IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION INCOME INCOME INCOME TAX APPEAL NO. 153 OF 2004 TAX APPEAL NO. 153 OF 2004 TAX APPEAL NO. 153 OF 2004 Shri Shirish Madhukar Dalvi. ... Appellant. V/s. Assistant Commissioner of Income-tax and others. ... Respondents. Arun P. Sathe for the appellant. Ashok Kotangale for the respondents. CORAM CORAM CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. DATED DATED DATED : 13th July 2006. : 13th July 2006. : 13th July 2006. JUDGMENT JUDGMENT JUDGMENT : : : (Per V.C.Daga, J.) -------- -------- -------- . This appeal is directed against the order of the Income Tax Appellate Tribunal, Bench-I, Mumbai ("Tribunal" for short) dated 28th July, 2003. The The The Facts : Facts : Facts : --------- --------- --------- 2. The facts of the case are that the appellant is dealing in landed properties. He is regularly assessed to income-tax. Action under section 132 of the Income Tax Act, 1961 ("Act" for short) for search and seizure was conducted at the residential and business premises of the appellant between 11th June, 1998 and concluded on 15th July, 1998. - 2 - 3. The assessing officer issued notice dated 6th July, 1998 calling upon the appellant to file return for the block period. However, appellant disputes the receipt of the said letter/notice. The appellant admits to have received a letter dated 17th September, 1998 from the assessing officer reminding him to file a return for the block period 1987-88 to 1997-98 which referred to the earlier notice dated 6th July, 1998 though incorrectly and stated that the appellant did not file return for the block period in response to the said notice dated 6th July, 1998. 4. The appellant by his letter dated 28th September, 1998 denied receipt of the notice dated 6th July, 1998, however, sought extension of time and, ultimately, filed his return for the block period i.e. assessment year 1989-90 to 1999-2000 on 2nd November, 1998. 5. The assessing officer assessed return for the said block on 30th June, 2000 and passed an order under section 158-BC read with section 143(3) of the Act. - 3 - 6. The appellant preferred an appeal before the Commissioner of Income Tax (Appeals) challenging the validity of the said assessment order contending that the order was passed by the assessing officer without serving proper notice under section 158-BC(a), as such assessment is illegal and without jurisdiction. 7. The Commissioner (Appeals) decided appeal against the appellant by his order dated 28th July, 2000. 8. Being aggrieved by the aforesaid order of the Commissioner (Appeals), appellant preferred second appeal before the Income Tax Appellate Tribunal ("Tribunal" for short) raising the questions mentioned hereinabove. 9. The Tribunal by its order dated 28th July, 2003 deleted certain additions and remitted matter back to the assessing officer for verification of expenditure allowable under section 37. The Tribunal, however, confirmed addition of Rs.3,85,196/-. The Tribunal relying upon the decision of the Supreme Court in C.I.T. v. Jai C.I.T. v. Jai C.I.T. v. Jai - 4 - Prakash Prakash Prakash Singh Singh Singh, 219 ITR 737 (SC) upheld the jurisdiction of the assessing officer and held the notice dated 6th July, 1998 as valid in law being under the umbrella of section 292B of the Act and held that the said notice was factually served on the noticee- appellant. 10. Being aggrieved by the aforesaid order of the Tribunal dated 28th July, 2003, the appellate jurisdiction of this Court under section 260A of the Act is invoked by the appellant to raise the following questions said to be questions of law: 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in treating the letter dated 6th July, 1998 as Notice u/s 158-BC of the Act? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that provisions of section 292-B of the Income Tax Act were applicable to the present case? 3. Whether on the facts and in the circumstance of the case the Tribunal was right in law in not allowing deduction u/s 37 of Rs.3,85,196/- just because the vouchers of the said expenditure were undated and despite the incontrovertible fact that the said expenditure related to the transactions undertaken and concluded earlier? - 5 - Submissions Submissions Submissions : : : ----------- ----------- ----------- 11. Mr.Sathe, learned counsel for the appellant submits that the notice dated 6th July, 1998 was never served on the appellant apart from the fact that the same was suffering from enormous infirmities and defects. Mr.Sathe went on to submit that the notice dated 6th July, 1998 was not issued under correct provisions of the Act. That the block period mentioned therein was erroneous. That it did not provide 15 days clear notice. That it was issued much before the conclusion of search which, according to him, lasted till 15th July, 1998 since last panchanama was drawn on that date. That the notice was not in the prescribed format of ITNS-274. That it was never served on the appellant. 12. In the submission of Mr.Sathe, all the above infirmities/ defects in the notice dated 6th July, 1998 go to the root of the jurisdiction of the assessing officer to initiate proceedings for bloc assessment much less to assess the total income including undisclosed income for the block period under section 158-BC. According to him, service of legal and valid notice under section 158-BC(a) is a condition precedent for assumption of jurisdiction to - 6 - assess the return for block period. He submits that the issue and service of notice under section 158-BC(a) is not a procedural requirement; the compliance of the mandatory provision of section 158-BC cannot be by-passed or waived. 13. Mr.Sathe placed reliance on the judgment of this Court in the case of Commissioner of Commissioner of Commissioner of Agricultural Agricultural Agricultural Income Tax v. Ramkumar & others Income Tax v. Ramkumar & others Income Tax v. Ramkumar & others, 141 ITR 85, to contend that defect in the alleged notice is not a procedural defect but a failure to comply with condition precedent to assumption of jurisdiction must result in vitiating the assessment proceedings. 14. Mr.Sathe placed reliance on the judgment of the Apex Court in the case of C.I.T. v. Kurban C.I.T. v. Kurban C.I.T. v. Kurban Hussain Hussain Hussain Ibrahimji Ibrahimji Ibrahimji Mithiborwala Mithiborwala Mithiborwala, 82 ITR 821 to contend that the Income Tax Officer’s jurisdiction to reopen an assessment under section 34 of the Act has been held to be depending upon the issuance of a valid notice. If the notice issued itself is invalid, then the entire proceedings taken pursuant thereto would become void for want of jurisdiction. Mr.Sathe, borrowing assistance from this judgment, submits that entire impugned proceedings have become void for want - 7 - of jurisdiction. He placed reliance on number of other judgments reference of which in detail, in our opinion, at this stage is not necessary since we propose to deal with the relevant citations at the later stage of this judgment while dealing with the rival contentions. 15. Mr.Sathe further submits that by no stretch of imagination the conduct of the appellant would lead to an inference that appellant has either acquiesced or waived the objection with respect to jurisdiction and submitted to the jurisdiction by filing his return for the block period in question. In his submission, question of jurisdiction goes to the root of the matter and the assessee not raising the same at the assessment stage does not confer jurisdiction of the assessing officer. In his submission, inherent lack of jurisdiction can be challenged at any point of time or at any stage in any proceeding. In support of his submission, he placed reliance on the judgment of this Court in the case of Inventors Industrial Corpn. Ltd. v. Inventors Industrial Corpn. Ltd. v. Inventors Industrial Corpn. Ltd. v. C.I.T. C.I.T. C.I.T., 194 ITR 548. 16. Mr.Sathe would urge that the provision of section 158-BC is synonymous and pari materia with - 8 - that of section 148 of the Act. He, thus, submits that the validity of the notice issued under section 158-BC(a) must be tested with the same rigour with which the validity of notice under section 148(a) is required to be examined. Based on this foundation, Mr.Sathe submits that the very basis to assume valid jurisdiction to assess total income including undisclosed income for the block period is: A valid search conducted under section 132 of the Act; finding of undisclosed income on the basis of material seized during the conduct of such search; and issuance coupled with service of a valid notice under section 158-BC(a). 17. Mr.Sathe submits that the notice under section 158-BC(a) is to be issued for the block period which is maximum of 10 assessment years preceding the assessment year in which a search is conducted. The block period contemplated under section 158-B is not necessarily all the 10 assessment years preceding the assessment year in which search is conducted, as undisclosed income for the block period is to be assessed is in context of the material found during the search. He, thus, submits that the alleged notice dated 6th July, 1998 which directed the appellant to file return for the - 9 - block period 1987-88 to 1997-98 had assumed jurisdiction for assessing the income under section 158-BC beyond the years as mandated by definition of block period under section 158-B. 18. Mr.Sathe, while developing another shed of his submission leading to the shelter of section 292-B of the Act taken by the respondents, urged that the glaring defects and/or infirmities in the notice going to the root of the jurisdiction of the authority can not be cured by resorting to the provision of section 292-B. The refuge of section 292-B cannot be allowed to be taken in all cases to get over the vital defects in the notice. If the defects are merely technical in nature, then such defects can be cured by the provision of section 292B of the Act. In support of his submission he pressed into service statement of objects and reasons leading to introduction of section 292B of the Act. 19. Mr.Sathe, turning to the facts of the present case at hand would urge that the notice issued to the appellant was not in conformity with the provisions of the Act. The same was contrary to the provision of section 158-BC as such the said notice cannot be made valid by providing material - 10 - under section 292B of the Act. In his submission, the defects pointed out by him are not merely technical in nature but they are vital and substantial, as such the said defects which existed could not be treated as cured by resorting to section 292-B. In support of his submission he relied upon the judgment of this Court in the case of Comm. of Comm. of Comm. of Agricultural Agricultural Agricultural Income Tax v. Ramkumar & ors. Income Tax v. Ramkumar & ors. Income Tax v. Ramkumar & ors. (supra) and the judgments of the other High Courts, viz.; P.N.Shashikumar P.N.Shashikumar P.N.Shashikumar & Ors. v. C.I.T. & Ors. v. C.I.T. & Ors. v. C.I.T. (Ker.), 170 ITR 80; Continental Commercial Corpn. v. I.T.O. Continental Commercial Corpn. v. I.T.O. Continental Commercial Corpn. v. I.T.O., 100 ITR 170 (Mad.); Sunrolling Mills Pvt.Ltd. v. Sunrolling Mills Pvt.Ltd. v. Sunrolling Mills Pvt.Ltd. v. I.T.O. I.T.O. I.T.O., 160 ITR 412 (Cal.). 20. Mr.Sathe further submits that the reliance placed by the Tribunal on the judgment of the Apex Court in the case of C.I.T. v. Jai Prakash Singh C.I.T. v. Jai Prakash Singh C.I.T. v. Jai Prakash Singh, (supra) is misplaced. On facts, he tried to distinguish the said judgment. 21. Mr.Sathe, turning to the third question with regard to the disallowance of Rs.3,85,196/-, has urged that the vouchers of expenditure incurred were in respect of payments made to the land owners from whom the lands were purchased by the appellant. The transaction in question was concluded in the - 11 - assessment year 1999-2000. In his submission, merely because the vouchers were undated the expenditure could not have been assessed in the assessment year 1999-2000 holding that the search was conducted in the previous year corresponding to the assessment year 1999-2000. According to him, under the concept of block assessment under provision of section 158-BB(1) the total income including undisclosed income is to be computed for each of the previous years falling within the block period. That the expenditure of Rs.3,85,196/- ought to have been considered for the previous year in which the transactions leading to purchase of lands were entered into, i.e. assessment year 1993-94 and not assessment year 1999-2000. Mr.Sathe, thus, submits that considering his submission, the impugned order is liable to be set aside and the appeal deserves to be allowed. 22. Per Per Per contra contra contra, Mr.Kotangale, learned counsel appearing for the Revenue while replying to the submissions with respect to the validity of notice issued under section 158-BC(a) and protection of section 292-B, submits that nowhere in the Act it is made mandatory to issue notice in the prescribed format. The subject notice dated 6th July, 1998 can - 12 - very well be said to be a valid notice because the said notice bears signature of the issuing authority, having stamp and seal of the officer concerned and the appellant was merely put on notice requiring him to comply with his legal obligation. He further submits that merely because a notice purports to make reference to a wrong provision of law that by itself would not make notice invalid which is otherwise within the four corners of law. That mere reciting wrong source of power does not affect validity of the notice. In his submission, the subject notice dated 6th July, 1998, substantially complies with the provision of section 158-BC of the Act. 23. Mr.Kotangale further submits that in order to make the notice legal refuge of section 292B can very well be taken by the Revenue to get over the technical defects, if any. Alternatively, he submits that subsequent to notice dated 6th July, 1998 one more notice dated 17th September, 1998 was issued to the appellant- assessee which has strictly complied with the requirement of section 158-BC(a), the receipt of which by the appellant is not in dispute. In his submission, at any rate, the subsequent notice dated 17th September, 1998 being a valid notice, received by the assessee, the alleged illegality of - 13 - notice dated 6th July, 1998, if any, stands cured and the order of assessment cannot be said to be bad and illegal. 24. Mr.Kotangale reiterates that the appellant in the appeal memo or in the written statement did not attack illegality of the notice dated 17th September, 1998, in his submission, rightly, because the said subsequent notice complies with all the requirement of section 158-BC. Mr.Kotangale, thus, submits that it is not necessary to dwell upon the legality or validity of the notice dated 6th July, 1998 in view of the subsequent valid and legal notice issued by the department on which the appellant has acted upon and filed his return without raising any objection thereto. 25. Mr.Kotangale further submits that the notice dated 17th September, 1998 has been acknowledged by the assessee vide his letter dated 29th September, 1998; wherein he did not dispute legality of the said notice. On the top of it, the appellant admitted necessary return for the bock period consisting assessment years 1989-90 to 1998-99 plus period from 1st April, 1998 to 11th June, 1998. The appellant also prayed for time to file return - 14 - beyond 45 days and requested not to initiate penal proceedings in filing return for the block period. In view of this, Mr.Kotangale submits that the submissions made by the learned counsel for the appellant hold no water. 26. So far as third issue relating to deduction under section 37 of the Act in the sum of Rs.3,85,196/- is concerned, Mr.Kotangale submits that the question relating to this aspect of the matter can hardly be said to be a substantial question of law. In his submission, the Tribunal has confirmed the addition made by the assessing officer to the extent of Rs.3,85,196/- as the appellant could not establish particular expenditure as business expenditure by producing cogent evidence. He further submits that unless it is proved that expenditure in question was incurred for earning income which has been brought to tax, no deduction under section 37(1) could have been allowed. In support of his submission, he relied upon the judgment of the Madras High Court in the case of C.I.T. v. Bhagwati C.I.T. v. Bhagwati C.I.T. v. Bhagwati Developers Developers Developers, 261 ITR 658 and judgment of Delhi High Court in the case of R.Kanaklal v. C.I.T. R.Kanaklal v. C.I.T. R.Kanaklal v. C.I.T., 244 ITR 152. He, thus, prayed for dismissal of the appeal holding it to be without any substance. - 15 - Statutory Statutory Statutory Provisions : Provisions : Provisions : -------------------- -------------------- -------------------- 27. Before proceeding to consider the rival contentions revolving around the questions raised, it is necessary to turn to the statutory provisions having direct impact on the questions raised. 148. 148. 148. Issue of notice where income has Issue of notice where income has Issue of notice where income has escaped escaped escaped assessment. assessment. assessment. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer 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 pervious 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) ..... ..... ..... ..... 158-BA. 158-BA. 158-BA. Assessment of undisclosed income Assessment of undisclosed income Assessment of undisclosed income as as as a result of search. a result of search. 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 Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. - 16 - (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.- For the removal of doubts, it is hereby declared that- (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period. (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period. (3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. 158-BC. 158-BC. 158-BC. Procedure for block assessment. Procedure for block assessment. Procedure for block assessment. Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned - 17 - under section 132A, in the case of any person, then,- (a) the Assessing Officer 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 days; (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 Provided Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided Provided Provided further further further that a person who has furnished a return under this clause shall not be entitled to file a revised return. (b) ..... ..... ..... (c) ..... ..... ..... (d) ..... ..... ..... - 18 - 292B. 292B. 292B. Return of income, etc., not to be Return of income, etc., not to be Return of income, etc., not to be invalid invalid invalid on certain ground.- on certain ground.- on certain ground.- 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. Legislative Legislative Legislative History : History : History : ------------------- ------------------- ------------------- 28. The Finance Act, 1995 inserted a new Chapter XIV-B in the Act. The Finance (No.2) Act 1996 has made some changes with retrospective effect from 1st July, 1995. The Chapter provides a new concept for assessment in cases relating to searches conducted under section 132 of the Act or requisitions made under section 132A of the Act after 30 June, 1995. 29. This chapter required an assessing officer to assess the undisclosed income of a block period, of a person being searched, in accordance with the provisions of this chapter. The block period was defined to mean a period of six assessment years - 19 - preceding the previous year of search and included the period up to the date of search. 30. An undisclosed income was also specifically defined. Such income determined in accordance with the provisions of the chapter and other provisions of the Act was charged to tax at the rate