S. 158BD: Issue of notice u/s 158BD to the non-searched party has to be within the two years period given to the AO for completion of block assessment u/s 158BE(1)
The AO passed an order u/s 158BC in the case of Sree Gokulam Chits and Finance Company Limited. After the expiry of two years, he initiated proceedings u/s 158BD against the assessee. The Tribunal struck down the s. 158BD proceedings as being barred by limitation. Before the High Court the department claimed that as there is no time limit prescribed in the statute for completion of block assessment in respect of persons other than the person on whom search was made, the notices issued u/s 158BD of the Act by the AO are valid. HELD by the High Court dismissing the appeal:
(i) It is trite law that where limitation is not prescribed, action must be taken within a reasonable period. However, the reasonable period would depend upon the facts of each case and it would be open to the assessee to contend that it is bad on the ground of delay (Government of India v. Citedal Fine Pharmaceuticals (1989) 3 SCC 483 followed);
(ii) On facts, a block assessment in respect of the Sree Gokulam Chits and Finance Company Limited was proceeded u/s 158BC. It is only on the basis of the block assessment of the person with respect to whom search was made u/s 132 of the Act proceedings u/s 158BD of the Act in respect of any other person can be initiated. Therefore, the provisions of s. 158BD and 158BC are intertwined. In other words, the jurisdiction to issue notice u/s 158BD of the Act to any person, other than the person with respect to whom search was made, and the consequent time limit prescribed under Section 158BE of the Act in respect of third parties, would certainly be included within the two years period given to the AO for completion of block assessment u/s 158BE(1) of the Act. When such an inference can be drawn from a bare reading of the provisions which are explicit, it does not lie in the mouth of the Revenue to state that there is no time limit prescribed in the statute for initiation of proceedings u/s 158BD of the Act (CIT vs. Umesh Chandra Gupta 362 ITR 1 (Del) followed, CIT vs. Bimbis Creams and Bakes 24 Taxmann.com 143 (Ker.) distinguished)
S. 271(1)(c): Before proceeding to the Explanation below s. 271 and putting the responsibility on the assessee, it is necessary for the AO to first demonstrate that the assessee's explanation or conduct is not reasonable on human probabilities, or that it was in the nature of violating settled legal positions. If the explanation is not fanciful, baseless or unacceptable, penalty cannot be levied
A legal contention raised bonafide by the assessee claiming the amounts to be capital receipt, only because the same was not accepted, by itself cannot be said to be act of fraud or gross or wilful negligence. Merely because the claim was rejected, the same cannot be branded as concealment. Before proceeding to the explanation below Section 271 and putting the responsibility on the assessee, it is necessary for the AO to first demonstrate that the explanation of the assessee or the conduct of the assessee was not reasonable on human probabilities, or that it was in the nature of violating settled legal positions. It cannot be said that, the explanations given by the assessee were fanciful, baseless or unacceptable.
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