1. These are two block assessment appeals; filed by the Assessee and the Revenue, respectively. These cross appeals are directed against the order of the CIT(A)-VII at Mumbai dated 13.3.2003 and arise out of the assessment completed Under Section 158 BC(c) r.w.s. 143(3) of the Income-tax Act 1961.
2. The grounds raised in the appeal filed by the Assessee are as follows: 1. The learned CIT(A) erred in rejecting the contention of your appellant that the block assessment for the period 1.4.89 to 29.11.99 made by the A.O, was invalid, bad in law, void ab-initio and without jurisdiction as the notice issued Under Section 143(2) of the Act was beyond the prescribed time limit of one year as provided in the proviso to Section 143(2) of the Act.
2.1 On the facts and circumstances of the case, the learned CIT(A) erred in holding that the payments made to Smt.Leena J.Sonawala over the block period of Rs.5,75,277/- towards the salary, Rs.3,00,000/- towards the ex-gratia payment and Rs.3,22,120 towards her Keyman Insurance Policy premium totaling to Rs. 11,97,397/- were a non-business expenditure.
2.2 While holding that the Keyman Insurance Policy premium paid of Rs.3,22,120/- were payments to Smt.Leena J.Sonawala for a non business purpose, the learned CIT(A) erred in ignoring the fact that the proceeds of the Key/nan Insurance Policy when realized in subsequent year within the block period were offered by the Company for taxation in its assessment proceedings and thus were not payment to her.
2.3 In holding that Smt.Leena J.Sonawala was not found to be working for the Company, the CIT(A) erred: (a) in ignoring the fact that the allegations in letters from a director and disgruntled shareholders, emanating out of a family feud, which formed the basis for the additions by the A.O., relate to her irregular attendance and the cost-benefit of such expenditure and did not relate to non attendance at all; (b) in relying upon the letters addressed by a director and some disgruntled shareholders while adjudicating on this issue when he himself has rejected these letters as inconsequential and/or without substance while adjudicating other issues.
2.4 The learned CIT(A) erred in observing that the AR did not bring any material or evidence on the record to show that Smt.Leena J.Sonawala had rendered any service to the Company when in fact all such material and evidences brought on record at the assessment and the appellate stage were not appreciated by him.
3.1 The learned CIT(A) erred in holding that the A.O. rightly observed thai the addition of Rs.10 lacs was required to be made on account of Board resolution dated 7.1.2000 when such resolution was rescinded and revoked by another resolution dated 5.6.2000.
3.2 The learned CIT(A) failed to record any finding that there was any underlying income to support such addition.
4. The learned CIT(A) erred in rejecting your appellant's claim vide grounds No. 11, 12 & 13 in appeal before him that disallowable expenditure as distinct from undisclosed income unless proved to be totally bogus and/or fictitious is not assessable under Chapter XIV-B and that there is a vast distinction between two sets of assessment proceedings, namely, Regular Assessment proceedings (Chapter XIV) and Block (sic) It is therefore prayed that the order of the A.O. be declared as in excess and beyond his jurisdiction and therefore null and void. Without prejudice to such prayer and in the alternative, the undisclosed income confirmed by the CIT(A) at Rs.11,97,397/- be directed to be determined at Rs.Nil after deleting the disallowances/additions confirmed by the CIT(A).
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.20,79,086/- on account of suppression of job work charges, ignoring (a) that normal percentage of scrap inclusive of rejected materials was approximately 1.5% to 2% maximum, whereas assessee shown huge fluctuations of percentage of scrap-rejected materials in block year, ranging from 2.44% to 13.47%, (b) that assessee's submission before the Ld.CIT(A) that if the amount of rejects are excluded, the percentage of wastage would come around to 1.5%, is not correct because in such a circumstance, assessee would not have shown huge fluctuations of percentage of scrap/rejected materials in the block years, ranging from 2.44% to 13.47%, (c) that the A.O. brought on record through analysis of seized materials various instances where scrap returned worked out to as high as 32.99%, and also in certain cases scrap/rejected materials were claimed to be delivered to NRPL, without any corresponding production, which confirm that assessee had returned finished goods in the guise of scrap, resulting in suppression of job work charges in the hands of the assessee.
4. Shri J.D.Mistri, the learned Counsel appeared for the assessee and Ms.Shanta Abrol, the learned Commissioner of Income-tax appeared for the Revenue.
5. The learned Counsel appearing for the assessee, placed his arguments at first on the legal ground raised by the assessee in its appeal. The said legal ground is that the CIT(A) has rejected the contention of the assessee that the impugned block assessment is invalid and it is bad in law and it is void ab initio for the reason that the notice Under Section 143(2) of the Act was beyond the prescribed time limit of one year provided in the Proviso to Section 143(2) of the Act.
6. The learned Counsel invited our attention to the first paragraph of the order of the CIT(A) wherein, the chronology of events leading to the issue of notice Under Section 143(3) has been discussed. The search was commenced on 29.11.1999 and it was concluded on 13.1.2000. The notice Under Section 158BC dated 17.4.2000 was served on the assessee on 22.4.2000. The assessee was required to file the block return on or before 16.5.2000. In compliance of the notice, the block return was filed by the assessee on 6.6.2000. Thereafter, the Assessing Authority issued the notice Under Section 143(2) r.w.s. 142(1) on 22.10.2001, whereby the case was posted for hearing on 29.10.2001.
7. The learned Counsel explained that the block return was filed by the assessee on 6.6.2000 and any notice Under Section 143(2) has to be issued within a period of one year from the end of the month in which the return was filed. Therefore, in the present case, the learned Counsel submitted that the notice Under Section 143(2) ought to have been issued by the Assessing Authority on or before 30.6.2001; whereas the notice was served on the assessee only on 22.10.2001, which is verymuch beyond the due date of 30.6.2001. He, therefore, submitted that the notice was barred by limitation, and therefore, the consequent assessment was also void ab initio. The learned Counsel made a reference to Sub-section (b) to Section 158BC, which reads as "...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-section (2) and (3) of Section 143 [section 144 and Section 145] shall, so far as may be, apply;...". The learned Counsel submitted that Section 158BB provides for the method of computation of undisclosed income of the block period and Secton 158BC provides for the statutory procedures to be adopted for making a block assessment, and therefore, Clause (b) of Secton 158BC which prescribes the modalities of notice have to be followed strictly as more particularly there is a reference to Section 143(2) and the said section provides for limitation, as well.
8. He, thereafter, referred to Section 143(2) where it is stated in the Proviso to Clause (ii), that no notice shall be served on the assessec after the expiry of 12 months from the end of the month in which the return is furnished.
9. The learned Counsel, thereafter, relied on the decision of the Gauhati High Court in the case of Smt. Bandana Gogoi v. CIT 289 ITR 28 where the Court has held that where the notice Under Section 143(2) is to be served, it must be served within the time prescribed therein and if the notice was issued thereafter, the block assessment will become void. He submitted that this decision is squarely applicable to the present case, and therefore, the impugned block assessment may be declared as void.
10. The learned Commissioner of Income-tax, appearing for the Revenue, invited our attention to the discussion made by the CIT(A)on this point, which is available in pages 2 to 8 of his order. She further relied on the decision of the Supreme Court in the case of Dr. Partap Singh and Anr. v. Director of Enforcement and Ors. 155 ITR 166 where the Court has considered the aspects of procedural formalities where a search was conducted. She submitted that the principles laid down by the Supreme Court in the said case are applicable to a block assessment, as well, and therefore, it is necessary to be held that the procedures of assessment prescribed for a block assessment are not mandatory, as far as the period of limitation is concerned. She submitted that she is relying on the detailed order passed by the CIT(A) on this point.
11. We considered, the matter in detail. While deciding the matter against the assessee, the learned CTT(A) has relied on the decision of the ITAT Delhi Bench in the case of Action Electronics v. DCIT in ITA No.5215/Delhi/96 and in the case of Electronica Components v. DCIT in ITA No.5216/Delhi/96, wherein the Tribunal has held that Provisions of Section 142(1) and Section 143(2) are procedural and that these Provisions arc in regard to the issuance of notice for the purpose of allowing opportunity before completion of assessment and there will be no difference as assessee was allowed opportunity for explaining and filing the details in regard to the search material.
12. We are afraid that the above decisions of the Delhi Tribunal do not match with the facts of the present case placed before us. In those cases, the Tribunal was in fact examining a case where the Assessing Authority had not issued notice Under Section 143(2). Where the Assessing Authority is accepting return filed by an assessee as such, and no addition or adjustment is contemplated, it is not necessary for the Assessing Authority to issue notice Under Section 143(2). The question of issuing notice Under Section 143(2) arises only when the Assessing Officer is proposing to conduct inquiries on the details furnished in the return. In the present case, it is not a case where no notice was issued Under Section 143(2). Here the case is issue of notice Under Section 143(2) beyond the prescribed time. Therefore, we cannot draw an analogy from the decisions of the Delhi Tribunal mentioned supra.
13. Moreover, it is not possible to brush-aside the reference made to Sections 142(1) and 143(2) in Secton 158BC(b). This is for the reason that the Proviso to Section 143(2) prescribes a time limit for issuing a notice under that section. The rule regarding the limitation requires strict interpretation and strict compliance. Limitation is one of the most inflexible rule in any scheme of assessment. Therefore, Section 143(2) cannot be brushed-aside as a procedural section. It is a procedural section coupled with rule of limitation.
14. The reference made by the learned Commissioner to the decision of the Supreme Court in the case of Dr. Partap Singh and Anr. v. Director of Enforcement and Ors. 155 ITR 166 is also not relevant in deciding this case before us. In the said case the Court was examining the validity of the issuance of warrant in the light of the argument of the assessee that no further proceedings were initiated by the Directorate of Enforcement after conducting the search and seizing document, and more especially, the said decision does not deal with the rule of limitation or the question of limitation, which is on the other hand is the most important ground taken by the assessee in the present case.
15. The Gauhati High Court in the case of Smt. Bandana Gogoi v. CIT 289 ITR 28 has considered a case exactly similar to the case, now placed before us. In that case, the block assessment proceedings were initiated after search operations. The assessee filed her return of income in response to notice issued Under Section l58BC. The Assessing Officer had also issued notice Under Section 142(1) and completed the assessment Under Section 158BC and Secton 143(3) of the Act. But no notice was issued Under Section 143(2). It is also true that the Assessing Officer did not accept the returns Filed by the assessee. The assessment was completed after making inquiries as envisaged Under Section 142. In that circumstances, the Court had to consider the question that the procedure adopted in completing the said assessment would be relevant for determining whether the words '"'as far as may be", are mandatory or directory in the case at hand. The Court, after examining the case, found that the Assessing Officer did not act upon the return filed by the assessee. He had issued notice Under Section 142(1). He had proceeded to make an inquiry. This could not be done without a notice Under Section 143(2). The provisions of Sub-section (3) show that the power under this sub-section should be invoked only after service of notices under Sub-section (2). The Assessing Officer admittedly did not follow the proceedings of Sub-section (2) of Section 143. The words "so far as may be", will thus become mandatory where the Assessing Officer proceeds to make an inquiry in repudiation of the return filed in response to a notice Under Section 158BC. Similarly, application of the provisions of Sec,142 and Sub-sections (2) and (3) of Section 143 will become director)' where the Assessing Officer does not embark upon an inquiry to determine the loss or profit reflected in the return filed. The Court relied on the decision of the Supreme Court in the case of R.Dalmia v. CIT (236 ITR 480] to explain the meaning of the expression "so far as may be", appearing in Secton 158BC(b). In the said case, the Supreme Court has referred to a similar 16. The Gauhati High Court in the above case held that - Clause (b) of Section 158BC of the Income-tax Act, 196!, provides that the provisions of Section 142 as well as Sub-section (2) and (3) of Section 143 shall apply even in the case of a block assessment so far as may be. There is no dispute that in the case of assessment under Chapter XIV, a notice under Section 143(2) is mandatory where the Assessing Officer proceeds to make an inquiry as provided in Section 142. Similarly, the provision of Section 143(2) will be mandatorily applicable in the case of block assessment also where the Assessing Officer in repudiation of the return filed under Section 15SBC(a) proceeds to make an inquiry in (he proceeding under Chapter XIV-B. Once the power of inquiry under Section 142 is invoked, the Assessing Officer has no option but to follow the provisions of Section 143(2). The words "so far as may be ", will thus become mandatory where the Assessing Officer proceeds to make an inquiry in repudiation of the return filed in response to a notice issued under Section 158BC. The circular issued by the Central Board of Direct Taxes provides that a notice under Sub-section (2) of Section 143 can be served on the assessee during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. The circular further provides that the Assessing Officer must serve notice under Sub-section (2) on the assessee within this period if a case is picked up for scrutiny. It is further clarified that if a notice is not served under Section 143(2), the assessee can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. The clarification given by the Board has a binding effect on the Department. Hence in the case of block assessment under Chapter XIV-B, where the Assessing Officer does not proceed to make assessment and determine the tax payable on the basis of the return filed in response to a notice under Section 158BC(a), he has to follow the provisions of Sub-section (2) of Section 143. The requirement of a notice under Sub-section (2) of Section 143 cannot be dispensed with in a case where the Assessing Officer proceeds to make an inquiry for the purpose of assessment, and determination of taxes payable after issuing notice (sic) 17. When the facts of the present case are analysed, we find that the decision of the Gauhati High Court, mentioned above, is squarely applicable. Wherever the Assessing Officer has made inquiries in a return filed in response to notice Under Section 158BC, the Assessing Officer has to issue notice Under Section 143(2). This is mandatory. If no notice is issued Under Section 143(2), the consequent assessment would be void. It is equally true that any assessment made on the basis of an invalid notice is also invalid. A notice barred by limitation is no notice at all. In the present case, the notice Under Section 143(2) is issued beyond the prescribed time limit of one year. Therefore, the notice issued by the Assessing Officer Under Section 143(2) is a time barred notice. It is as good as there was no notice. In these circumstances, following the decision of the Gauhati High Court, we hold that the impugned block assessment is ab inilio void and not sustainable in law.
18. Accordingly, the block assessment contested in these appeals is set aside. But we make it clear that if the assessee has returned any positive income in its block return, so much so income returned shall not be disturbed and be assessed to tax.
19. As the assessment itself is held void, the grounds raised by the Revenue in its appeal do not stand and they have to be dismissed as infructuous.
20. In result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.