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Madhya Pradesh High Court · body

2009 DIGILAW 1150 (MP)

Pawan Agarwal v. Union of India

2009-09-23

A.M.SAPRE, S.K.SETH

body2009
ORDER S.K. Seth, J. 1. At the outset, we may point out that Shri Bagadia learned senior counsel for the assessee and Shri R.L. Jain, learned senior counsel for Revenue were fair enough to submit that this order shall also govern the disposal of connected matters, namely, Writ Petn. Nos. 5907 of 2008; 5908 of 2008; 5909 of 2008 and 5910 of 2008 as the legal issue in all these matters is similar. In view of this, for the sake of convenience, we are deciding this bunch on basis of the facts of the present case i.e. Writ Petn. No. 5906 of 2008. 2. In this second round of litigation, petitioner is assailing validity of the order dt. 19th Aug., 2008 passed by the respondent No. 3-Asstt. CIT, Circle-I, Ujjain, the AO. 3. By the order impugned, respondent No. 3 has rejected the preliminary objections raised by the petitioner that the notice for block assessment issued under Section 143(2) of the IT Act, 1961 (hereinafter referred to as 'Act' for short) was beyond limitation from the date of filing of return, therefore, the proceedings for block assessment are vitiated. 4. Petitioner is proprietor of M/s Ram Bharose Trading Firm and is carrying on the grain business in Dewas. On 5th Dec, 2001, IT authorities raided his residential and commercial premises and seized accounts, documents, loose papers, dairy etc. After the search and seizure was made, a notice dt. 16th Jan., 2002 under Section 158BC was served upon petitioner to submit/ file return for assessment of income for the block period from 1995-96 to the date of raid. In response to the notice, petitioner submitted return for the block period on 21st Feb., 2002. 5. The respondent No. 3 issued notice under Section 143(2) r/w Section 142(1) of the Act on 8th July, 2003 directing petitioner to appear in person and submit his reply to questionnaire. Petitioner objected to the said notice on the ground of limitation. Respondent No. 3, Asstt. CIT overruled the objection vide communication dt. 7th Aug., 2003. As a consequence, bunch of writ petitions were filed before this Court. By the order dt. 29th Sept., 2003, learned Single Judge directed that until further orders, proceeding pursuant to notice dt. 8th July, 2003 may go on but no final block assessment order should be passed by the AC). CIT overruled the objection vide communication dt. 7th Aug., 2003. As a consequence, bunch of writ petitions were filed before this Court. By the order dt. 29th Sept., 2003, learned Single Judge directed that until further orders, proceeding pursuant to notice dt. 8th July, 2003 may go on but no final block assessment order should be passed by the AC). Ultimately, said bunch of petitions was decided by a common order dt. 15th July, 2008 with direction that the respondent No. 3 should consider and decide afresh the preliminary objections preferred by the petitioner. 6. By the order impugned, the respondent No. 3 has once again held against the petitioner in all these connected matters, hence this bunch of writ petitions. 7. We have heard Shri Bagadia learned senior counsel for petitioner and Shri R.L. Jain learned senior counsel for the Revenue at length. According to Shri Bagadia, it is clear that the period of limitation prescribed in Section 143(2) is mandatory and a notice issued after the expiry of limitation is bad and no proceeding could take place on the basis of such bad notice. He took us through the scheme of assessment and submitted that based upon the information/material gathered or collected, the AO may accept return under Section 143(1) or proceed to issue notice before making an assessment in accordance with provisions of Section 143(2). The AO is bound to follow the procedure prescribed under Section 142 and 143 while making a block assessment under Chapter XIV-B. No other method is prescribed for making the assessment of undisclosed income. He laid emphasis that the legislature has used the word "shall" in Section 143(2) which indicates that the mandatory provision is clear, plain and unambiguous, and then it is not necessary to expand their meaning. 8. On the other hand, Shri Jain, appearing for Revenue submitted that in the matter of block assessment provisions of Section 142 or 143 as the case may be, to be applied to the extent possible not in their entirety. According to him Clause (b) of Section 158BC in Chapter XIV-B is an enabling provision for making assessment of undisclosed income falling within the scope of Section 158BB for this reason, the legislature thought it fit not to prescribe limitation on the powers of the Asstt. According to him Clause (b) of Section 158BC in Chapter XIV-B is an enabling provision for making assessment of undisclosed income falling within the scope of Section 158BB for this reason, the legislature thought it fit not to prescribe limitation on the powers of the Asstt. CIT to proceed to make assessment except to afford opportunity of hearing as part of the natural justice. Thus according to him, there is no merit and substance in the writ petitions and all of them deserve dismissal with costs. 9. After careful considerations to the rival submissions and relevant provisions of the Act, we feel there is no merit and substance in the writ petitions for the following reasons. 10. It is a fact that notice under Section 143(2) of the Act was issued after one year from the date of filing of block return. Section 158BC of the Act provides for the procedure for completing the block assessment. The provisions of Section 158BC of the Act and the relevant clause applicable to the present case is Clause (b) which reads as under: 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) .... (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; 11. It is seen from the Chapter XIV-B where special procedure in respect of block assessment for search cases is provided and the procedure for issuance of notice under Sections 158BC and 158BD of the Act is provided. If search is conducted under Section 132, or books of account, or other documents or assets are requisitioned under Section 132A of the Act in case of any other person the AO shall proceed in the manner laid down under these two provisions. Chapter XIV-B is a special Code for assessing the undisclosed income and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 of the Act shall, so far as may be, apply to the proceedings. Chapter XIV-B is a special Code for assessing the undisclosed income and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 of the Act shall, so far as may be, apply to the proceedings. In Chapter XIV-B, Section 158BC of the Act has been incorporated with certain machinery provisions as applicable to regular assessment for limited application and the expression used in Clause (b) to Section 158BC is 'so far as may be' there. Here, to understand the meaning of expression so far as may be', we have to refer to the judgment of the Supreme Court in the case of Dr. Partap Singh v. Director of Enforcement (1985) 46 CTR (SC) 319 : AIR 1985 SC 989 . The Court had occasion to consider the provisions of Section 37(2) of Foreign Exchange Regulation Act, 1973 (in short FERA) which provides that provisions of the Cr.PC relating to searches, shall so far as may be, apply to searches directed under Section 37(1) of the said Act. It was contended by the appellant before the Supreme Court that provisions of Section 165 of the Cr.PC were incorporated by pen and ink in Section 37 of FERA and, therefore, the search made under Section 37 without recording reasons in advance which was condition precedent for exercising the power to search as provided in Section 165 of Cr.PC was illegal. This contention was negatived by the Court and it was held that: Section 37(2) provides that 'the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(1)'. Reading the two sub-sections together, it merely means that the methodology prescribed for carrying out a search provided in Section 165 has to be generally followed. The expression 'so far as may be' has always been construed to mean that those provisions may be generally followed to the extent possible. The submission that Section 165(1) has been incorporated by pen and ink in Section 37(2) has to be negatived in view of the positive language employed in the section that the provisions relating to searches shall so far as may be apply to searches under Section 37(1). The submission that Section 165(1) has been incorporated by pen and ink in Section 37(2) has to be negatived in view of the positive language employed in the section that the provisions relating to searches shall so far as may be apply to searches under Section 37(1). If Section 165(1) was to be incorporated by pen and ink as Sub-section (2) of Section 37, the legislative draftsmanship will leave no room for doubt by providing that the provisions of the Cr.PC relating to searches shall apply to the searches directed or ordered under Section 37(1) except that the power will be exercised by the Director of Enforcement or other officer exercising his power and he will be substituted in place of the Magistrate. The provision of Sub-section (2) of Section 37 has not been cast in any such language. It merely provides that the search may be carried out according to the method prescribed in Section 165(1). If the duty to record reasons which furnish grounds for entertaining a reasonable belief were to be recorded in advance, the same could have been incorporated in Section 37(1), otherwise a simple one-line section would have been sufficient that all searches as required for the purpose of this Act shall be carried out in the manner prescribed in Section 165 of the Code by the officer to be set out in the section. In order to give full meaning to the expression 'so far as may be', Sub-section (2) of Section 37 should be interpreted to mean that broadly, the procedure relating to search as enacted in Section 165 shall be followed. But if a deviation becomes necessary to carry out the purposes of the Act in which Section 37(1) is incorporated it would be permissible except that when challenged before a Court of law, justification will have to be offered for the deviation. This view will give full play to the expression 'so far as may be'. 12. There is a clear distinction as far as application of provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 of the Act to the regular assessment, i.e., normal assessment and block assessment. This view will give full play to the expression 'so far as may be'. 12. There is a clear distinction as far as application of provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 of the Act to the regular assessment, i.e., normal assessment and block assessment. In the normal assessment, the assessee has to file the return of income under the provisions of Section 139 of the Act and the assessee can revise his return of income under the provisions of Section 139(5) of the Act. For making a regular assessment, the AO after receiving the return of income from the assessee can issue notice under Section 142(1) of the Act for calling certain information and if at all, he wants to frame the assessment under Section 143(3) of the Act, then he has to issue a notice under Section 143(2) of the Act, If the time-limit of 12 months as provided in second proviso expires, then the AO has no power to issue notice under Section 143(2) of the Act and cannot complete the assessment under Section 143(3) of the Act. 13. But in case of block assessment, there is no such provision for the assessee to file the block return in Form 2B voluntarily. He files the return only after the receipt of notice under Section 158BC of the Act where the procedure for completion of block assessment is prescribed. In a case where the AO wants to complete the block assessment, where search/raid has been conducted under Section 132 of the Act or books of account, or other documents or assets are requisitioned under Section 132A of the Act, then the AO shall serve a notice to such a person requiring him to furnish a return within the time prescribed. As far as the normal assessment is concerned, the AO can process the return under Section 143(1) of the Act or he can scrutinize the assessment by issuing notice under Section 143(2) of the Act. The AO can complete the assessment or can process the return as per the facts available in the returns. But in case of block assessment, the AO has no such choice. He has to proceed for scrutiny to complete the block assessment. The AO can complete the assessment or can process the return as per the facts available in the returns. But in case of block assessment, the AO has no such choice. He has to proceed for scrutiny to complete the block assessment. In case of block assessment, further time-limit for completion of block assessment starts within two years from the end of the month in which the last authorization for search under Section 132 of the Act or for requisition under Section 132A of the Act, as the case may be, was executed. In cases, where a search is initiated or books of account or other documents or any assets are requisitioned under Chapter XIV-B, where procedure for block assessment for search case prescribed is itself is a Code in code. No doubt, it does not contain the machinery provisions of its own and it has incorporated certain machinery provisions applicable to normal assessment for limited applications and for that purpose legislature has used the expression in Clause (b) of Section 158BC of the Act i.e., "so far as may be". Even though in the block assessment the provisions of Section 139 of the Act do not apply as no assessee will file the voluntary return for block assessment. In Chapter XIV-B, it is defined that how undisclosed income is to be assessed for the block period on the basis of seized material found during the course of search conducted under Section 132 of the Act. 14. The Supreme Court in the case supra following the principle of interpretation held that full effect must be given to the words "so far as may be" applicable. The said words indicate the intention of the legislature. Such procedural requirements must be followed so far as it is reasonably possible. 15. In view of the above, we are of the considered opinion that the use of expression so far as may be' by the legislature in Clause (b) of Section 158BC of the Act for application of provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144, means "to the extent possible" or "as far as possible" and not in its entirety in the literal sense. 16. In the result, all writ petitions fail and are hereby dismissed with no orders as to costs. 16. In the result, all writ petitions fail and are hereby dismissed with no orders as to costs. Interim orders are vacated and the AO is directed to complete the block assessment as early as possible but not later than four months from the date of production of certified copy of this order. Let a copy of this order be retained in the Writ Petn. No. 5907 of 2008; 5908 of 2008; 5909 of 2008 and 5910 of 2008.