Mandatory notice under sec 143(2) for block assessment; absence renders order invalid

COMMISSIONER OF INCOME TAX Versus PAWAN GUPTA and others

COMMISSIONER OF INCOME TAX Versus PAWAN GUPTA and others - [2009] 318 ITR 322 (Delhi) Issues Involved:
1. Issuance/service of notice under section 143(2) within the prescribed period of time as a prerequisite for framing the block assessment order under Chapter XIV B of the Income-tax Act, 1961.
2. Validity or irregularity of the assessment in the absence of such notice.

Detailed Analysis:

Issue 1: Issuance/Service of Notice under Section 143(2)
The primary issue was whether the issuance/service of notice under section 143(2) within the prescribed period is a prerequisite for framing the block assessment order under Chapter XIV B of the Income-tax Act, 1961. The Tribunal, following the decision of the Gauhati High Court in Smt. Bandana Gogoi v. CIT, held that the issuance of such notice is mandatory. The Gauhati High Court had determined that the provisions of section 143(2) are mandatory when the Assessing Officer proceeds to make an inquiry into the return filed in response to a notice under section 158BC(a). This interpretation was based on the language of section 158BC(b), which states that the provisions of section 142 and sub-sections (2) and (3) of section 143 shall apply "so far as may be."

Issue 2: Validity or Irregularity of the Assessment
The second issue was whether the absence of such notice would render the assessment invalid or merely irregular. The Tribunal concluded that the block assessment without the issuance of a notice under section 143(2) is invalid. The court upheld this view, stating that if the Assessing Officer does not agree with the return filed under section 158BC(a) and fails to issue a notice under section 143(2), the assessment order would be invalid, not merely irregular. The court emphasized that the issuance of a notice under section 143(2) is a substantive right of the assessee, ensuring they have the fullest opportunity to support their return.

Arguments by Revenue:
The Revenue argued that Chapter XIV B, which deals with block assessments, is a complete code in itself and distinct from regular assessments. They contended that the material for block assessments is already available with the Assessing Officer due to search operations, unlike regular assessments where the Assessing Officer relies on the return filed by the assessee. They argued that the phrase "so far as may be" in section 158BC(b) implies that the provisions of section 143(2) should be applied only to the extent possible and practical. They further argued that any procedural lapse in issuing the notice under section 143(2) should be considered a curable irregularity, not rendering the assessment invalid.

Arguments by Assessees:
The assessees argued that the issuance of a notice under section 143(2) is mandatory for both regular and block assessments. They contended that the phrase "so far as may be" should be interpreted to mean that the provisions of section 143(2) are fully applicable to block assessments. They relied on various judicial precedents to argue that mandatory provisions cannot be waived and that the failure to issue a notice under section 143(2) would render the assessment order null and void.

Court's Conclusion:
The court concluded that the issuance of a notice under section 143(2) is a prerequisite for framing a block assessment order under Chapter XIV B of the Income-tax Act, 1961. It held that if the Assessing Officer is not inclined to accept the return of undisclosed income as filed by the assessee, the procedure prescribed in section 143(2) must be followed. Failure to issue such a notice would render the assessment order invalid, not merely irregular. The court emphasized that the right to be heard and to present evidence is a substantive right of the assessee, and non-compliance with section 143(2) would violate this right.

Final Judgment:
The court answered both questions against the Revenue, upholding the Tribunal's decision in each of the appeals. The appeals were dismissed, and the parties were left to bear their own costs.