TaxTMI 
TaxTMI 
2003 (8) TMI 194
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....such notice would render the block assessment order as null and void. At the outset, he took us through the scheme of regular assessment provided in sections 142, 143 and 144 and then submitted that section 142 empowers the Assessing Officer only to collect the information for the purpose of making assessment. On the basis of the material so collected, he may accept the return under section 143(1). However, on the basis of such information, if he is not satisfied with the return and wants to verify the correctness of the return filed by the assessee then he is bound to issue the notice under section 143(2) before making assessment in accordance with the provisions of section 143(3). It was greatly emphasized by him that section 142 by itself does not empower the Assessing Officer to make the assessment. If any assessment has to be made on the basis of information collected under section 142, then before making such assessment he has to issue notice under section 143(2) except in the circumstances mentioned in section 144. Proceeding further, he drew our attention to the provisions of section 158BC(b) to point out that as per this section, AO is required to assess the undisclosed i....
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....r, he relied on the Board Circular No. 717 dated 14-8-1995 reported. He drew our attention to page 98 where, vide clause 39.3(e), it has been explained that provisions of sections 142, 143(2) and 144 would apply to the block assessment proceedings. It has been pleaded by him that the controversy before the Tribunal is meaningless since the circular directs the Assessing Officer to apply the provisions of section 143(2) in its entirety inasmuch as the said circular ignores the expression "so far as may be". Proceeding further, it was pleaded that such circular is binding on the tax authorities in view of the various Supreme Court judgments, namely, State Bank of Travancore v. CIT [1986] 158 ITR 102, CIT v. Jai Parkash Singh [1996] 219 ITR 737 and UCO Bank v. CIT [1999] 237 ITR 889. At this stage, he also referred to article 73 of Constitution of India for the proposition that policies declared by Govt. of India are enforceable at law and consequently, the Board circular representing the policy of Govt. of India is enforceable at law. Reliance was placed on the decision of the Tribunal in the case of Ericsson Communications Ltd. v. Dy. CIT [2002] 81 ITD 77 (Delhi). 6. In support of ....
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....lying with such provisions would be without jurisdiction and null and void. In support of his above contention, he relied on the decision of Supreme Court in the case of Smt. Maneka Gandhi v. Union of India AIR 1978 SC 597 and the decision of the Tribunal in the case of Colonizers v. Asstt. CIT [1992] 41 ITD 57 (Hyd.) (SB) wherein it has been held that non compliance of principle of natural justice amounts to nullity. He also relied on the decision of the Tribunal, Allahabad Bench in the case of Sarswati Devi wherein it has been held that where the right of the Assessing Officer to issue notice under section 143(2) had already been extinguished on account of the expiry of the time limit, then such right cannot be revived by any direction of the superior authority. It has also been held therein that after the amendment made w.e.f. 1-4-1989, the proviso inserted in section 143(2) has controlled the jurisdiction of the Assessing Officer to exercise the option to proceed to make the assessment. He also relied on the judgment of Bombay High Court in the case of CIT v. D.S. Screens (P.) Ltd. [2001] 248 ITR 633 wherein it has been held that additional ground taken by the assessee challeng....
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.... it was argued by him that Assessing Officer was bound to follow the provisions of section 142, subsections (2) & (3) of section 143 and section 144 since such provisions are en grafted in section 158BC. According to him, if certain provisions are borrowed and incorporated in Chapter XIVB then Assessing Officer is bound to comply with the same. He also referred to the provisions of section 143(2) as existed prior to 1-4-1989 and the provisions as amended w.e.f. 1-4-1989 and then pleaded that the moment proviso to section 143(2) was added w.e.f. 1-4-1989, such provisions became mandatory and, therefore, notice under section 143(2) had to be issued and served within the prescribed time. Hence, if the notice has not been issued within the prescribed time then the action of the Assessing Officer in assessing the assessee would be without jurisdiction and consequently, null and void. He also pleaded the doctrine of severance and submitted that if the action is severable then such action would be null and void to that extent. Reliance was placed on the judgments of P. Vittal Pai v. Agrl ITO [1976] 104 ITR 794 (Kar.), 223 ITR 721 (sic) and Hope Textiles Ltd. v. Union of India [1994] 205....
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....ntain the machinery provisions of its own. However, it has incorporated certain machinery provisions applicable to regular assessment for limited application inasmuch as the Legislature has used the expression "so far as may be" in clause (b) of section 158BC. Such words, according to him, have been defined as "to the extent possible" and, therefore, the provisions of section 142, sub-sections (2) and (3) of section 143 and section 144 cannot be applied in its entirety in the literal sense. In this connection, he referred to the meaning given to such expression in the legal glossary issued by the Ministry of Law. He also relied on the judgment of Hon'ble Supreme Court in the case of Dr. Pratap Singh v. Director of Enforcement AIR 1985 SC 989 wherein the expression "so far as may be" has been construed as "to the extent possible". He took us through the relevant portions of the judgment and pointed out that in that case section 37(2) of Foreign Exchange Regulation Act (FERA) provided that "the provisions of Cr. PC. relating to searches shall, so far as may be, apply to searches under section 37(1)". The contention of the appellant before the Court was that the Director of Enforcemen....
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....iction. According to him, it is only because of this fiction it was held by the Supreme Court in that case that all the procedural requirements of regular assessment were to be applied. However, such fiction has not been inserted in section 158BC. According to him, such departure is deliberate and, therefore, the decision of the Supreme Court is distinguishable. According to him, the issue before us in squarely covered by the decision of the Supreme Court in the case of Dr. Pratap Singh. 14. To buttress his above arguments, it was also submitted as under: (i) The purpose behind insertion of the proviso was to expedite the process of selection of the cases for scrutiny so as to remove uncertainty in the matter of selection of cases for scrutiny. Departmental circular No. 549 dated 31-1-1989 as also the memorandum accompanying the Finance Bill (No. 2) 1991 emphasize this point. The underline philosophy is to accept the return generally without scrutiny so as to secure and promote the level of voluntary compliance. As against this, an assessment under Chapter XIVB is statutorily required to be made after scrutiny and after due consideration of the seized materials and, to that exte....
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....143(2) but there is no such option available with the Assessing Officer while making the assessment under Chapter XIVB. He drew our attention to the provisions of section 158BC to point out that after the issue of notice for filing of the return, the Assessing Officer has to proceed to make the assessment of undisclosed income irrespective of the filing of the return. In view of the above difference in both the schemes, it was argued by him that provisions of time limit for issuance of notice would not apply to the block assessment proceedings and it would be sufficient if the notice under section 143(2) is served on the assessee where the return is filed as per the provisions of sub-section (1) of section 158BC. 16. Proceeding further, it was submitted by him that as soon as the notice under section 158BC is issued, the Assessing Officer not only gets the jurisdiction to assess but is also duty bound to proceed to determine the undisclosed income of the assessee and there is no option unlike option under section 143. So, the Assessing Officer need not to wait for filing of the return and can assess the assessee where the assessee does not file the return within the time prescrib....
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....the provisions of section 158BC. Hence, it was argued by him that no inference can be drawn from the said circular to the effect that provisions of section 143(2) are to be applied in its entirety. It was also submitted by him that the Board Circular has to be read in the context of the powers under section 119. According to him, the Board can only tone down the rig ours of the provision as held by the Supreme Court in various cases but cannot whittle down or obliterate the expression used by the Legislature. 18. Regarding the second part of the question referred to the Special Bench, the learned CIT DR raised various submissions. Firstly, it was submitted by him that the provisions of the proviso to section 143(2) are not mandatory and rather mere obligatory and, therefore, non compliance of the same would not render the same as null and void. According to him, no provision can be said to be mandatory unless the adverse consequences flow from its non-compliance. According to him, unlike section 153 or section 275, section 143(2) does not debar the Assessing Officer from making assessment under section 143(3). The purpose behind the issuance of notice under section 143(2) is only ....
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....nclosed) (iii) Chatturam v. CIT [1947] 15 ITR 302 (FC) (iv) State Bank of Patiala v. S.K. Sharma AIR 1996 SC 1669 (v) Pooran Mall & Sons' case (vi) P.V. Doshi v. CIT [1978] 113 ITR 22 (Guj.) (vii) Karnataka SRTC v. KSRTC Staff & Workers Federation [1999] 2 SCC 687 (viii) Birla Cotton Spg. & Wvg. Mills Ltd. v. ITO [1994] 209 ITR 434 (Raj.) (ix) Doctrine of Acquiescence as explained in P. Ramanatha Aiyar, Law Lexicon 2nd Edn., Reprint 2000, General Ed. Justice Y.V. Chandrachud at p. 32. 21. Proceeding further, it was submitted by him that section 143(2) is not a jurisdictional provision and omission to issue such notice is only procedural irregularity. Consequently, mere omission to issue such a notice cannot be a ground for holding the resultant assessment proceedings as null and void. Mr. Dubey, the learned CIT DR advanced the case of the Department by raising various contentions. Firstly, it was contended that explanatory notes is only the explanation of the clauses of the bills and, therefore, such clarification by way of circular cannot be considered a circular under section 119 of the Income-tax Act. In this connection, he referred to the Commentary by Crais on Statute ....
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....he expression "so far as may be" has become meaningless since the Board in circular No. 717 dated 14-8-1995 had omitted to use such expression. He also relied upon the Allahabad High Court judgment in the case of Rajmani Devi v. CIT [1937] 5 ITR 631 for the preposition that non-issuance of notice under section 143(2) would render the assessment as null and void. He also referred to the provisions of section 158BH for the contention that all the provisions of the Act shall apply to the block assessment proceedings. He also contended that no Court has ever held that non-issuance of notice under section 143(2) is of no consequence having no bearing on the validity of the assessment made in violation of the requirement of issuing requisite notice. Further, to counter the arguments learned DR he referred to the provisions of section 158BFA to contend that belated returns are recognized by then statute itself and, therefore, such returns cannot be treated as non est. Regarding the decision of ITAT Delhi Bench, it was pleaded that provisions of section 143(2) proviso were not brought to the notice of the Bench and, therefore, the said decision is distinguishable. It was also stated that i....
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....of section 144(1)(b). (iv) Regarding the principle of referential legislation canvassed by learned DR in view of the Supreme Court judgment in the case of Ujagar Prints, it has been contended that nothing has been laid down therein that the expression so far as may be" is akin to "to the extent possible and practicable". According to him such expression in section 158BC(b) does not, in any manner, whatsoever mean that the provisions of section 143(2) in its entirety are not applicable to block assessment proceeding. It is further stated that there is nothing to ignore the proviso of section 143(2). On the other hand he relied on the following observation of Lord Esher MR in Re Woods State (1886) 31 CH.D 607:-- It is to put them in the Act of 1855, just as if they had been written into it for the first time. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just at if they had been actually written in it with the pen, or printed in it, and the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all. (v)....
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.... searches, shall so far as may be, apply to searches directed under section 37(1) of the said Act. It was contended by the appellant before the Apex Court that provisions of section 165 of the Cr. PC were incorporated by pen and ink in section 37 of FERA and, therefore, the search made under section 37 without recording reasons in advance which was condition precedent for exercising the power to search as provided in section 165 of Cr. PC was illegal. This contention was negatived by the Court and it was held that the words "so far as may be" have always been construed to mean "to the extent possible". It was further ruled that the expression "so far as may be" should mean that broadly the procedure relating to searches provided in section 165 of Cr. PC should be followed. The relevant observations of Their Lordships appearing at page 993 are being reproduced as under: "Section 37(2) provides that the provisions of the Code relating to searches, shall so far may be, apply to searches directed under section 37(1). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in section 165 has to be generally followed. The ex....
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....ed while carrying out a search under section 37(2) of FERA because of the expression 'so far as may be' used by the Legislature. The search was held to be valid since there was sufficient material on record to justify the same. Similar view has also been taken by the Apex Court in the recent judgment in the case of Bhavnagar University. 29. At this stage, it would be appropriate to refer to the judgment of Hon'ble Supreme Court, delivered by the Constitution Bench, in the case of Ujagar Prints wherein the principles of referential legislation have been explained. The relevant discussion is in para 49 of the judgment, which is being reproduced as under: "Referential legislation is of two types. One is where an earlier Act or some of its provisions are incorporated by reference into a later Act. In this event, the provisions of the earlier Act or those so incorporated, as they stand in earlier Act at the time of incorporation, will be read into the later Act. Subsequent changes in the earlier Act or the incorporated provisions will have to be ignored because, for all practical purposes, the existing provisions of the earlier Act have been re-enacted by such reference into the later....
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....o cannot be applied literally i.e., in its entirety as contended on behalf of the assessee. 31. If the ratio of the above judgments are applied to the provisions of clause (b) of section 158BC, then we are of the considered view that the provisions of sub-section (2) of section 143 and other provisions mentioned therein are to be applied to the extent possible/practical and not in the literal sense. It is only the methodology or the procedural requirements of sections mentioned in clause (b) of section 158BC which are to be applied to search cases. Further, if any deviation is necessary to carry out such procedural provisions then justification for the same will have to be offered by the revenue. Clause (b) of section 158BC is an enabling provision for making assessment of undisclosed income falling within the scope of section 158BB under Chapter XIVB. Every fiscal statute prescribes a procedure to be followed for making assessment. The Legislature inserted Chapter XIVB by Finance Act, 1995 for assessing the undisclosed income in search cases. Instead of prescribing a procedure for making such assessment, the Legislature has referred to the provisions of sections 142, 143(2), 143(....
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.... the procedural scheme as hereinbefore noted and, therefore, it cannot be excluded by reason of the use of the words 'so far as may be'. Nor is there any other good reason to exclude it from the procedure to be followed subsequent to notice under section 148." 33. The above observations also clearly point out that it is the procedure set out in sections subsequent to section 139 which is to be followed so far as may be. Such observations are in conformity with the ratio laid down by the Apex Court in the case of Dr. Pratap Singh. It is in this background that the provisions of section 144B, being a procedural section was held to be applicable. The judgment nowhere lays down that all the provisions of the Act are to be applied in their entirety. Hence, in our view, this judgment does not advance the proposition canvassed by the Ld. counsel for assessee. 34. Further, heavy reliance placed by the learned counsel for the assessee on the Board's Circular No. 717 dated 14th August, 1995 reported is also misplaced. The contention of Mr. Garg, learned counsel for the assessee, is that the use of expression 'so far as may be' in section 158BC(b) has become meaningless inasmuch as clause (....
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....89, the jurisdiction of Assessing Officer has been effected. However, the mode for exercise of such power is through the issue of notice under section 143(2). In view of above discussion, we are of the view that there are two limbs of this sub-section. In the first part it contains jurisdictional aspect since the Assessing Officer has to decide as to whether he intends to proceed to make assessment. If yes, then such decision is to be implemented within the period prescribed in the proviso. In the second part, it contains the procedural aspect i.e., the mode for exercising the jurisdiction. In such case, the Assessing Officer is required to serve the notice. 36. On the other hand, there is no such option available to the Assessing Officer under the provisions of Chapter XIVB. According to section 158BC, once a notice to file the return is issued under clause (a), the Assessing Officer is bound to proceed to assess the undisclosed income in each and every search case after the period specified in such notice irrespective of the filing of the return by the assessee. Such power/jurisdiction is duly vested with the Assessing Officer under section 158BC. Such power is not controlled by....
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....sdictional aspect, as also contended by the assessee's counsel, would be inapplicable to block assessment proceedings. Accordingly, only that portion of section 143(2) would apply which provides for serving of notice by the assessee. That means where a return has been filed under section 158BC, notice as prescribed in section 143(2) will have to be issued unless there are justifiable reasons for deviation. 39. Before parting with this aspect of the issue, we would like to mention that, in our view, there could not have been any intention of the Legislature while enacting Chapter XIV-B by Finance Act, 1995, to apply the proviso to section 143(2). When Chapter XIV -B was enacted, the period prescribed for exercising the option to proceed to make the assessment under section 143(2) was one year from the end of the month in which the return was filed. On the other hand, the Legislature had provided period of one year under section 158BE for completion of undisclosed income under Chapter XIVB from the end of month in which the last authorization for search under section 132 or for requisition under section 132A was executed. Since the period for making assessment under section 158BE w....
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.... of the seized material. In such cases, it would be impossible for the assessee to file the return. On the other hand, the Legislature recognizes such belated return inasmuch as section 158BF A provides for levy of interest upto the date of filing of the belated return. It is only where no return is filed, the interest is leviable up to the date of assessment. If the contention of the CIT/DR is accepted then the provisions of section 158BFA would become redundant which could not be the intention of the Legislature. Even in case of regular return under section 139(1) or under section 142(1), the interest is also leviable under section 234A upto the date of belated return. No case law has been brought to our notice by the CIT/DR in support of his contention. Therefore, we reject such contention of the revenue. 42. Having held that the belated return is a valid return and, therefore, cannot be ignored, the question arises as to whether Assessing Officer is barred from proceeding to make assessment after the expiry of the time specified in the notice under section 158BC or whether the assessee can compel the Assessing Officer not to proceed to make the assessment by delaying the filin....
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....above discussion, it is held that - (i) provisions of section 143(2) are not applicable in its entirety to block assessment proceedings but are applicable to the extent possible (ii) proviso to such section is not applicable to block assessment proceedings (iii) it is only the procedural requirement of section 143(2) which are applicable as the Assessing Officer is bound to issue notice under section 143(2) where return under section 158BC is placed on record at the time when Assessing Officer intends to proceed to make assessment under section 158BC(iv) where return is not filed by the assessee under section 158BC, the Assessing Officer is at liberty to proceed to make assessment by virtue of provisions of section 158BC(b) read with section 158BA itself and the only requirement in such situation would be to grant an opportunity of being heard to the assessee and (v) whether the issue of notice under section 143(2) is possible or practical or not would depend on the facts of each case. 45. Having held that only the procedural requirement of section 143(2) is applicable to the block assessment proceedings, the next question to be considered is whether non-issuance of notice under s....
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....we are of the considered view that non-issuance of notice under section 143(2) cannot render the block assessment as a nullity since foundation of such assessment is validly laid by issue of notice by the Assessing Officer under section 158BC(a) asking the assessee to file the return. It is settled legal position that assessment proceedings are validly initiated either by filing of the return or by issuance of notice for filing of the return in view of Supreme Court Judgment in the case of Ghanshyamdas v. Regional Asstt. Commissioner of Sales Taxes [1964] 51 ITR 557. There is no provision under Chapter XIV-B for filing of voluntary return. The only provision under which such return can be filed is section 158BC. Therefore, assessment proceedings can be said to be validly initiated when the notice under section 158BC is issued. Once assessment proceedings are validly initiated by issuance of notice under section 158BC, then the Assessing Officer would have seisin over the case resulting in vesting of overall jurisdiction of the Assessing Officer. Accordingly non-issuance of notice under section 143(2) would only be a case of deviation from a rule of law resulting in irregularity onl....
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....down that non issuance of notice under section 23(2) of 1922 Act would render the assessment as null and void. What has been held is that notice under section 23(2) is mandatory and the Assessing Officer is bound to issue the same if he believes that the return is incompetent or incorrect. On the contrary it has been observed at page 632 (head note) that issuance of a valid notice under section 23(2) is not the condition precedent of an assessment under section 23(4). It is pertinent to note that this judgment was relied upon by the assessee in the case of Sant Baba Mohan Singh for the preposition that non-issuance of notice under section 23(2) would amount to nullity but the Hon'ble Allahabad High Court did not accept such contention and held that non issuance of notice under section 23(2) was merely an irregularity and not a nullity. 52. The view taken by the Hon'ble Allahabad High Court in the case of Sant Baba Mohan Singh has been followed by the Hon'ble Rajasthan High Court in the case of CIT v. Cyan Parkash Gupta [1987] 165 ITR 501, wherein it has been held as under:-- "An assessment order passed without issuing notice under section 143(2) of the Income-tax Act, 1961, is in....