- vide Decision of High Court of Madras in B. Kubendran v. Deputy Commissioner of Income Tax, Central Circle 2(1), Chennai. Facts of the case: 1. The petitioner, an assessee challenges six orders of assessment passed by the Deputy Commissioner of Income Tax, Central Circle 2 (1)(respondent). The petitioner splits the impugned orders into two batches, 2012-13, 2013-14, 2014-15 and 2017-18 being batch I and 2015-16, 2016-17 being batch II. 2. A search was conducted in the premises of C. Vijayabaskar on 7-4-2017. All files relating to the searched entity as well as those associated to him were centralized on 24-9-2019.
- Notices under section 153C were issued on 25-10-2019.
- The petitioner points out that the impugned orders of assessment refer to a notice under section 143(2) that is stated to have been issued in December, 2019.
- However, no notices have been issued under section 143(2) for any of the years in question. If the reference is to notice dated 7-12-2019, this is a questionnaire under section 142(1) of the Act and not a notice under section 143(2) of the Act.
- The petitioner filed responses to the questionnaires and after taking note of the same, assessments have come to be completed on 30-12-2019 in terms of Section 143(3) read with Section 153C of the Act.
- The issues that are sought to be argued are
- whether a notice under section 143(2) of the Act is to be mandatorily issued prior to completion of an assessment in consequence of a notice under section 153C and
- whether the provisions of natural justice have been satisfied in these cases.
- whether the Assessing Authority was right in relying on a valuation report obtained by the investigating officer post proceedings for search.
- The scheme of assessment under erstwhile Chapter XIVB of the Act, provided for the framing of assessments for ten previous years prior to the date of search under section 132 of the Act. Section 158BC provided for assessments to be framed upon the searched person/entity and Section 158BD on persons/entities in relation to whom materials had been found in the course of the search.
- The determination of undisclosed income of the block period in the manner was laid down in Section 158BB and Section 158 BC that stated specifically that the provisions of Section 142, Sections 143(2) and (3), Section 144 and Section 145 shall, so far as may, apply.
- Circular 717 dated 14-8-1995 issued by the Central Board of Direct Taxes (CBDT) reiterated this under the heading, procedure for making a block assessment. Considering this position, the Bench held that a notice under section 143(2) was mandatory, in the absence of which, the assessment made would stand revoked.
- Revenue attempted to argue that reference to Section 143(2) was not mandatory, but optional. This was negated by the Court stating that where an Assessing Officer intended to make an assessment for repudiation of the return filed by an assessee under section 158BC, he has necessarily to apply the provisions of Sections 142, 143(2) and (3).
- Revenue argues that the language of Section 158BC is different from that of Section 158C and where the former specifically refers to a notice under section 143(2), the latter merely states that a notice may be issued to the assessee and that the provisions of this Act shall apply accordingly, as if such return were a return required to be furnished under section 139.
- Thus, in the absence of specific reference to Section 143(2), the only stipulation being that the assessment be completed in line with the provisions of the Act, it would suffice that the assessment be completed in accordance with law and the principles of natural justice by issuance of notice under section 143(2) or a questionnaire under section 142(1). In this case, questionnaire has been issued.
- In respect of batch-1, dealing with Assessment Years (AY) 2012-13, 2013-14, 2014-15 and 2017-18, the impugned assessments proceed on the basis that the petitioner has purchased certain immovable properties, which were not admitted in the petitioner's returns of income. The purchase cost has come to be added as undisclosed investment. The questionnaire issued notice under section 142(1) called for various particulars such as a brief note on the activities carried out during the relevant year, a copy of computation of income, etc.
- The petitioner has responded by stating that all details of movable and immovable properties have been disclosed in the return of income filed and no opportunity has been furnished prior to passing of order.
- As far as AY 2015-16 and AY 2016-17 are concerned, no doubt pursuant to the notice under section 153C, a show cause notice has been issued on 16-11-2019 proposing the addition of undisclosed income from quarrying. The petitioner has replied to the same on 25-11-2019 objecting to the proposal.
Judgement: The High Court of Madras held the case as follows:
- When the search has been completed on 7-4-2017, there was no necessity to have waited till 20-9-2019 for centralization, and issue notices under section 153C only on 25-10-2019.
- The petitioner has, for AY 2015-16 and AY 2016-17, sought more time to make his submissions on the merits of the matter, relating to alleged undisclosed income from quarrying operations and seigniorage fee. The respondent officer has simply ignored this request.
- The Investigating officer empowered to refer an issue to valuation even during the process of search. However, such report has to be put to the assessee and his full and complete response sought prior to using the same against him. This has not been done in the present case. Thus, it is violation of the principles of natural justice.
- However, and solely as a matter of prudence, the court set aside the assessments with a direction to the respondent to issue notices afresh, hear the petitioner and pass orders of assessments within a period of eight (8) weeks from judgement date, with sufficient time being given to the petitioner to put forth his submissions on merits.