raised a preliminary objection by way of additional ground disputing the validity of the notice issued under section 158BD. This preliminary issue was heard by this Bench. The Bench decided to dispose of the preliminary issue as it strikes at the root of the assessment itself before considering the case on merits.
The facts in brief are as follows. Search and seizure operation was carried out in the case of M/s. Aditya Builders on 5-8-1996 and notice under section 158BC was issued to M/s. Aditya Builders on 7-8-1997. On 18-8-1997, M/s. Aditya Builders filed a nil return in Form No. 2B and had also filed a covering letter stating that there was no material seized relating to M /s. Aditya Builders during the search and seizure proceedings and that material related to either Shri C. Subhan Reddy and 25 others who had completed a venture at Kukatpally in the name of Swagruha Cooperative Housing Society or belong to Shri C. Subhan Reddy and six others who had completed a venture at Hastinapuram North and Hastinapuram South and Jillellaguda venture and that for the two AOPs Block assessments were completed under section 158BD. In the case of Shri C. Subhan Reddy and 15 others block assessment was completed on 8-8-1997 and in the case of C. Subhan Reddy and 6 others block assessment was also completed on 8-8-1997 under section 158BD read with section 143(3) of the Act. As per section 158BE(1)(a), the assessment of M/s. Aditya Builders under section 158BC should have been completed within one year from the end of the month in which the last of the authorizations for search under section 132 was executed. In other words, block assessment should have been completed before 31-8-1997.
The assessing officer had not acted on the block assessment return filed by M/s. Adhitya Builders on 18-8-1997.No assessment has been framed under section 158BC read with section 143(3) and the assessment has become time barred.
Notices under section 158BD have been issued in all six cases on 26-7-2000 almost three years after filing of the return by M/s. Aditya Builders. The assessee claimed that after three years of dropping the proceedings under section 158BC in the case of M/s. Aditya Builders and after completing the block assessment under section 158BD in the cases of two AOPs, the revenue had issued these notices under section 158BD and that these notices are barred by limitation and are not in accordance with law. He relied on a number of propositions and submitted that the notice under section 158BD has to be given within reasonable time and that too during the course of proceedings under.
Section 158BC. In the case of P. Mahendra Reddy, he submitted that the notice was served on one P. Venkat Reddy and that the show-cause notice was served on some other relative of the assessee and hence, the assessment is bad in law.
The learned departmental Representative on the other hand relied on the plain language of the section 158BD and submitted that there is no time limit for issuance of notice under section 158BD prescribed under the Act and that this preliminary issue raised by the assessee should be dismissed as devoid of any merit. In the case of P. Mahendra Reddy, he submitted that the notice was served on one P. Venkat Reddy and that the show-cause notice was served on some other relative of the assessee.
We have carefully considered the rival submissions in the light of the facts and circumstances of the case and the case laws relied upon. The Special Bench, ITAT, Bangalore in the case of Y. Subbaraju & Co. v.Asstt. CIT (2004) 91 ITD 118 (Ban) held as under: (ii) that undisclosed income belongs to person other than the person in respect of whom search was conducted, (iii) the books of account or other documents or assets seized shall be handed over to the assessing officer having jurisdiction over that other person.
(iv) the assessing officer shall proceed against such other person under the provisions of this Chapter.' In this case the assessing officer had not proceeded on the return filed in Form No. 2B by M/s. Aditya Builders i.e., the person who was searched. The request of the persons searched to close the proceedings under section 158BC was facitly agreed to by the assessing officer by not initiating any assessment proceedings on the returns for the block period filed. While so, we do not know-how, the assessing officer had formed a prima facie view that the undisclosed income belonging to these persons had escaped assessment. The satisfaction has to be arrived on the basis of cogent and demonstrative evidence though the same might not have been specifically recorded. The assessing officer who examined the records of the person searched, thought it fit and proper to issue notices under section 158BD only to the two AOPs on 9-12-1996 i.e., much before issue of notice under section 158BC. Four years after the search the new incumbent issued notices to all these assessees. This necessarily means that the assessing officer who had dropped the proceedings against the person searched had not formed a prima facie view that notices under section 158BD need not be issued to all these persons. Thus applying the decision of the Special Bench of the Tribunal in the case of Y. Subbaraju & Co. (supra) we have to hold that these notices under section 158BD are bad in law for the reason that the assessing officer has not initiated any assessment proceedings in the case of the persons who has been searched to have enabled him to come to a conclusion that, the undisclosed income belonging to some other person was found and as the notices have been issued beyond reasonable time and hence barred by limitation in the light of the legal position discussed hereinafter.
"Where the assessing officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then the books of account other documents or assets seized or requisitioned shall be banded over to the assessing officer having jurisdiction over such other person and that assessing officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly." A plain reading of this section shows that the assessing officer has to be satisfied that undisclosod income belonging to some other person other than the person in respect of whom search was made under section 132 is prima facie available to initiate proceedings under section 158BD. It is clear that such satisfaction cannot be said to have been arrived while taking up assessment proceedings under section 158BD of the Act i.e., a person other than the person searched and so the plea of the revenue that the assessing officer while proceeding under section 158BD read with section 143(3) in the case of AOPs in whose case assessments were completed on 8-8-1997 had come to the conclusion that undisclosed income belong to other person was available, for the revenue to issue notice under section 158BD. The Act does not contemplate issuance of notice under section 158BD while assessments are done in the case of another person under section 158BD. The powers are restricted to proceedings under section 158BC only. Thus, this argument of the revenue also fails.
Even otherwise we find that there is an abnormal delay in issuance of notice under section 158BD. Though no time limit has been prescribed under section 158BD, when proceedings are initiated after considerable delay, it could be said to be barred by limitation. This Bench of the Tribunal in the case of Shri S. Sankara Reddy (IT Appeal Nos. 420 to 423 (Hyd.) of 1999 etc. by order dated 31-12-2003 at paras 27 & 28 held as under: "27. It may also be noticed that in spite of the order of the Tribunal dated 15-11-1989, the assessing officer has taken more than 5 years to issue notices under section 148 of the Act. The notices were issued on 13-3-1995 under section 148 of the Act and assessments were completed on 28-31997. Thus there is abnormal delay in reopening the assessments and in completion of the same. Merely because the provisions of sections 150(1) and 153(3) do not provide for any specific time frame, it cannot be said that the assessing officer is empowered to reopen the assessments and complete them after abnormal delay, compared to the normal time frames set by the legislature in other provisions of the Act. In the case of K.P. Narayanappa Setty & Co. v. CIT 100 ITR 17, the Hon'ble court observed that though no specific period, within which penalty may be levied, is fixed by the Indian Income Tax Act, 1922, there should not be any inordinate delay and penalty should be levied within a reasonable time. In our considered opinion, the same analogy applies to the instant case. Reasonable time, in the instant case can, at best be considered to be four years (though we are not laying own any rigid principle of law) but the notices having been issued under section 148 after 5 years from the date of order passed by ITAT, the proceedings can be said to be barred by limitation.
It may also be relevant to notice the observations of Hon'ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. Income Tax Officer "It has been said that the taxes are the price that we pay for civilization, If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of lawis that there mustbe a point of finality in all legal proceedings, that state issues should not be reactivated beyond a particular stage and that lapse of time and must induce repose in and set at arrest judicial and quasi judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment." Bearing in mind the observations of the Hon'ble High Court and the Apex Court, we are of the considered view that in the instant case, the reassessment proceedings were commenced after a considerable delay, reckoned from the order of the ITAT dated 15-11-1989, and thus the notices and the consequential proceedings can be said to be barred by limitation, having not been taken up within a reasonable time frame. In the case of Foramer of France (supra), the observation of the Hon'ble High Court, which are affirmed by Hon'ble Supreme Court, are relevant to be noticed. The Hon'ble court observed that a direction or finding as contemplated by section 153(3) must be a finding necessary for the disposal of a particular case; to be a necessary finding it must be directly involved in the disposal of the case. This very issue was the subject-matter of consideration by the Hon'ble High Court in RC No. 236 of 1990 wherein the question that was referred to court was "whether the Tribunal was competent to direct the assessing officer to examine the case from the angle of leviability of capital gains" and the court categorically observed that there was no such direction or finding and it was a mere observation." The Hon'ble Supreme-Court, on principles of natural justice observed in its judgment in the case of Union of India v. J.N. Sinha AIR 1971 SC 40 (SC) held as under: "Rules of natural justice are not embodied rules nor can they be elevated to the position of fundamental rights. As observed by this court in Kraipak v. Union of India AIR 1970 SC 150, the aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words, they do not supplant the law but supplement it. It is true that a statutory provision can be read consistently with the principles of natural justice,the courts should do so because it must be presumed that the Legislature and the statutory authorities intend to act in accordance with the principles of natural justice. But, if on the other hand, a statutory provision either specifically or by necessary implication justice then the court cannot ignore the mandate of the Legislature or the statutory authority and read into the concerned provision the principles of natural justice. Whether the exercise of a power conferred should be made in accordance with any of the principles of natural justice or not depends upon the express words of the provision conferring the power, the nature of power conferred, the purpose for which it is conferred and the effect of the exercise of that power.* The Supreme Court in State of Gujarat v. Patel Raghal., Alatha AIR 1969 SC 1297 held that although there is no period of limitation prescribed under section 211 of the Bombay Land revenue Code, the power of Commissioner to revise under section 65 of the said Act must be exercised within a reasonable time and the question whether the Commissioner has sought to revise the order under section 65 within a reasonable time or not must be determined by the facts of individual case and nature of the order which is being revised. The Apex Court in para (11) of the judgment held as under: "The question arises whether the Commissioner can revise an order made under section 65 at any time. It is true that there is no period of limitation prescribed under section 211, but it seems to us plain that this power must be exercised in reasonable time and the length of the reasonable time must be determined by the facts of the case and nature of the order which is being revised." The Gujarat High Court in the case of Khandubhai Desai v. Dy. CIT (1999) 236 ITR 731 (Guj) held as under: 'The assessing officer, once he reached the requisite satisfaction, is bound to acts wiftly to proceed against such other person as soon as may be in reasonable tinie. The speed and dispatch with which he should act is writ large on the connected provisions of section 132(9A) of the Act under which the authorized officer who has no jurisdiction over the person referred to in clauses (a), (b) or (c) of sub-section (1) of section 132 has to hand over the books of account, documents and assets seized to the Income Tax Officer having jurisdiction over such person within 15 days of such seizure and the assessing officer is required to serve a notice to such person under section 158BC requiring him to furnish a return in the prescribed Form 2B and to complete the block assessment in one year from the end of the month in which the last authorization for search or requisition was executed. Thus the apprehension that a notice can be issued under section 158BD read with section 158BC by the assessing officer in the case of such "other person" at any time is ill founded." (p. 97) lf in any particular case a notice is unduly delayed, then that is a matter in which the validity of that notice can be considered but that surely will not invalidate the statutory provision which does not warrant any delay once the satisfaction is reached and enjoins a duty upon the assessing officer to immediately proceed against such other person under the provisions of Chapter XIV-B." Thus as notice under section 158BD were issued more than three years after completion of the block assessment under section 158BD in the case of the two AOPs, and after four years of search proceedings, we hold that the notice were unduly delayed and the validity of the same cannot be upheld.In the result, we hold that the notices issued in all the six cases under section 158BD are bad in law and thus the assessment are hereby cancelled.
Coming to the case of Shri P. Mahender Reddy, the assessee claimed that notice has been served on him. The revenue produced a notice stating that it was served on one Shri P. Venkat Reddy who is a relative of the assessee. No evidence is filed by the revenue as to the relationship between the assessee and the person who has taken the notice. The assessments were completed ex parte. Procedure regarding service of notice has been laid down in section 282 of the Income Tax Act. Section 282(1) provides that a notice or requisition under the Act may be served on the person concerned either by post or as if it was summons issued by court under Code of Civil Procedure. Thus in terms of section 282 the said notice has to be served in the manner laid down in the Code of Civil Procedure which provides that service of summons shall be made by delivery or tendering copy thereof, signed by the Judge or such officer as he appoints in this behalf and sealed with the seal of the court. Therefore, delivery or tendering the summons is the sine qua non of such service. It is the duty of the revenue to establish that service of an order or a notice was made on the assessee himself or on somebody duly authorized by him in that behalf. The burden of proof in this case is not discharged by the revenue by placing relevant material to substantiate the plea that the assessee was served with proper notice. In the absence of such proof, the substituted service cannot be held as one, which is validly effected. (Please seepage 9236 of Income Tax Law by Chaturvedi & Pithisaria, 5th Edition, Vol. VI).
The Hon'ble Punjab & Haryana High Court in the case of CIT v. Har Parshad (1990) 178 ITR 591 (P&H-HC) held that an assessment is not valid if the same is completed in a case without properly servicing a notice.
As the revenue could not demonstrate that notice under section 158BD has been served on the assessee, we have to necessarily hold that the service is bad in law and that consequently in the light of the case cited supra the assessment has to be cancelled and the appeals of the assessee have to be allowed.