Assessing officer repudiating s.158BC(a) return must issue s.143(2) notice; ss.142 and 143(2)/(3) apply within prescribed time

SC held that when an assessing officer repudiates a return filed under s.158BC(a) and proceeds with a block assessment, he must issue a notice under s.143(2) within the prescribed time; provisions of s.142 and ss.143(2) and (3) apply to Chapter XIV-B assessments unless expressly excluded. The CBDT circular clarifying service of s.143(2) notices binds the Department but not the Court. Appeals were dismissed and the High Court's conclusion affirmed.

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Issues Involved:
1. Mandatory nature of notice under Section 143(2) for block assessment under Chapter XIV-B of the Income Tax Act, 1961.
2. Applicability of procedural provisions of Section 142 and sub-sections (2) and (3) of Section 143 in block assessments.
3. Distinction between regular assessment and block assessment procedures.

Detailed Analysis:

Issue 1: Mandatory Nature of Notice under Section 143(2)
The primary question was whether the issuance of notice under Section 143(2) within the prescribed time is mandatory for block assessment under Chapter XIV-B of the Income Tax Act, 1961. The High Court held that the provisions of Section 142 and sub-sections (2) and (3) of Section 143 are mandatory when the assessing officer repudiates the return filed in response to a notice issued under Section 158 BC(a). The Supreme Court agreed with this view, concluding that notice under Section 143(2) is essential for the validity of block assessments. The Court emphasized that the omission to issue such notice is not a procedural irregularity but a substantive requirement that cannot be dispensed with.

Issue 2: Applicability of Procedural Provisions
The Court analyzed the applicability of procedural provisions under Chapter XIV-B. Section 158 BC(b) was scrutinized, which states that the assessing officer shall determine the undisclosed income of the block period following the procedure laid down in Section 158 BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144, and Section 145. The Court highlighted that these provisions must be followed when the assessing officer proceeds to make an inquiry. The phrase "so far as may be" was interpreted to mean that the provisions should be generally followed to the extent practicable, but not to the extent of excluding essential procedural requirements like the issuance of notice under Section 143(2).

Issue 3: Distinction Between Regular and Block Assessment Procedures
The judgment clarified the distinction between regular assessment procedures under Chapter XIV and block assessment procedures under Chapter XIV-B. The Court noted that Chapter XIV-B is a special procedure designed specifically for search cases, which includes the assessment of undisclosed income detected during searches. The Court emphasized that block assessment is an additional assessment method, distinct from regular assessments, and is based on evidence found during searches. The Court rejected the revenue's argument that the special procedure under Chapter XIV-B overrides the need for notice under Section 143(2), reiterating that procedural fairness and statutory requirements must be adhered to.

Conclusion:
The Supreme Court upheld the High Court's judgment, affirming that the issuance of notice under Section 143(2) is mandatory for block assessments under Chapter XIV-B. The Court dismissed the revenue's appeals, emphasizing the necessity of following procedural provisions to ensure the validity of block assessments. The judgment reinforces the importance of adhering to statutory requirements for fair and lawful tax assessments.

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