2009 (4) TMI 48 - HC - Income Tax

Section 143(2) mandatory for Chapter XIV-B block assessments; absence of 143(2) notice renders assessment invalid, not irregular

HC held that section 143(2) is mandatory in block assessments under Chapter XIV-B where the assessing officer does not accept the return of undisclosed ... issuance/service of notice u/s 143 (2) within the prescribed period of time is a prerequisite of framing the block assessment order under chapter XIV B of the Income-tax Act, 1961 - Validity of the assessment in the absence of such notice - No Opportunity of hearing - violation of the principles of natural justice - HELD THAT:- We are of the view that section 143 (2) is a mandatory provision whether we look at it from the standpoint of a regular assessment or from the standpoint of an assessment under chapter XIV B. If the assessing officer, on receipt of the return of undisclosed income in the Form 2B from the assessee, is satisfied with the same as reflecting the true state of affairs then it is not necessary for him to embark upon any further enquiry or investigation. No further information or explanation is called for from the assessee. In such an eventuality he can straightaway pass the order under section 158 BC (c) of the said act. And, if he does so, the assessee cannot be heard to complain that no notice under section 143(2) was served upon him because his return as filed has been accepted. It is here that the expression 'so far as may be apply' comes into play. Section 143 (2) has no application in such a situation and therefore no notice under that provision would be necessary. If the assessing officer makes the assessment order in terms of the return of undisclosed income filed by the assessee without issuing a notice under section 143 (2) then he would not have committed any mistake. This is a situation where the section 143(2) notice would not be necessary at all. The requirement of making an assessment order pursuant to the grant of a hearing and an opportunity to the assessee to produce material in support of his return is not an empty formality. It is a substantive right of the assessee to be presented with the fullest opportunity to support the return filed by him. If such right is denied to the assessee, it would amount to a travesty of justice apart from being in violation of the statutory prescription of section 143(2) and 143(3) read with section 158 BC (b) of the said Act. There is no doubt that there are several distinguishing features between the two processes of assessment. But, this does not enable us to detract from the position that section 158 BC (b) itself requires that the provisions of section 143 (2) be followed. The intention of the legislature is quite clear inasmuch as specific provisions have been mentioned. The qualifying words 'so far as may be' have already been construed by us to indicate situations where a notice under section 143(2) would or would not be required. That is a secondary issue. The main point is that section 143 (2) has been specifically incorporated in the scheme of block assessment proceedings and that cannot be ignored. Thus, we are of the clear view that where the assessing officer is not inclined to accept the return of undisclosed assessment filed by the assessee issuance of a notice under section 143(2) is a prerequisite for framing the block assessment order under chapter XIV B of the Income Tax Act, 1961. We are also of the view that if an assessment order is passed in such a situation without complying with section 143(2), it would be invalid and not be merely irregular. Consequently, we answer both the questions against the revenue. 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 AssessmentThe 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.