2010 (2) TMI 1 - SC - Income Tax

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

Assistant Commissioner of Income Tax & Anr. Versus M/s. Hotel Blue Moon

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 ... Block Assessment - prescribed period of time - pre-requisite for framing the block assessment under Chapter XIV-B - Whether nature of notice u/s 143(2) is mandatory for completing block assessment under Chapter XIV-B of the Act - Held that:- In our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under Section 158 BC (a), the assessing officer must necessarily issue notice under Section143 (2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC (b) it has done so specifically. Thus, when Section 158 BC (b) specifically refers to applicability of the proviso thereto cannot be exclude. We may also notice here itself that the clarification given by CBDT in its circular No.717 dated 14th August, 1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions of Section 142 and sub-sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act. The case of the revenue is that the expression so far as may be apply' indicates that it is not expected to follow the provisions of Section 142, sub-sections 2 and 3 of Section 143 strictly for the purpose of Block assessments. We do not agree with the submissions of the learned counsel for the revenue, since we do not see any reason to restrict the scope and meaning of the expression so far as may be apply'. In our view, where the assessing officer in repudiation of the return filed under Section 158 BC (a) proceeds to make an enquiry, he has necessarily to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143. Section 158 BH provides for application of the other provisions of the Act. It reads: 'Save as otherwise provided in this Chapter, all the other provisions of this Act shall apply to assessment made under this Chapter.' This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes Section 142 and sub-sections (2) and (3) of Section 143. On a consideration of the provisions of Chapter XIV-B of the Act, we are in agreement with the reasoning and the conclusion reached by the High Court - The appeals fail and are dismissed. 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 ProvisionsThe 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 ProceduresThe 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.