2026 (2) TMI 216 - HC - Income Tax

Issuance and service of incometax notice under Section 143(2) -- lack of actual service vitiates assessment proceedings

The issue concerns whether a notice under Section 143(2) must be actually served to be valid when proceedings to determine undisclosed income for a block ... Issuance of notice u/s 143(2) beyond prescribed time - determination of undisclosed income for a block period - Scope of statutory expression “served” in Section 143(2) - proceedings initiated u/s 158BD HELD THAT:- The expression “served” necessarily refers to the date on which the assessee actually receives the notice, and mere issuance of notice within the prescribed period without actual service, does not make the proceedings proper. The Hon’ble Supreme Court in the case of Hotel Blue Moon’s case [2010 (2) TMI 1 - SUPREME COURT] used the word “issued”, which while reiterating the requirement of the proceedings to be drawn consequent upon search mandates issuance of notice u/s. 143(2) of the Act in general form, but the Hon’ble Apex Court has not interpreted the said provision and held that that issuance of notice under Section 143(2) is mandatory in strict sensu lato, failing which the proceedings drawn would be vitiated for such non-compliance, and also in the various judicial precedents referred in the foremost paras, it has been categorically held that notice u/s. 143(2) should be served on the assessee within the prescribed period. If the contention of the learned Senior Standing Counsel that issuance of notice alone within the limitation period is sufficient compliance with the provision u/s 143(2), without actual service of the same, is accepted, there is every possibility that issuance of notice can also be antedated, thereby defeating the legislative intent behind such enactment to avoid such arbitrary action on the part of the authorities, as the drafters of the statute have clearly intended to see that the notice u/s. 143(2) of the Act must not only be issued but also duly served upon the assessee. In the instant case, since the notice under Section 143(2) was admittedly served beyond the statutory period, the infirmity goes to the root of the matter. Such non-compliance is neither procedural in nature nor curable, and consequently, the entire proceedings stand vitiated and are liable to be set aside. Decided against Revenue Issues: Whether notice under Section 143(2) of the Income-tax Act, 1961 must be actually served upon the assessee within twelve months from the end of the month in which the block return was filed, and whether failure to effect such service within the period vitiates the assessment proceedings arising out of search and seizure.Analysis: The appeals relate to block assessments where block returns were filed on 09.01.2001. The notice dated 29.01.2002 was issued within the twelve month period but was admittedly served on the assessees on 04.02.2002, after the expiry of the prescribed period. The statutory text of Section 143(2) uses the word 'served' and earlier decisions hold that 'issued' and 'served' are distinct acts. Acceptance of issuance alone as compliance would permit antedating and defeat the legislative time-limit. Prior authoritative decisions have held that service within the period is required for assessments under Section 143(3) read with provisions dealing with undisclosed income arising from search.Conclusion: The failure to serve the notice under Section 143(2) within the prescribed twelve month period vitiates the assessment proceedings. Issue answered in favour of the assessees and against the Revenue. All impugned appellate and assessment orders are set aside and the appeals are allowed.