Income Tax Appellate Tribunal - Agra
Vinod Kumar vs Assistant Commissioner Of Income Tax ... on 30 June, 2004
Equivalent citations: (2005)98TTJ(AGRA)769
ORDER
I.S. Verma, J.M.
1. All these appeals of different five assessee's are against the orders of CIT(A), dt. 9th Oct., 2002, whereby he has upheld the validity of notices issued under Section 158BC of the IT Act, 1961 (hereinafter referred to as the Act), and consequential assessments for block period both on legal ground and on merits.
2. Since the issues involved in all these appeals are common and similar, it is decided, for the sake of convenience, to dispose of all these five appeals of different assesses by this common/consolidated order.
3. I have heard the counsel for the appellants/assessee's as well as the learned Departmental Representative and before adverting to their respective stands, it is considered useful to record brief facts, which have been revealed from the record and are useful for disposal of these appeals, as under :
4. On 2nd of April, 2000, the police of Palanpur, Distt. Banskantha, in the State of Gujarat, intercepted a jeep No. HP-03/3313 in which seven persons, the present five assessee's and two others were travelling. Since these five assessee's were carrying silver ornaments/silver with them, the police at the check post presumed that these persons were carrying the goods after stealing from somewhere and to verify the genuineness of the ownership, the police detained the jeep as well as these assessee's. The details of persons travelling in the jeep and the quantum of silver ornaments/silver owned by them and accepted by the Revenue to be correct were as under :
(i) Not relevant
(ii) Not relevant
(iii) Subhash Chand Sharma 45.865 kgs.
(iv) Satish Chandra 125.438 kgs. silver, 61.840 German silver (Gillat).
(v) Kishan Lal 55.295 kgs. silver jewellery
(vi) Vinod Kumar 79.271 kg. silver jewellery
(vii) Ram Kumar Agarwal 104.891 kgs. silver jewellery 4.1 After verification, the concerned police authorities found that the silver ornaments and silver found in the possession of aforesaid five persons were their own and were being carried for sale. The police also found that these five persons were regular manufacturer of silver ornaments and were carrying on relevant business. Thereafter, the police informed the Director of Income-tax, Investigation, Ahmedabad, about the seizure of the silver ornaments/silver from these five persons.
4.2 The Director of Income-tax, Investigation, after having received this information, issued a warrant of requisition under Section 132A of the Act on 3rd April, 2000, directing the Superintendent of Police, Palanpur, Distt. Banskantha, to deliver the said silver jewellery/silver to the ITO authorised as per warrant of requisition, which was served on the Superintendent of Police on 5th April, 2000. But, since the appellants had approached the Court of law for release of jewellery by police, the police could not deliver the jewellery and silver to the IT Department till 16th Feb., 2001, i.e., silver ornaments/silver found in possession of these five appellants/assessee's and seized by the police on 2nd April, 2000, were delivered to the IT Department on 16th Feb., 2001.
4.3 The AO having jurisdiction over income-tax cases of these five appellants issued notices under Section 158BC of the Act on 30th March, 2001. The notice so issued in case of Shri Vinod Kumar reads as under :
"Notice under Section 158BC of the IT Act.
PAN/GIR No. Office of the Dy. CIT, Circle-I, Firozabad.
Dt. 30th March, 2001 Block period 1st April, 1990 to 16th Feb., 2001 To, Shri Jat Vinod Kumar Rajendra Singh Punia, Vill. Nagla Balicha, Tundla, Firozabad.
In pursuance of the provision of Section 158BC of the IT Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you as individual are assessable for the block period mentioned in Section 158B(a) of the IT Act, 1961.
The return should be in the prescribed Form No. 2B and be delivered in this office within 30 days of service of this notice duly verified and signed in accordance with the provisions of Section 140 of the IT Act, 1961."
Sd/-
(Ram Prasad) Dy. CIT, Circle-I, Firozabad."
4.4 The notices under Section 158BC of the Act issued in the cases of other four appellants, i.e., Ram Kumar Agarwal, Subhash Chand Sharma, Satish Chand and Kishan Lal are similar except names and addresses, and read as under :
"Notice under Section 158BC of the IT Act, 1961 PAN/GIR No. Block period 1st April, 1991 to 16th Feb., 2001 Office of the Dy. CIT, Circle-1, Aligarh.
Dt. 18th April, 2001.
To, Agarwal Ram Kumar Ram Chandra, Village Bishavar, Teh. Sadabad, Hathras.
"In pursuance of the provisions of Section 158BC of the IT Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you as individual/HUF/firm/company/ AOP/BOI/local authority are assessable for the block period mentioned in Section 158B(a) of the IT Act, 1961.
The return should in the prescribed Form No. 2B and be delivered in this office within 15 days of service of this notice, duly verified and signed in accordance with the provisions of Section 140 of the IT Act, 1961."
Sd/-
(L.R. Singh) Dy. CIT, Circle-1, Aligarh."
4.5 All these appellants/assessees furnished their returns of undisclosed income on 21st June, 2001, each declaring 'nil' undisclosed income.
4.6 During the proceedings of block assessments, the appellants furnished evidence for having purchased the relevant silver ornaments/silver, the details of which are as under :
(i) Shri Vinod Kumar furnished the evidence for having purchased the relevant silver ornaments on 1st April, 2000, from M/s Rajendra & Co., Chawk Bazar, Mathura.
(ii) Shri Ram Kumar Agarwal furnished the evidence for purchase of silver ornaments from Raghunath Das Prahlad Das Sarraf, Chowk Bazar, Mathura.
(iii) Shri Kishan Lal and Subhash Chand Sharma furnished the evidence for having made purchases from Rajendra & Co., Chowk Bazar, Mathura.
4.7 The plea of the appellants was that the payments towards purchases were made out of past savings and since the income in each year was less than the exemption limit, there was no undisclosed income.
4.8 The AO completed the assessments for block period as per orders dt. 12th Oct., 2001, after considering the payments made towards the purchases of silver ornaments/silver as undisclosed income.
4.9 All the five assessees went in appeal before the CIT(A) and objected to the assessments of block period both on legal grounds as well as on merits. On legal grounds, the challenge was on the validity of notice issued under Section 158BC, whereas with respect to the merits, the challenge was that the payments towards purchase of silver ornaments/silver were made out of their past savings.
4.10 The CIT(A) rejected their legal objections as per para 3.4, which is common in all cases and reads as under :
"3.4 I have considered the arguments taken by the appellant in this behalf. The notice issued by the AO under Section 158BC of the IT Act, 1961, admittedly, requires the appellant to file a return within 15 days of the service of that notice and hence it cannot be said that the time required in the statute to file a return within a period not less than 15 days was not followed in any manner whatsoever. The provisions of Section 158BC(a) are clear in this regard, which are as under :
(i) Not relevant
(ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days."
As regards the block period taken by the AO upto 16th Feb., 2001, it is again a fact that the items, viz., the silver articles were requisitioned by the Department on 16th Feb., 2001. The provision of Section 158B(a) are clear in this regard, which reads as under :
'(a) 'block period' means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition.' Therefore, I hold that the block period constituted upto the date of requisition, i.e., upto 16th Feb., 2001. It is a settled law that in any case even if the notice suffered from any such kind of mistake (though no such mistake was apparent in the instant case in the notice issued under Section 158BC of the IT Act, 1961), the same does not vitiate the proceedings as a result of such notice and the same cannot be held as illegal or without jurisdiction as has wrongly been challenged by the appellant."
4.11 On merits, the CIT(A) upheld the orders of the AO except that the payments found to have been made after 16th Feb., 2001, were deleted out of undisclosed income.
5. It was in view of the above facts and circumstances of the case that the counsel for the assessees, first of all, submitted that so far as the notice under Section 158BC of the Act in case of Vinod Kumar was concerned, it was invalid because of wrong mentioning of the block period. According to the learned Counsel, the block period as per provisions of Section 158B(a) means the previous years relevant to 10 assessment years preceding the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A and includes in the previous year in which such search was conducted or requisition made, the period upto the date of commencement of such search, or as the case may be, the date of such requisition.
(Emphasis, italicized in print, supplied by the counsel) 5.1 Explaining the provisions, the learned Counsel for the appellants submitted that in case where a requisition under Section 132A is made, the block period ends on the date of making of such requisition, i.e., the date when summons under Section 132A are issued or at the most when such summons are served upon the person concerned. According to the learned Counsel, the block period cannot be extended till the date of delivery of the goods required to be delivered to the IT authorities as per summons under Section 132A. To support this plea, the learned Counsel after referring to the provisions of Section 158BE prescribing the time-limit for completion of block assessment and the Expln. 2 thereto, tried to differentiate the meaning of the language used in Section 158B(a) defining the term "block period" and the provisions of Section 158BE read with Expln. 2 thereto for computing the limitation period for making block assessment in a case where the summon under Section 132A has been issued by explaining that block period ends on the date of issuance of summons under Section 132A, whereas the limitation for making block assessment in such cases starts from the date of execution of such summons and as per Expln. 2, such summons are deemed to have been executed on the date when the goods in question are delivered to the IT authorities.
5.2 The learned Counsel, therefore, submitted that so far as block period is concerned, it has to end either on the date of issue of the summon under Section 132A or at the most on the date of service of such summons upon the concerned party. He, therefore, submitted that so far as the present cases were concerned the block period was to end on 3rd April, 2000, when summons under Section 132A were issued or at the most on 5th April, 2000, when the same were served upon the concerned police officer. This being the case the block period in the present case was from 1st April, 1990 to 3rd/5th April, 2000, and was neither from 1st April, 1990 to 16th Feb., 2001 (as has been mentioned in the notice under Section 158BC of the Act issued in case of Vinod Kumar copy of which is at p. 3 of assessee's paper book) nor from 1st April, 1991 to 16th Feb., 2001 (as has been mentioned in the notices under Section 158BC of the Act issued in case of other four assessee's namely, Ram Kumar Agarwal, Subhash Chandra, Satish Chandra and Kishan Lal (copies placed in the assessee's paper book).
5.3 In view of above submissions the counsel submitted that the block period mentioned in the notices under Section 158BC of the Act in case of all the five present appellants was not correct.
5.3.1 So far as notices under Section 158BC of the Act in cases of Ram Kumar Agarwal, Subhash Chandra, Satish Chandra and Kishan Lal are concerned, the learned Counsel submitted that in these notices the status in which they were required to furnish the returns of undisclosed income was also not mentioned.
5.3.2 The learned Counsel further pointed out that in case of these four assessee's the mandatory period of "not being less than 15 days" as prescribed under Section 158BC(a)(ii) for furnishing the return of undisclosed income was not allowed.
5.4 In view of above submissions, the learned Counsel submitted that the notice under Section 158BC of the Act in case of Sh. Vinod Kumar (addressed to Sh. Jat Vinod Kumar Rajender Singh Punia) is invalid notice because the block period mentioned therein is not the correct period and the notices in case of rest of the four assessee's are invalid because of the following defects in the notices :
(a) Block period mentioned is not correct,
(b) Status in which the return was required to be furnished has not been specified, and
(c) The mandatory period of "not being less than 15 days" as prescribed under Section 158BC(a)(ii) of the Act for furnishing the return of undisclosed income has not been allowed.
5.5 In support of above submissions the counsel for the assessees relied on the following decisions :
(a) Monga Metal (P) Ltd. v. Asstt. CIT (2000) 67 TTJ (All) 247
(b) V.V.S. Alloys Ltd. v. Asstt. CIT (2000) 68 TTJ (All) 516
(c) Verma Roadways v. Asstt. CIT (2001) 75 TTJ (All) 728 : (2000) 75 ITD 183 (All).
5.6 Explaining the term "being not less than 15 days" as appearing in the provisions of Section 158BC(a)(ii) and the term "within 15 days" as has been mentioned in the notices under Section 158BC of the Act in case of assessee's other than Sh. Vinod Kumar, the learned Counsel submitted that the earlier term requires the assessee to furnish the return of undisclosed income after the expiry of last second of 15 days whereas the later term requires the assessee to furnish the return of undisclosed income before the last second of 15 day clicks and, therefore, allowing the assessee to furnish the return of undisclosed income "within 15 days" amounts to curtailing the mandatory period allowable to the assessee. Since such curtailment is beyond the jurisdiction of the AO, the notice under Section 158BC prescribing such curtailed period is an invalid notice. In support of these submissions the learned Counsel relied on the decision in case of CIT v. Ekbal & Co. (1945) 13 ITR 154 (Bom) and in case of M. Srinivasalu v. Union of India and Ors. where the Courts have discussed the terms "not being less than... days" and "within ... days".
5.7 The learned Counsel, in view of above submissions, submitted that the notice under Section 158BC of the Act in all these cases, which, in view of decision in aforementioned case law, were invalid notice and so were the consequential assessments, i.e., the assessments of block period in all these cases having been framed in consequence upon invalid notice under Section 158BC of the Act were illegal and bad in law/void ab initio.
6. The learned Departmental Representative, on the other hand, in addition to supporting the order of the CIT(A), submitted that so far as defects such as none mentioning of status or wrong mentioning of block period are concerned the requirement of issuance of notice under Section 158BC of the Act being procedural in nature, are curable defects and do not render either the subsequent proceedings or the consequential assessments for block period nullity. According to him, the defect was simply an irregularity which can be set right by setting aside the assessments and directing the AO to reframe the same after complying with the procedure required.
6.1 With regard to the assessees' objection of invalidity of notices on the ground of not allowing of alleged period of 15 days for furnishing the returns of undisclosed income, the learned Departmental Representative submitted that first of all, the distinction tried to be made by the counsel for the assessees in term "not being less than 15 days" and the term "within 15 days" is not correct. According to him the meaning of both the terms is same. The learned Departmental Representative further submitted that even otherwise, so far as the present cases are concerned all these assessee's had furnished their returns of undisclosed income declaring nil undisclosed income on 21st June, 2001, in response to notices under Section 158BG of the Act issued on 30th March, 2001 (in case of Vinod Kumar), and on 22nd June, 2001, in response to notice under Section 158BC issued on 18th April, 2001 (in case of all other four assessee's), which clearly shows that they were allowed a period of more than 2 months and, therefore, can have no grievance because no harm/loss/damage was caused to them. The learned Departmental Representative further submitted that the assessee's having furnished their returns of undisclosed income in response to the notices under challenged, no damage has been caused to them and consequently, the notices in question as well as the consequential block assessments were valid in the eyes of law. The learned Departmental Representative at the end submitted that if there was any mistake in the said notices the same was saved by the provisions of Section 292B of the Act.
7. In rejoinder, the learned Counsel for the assessee's submitted that the requirement of service of a valid notice under Section 158BC of the Act was a pre-mandatory requirement for the AO to have jurisdiction for proceeding with the assessment of block period because the assessee can neither waive the notice under Section 158BC of the Act nor can waive the defects in such notices and, therefore, the learned Departmental Representative's plea that it was a procedural aspect and can be cured is not correct. The counsel further submitted that the mistakes in the notices in question were not saved by the provisions of Section 292B of the Act as has been held by the Tribunal, Allahabad Bench, in the case of Monga Metal (P) Ltd. (supra) with regard to the mandatory period of not less than 15 days, the counsel reiterated the submissions made in the initial stage.
8. I have considered the rival submissions, the facts and circumstances of all the five cases and the decisions relied upon by the parties.
9.1 First of all, I am of the opinion that as far as the appellants' objection relating to the wrong mentioning of the 'block period' is concerned, it is advisable to consider the provision of Section 158B(a) and Section 158BE(2)(b) read with Expln. 2(b) (as were existing/applicable at the relevant time) and, therefore, I proceed to consider the same.
9.2 (a) Provision of Section 158B(a) :
"(a) 'block period' means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition."
9.2(b) Provisions of Section 158BE(2)(b) and Expln. 2(b): "158BE(1) ...
(2) The period of limitation for completion of block assessment in the case of the other person referred to in Section 158BD shall be--
(a) ...
(b) Two years from the end of the month in which the notice under this chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.
Explanation 2 : For the removal of doubts, it is hereby declared that the authorisation referred to in Sub-section (1) shall be deemed to have been executed--
(a) ...
(b) in the case of requisition under Section 132A, on the actual receipt of the books of accounts or other documents or assets by the authorised officer."
9.3 After considering the aforesaid provisions, I am of the opinion that in the block period in case of requisition under Section 132A ends on the date of issue of the summon under Section 132A and not on the date of execution. I am, therefore, of the opinion that so far as the present cases are concerned, the block period ended on 3rd April, 2000, when the summons were issued and not on 16th Feb., 2001, when the Department received the goods, i.e., the summons were deemed to have been executed.
10.1 After careful consideration of the totality of the facts and circumstances, I am of the opinion that so far as the nature of notices under Section 158BC and the requirement of service of valid notice under Section 158BC are concerned, the same have been settled by the Tribunal, Allahabad Bench, in the case of M/s Monga Metal (P) Ltd. (supra). In the case of M/s Monga Metal (P) Ltd. (supra), the assessee had challenged the validity of notice under Section 158BC because of the following mistakes :
(i) The notice was not addressed in accordance with the provisions of Section 282 of the Act.
(ii) Status, in which the return of undisclosed income was to be furnished, was not mentioned.
(iii) The block period mentioned in the notice was not correct.
10.2(a) It was in view of the above facts and after considering the provisions of Sections 142, 143(2), 143(3), 147, 148, 149, 158B, 158BA, 158BB and 158BC as well as the various decision listed therein, the Tribunal has held as under :
"(i) A notice required to be served under the provisions of Section 158BC is akin, analogous and within the same parameter as a notice under Section 148 and, therefore, the grounds on which a notice under Section 148 can be held to be bad in law are sufficient to hold a notice under Section 158BC as bad in law. Issuance and service of a notice of 158BC are not a procedural formality but substantive requirement to be fulfilled before the AO can proceed to make assessment of the block period or before the assessment proceedings for the block period are set into motion and consequently, the service of a notice under Section 158BC gives rise to the jurisdiction of the AO to proceed with the proceedings for assessment of block period. The proceedings for the assessment for block period commences on the service of notice under Section 158BC and, therefore, the service of Valid notice under Section 158BC is a condition precedent for making a valid assessment; meaning thereby that if there is no valid notice, there can be no valid assessment and it is because there is a clear-cut distinction between jurisdiction and procedure."
"(ii) A notice is said to be illegal/invalid if it has not been addressed in accordance with the provisions of Section 282 and status of the person has not been mentioned. It is a condition precedent for initiation of assessment proceedings for block period that the status of the assessee should be clearly stated in the notice under Section 158BC and, therefore, if the status of the person for whom a notice of 158BC is issued, is not clearly mentioned, the notice shall be invalid. For a notice under Section 158BC to be a valid notice, the assessment year covered by the block period, in a given case, must be also be specified clearly.--Y. Narayana Chetty and Anr. v. ITO , CIT v. Naraindas Dwarkadas and CIT v. Kurban Hussain Ibrahimji Mithiborwala applied."
(Paras 11.1) "(iii) It is quite evident that (i) the notice under Section 158BC has not been addressed to the principal officer as required under Section 282 of the Act; (ii) status, in which the return of so-called undisclosed income was required to be furnished has not been mentioned; and (iii) 'assessment year', i.e., previous years relevant to assessment year falling within the block period, which in a way is an assessment year for the purpose of assessment of the block period, has not been mentioned. On the contrary, the notice specifies the 'definition' of the block period, i.e., assessment years for this purpose, which could not be equated to the specifying of the specific previous years falling within the block period. The impugned notice is vague and illegal and cannot be said to be a valid notice as required under the provisions of Section 158BC. A notice under Section 158BC, as far as purpose and scope are concerned is not akin to a notice under Section 142(1)(i) but as far as the prerequisite mandatory requirements for a notice to be valid are concerned they are same for both the notices and consequently, even if Revenue's plea that a notice under Section 158BC is akin to a notice under Section 142(1)(i), then also, in view the illegalities pointed out above the notice under Section 158BC cannot be said to be valid notice. Validity of the notice is not saved by the provisions of Section 292B because the contents of the notice, as far as sum and substance are concerned, are not in conformity with the provisions of the Act.--Prakash Spun Pipe (ITA No. 1014/A11/1994, dt. 1st Feb., 1998) relied on."
(Paras 11.2 to 11.5) "(iv) Since the notice claimed to be a notice in terms of Section 158BC by the Revenue, is bad in law and vague, the assessment framed in consequence upon the assumption of jurisdiction on the basis of such notice is also bad in law and void ab initio."
(Paras 12.1 & 12.2)
(b) The relevant complete part of the order of the Tribunal in case of Monga Metals (P) Ltd. (supra) reads as under :
"5. We have considered the rival submissions, provisions of the Act necessary and relevant for deciding the issue in hand and various decisions relied upon by the parties and after careful consideration, are of the opinion that for the decision of the dispute raised by the appellant the following 3 questions have to be decided :
(i) The first question, in our opinion, for our decision is with respect to the nature/status of the notice required to be served under Section 158BC of the Act, i.e., is such a notice akin/analogous and within the parameter of a notice under Section 148 of the Act ?
(ii) If so, can the points raised by the assessee's counsel amount to illegalities in the notice and consequently have they rendered the notice illegal, bad in law and vague ?
(iii) If the notice is found to be vague, can the assessment for block period be quashed as a nullity ?
6.1 To decide the first question, we consider it necessary to discuss the provisions of Sections 147, 148 and 149 on one hand, provisions of Section 143(2) and (3), on the other hand, and provisions of Sections 158B, 158BA, 158BB and 158BC, on the other hand, and for that purpose we would like to extract the relevant portion of the provisions.
(a) Section 143(2) and 143(3) of the Act :
'143. Assessment--(1) (a) ...
(2) Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142, the AO shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return :
Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.
(3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points and after taking into account all relevant materials which he has gathered, the AO shall, by an order in writing make an assessment of the total income or loss of the assessee, and determine the sum payable by him (or refund of any amount due to him) on the basis of such assessment).'
(b) Section 147 of the Act :
'147. Income escaping assessment--If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for assessment year concerned (hereinafter in this section and in Sections 148 to 153 referred to as the relevant assessment year :
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year.'
(c) Section 148 of the Act :
'148. Issue of notice where income has escaped assessment--(1) Before making the assessment, reassessment or computation under Section 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner, and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
(2) The AO shall, before issuing any notice under this section, record his reasons for doing so.'
(d) Section 149 of the Act :
"149. Time-limit for notice--(1) No notice under Section 148 shall be issued for the relevant assessment year.--
(a) in a case where an assessment under Sub-section (3) of Section 143 or Section 147 has been made for such assessment year.'
(e) Chapter XIV-B--Special procedure for assessment of search cases Important provisions are contained in Sections 158B, 158BA, 158BB and 158BC which are in the following terms :
'158B. Definitions--In this chapter, unless the context otherwise requires :
(a) 'block period' means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition;
(b) 'Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act.' '158BA. Assessment of undisclosed income as a result of search--(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A in the case of any person, then, the AO shall proceed to assess the undisclosed income in accordance with the provisions of this chapter.
(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
Explanation ...
(3) ...' '158BB. Computation of undisclosed income of the block period--(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with AO as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years determined....
(2) In computing the undisclosed income of the block period, the provisions of Sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to 'financial year' in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition.' '158BC. Procedure for block assessment--Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132A, in the case of any person, then.--
(a) the AO 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 day;
(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 notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under Clause (i) of Sub-section (1) of Section 142, setting forth his total income including the undisclosed income for the block period :
Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this chapter :
Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;
(b) the AO 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 and Section 144 shall, so far as may be, apply;
(c) the AO, on determination of the undisclosed "income of the block period in accordance with this chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;
(d) the assets seized under Section 132 or requisitioned under Section 132A shall be related to the extent necessary and the provisions of Section 132B shall apply subject to such modifications as may be necessary and the references to 'regular assessment' or 'reassessment' in Section 132B shall be construed as references to 'block assessment'.
6.2 From the indepth analysis of aforesaid scheme of provisions relevant for making of a regular assessment, assessment of escaped income and assessment of search cases what we have been able to understand is that so far as the regular assessment is concerned, the AO is to complete the same after serving on the assessee a notice under Section 143(2) and on the date specified in such notice or as soon as afterwards, as may be, on the basis of evidence which the assessee may like to produce or such other evidence which the AO may require the assessee to furnish on specified points and after taking into account the relevant material which he has gathered. Under this scheme of assessment, the requirement of service of notice under Section 143(2) has been held to be a procedural irregularity and non-compliance of this requirement has resulted in setting aside of the assessment or proceeding from the stage of irregularity and it is so because after furnishing of a valid return, the AO assumes a valid jurisdiction to proceed for making a regular assessment but as far as the other two schemes, i.e., the scheme provided for assessment of escaped income contained in provisions of Sections 147, 148 and 149 and the scheme of special procedure for assessment in search cases as provided under Chapter XIV-B, i.e., under the provisions of Sections 158B, 158BA, 158BB and 158BC etc. are concerned these go to show that :
(i) object of both the schemes is same, i.e., object is to tax the income which has not already been taxed. Under the former scheme, the requirement is that in the opinion of the AO the income should have escaped the assessment and search is not necessary and the prerequisite conditions to assume jurisdiction to tax the escaped income limits are : (i) with respect to the quantum of escaped income as provided under Section 147 (ii) and service of a valid notice under Section 148 has to be served upon the person and (iii) within the limitation prescribed under Section 149, whereas in the later scheme, the prerequisite mandatory requirements before the AO can assume jurisdiction to make assessment of undisclosed income are that : (i) there should have been a search action under Section 132 of the Act or a requisition for books or documents under Section 132A of the Act, which is analogous to the requirement of taxing of escaped income in the earlier scheme. It is only on fulfilment of this condition that the AO gets clothed with the jurisdiction to proceed for making a block assessment of undisclosed income, meaning thereby that the AO is said have jurisdiction to proceed with under the provisions of Chapter XIV-B of the Act.
The second required prerequisite condition before proceeding to make assessment under Section XIV-B, and assessment of block period is that the AO has to serve a notice in conformity with the requirement of Section 158BC of the Act upon the person in whose case search has been conducted and in whose case the AO wants to make an assessment under Chapter XIV-B, meaning thereby that as in the case of assessment of escaped income, the AO can proceed to assess the escaped income only after the fulfilment of requirements upto the stage of service of a valid notice in conformity with the provisions of Section 148, in case of search, i.e., in case of assessment of block period to be made under Chapter XIV-B of the Act, the AO can proceed to assess the undisclosed income after satisfaction of the requirements upto the stage of service of a valid notice in conformity with the provisions of Section 158BC of the Act. Since under both these schemes, the requirement of service of a notice, before proceeding to make assessment, is a must the requirement cannot be said to be a procedural and different one.
6.3 These schemes further go to show that the moment a notice under Section 148 is served (in the scheme of assessment of escaped income) or the moment a notice under Section 158BC is served (in the scheme of assessment of undisclosed income--Chapter XIV-B), the already completed assessments or the assessment for the year for which income has escaped (where there is no search) and the assessments falling within the block period, for the assessment of undisclosed income (where there is a search), get reopened. This view is fortified by the existence of first proviso to Section 158BC(a), according to which the necessity of issuing a notice under Section 148 of the Act has been dispensed with for making an assessment for the block period which is inclusive of 10 previous assessment years. The dispensation with the requirement of issuing of a notice under Section 148 of the Act and the fact that assessment of block period includes the assessment of 10 previous years leaves no one in no doubt about the purpose, nature, status and effect of a notice under Section 158BC, which according to us is, (i) to get already completed assessment falling within the block period reopened and the AO is clothed with the power to make assessment of undisclosed income for those assessment years; (ii) If assessments have not been completed then the AO gets clothed with the powers to make assessment resembling with the assessment framed under Section 147 of the Act; (iii) If return has been furnished, then the AO is clothed with the power to make assessment of undisclosed income.
6.4 The above provisions envisaged in the two schemes (supra) confirm beyond any doubt that :
(1) Purpose of both the notices is same, viz.,
(i) A notice under Section 148 and under Section 158BC can be issued only after fulfilment of required conditions such as an escapement of income or action under Section 132 of the Act, as the case may be.
(ii) In both the cases service of a valid notice is a mandatory prerequisite condition before proceeding to make a reassessment or assessment of. block period, as the case may be.
7.1 Coming to the various decisions relied upon by the parties, the ratio of the decisions, in brief, is as under :
(a) Case law relied upon by the assesses's counsel :
(i) Y. Narayana Chetty and Anr. v. ITO (supra) 'The notice prescribed by Section 34 cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the ITO would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the ITO without a notice or in pursuance of an invalid notice would be illegal and void.'
(ii) CIT v. Kurban Hussain Ibrahimji Mithiborwala (supra) 'It is well-settled that the ITO's jurisdiction to reopen an assessment under Section 34 depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdiction. In the notice issued under Section 34, the ITO sought to reopen the assessment of the assessee for the asst. yr. 1948-49, but, in fact, he reopened the assessment of the year 1949-50. Hence, in our opinion, the High Court was right in holding that the notice in question was invalid and as such the ITO had no jurisdiction to revise the assessment of the assessee for the year 1949-50.'
(iii) CIT v. Ishwar Singh (supra) 'On the facts as found by the Tribunal, it is clear that the notice under Section 148 was issued to an entity which was, as a matter of fact, non-existent and was at any rate different from the entity which filed the return in response to that notice. The notice had been issued to Sardar Arjun Singh, individual, and the return was filed by Sardar Sampuran Singh, Karta of his HUF. The two are absolutely distinct entities in law, as also, as a matter of fact, as no notice had been issued to it under Section 148 of the Act. We have already indicated above that the issue of notice under Section 148(1) is the condition precedent to the validity of an assessment under Section 147. It is a jurisdictional issue and unless such a notice is issued, the ITO does not get jurisdiction to make an assessment on a particular assessee. In this view of the matter, in our opinion, the Tribunal has been right in holding that the assessment in question was not valid in law.'
(iv) Madan Lal Agarwal v. CIT (supra) 'It is now well-settled and we do not consider it necessary to advert to numerous authorities in this regard cited at the Bar that issuing of a valid notice to the assessee under Section 148 of the IT Act within the period specified under Section 149 of the Act is a condition precedent to the validity of any assessment to be made against such assessee under Section 147 of the Act. Accordingly, where no such notice has been issued or if the notice issued is not valid or the same has not been served on the assessee in accordance with law, it will not be possible to sustain the eventual assessment made under Section 147 on the basis of such notice. We may also take it that where the notice issued to an assessee is vague, it would not be possible to rely upon it to sustain an assessment made.'
(v) CIT v. Thayaballi Mulla Jeevaji Kapasi (supra) In this case the Hon'ble Supreme Court referred to its earlier decision in the case of Narayan Chetty v. ITO (supra) and held as under :
'Service of notice prescribed by Section 34 of the IT Act for the purpose of commencing proceedings for reassessment, is not a mere procedural requirement it is a condition precedent to the initiation of proceeding for assessment under Section 34. If no notice is issued or if the notice issue is shown to be invalid, then the proceedings taken by the ITO, without a notice or in pursuance of an invalid notice, would be illegal and void see Narayana Chetty v. ITO Nellore (supra)'.
(vi) R.N. Sasi Kumar v. CIT (supra) 'It is settled-law that the issue of a notice under Section 148 of the IT Act, 1961, is a condition precedent to the validity of any assessment order to be passed under Section 147 of the Act. It is also settled law that if no such notice is issued or if the notice issued is invalid or not in accordance with the law or is not served on the proper person in accordance with law, the assessment would be illegal and without jurisdiction. The notice should specify the correct assessment year and should be issued to the particular assessee.' 7.2 The next decision relied upon by the assessee is that of Tribunal, Allahabad, in the case of Prakash Spun Pipe (supra), in which it has been held that the provisions of Section 292B cannot validate a return which is in sum and substance is not in conformity with the provisions of the Act.
7.3 As far as the decision relied upon by the additional standing counsel are concerned, we are of the opinion that the same are distinguishable on facts and are not applicable to the facts of the case.
7.4 In view of the above discussion, we are of the opinion that a notice required to be served under the provisions of Section 158BC is akin, analogous and within the same parameter, as a notice under Section 148 and, therefore, the grounds on which a notice under Section 148 can be held to be bad in law are sufficient to hold a notice under Section 158BC as bad in law.
8.1 The next question for our decision, as we have already formulated in the beginning of the order, is that can the illegalities pointed out by the assessee render the notice vague/bad in law. To decide this issue, first of all, we are of the opinion that since the notice under Section 158BC has been held to be akin/analogous to notice under Section 148, requirement of service of notice under Section 158BC, in view of the various decisions relied upon by the assessee and discussed by us (supra), issuance and service of a notice of 158BC are not a procedural formality but substantive requirement to be fulfilled before the AO can proceed to make assessments of the block period or before the assessment proceedings for the block period are set into motion and consequently, the service of a notice under Section 158BC gives rise to the jurisdiction of the AO to proceed with the proceedings for assessment of block period.
8.2 Having held so, the next question for our decision is with respect to the validity of the notice but since there is no codified law on the point or circumstances under which a notice could be held to be invalid, we are of the opinion that for deciding the issue relating to the validity of the notice it is necessary to consider the circumstances under which a notice can be termed as invalid or bad in law as per the law laid down in various cases relied upon by the parties and then decide the validity of the impugned notice in the light of preposition of law laid down therein.
9. We have heard the parties in relation to the submissions made for pointing out as to how the notice was illegal/invalid one and as to how it was not illegal/invalid one.
10.1 After considering the facts and circumstances of the case and the rival submissions we are of the opinion that as in the case of initiation of reassessment, the proceedings commence with the issue of notice under Section 148 of the Act as held by the Hon'ble High Court of Allahabad in case of Onkar Dutt Sharma v. CIT (1967) 65 ITR 359 (All) and the service of the notice is a condition precedent for making a valid assessment. Likewise, the proceedings for the assessment for block period commence on the service of notice under Section 158BC and, therefore, the service of "valid" notice under Section 158BC is a condition precedent for making a valid assessment, meaning thereby that if there is no valid notice, there can be no valid assessment and it is because there is a clear-cut distinction between jurisdiction and procedure.
10.2 Further, since the issuance of and service of notice under Section 148 are not mere procedural requirement, but a condition precedent for the validity of reassessment, if in a given case it is established that a notice under Section 148 has not been issued or if issued it is established to be invalid, the subsequent proceedings taken for making assessment would be illegal and void and this view is fully supported by the decision referred to in para 7.1 (a) (supra).
11.1 In view of the above discussion we are of the opinion that a notice is said to be illegal/invalid if :
(i)(a) It has not been addressed in accordance with the provisions of Section 282. (i)(b) Status of the person has not been mentioned.
(ii) The Hon'ble Bombay High Court in case of CIT v. Narain Das Dwarka Das (1976) 102 ITR 767 (Bom) has held that it is a condition precedent for initiation of reassessment proceedings under Section 147 that a status of a person, to be reassessed or assessed, must be specified, mentioned and clearly stated in the notice itself.
Respectfully following the ratio of this decision, we are of the opinion that it is a condition precedent for initiation of assessment proceedings for block period that the status of the assessee should be clearly stated in the notice under Section 158BC and, therefore, if the status of the person for whom a notice of 158BC is issued, is not clearly mentioned, the notice shall be invalid.
(iii) Similarly, as the Hon'ble Supreme Court has in case of CIT v. Kurban Hussain Ibrahimji Mithiborwala (supra), held that for a notice under Section 148 to be valid, the assessment year for which the assessment should be reopened must be specified clearly. Respectfully following the ratio of this decision, we hold that for a notice under Section 158BC to be a valid notice, the assessment year covered by the block period, in a given case, must also be specified clearly.
11.2 (a) For deciding the issue relating to the existence of illegalities in notice under attack, first of all we prefer to reproduce the notice, which us as under :
"Notice under Section 158BC of the IT Act, 1961.
PAN/GIR No....
Block period : The previous years relevant to ten assessment years preceding the previous year 1.996-97 and includes the period upto the last date of search warrant executed in your case (as defined under Section 158B(a) upto 3rd Sept., 1996.
Income-tax Office Central Circle-II Kanpur Dt.: 12th Dec., 1996 To, M/s Monga Metals (P) Ltd.
76/23, Gopal Market, Halsey Road, Kanpur.
In pursuance of the provisions of Section 158 of the IT Act, 1961, you are requested to prepare a true and correct return of your total income including the disclosed income in respect of which as individual/HUF/firm/company/AOP/BOI/local authority are assessable for the block period mentioned Section 158B(a) of the IT Act, 1961.
The return should be in the prescribed form and be delivered in this office within 15 days of service of notice, duly verified and signed in accordance with the provision of Section 140 of the IT Act, 1961.
Sd/- (Illegible) Seal of the office of Central Circle-II, Kanpur (Dr. Subhash Chandra) Asstt. CIT Central Circle-II.
Kanpur"
11.2 (b). If we test the validity of the notice dt. 12th Dec., 1996 (supra), issued in assessee's case, in the light of aforesaid settled principles, it is quite evident that :
(i) The notice has not been addressed to the principal officer as required under Section 282 of the Act.
(ii) Status in which the return of so-called undisclosed income was required to be furnished has not been mentioned.
(iii) 'Assessment year', i.e., previous years relevant to assessment year failing within the block period, which in a way is an assessment year for the purpose of assessment of the block period, has not been mentioned. On the contrary, the notice specifies the 'definition' of the block period, i.e., assessment years for this purpose, which could not be equated to the specifying of the specific previous-years falling within the block period.
11.3 In view of the abovementioned illegalities in the notice dt. 12th Dec., 1996, claimed by the Revenue to be a notice in terms of provisions of Section 158BC and the decision in case of CIT v. Narain Das Dwarka Das (supra) and in case of CIT v. Kurban Hussain Ibrahimji Mithiborwala (supra) and other decisions referred to in para 3.7 of this order., we are of the opinion that the impugned notice is vague and illegal and cannot be said to be a valid notice as required under the provisions of Section 158BC.
11.4 (i) So far as the Revenue's plea that notice under Section 158BC is akin to notice under Section 142(1)(i) is concerned, we are unable to agree with the submission, because, as explained below, not only the purpose and scope of the notice under Section 142(1)(i) are altogether different from the purpose and scope of notice under Section 158BC but are limited also to say--
Firstly, the service of a notice under Section 142(1)(i) is not mandatory rather is optional as there is use of term 'may serve' and not "shall serve" as in the provisions of Section 158BC;
Secondly, the notice is meant both for enquiry purpose as well as for furnishing of the return; and Thirdly, the notice under Section 142(1)(i) can be meant for furnishing of the return for the current assessment year alone and not the previous assessment years--as in the case of notice under Section 148 or under Section 158BC.
(ii) Further, so far as the requirement of addressing the notice as per the terms of Section 282, specifying the status and the "assessment year" and, prerequisite mandatory requirements for a valid notice under Section 142(1)(i) are concerned, the same are as are for a notice under Sections 148 and 158BC, and consequently, the Revenue's plea, instead of advancing its interest, goes against, it meaning thereby that if the illegalities referred to the purpose of notice under Section 148 are found in the notice under Section 142(1)(i) also, then the notice under Section 142(1)(i) shall also be rendered bad in law.
(iii) In view of the above discussions, we are of the opinion that a notice under Section 158BC, as far as purpose and scope are concerned is not akin to a notice under Section 142(1)(i) but as far as the prerequisite mandatory requirements for a notice to be valid, are concerned they are same for both the notices and consequently; even if Revenue's plea that a notice under Section 158BC is akin to a notice under Section 142(1)(i), then also, in view, the illegalities pointed out in the foregoing part of the order, the notice under Section 158BC cannot be said to be a valid notice.
11.5 We are further of the opinion that validity of the notice is not saved by the provisions of Section 292B of the Act because the contents of the notice, as far as sum and substance is concerned, are not in conformity with the provisions of the Act. This proposition finds support from the Tribunal's order in case of M/s Prakash Spun Pipe (supra).
12. The next question for our decision, after having found the notice under Section 158BC dt. 12th Dec., 1996, a vague and illegal notice, is that can the assessment framed as a result of such notice be quashed ?
12.1 The answer to this question is self-evident, since, for the assumption of jurisdiction to proceed with the making of an assessment for block period, service of a valid notice in terms of provisions of Section 158BC is a prerequisite mandatory requirement, meaning thereby that the AO cannot have jurisdiction to make an assessment for block period if there is no service of a notice under Section 158BC or if the notice so served is found to be bad in law or invalid or vague. Consequently, the assessment framed under any of these conditions shall be bad in the law and void ab initio for want of jurisdiction.
12.2 So far as present case is concerned, since we have already held the notice claimed to be a notice in terms of Section 158BC by the Revenue as bad in law and vague, the assessment framed in consequence upon the assumption of jurisdiction on the basis of such notice is also bad in law and void ab initio and we hold so. The AO, however, can proceed with the proceedings from the stage of requirement of service of a notice under Section 158BC, if the law so permits."
11. In view of above facts and circumstances of the case I am, therefore, of the opinion that the notices under Section 158BC of the Act issued in case of all the five assessee's were invalid and bad in law for the mistakes pointed out by the counsel for the assessee's which were not saved by the provisions of Section 292B of the Act.
12.1 So far as question relating to the period of "not being less than 15 days" required to be allowed for furnishing the return of undisclosed income (by virtue of provisions of Section 158BC(a)(ii)) is concerned, the assessee's case is that the requirement is of allowing a complete period of more than 15 days and not even a single second less than 15 days, whereas Revenue's case is that there is no infirmity in the notice.
12.2 I have considered the rival submissions facts and circumstances of the case and various decisions relating to the issue in hand. In my opinion, to resolve this issue, answers to following question, should be found :
(i) What is the nature of notice under Section 158BC of the Act, i.e., is the service of valid notice a mandatory requirement or a procedural one and to know the answer to this, it is further necessary to find as to whether the assessee can waive the notice under Section 158BC of the Act or can waive any of the defects in notice under Section 158BC of the Act ?
(ii) Is there any difference between the terms "a period not being less than 15 days" and "within a period of 15 days" and what is their effect ?.
(iii) Can further time allowed (subsequent to issuance of a notice asking the assessee to furnish return of income within a period of 15 days) can be taken as to mean that the assessee had been allowed a period of not being less than 15 days ?
13.1 So far as first question is concerned, I am of the opinion that, as has been held in the case of Monga Metal (P) Ltd. (supra), the notice under Section 158BC of the Act being akin to notice under Section 148 of the Act, its nature is the same as that of notice under Section 148 and, therefore, as the assessee cannot waive either the notice under Section 148 or the defects in notice under Section 148, the assessee cannot waive the notice under Section 158BC or the defects therein and consequently, as in the case of assessment under Section 147, the service of a valid notice under Section 148 is the prerequisite mandatory condition, the service of valid notice under Section 158BC of the Act is prerequisite mandatory condition, meaning thereby that unless and until a valid notice under Section 158BC of the Act is served upon the assessee (in accordance with the provisions of law), the AO cannot have jurisdiction to proceed to make assessment of block period. I am, therefore, of the opinion that the requirement of service of a valid notice under Section 158BC is a prerequisite mandatory condition for the AO to proceed to make an assessment of block period.
13.2 Even otherwise, I am of the opinion that every notice requiring the assessee to furnish the return of income or of wealth is of mandatory nature, i.e., the valid service of a valid notice, requiring the assessee to furnish the return of income or wealth is prerequisite mandatory requirement for an AO to proceed with the assessment proceedings, meaning thereby that unless and until this requirement is fulfilled, the AO has no jurisdiction to proceed further for making an assessment.
14.1 Coming to the question No. 2, the terms "not being less than ... days" and "within... days" had been the subject-matter of discussion by the Hon'ble Supreme Court as well as various High Courts in the following cases :
(i) CIT v. Braithwaite & Co. Ltd.
(ii) CIT v. New India Industries Ltd.
(iii) Mir Iqbal Hussain v. State of UP .
14.1(a) In the case of Braithwaite & Co. Ltd. (supra), the Hon'ble Supreme Court was to define the term "period of not less than 7 years" as appearing in the proviso to Rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964, and was to please to hold, after relying on the decision of the Bombay High Court in case of CIT v. Ramsukh Motilal that the only interpretation which can be given to the expression "during a period of not less than 7 years" in the proviso is that the period should go beyond 7 years. The relevant part of headnotes reads as under :
"On a plain reading of the proviso to Rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964, it is clear that in order to claim the benefit of Rule 1(v), the borrowed money has to be repaid during a period of more than seven years. The only interpretation which can be given to the expression 'during a period of not, less than seven years' in the proviso is that the period should go beyond seven years. The period of seven years would not be complete till the last minute or even the last second is counted. In other words, till the last minute of the seven year period is completed, the period remains less than seven years (see p. 347A, B).
The respondent-company obtained a term loan of Rs. 50 lakhs from a bank. The agreement dt. 1st Aug., 1964, provided for the repayment of the loan in five annual instalments. The last of the instalments of Rs. 16 lakhs was to be paid on 31st July, 1971. The question was whether the repayment under the agreement was 'during a period of not less than seven years' as contemplated by the proviso to Rule 1(v) of Schedule II to the Companies (Profits) Surtax Act, 1964, and the entire sum of Rs. 50 lakhs could be included in the capital base for the purpose of surtax. The Tribunal held that only the last instalment of Rs. 16 lakhs could be included in the capital base. On a reference at the instance of the respondent-company, the High Court held that the entire amount of Rs. 50 lakhs could be included in the capital base. On appeal to the Supreme Court :
Held, reversing the decision of the High Court (i) that the whole of the term loan of Rs. 50 lakhs was repayable within a period of seven years and the term loan did not qualify for inclusion in the capital base under Rule 1(v) (see p. 347H):
(ii) That, however, since the Department had not challenged the order of the Tribunal granting relief to the respondent to the extent of Rs. 16 lakhs, only the balance of Rs. 34 lakhs could not be included in the capital base of the respondent-company (see p. 348B, C).
Decision of the Calcutta High Court in Braithwaite & Co. (India) Ltd. v. CIT reversed on this point."
14.1(b) In case of New India Industries Ltd. (supra), the Hon'ble Supreme Court again had a chance to consider the term "during a period of not less than 7 years" as appearing in the proviso to Clause V of Rule 1 of Schedule II to the Companies (Profits) Surtax Act, 1964. The headnotes reads as under :
"The decision of the Gujarat High Court in New India Industries Ltd. v. CIT , was, inter alia, to the effect that the legislature had in the proviso to Clause (v) of Rule 1 of Schedule II to the Companies (Profits) Surtax Act, 1964, provided on outer limit to the repayment of the loan (to be included in the computation of capital) by using the words 'not less than seven years' and that 'therefore, if the spread over of the repayment has been provided in the terms of the agreement in such a manner that the repayment is completed by a date beyond seven years from the first advance made under the agreement under which the moneys are borrowed, the loan in question will qualify for inclusion in the capital of the company computed for the purposes of surtax. However, once it is found that the date for the repayment of the entire amount falls beyond the period of seven years counting from the date of the first advance under the agreement, the loan would qualify for inclusion in the capital. In the instance case, the first advance of Rs. 10 lakhs under the agreement was paid in the month of July, 1961. The second amount was paid sometime in the month of September, 1961. That too was of Rs. 10 lakhs. These two items aggregating to Rs. 20 lakhs were subsequently adjusted by mutual agreement between the parties against the loan of Rs. 50 lakhs and, therefore, they must be deemed to have been made by agreement between the parties under the loan agreement of 1st Dec., 1961. The terms of the agreement as modified provided for repayment by 1st Dec., 1968, and thus the repayment of this loan was during a period of not less than seven years counting from the date of the first advance under this agreement of 1st Dec., 1961. In view of this conclusion, so far as the facts of the present case are concerned, the loan of Rs. 50 lakhs was to be repaid not within a period of seven years but during a period of not less than seven years'. And accordingly, the High Court had held that the entire loan of Rs. 50 lakhs qualified for inclusion in the computation of the capital of the respondent-company for the purpose of surtax chargeable under the Companies (Profits) Surtax Act, 1964. The Department preferred appeals to the Supreme Court :
Held, dismissing the appeals, that the finding reached by the High Court on the basis of the subsequent correspondence between the parties which resulted in the modification of the agreement did not suffer from any infirmity and that the decision of the High Court was correct (see p. 655H)."
14.1(c) In case of Mir Iqbal Hussain (supra), the Hon'ble High Court has held a notice under Section 25 read with Section 15(3) of the UP Agrl. IT Act providing a period of not being less than 30 days to be invalid and the requirement of notice as mandatory requirement. The headnotes read as under :
"A notice requiring a person to furnish a return the next day when the provision of the statute under which the notice is served is that the assessing authority may serve a notice on a person requiring such person to furnish a return within such period, not less than 30 days, as may be specified in the notice, is not a valid notice.
The mere fact that the person upon whom such a notice was served, furnished a return the next day, would not prevent him from objecting to the validity of the notice on the ground that it did not comply with the law.
The issue of a valid notice is a condition precedent to the assumption of jurisdiction to reassess escaped income under Section 34."
15.1 These two terms were also the subject-matter of consideration by the Hon'ble High Court of Bombay in the case of CIT v. Ekbal & Co. (1945) 13 ITR 154 (Bom), during the course of consideration of validity of notice under Section 22(2) of 1992 Act.
The question for consideration of the Hon'ble High Court was as to whether a notice given under Section 22(2) of the Act requiring the assessee to furnish the return of income "within 30 days" of the receipt of the notice as against the required period of "not being less than 30 days" was an invalid notice ?
15.2 The facts of the case were that the provisions of Section 22(2) Indian IT Act, 1922, required the ITO, in the case of any person whose total income was of such an amount as to render such, person liable to income-tax, to serve a notice upon such person requiring him to furnish within such period, not being less than 30 days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) his total income and total, world income during the previous year. The ITO issued a notice under Section 22(2) of the Act to the assessee on 22nd July, 1942, wherein the assessee was required to furnish the return of income "within 30 days" of the receipt of the notice. The assessee challenged the validity of the assessment on the ground of validity of the notice and matter went to the Tribunal. The Tribunal, by its judgment, after referring to certain passages from Maxwell on "Interpretation of Statutes" 8th Edition, stated as under :
"The learned author proceeds to observe that where 'not less than' or such other expression is used specifying the time for doing an act the ending terminal must also be excluded from the computation. Section 22(2) clearly lays down that an assessee must be given a period of 'not less than 30 days' from the receipt of the notice to furnish the return of his total income. It would therefore, follow that he must have thirty clear days and the thirty days must be excluded from the computation. In the present case, as we have already pointed out, the assessee was asked to furnished the return within 30 days. Such a requirement did not amount to giving him 30 clear days for the purpose. We, therefore, think that the notice in this case is illegal. The fact that the assessee submitted a return later on or that it was accepted for the purpose of making the assessment does not, in our opinion, cure the defect-that initially lay in the notice."
15.3(a) It was in view of above facts and circumstances that the Hon'ble, the then Chief Justice, Sir Leonard Stone, answered the question referred to the Court in the negative by observing as under :
"I agree with that statement in the judgment of the Tribunal, computation of period of time has given rise to a great many cases, both in this country and in England. Time can be infinitely divided. There is no fraction of second, which is so short in duration that it cannot be divided into something smaller. In my judgment, expressions 'within thirty days' and 'not less than thirty days' are two quite different things. 'Within thirty days' is within two points of time, one at which the period begins and the other at which it expires. On the other hand, 'not less than thirty days' is outside these two points of time. There must be an interval of not less than thirty days and that means thirty days clear In [see In re Railway Sleepers Supply Company (1885) 29 Ch. D. 204]. The period must continue beyond the expiration of the stated time, whereas 'within' the stated period must mean what it says, something less than the moment of expiration. In my opinion, therefore, the notice is invalid and the question referred to must be answered in the negative. The CIT must pay the costs of the reference."
15.3(b) Justice Kania agreed with the findings of Hon'ble Chief Justice by observing as under :
"I agree, Section 22(2) provides that in the notice given to the assessee to furnish his return, a particular period must be given to him. The sub-section further provides for such period 'not being less than thirty days'. Reading the section by itself, therefore, it clearly means that the period within which the assessee has to send his return must neither at the beginning nor at the end encroach upon the thirty days. To put it in other words, thirty clear days must elapse before his obligation to send the return becomes effective. The notice given in the case is to send the return 'within thirty days', that being treated as a period of time given to the assessee to send his return. It seems to me clear that when a party is called upon to do an act 'within' a stated number of days he necessarily cannot get that number of days as 'clear' days. In other words, according to the terms of the notice, the assessee does not get thirty clear days period, before his obligation to send the return arises. I, therefore, agree that the notice is not in accordance with Section 22(2).
2. It was urged that what was intended to be conveyed by the notice is the same as what was prescribed by the section. We are not concerned with what was intended to be conveyed. The question is, by the words used by the authorities, have they carried out their obligation to give to assessee a period 'not less than thirty days' to furnish his return ? The answer is in the negative because the notice calls upon him to send the return 'within' that number of days."
16. Answer to Question No. 2 (para 11.2) therefore, is that the two terms have different meanings and lead to different results.
17. So far as answer to question No. 3 (para 11.2), which has arisen as a result of submission made by the learned Departmental Representative that the four appellants having furnished their returns of income on 22nd June, 2002, i.e., after a period of more than 2 months of the service of notice under Section 158BC of the Act, no damage/harm/loss was caused to them by requiring them to furnish returns of undisclosed income "within a period of 15 days" as against "a period of not being less than 15 days" is concerned, I am of the opinion that answer to this question/Departmental Representative's plea is clear from the decision of Hon'ble High Court of Allahabad in case of Mir Iqbal Hussain (supra) and of High Court of Bombay in the cases of Commr. of Agrl. IT v. Ram Kuvar and Ors. and in the case of Asstt. CIT v. Ekbal & Co. (supra), as well as of the Hon'ble Supreme Court, which are discussed as under :
(i). Commr. of Agrl. IT v. Ram Kuvar & Co. (supra) :
The facts of this case were that a notice under Section 41 was issued to the assessee in respect of the asst. yr. 1962-63 on 7th March, 1967, and was enclosed along with another notice bearing the same date. As per the notice, the assessee was called upon to produce his books and other documents on 25th March, 1967, and to show cause as to why he should not be assessed under Section 41 and why penalty for non-submission of returns should not be imposed. The assessee attended before the Agrl. ITO on the 25th March, with his books and documents. On the 27th of March, 1967, he submitted his returns. On 31st March, 1967, the. Agrl. ITO passed an order of assessment. In express terms it began by stating that it was an order of assessment under Section 41 read with Section 23 of the said Act for the accounting period in question. Throughout the order for the purpose of arriving at the taxable agricultural income of the assessee, what was referred to were the books of account produced by the assessee in pursuance of the first of the said two notices dt. 7th March, 1967. It was only after the agricultural income of the assessee had been assessed and the amount of tax payable by him determined that, while discussing the question whether penalty should be levied or not, the said officer had referred to the return filed by the assessee on 27th March, 1967. He had referred to it solely for the purpose of considering whether the filing of the return could be said to be an extenuating circumstances for non-levy of penalty. On the question whether the order of assessment was valid, the Hon'ble High Court after observing that :
"Section 41 of the Maharashtra Agrl. IT Act, 1962, corresponds to Section 34 of the Indian IT Act, 1922, and Section 148 of the IT Act, 1961. The conditions prescribed by Section 41 as in the case of the said Sections 34 and 148 are conditions which effect the validity of the jurisdiction to be exercised under that section and if any of these conditions is not complied with, the Agrl. ITO would have no jurisdiction to pass the order under Section 41. Section 22 of Maharashtra Agrl. IT Act is in pari materia with Section 22 of the Indian IT Act, 1922. If a notice under Section 41 embodies any of the requirements under Section 22(2), it must at the same time permit the assessee to comply with the requirements within a period, which is not less than thirty days. Whereas Section 22(2) is a procedural section and the failure to give notice or a defect in a notice under that section is a procedural defect, in the case of Section 34, it is not a procedural defect, but a failure to comply with a condition precedent to the assumption of jurisdiction. Illegality in a notice under Section 41 cannot be waived by the assessee", held as under :
'that the notice under Section 41 did not give the prescribed time. The period given in the notice being less than thirty days the notice was invalid and consequently, the assessment was invalid. The return had not been filed by the assessee voluntarily. It was filed subsequent to the notice under Section 41 with a view to escaping the levy of penalty. Assuming that the assessment had been made on the basis of the return, the assessment should have been made under Section 23. It was, however, made under Section 41 and was, therefore, invalid. The order of assessment was invalid whichever way it was considered'."
(ii) Decision in case of Asstt. CIT v. Ekbal & Co. (supra) has been discussed in para Nos. 15.1 to 15.3(b) above.
(iii) Decision in case of Mir Iqbal Hussain (supra) has been discussed in para 14.1 (c) above.
18. After having considered the facts and circumstances of the case and aforesaid decisions, I have no hesitation to hold that the term "a period not being less than 15 days" and the term "within a period of 15 days" are all together not only different but effects the jurisdiction of the authorities as well as the rights of subjects. The earlier term, i.e., the term "a period not being less than... days" specifies that the period allowed will be more than the number of days, i.e., it will start after the expiry of the number of days mentioned therein, whereas the later term, i.e., "within a period of... days" specifies that the period allowed will end at the click of last minute of the last day. This difference, in my opinion, in these two terminologies is of a great significance because it may affect the jurisdiction of the authorities and also the rights of the subjects. If an authority is permitted to do an act or to initiate a proceeding "within" a certain period, the moment the period is over, the authority gets divested of his powers to do that act or to initiate those proceedings. Similarly, if an assessee is to act "within" a certain period and fails to act, the moment the period is over the assessee looses right to act. For example, if the AO fails to serve a notice under Sub-section (2) of Section 143 before the expiry of 12 months from the end of the month in which the return is furnished, he gets divested of his jurisdiction to frame an assessment, under Section 143(3) and similarly, if the assessee fails to furnish the appeal under Section 246A or under Section 253, as a case may be, within the prescribed period of thirty days and sixty days, respectively, the assessee looses the right to furnish the appeal. The discretion to the authorities to admit delayed appeals is an altogether different issue.
19. In view of above facts and circumstances I am of the opinion that so far as the cases of present four appellants, other than Vinod Kumar, are concerned, the notices under Section 158BC requiring them to furnish the returns of undisclosed income "within 15 days" from the date of service of the notices were invalid and bad in law. I am further of the opinion that in view of various decisions discussed above, the factum of appellants having furnished their returns of undisclosed income on 22nd June, 2002, or acceptance of those returns by the Revenue cannot cure the defect that initially lay in the notices.
20. In view of totality of the facts and circumstances of the case as well as after consideration of various decisions (supra) and the provisions of law, I am of the opinion that the notices claimed to have been issued under Section 158BG of the Act by the Revenue in cases of all these five appellants were invalid and bad in law because of following reasons :
(i) The notice in case of Vinod Kumar is held to be invalid and bad in law because of wrong mentioning of the block period.
(ii) The notices in case of other four appellants, such as, Ram Kumar Agarwal, Subhash Chand, Satish Chandra and Kishan Lal are held to be invalid and bad in law because of the following :
(a) Due to non-mentioning of status in which the return of undisclosed income was required to be furnished.
(b) The block period has not been correctly mentioned.
(c) The prerequisite mandatory requirement of providing a period "not being less than 15 days" has not been complied with, because all these persons were required to furnish the returns of undisclosed income "within a period of 15 days" which is definitely less than the period as specified by the term "not being less than 15 days".
21. Having held as above, the natural further finding is that the assessments of block period in case of all the five appellants, framed on 12th Oct., 2001, were bad in law and void ab initio. The same are, therefore, quashed.
22. Since the assessments of block periods in case of all the five appellants have been quashed being void ab initio, it is not considered necessary to comment on the merits of the undisclosed income sustained by the CIT(A). In case the order of the Tribunal is reversed by the High Court or the Supreme Court, as the case may be, the appellants shall have right to approach the Tribunal to get their appeals decided on merits.
23. In the result, appeals of all the five appellants are allowed.