Assistant Commissioner Of Income Tax And Anr v. M/S. Hotel Blue Moon

[201 OJ 2 S.C.R. 282 ASSISTANT COMMISSIONER OF INCOME TAX AND ANR. M/S. HOTEL BLUE MOON (Civil Appeal No. 1198 of 2010 ) FEBRUARY 2, 2010 [S.H. KAPADIA AND H.L. DATTU, JJ.] Income Tax Act, 1961: s.143(2) - Issuance of notice on C assessee under s. 143(2) for block assessment proceedings - Requirement of - Held: Is mandatory. The question which arose for consideration in these appeals was whether service of notice on the assessee 0 [under Section 143(2) ][of ][the Income ][Tax ][Act, ][1961 ][within ]the prescribed period of time for framing the block assessment under Chapter XIV-B is mandatory for assessing the undisclosed income detected during search conducted under Section 132 of the Act. E Dismissing the appeals, the Court HELD: 1.1. Chapter XIV-B of the Income Tax Act, 19'61 provides for an assessment of the undisclosed income unearthed as a result of search without affecting F the regular assessment made or to be made. Search is the sine qua non for the Block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling G in the block period. The special procedure of Chapter XIV-B is not intended to be substitute for regular assessment. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence 282 ASSISTANT COMMISSIONER OF INCOME TAX AND 283 ANR. v. MIS. HOTEL BLUE MOON found as a result of search or requisition of books of A accounts or documents and such other materials or information as are available with the assessing officer. Therefore, the income assessable in Block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under B Section 132 or requisition under Section 132A of the Act. [Para 12] (292-B-E] 1.2. Section 158 BC stipulates that the Chapter XIV- B would have application where search has been effected under Section 132 or on requisition of books of C accounts, other documents or assets under Section 132A. By making the notice issued under this Section mandatory, it makes such notice the very foundation for jurisdiction. Such notice under the Section is required to be served on the person who is found to be having D undisclosed income. The Section itself prescribes the time limit of 15 d·ays for compliance. In respect of searches on or after 1.1.1997, the time limit may be given up to 45 days instead of 15 days for compliance. Such notice is prescribed under Rule 12(1A). Section 158 BC(b) E is a procedural provision for making a regular assessment applicable to Block assessment as well. ·Section 158 BC(b) provides for enquiry and assessment. The said provision reads "that the assessing officer shall proceed to determine the undisclosed income of the F Block period in the manner laid down in Section 158 BB and the provisions of Section 142, sub-section (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply." An analysis of· this sub section indicates that, after the return is filed, this clause enables G the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/142 and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(i)(a). H 284 SUPREME COURT REPORTS [2010] 2 S.C.R. आर282 282 [ 201 284 286 A The assessing officer has to complete the assessment under Section 143(3) only. In case of default in not filing the return or not complying with the notice under Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex-parte under Section 144. B Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the provisions of Section 143(1) are excluded. But Section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to c the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under Section 143(2). However, if an assessment is to be completed under Section 143(3) read with Section 158-BC, notice under Section 143(2) should be issued within 0 [one year from the date ][of ][filing ][of ][block ][return. Omission ]on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be E dispensed with. The other important feature is that the Section 158 BC(b) specifically refers to some of the · provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This Section even speaks F of sub-sections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate if the G 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 Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. H Where the legislature intended to exclude certain ASSISTANT COMMISSIONER OF INCOME TAX AND 285 ANR. v. MIS. HOTEL BLUE MOON provisions from the ambit of Section 158 BC(b) it has A done so specifically. Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be exclude. The CBDT in its circular No.717 dated 14th August, 1995, has a binding effect on the department, but not on the Court clarified the s requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, even for the purpose of Chapter XIV-8 of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions c 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. Where the assessing officer in repudiation of the return filed under Section 158 BC(a) proceeds to make an enquiry, he has 0 necessarily to follow the provisions of Section 142, sub-sections (2) and (3) ·of Section 143. [Paras 12 to 16] [292· F-H; 293-A-H; 294-A-H; 295-A·F] Dr. Pratap Singh v. Director of Enforcement 1985 155 ITR 166 (SC); Magan/al v. Jaiswa/ Industries, Neemach and Ors, (1989) 4 sec 344, referred to. Circular No. 717 dated 14th August, 1995, ( 1995) 215 ITR 70, referred to. 1.3. Section 158 BH provides for application of the F 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, G applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-8 of the Act, which includes Section 142 and sub-sections (2) and (3) of Section 143. [Paras 17] [292-G-H; 296-A] H 286 286 1985 155 15 2004 . Section: ISSUES 286 SUPREME COURT REPORTS Case Law Reference: 1985 155 ITR 166 (SC) referred to Paras 5, 15 (1989) 4 sec 344 referred to Para 15 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1198 of 2010. From the Judgment & Order dated 9.2.2007 of the High Court of Guwahait at Guwahati in Income Tax Appeal No. 41 of c 2004. WITH C.A. Nos. 1199, 1200, 1201, 1202, 1203 of 2010. V. Shekhar, Arijit Prasad, Kunal Bahri, B.V. Balaram Das, Hrishikesh Baruah, Balvir Singh Dosanjh, Jagjit Singh Chhabra, Dr. Rakesh Gupta, Amboj Kumar Sinha and Aarti Sain for the appearing parties. E The Judgment of the Court was delivered by H.L. DATTU,J. 1. Leave granted in all the special leave petitions. 2. These six appeals have been heard together. They arise F out of similar facts and the question of law arising therefrom is the same. 3. The facts in the lead case are : This is an appeal against the judgment of the High Court of Guwahati in a appeal under Section 260A of the Income Tax Act, 1961, hereinafter referred G to as 'the Act', and the point that is raised for our determination is, whether issue of notice under Section 143(2) of the Act within the prescribed time for the purpose of block asses_!?ment under Chapter XIV-B of the Act is mandatory for assessing undisclosed income detected during search conducted under ASSISTANT COMMISSIONER OF INCOME TAX AND 287 ANR. v. MIS. HOTEL BLUE MOON [H.L. DATTU, J.] Section 132 of the Act. While, according to the department, A issue of a notice under Section 143(2) is not essential requirement in block assessment under Chapter XIV-B of the Act. According to the assessee, service of notice on the assessee under Section 143(2) of the Act within the prescribed period of time is a pre-requisite for framing the block B assessment under Chapter XIV-B of the Act. The Appellate Tribunal held, while affirming the decision of the CIT(A) that non-issue of notice under Section 143(2) is only a procedural irregularity and the same is curable. In the appeal filed by the assessee before the Guwahati High Court, the following two c questions of law were raised for consideration and decision of the High Court, they were : - "( 1) Whether on the facts and in circumstances of the case the issuance of notice u/s 143(3) of the Income Tax Act, 1961 with!n the prescribed time limit for the purpose of D making the assessment under Section 143(3) of the Income Tax Act, 1961 is mandatory? And (2) Whether, on the facts and in the circumstances of the case and in view of the undisputed findings arrived at by the Commissioner of Income Tax (Appeals), the additions made u/s 68 of the Income Tax Act, 1961 should be deleted or set aside." 4. The High C~urt, disagreeing with the Tribunal, held, that the provisions of Section 142 and sub-sections (2) and (3) of Section 143 will have mandatory application in a case where the assessing officer in repudiation of return filed in response to a n9tice issued under Section 158 BC(a) proceeds to make an inquiry. Accordingly, the High Court answered the question of law framed in affirmative and in favour of the appellant and against the revenue. The revenue thereafter applied to this Court, for special leave under Article 136, and the same was granted, and hence this appeal. 5. The learned counsel Sri Shekhar for the revenue 288 SUPREME COURT REPORTS [2010] 2 S.C.R. 1199,1200,1201,1202,1203.