Search and seizure — Block assessment — If the assessment is to be completed u/s.143(3) r.w. S. 158BC, notice u/s.143(2) should be issued within prescribed time.

[Asst. CIT v. Hotel Blue Moon, (2010) 321 ITR 362 (SC)]

The point that came up for our determination before the Supreme Court was, whether issue of notice u/s.143(2) of the Act within the prescribed time for the purpose of block assessment under Chapter XIV-B of the Act is mandatory for assessing undisclosed income detected during search conducted u/s.132 of the Act. While according to the Department, issue of a notice u/s.143(2) is not an essential requirement in block assessment under Chapter XIV-B of the Act. According to the assessee, service of notice on the assessee u/s.143(2) of the Act within the prescribed period of time is a pre-requisite for framing the block assessment under Chapter XIV-B of the Act. The Appellate Tribunal held, while affirming the decision of the Commissioner of Income-tax (Appeals), that non-issue of notice u/s.143(3) is only a procedural irregularity and the same is curable.

In the appeal filed by the assessee, the High Court, disagreeing with the Tribunal, held that the provisions of S. 142 and Ss.(2) and Ss.(3) of S. 143 will have mandatory application in a case where the Assessing Officer in repudiation of the return filed in response to a notice issued u/s.158BC(a) proceeds to make an inquiry. Accordingly, the High Court answered the question of law framed in the affirmative and in favour of the appellant and against the Revenue.

The Revenue thereafter applied to the Supreme Court for special leave under Article 136, and the same was granted.

The Supreme Court held that S. 158BC(b) provides for enquiry and assessment. The said provision reads “that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in S. 158BB and the provisions of S. 142, Ss.(2) and Ss.(3) of S. 143, and S. 144 and S. 145 shall, so far as may be, apply.” An analysis of this sub-section indicates that, after the return is filed, this clause enables the Assessing Officer to complete the assessment by following the procedure like issue of notice u/s.143(2)/142 and complete the assessment u/s.143(3). This Section does not provide for accepting the return as provided u/s.143(1)(a). The Assessing Officer has to complete the assessment u/s.143(3) only. In case of default in not filing the return or not complying with the notice u/s.143(2)/142, the Assessing Officer is authorised to complete the assessment ex parte u/s.144. Clause (b) of S. 158BC by referring to S. 143(2) and (3) would appear to imply that the provisions of S. 143(1) are excluded. But S. 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return confirms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice u/s.143(2). However, if an assessment is to be completed u/s.143(3) read with S. 158BC, notice u/s.143(2) should be issued within one year from the date of filing of block return. Omission on the part of the Assessing Authority to issue notice u/s.143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice u/s.143(2) cannot be dispensed with.