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.