Commissioner of Income Tax vs Lekshmi Traders

C.N. Ramachandran Nair, J.—The question raised in these connected appeals filed by the Revenue is whether the Tribunal was justified in cancelling the assessment made on the respondent assessee under s. 158BC r/w s. 158BD for the block period commencing from 1st April, 1988 to 23rd Feb., 1999 for the reason that notice of assessment issued was defective or invalid.

We have heard Shri P.K.R. Menon, learned senior counsel appearing for the Revenue and Shri P. Balakrishnan learned counsel appearing for the respondent assessee.

The facts leading to the controversy are as follows : The respondent assessee, a partnership firm, was engaged in liquor business. However, since Abkari licence, with which the business was carried on by the firm, was issued in the name of one of the partners, the firm was assessed as an AOP by virtue of two Full Bench decisions of this Court. Consequently, block assessment made after search was on the respondent assessee. Against assessment as an association of persons (AOP), there is no dispute on the status assigned to the assessee by the AO. However, the assessment was made under s. 158BC r/w s. 158BD based on the evidence gathered during the search conducted in the premises of one Mr. Prasad, a partner of the firm, in other words a member of the AOP. The search in the premises of Mr. Prasad yielded materials about the income of the respondent assessee. which is an AOP, in which the searched person is a member. Therefore, Annex. D notice produced in IT Appeal No. 146 of 2009 was issued to the respondent assessee under s. 158BD of the IT Act. Pursuant to the notice, the assessee filed return declaring an undisclosed income of Rs. 5,30,000. After verifying the return and evidence, the AO issued pre-assessment notice under s. 158BC r/w s. 158BD and completed the assessment in the name of the respondent assessee under the above provisions. The total income assessed was above Rs. 13 crores. The assessee filed appeal before the CIT(A) without challenging the validity of the assessment but by contesting the assessment on merits. The CIT(A) granted a quantum relief by reducing the income assessed by over Rs. 2 crores. The assessee as well as the Department filed separate appeals against the order of the CIT(A). In the ground of appeal filed before the Tribunal also, the assessee did not have a case that the assessment is invalid on account of issue of notice allegedly under a wrong section. However the assessee raised an additional ground in the appeal before the Tribunal contending that Annex. D notice is invalid, and so much so assessment made based on the same is also invalid. The Tribunal, by mainly relying on the Division Bench judgment of this Court in P.N. Sasikumar and Others Vs. Commissioner of Income Tax, , cancelled the assessment for the reason that Annex. D notice was issued under s. 158BD and not under "s. 158BC r/w s. 158BD", and against this order of the Tribunal, separate appeals were filed by the Revenue raising the question as to whether the Tribunal is right in holding that Annex. D notice is invalid and consequently the assessment also is invalid.

Admittedly, search was made in the premises of one Mr. Prakash, who is one of the partners and one of the members of the respondent AOP. Materials and evidence collected during the search proved receipt of income by the respondent AOP from the Abkari business carried on by them during the block period. Consequently, Annex. D notice was issued to the respondent assessee under s. 158BD of the IT Act. Since validity of this notice is the crux of the issue in these appeals, we have thoroughly examined the contents of the said notice. What is seen in Annex. D notice is that it is a notice printed requiring the assessee to file return in Form No. 2B for the purpose of block assessment under s. 158BC of the Act. In fact, while issuing the printed notice, the officer has corrected s. 158BC to s. 158BD both in the heading and in the operative portion, but the return called for is in Form No. 2B, which is the return for block period for assessment under s. 158BC.

The question to be considered is whether the notice sent under s. 158BD is invalid for the reason that the AO has not separately mentioned in the said notice that it is issued under s. 158BC also. The Tribunal''s finding is that if the notice was issued "under s. 158BD r/w s. 158BC", the assessment would have been valid. In this context, we have to examine the effect of the notice sent by the AO by correcting in the printed form s. 158BC to s. 158BD. For this purpose we have to examine the scope of block assessment under ss. 158BC and 158BD. See. 158BD authorises the Department to assess a person other than the searched person based on materials recovered during search. In this case search was made in the premises of one Mr. Prasad, who is one of the partners and one of the members of the respondent AOP. When evidence was recovered about the undisclosed income earned by the respondent assessee during the course of search in the premises of one of the members of the AOP, assessment has to be made on respondent under s. 158BD r/w s. 158BC The assessee also does not dispute this position. But the only question raised is whether the notice issued by the Department based on which the block assessment was completed is valid or not. What we find from s. 158BD is that no independent notice is contemplated under the said section because it only gives jurisdiction to the AO to assess a person other than the searched person based on materials gathered during search. What is stated in s. 158BD is that when any evidence is collected about income earned by a person other than the person searched under s. 132, the officer who conducted the search shall hand over those materials and evidence to the AO having jurisdiction over such other person to be proceeded for assessment, and once the materials are handed over, the AO having jurisdiction over the person to be assessed should issue notice and make assessment under s. 158BC. In other words, the procedure for assessment of a person other than the searched person under s. 158BD is the same procedure contained in s. 158BC. Since no notice is prescribed under s. 158BD, what is required is to issue an intimation about the initiation of proceedings under s. 158BD by the officer, and then to call for return in Form 2B prescribed under r. 12(1)(a) for assessment under s. 158BC of the Act. In this case, Annex. D notice clearly shows that the jurisdiction the AO for initiation of proceedings for assessment is by virtue of powers under s. 158BD, and the return called under the said notice is the return in Form No. 2B, which is the return required to be filed by the assessee for assessment under s. 158BC. While the learned counsel for the assessee specifically referred to s. 282(2)(c) and contended that there is failure in serving notice as mentioned above, learned senior counsel for the Revenue relied on s. 292B and contended that non-mentioning of s. 158BC along with s. 158BD in Annex. D notice will not invalidate the notice based on which the assessment was completed. Sees. 282(2)(c) and 29213 are extracted hereunder :

Sec. 282. Service of notice generally--(1) A notice or requisition under this Act may be served on the person named therein either by post or as if it were a summons issued by a Court under the CPC, 1908 (5 of 1908)

(2) Any such notice or requisition may be addressed--

(c) in the case of any other association or BOI, to the principal officer or any member thereof;

Sec. 292B.- No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.

What is clear from the above provisions is that notice should be issued in the name of the assessee proposed to be assessed and in the case of an AOP, to the principal officer or any member thereof and serve notice on such person to represent the AOP. In this case, admittedly, notice was received by the respondent assessee, and one of the members of the AOP filed return pursuant to the notice, in Form 2B on behalf of the AOP. In other words, when the assessee admits receipt of notice and files its proper return in the prescribed form in terms of the notice, we do not think that the assessee is entitled to contend that the notice is not served in accordance with the procedure prescribed under the above sections. In our view, proof of the detailed procedure adopted for service of notice under sub-s. (2) of s. 282 is required to be enquired into only when the assessee complains of non-receipt of notice. In other words, when notice issued is accepted by the assessee and return is filed in terms of the notice, the assessee cannot contend that there is no service of notice in terms of the section. Besides the above, what we find is that Annex. D notice is a notice prescribed under r. 12(1)(a) of the Rules and in the said notice what is called for is return in the prescribed format i.e. in Form No. 2B, which is for making block assessment under s. 158BC. So much so, even though the AO has corrected s. "158BC" to s. "158BD", the contents of the notice satisfy the requirement of a notice under s. 158BC as well. Therefore, in our view, the notice served on the assessee has to be necessarily taken as a notice issued under s. 158BC r/w s. 158BD, and not an independent notice under s. 158BD as held by the Tribunal. As already found by us the assessee rightly understood the notice as one issued under s. 158BD r/w s. 158BC and in fact the assessee correctly responded by filing return in Form 2B. The Tribunal misdirected themselves to reach the wrong conclusion, because they have not cared to go through the contents of the notice and to find out under what provision the notice is issued. So much so. we hold that the finding of the Tribunal that the notice is one issued under s. 158BD alone is incorrect and unsustainable. On facts it is further found that after the receipt of return, the AO issued a pre-assessment notice specifically mentioning that the said notice for assessment is issued under s. 158BC r/w s. 158BD, and after considering the assessee''s reply, assessment also was completed under s. 158BC r/w s. 158BD. Further, the very purpose of the provisions made in s. 292B is to ensure that defects or minor omissions will not invalidate the return of income filed under the Act for assessment or other proceedings completed under the provisions of the Act. Strangely, the Tribunal did not consider relevance of s. 292B, but allowed the appeal by merely following the decision of the Division Bench of this Court referred to above.

On going through the Division Bench judgment referred to above, we find that the ease decided by this Court was one, where after serving notice on an individual under s. 148, assessment is made on an AOP. The case decided was not a block assessment. However, in this case, we have found that Annex. D notice was issued under s. 158BC because what is called for is return in Form No. 2B, which is called for only for the purpose of making block assessment under s. 158BC, and s. 158BD is also mentioned in the notice. It is nothing but a combined notice issued under s. 158BC r/w s. 158BD and the findings of the Tribunal to the contrary is absolutely untenable. In our view, this ground raised by the assessee itself is an afterthought because it was raised in the first time as an additional ground in the second appeal stage. We, therefore, answer the question referred in favour of the Revenue and against the assessee.

Therefore, these appeals are allowed vacating the orders of the Tribunal and by restoring both the appeals filed by the assessee and the Department to the Tribunal for fresh decision on merits, after hearing the parties.