IT – Assessment order passed u/s 158BC without notice suffers from jurisdictional error and not valid in law – Between Special Bench and HC, High Court’s decision has to be followed : ITAT

NEW DELHI, SEPT 20, 2007 : THESE two appeals, one by the assessee and other by the Revenue being are cross-appeals against the order CIT(A)-III, New Delhi dated 28.3.2003.

The assessee is a company which is mainly engaged in the business of manufacture of mirrors, automobile glasses, float glasses etc. A search and seizure operation u/s 121 was conducted at its business premises on 8.7.1999. Thereafter, a notice u/s 158BC has issued by the Assessing Officer on 12.12.2000, in response to which return was filed by the assessee on 22.5.2001 declaring its undisclosed income for the block period at nil. During the course of block assessment proceedings, the material and seized during the course of search was confronted by the AO to the assessee and after taking into consideration the explanation/ submissions offered by the assessee as well as enquiries made by him in this regard, the undisclosed income of the assessee for the block period was computed by the AO at Rs.7,74,29,035/ – in the assessment completed vide an order dated 31.7.2001 passed u/s 158BC.

Aggrieved by the order passed by the AO, an appeal was filed by the assessee before the CIT(A) and the CIT(A) allowed the said appeal partly giving marginal relief to the assessee vide his appellate order dated 28.3.2003. Aggrieved by the same, the Revenue and the assessee both have preferred these appeals before the Tribunal.

In its appeal, the assessee company has raised as many as 22 grounds challenging the additions made by the AO and confirmed by the CIT(A) to its undisclosed income for the block period in law as well as on facts. It has also raised various preliminary legal issues challenging the validity of the block assessment completed by the AO u/s 158BC and one of such issues raised in ground No.4 is that in the absence of any notice issued by the AO u/s 143(2), the assessment made by him u/s 158BC was invalid.

At the time of hearing, the counsel for the assessee has submitted that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Gauhati High Court in the case of Smt. Bandana Gogoi Vs. CIT – 289 ITR 28 wherein it was held that non-issuance of notice u/s 143(2) is not a mere procedural irregularity, but the same is a jurisdictional error which invalidates the assessment completed u/s 158BC.

The DR, on the other hand, submitted that a similar issue had arisen for consideration before the Lucknow Special Bench of ITAT in the case of Nawal Kishore & Sons Jewellers Vs. DCIT, wherein the Special Bench of the Tribunal held that the non-issuance of notice u/s 143(2) would only be an irregularity which is curable and hence, the assessment order passed u/s 158BC in violation of such requirement cannot be declared as null and void.

Now the Tribunal had to choose from a Special Bench Order and a High Court order.

The Tribunal observed,

1. It is no doubt true that a similar issue has been decided by the Lucknow Special Bench of ITAT against the assessee and in favour of the Revenue as rightly pointed out by the CIT-DR.

2. However, in the case of Smt. Bandana Gogoi relied upon by the learned counsel for the assesses the same issue has been decided by Hon’ble Gauhati High Court in favour of the assessee holding that non-issuance of notice u/s 143(2) is a jurisdictional error and the same invalidates the assessment relating to the block period.

3. Since no contrary decision of any other High Court has been brought to our notice, the judicial propriety requires us to follow the decision of Hon’ble Gauhati High Court in the case of Smt.Bandana Gogoi in preference to the decision of Special Bench of ITAT in the case of Nawal Kishore & Sons Jewellers.

4. Accordingly, we respectfully follow the said decision of Hon’ble Gauhati High Court in the case of Smt.Bandana Gogoi and hold that there being no notice issued by the Assessing Officer u/s 143(2) in the present case as admitted by the AO himself in the remand report submitted to the learned CIT(A) as clearly mentioned by the learned CIT(A) in paragraph No. 17 on page 12 of his impugned order, the assessment order passed by him u/s 158BC suffered from a jurisdictional error and the same, therefore, was not valid in the eye of law. The same is, accordingly quashed allowing ground No.4 of the assessee’s appeal.

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