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Virendra Dev Dixit v. Asstt. Commissioner Of Income Tax
Synopsis of the Opinion (Delivered by Hon'ble Rajes Kumar, J.) — Dated: 19.4.2010
Factual and Procedural Background
A search and seizure operation was conducted on 28.4.1998 at the residential premises of the appellants. In consequence, orders under Section 158-BC were passed against both appellants for the block period 1.4.1988 to 28.4.1998. The appellants filed block period returns on 16.11.1999.
The appellants challenged the Section 158-BC orders before the Commissioner of Income Tax (Appeals), and both appeals were allowed in part. Both the appellants and the Revenue then filed appeals to the Tribunal.
Before the Tribunal, the appellants contended that issuance and service of a notice under Section 143(2) within the prescribed time is mandatory for making a block assessment under Section 158-BC; no such notice had been issued within the specified time. The senior departmental representative before the Tribunal admitted that no notice under Section 143(2) had been issued.
The Tribunal held that Section 143(2) is applicable to block assessments but concluded that the proviso to Section 143(2) (which prescribes a time limit for service of the notice) did not apply to block assessments; accordingly it remanded the matter to the Assessing Officer (A.O.) to cure the defect of non-service of notice by issuing notice(s) under Section 143(2).
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the proviso to Section 143(2) would not be applicable to block assessment procedure and that the matter should travel back to the A.O. for curing the defect of non-service of notice under Section 143(2), and whether the assessment therefore deserves to be quashed.
- Whether such restoration (remand to the A.O. to cure non-service) is valid in terms of Section 292B of the Act, which, according to the phrasing of the question, cures only defects or omissions in the notice issued or purported to have been issued but does not cure non-service of notice (i.e., whether the defect/omission and non-service can be treated together).
Arguments of the Parties
Appellants' Arguments
- Issuance and service of notice under Section 143(2) is mandatory for framing a block assessment under Section 158-BC and must be done within the specified period.
- No notice under Section 143(2) was issued within the prescribed time, so the block assessment orders are illegal, without jurisdiction, and liable to be quashed.
- Relied upon decisions: Smt. Bandana Gogoi v. Commissioner of Income-Tax (2007) 289 ITR 28 (Gauhati), Commissioner of Income Tax v. Pawan Gupta (2009) 318 ITR 322 (Delhi), and Assistant Commissioner of Income-Tax v. Hotel Blue Moon (2010) 321 ITR 362 (SC).
Revenue's / Respondent's Arguments (Standing Counsel Sri Shambhu Chopra)
- Non-issuance of notice under Section 143(2) is merely an irregularity and is curable.
- The purpose of issuing the notice is to provide opportunity of hearing, which has already been afforded in the present case.
- The Tribunal was correct in remanding the matter to the assessing authority to cure the defect by issuing the notice under Section 143(2).
- The proviso to Section 143(2) (time limitation) is not applicable to assessments under Section 158-BC.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Smt. Bandana Gogoi v. Commissioner of Income‑Tax and another, (2007) 289 ITR 28 (Gauhati) | Held that provisions of section 142 and sub-sections (2) and (3) of section 143 apply mandatorily where the A.O. repudiates the return filed in response to notice under section 158BC(a); defects cannot be cured in view of limitation in section 143(2); assessment order suffered procedural and jurisdictional error and was liable to be set aside. | The court recorded that the Gauhati High Court held sections 142 and 143(2)/(3) mandatory for inquiry where return is repudiated and that defects could not be cured; the present court relied on this reasoning as supporting the mandatory nature of Section 143(2) for block assessments. |
| Commissioner of Income Tax v. Pawan Gupta, (2009) 318 ITR 322 (Delhi) | Held that issuance of a notice under section 143(2) is a prerequisite for framing block assessment order under Chapter XIV-B, and an assessment passed without complying with section 143(2) is invalid and not merely irregular. | The court noted that the Division Bench of the Delhi High Court reached the same view and treated issuance of section 143(2) notice as required; the present court relied on this authority in concluding that non-issuance is not curable. |
| Assistant Commissioner of Income‑Tax and another v. Hotel Blue Moon, (2010) 321 ITR 362 (SC) | Supreme Court held that for block assessments under Section 158BC, provisions of section 142 and sub-sections (2) and (3) of section 143 apply; service of notice under section 143(2) within the prescribed period is a prerequisite and omission to issue such notice is not a curable procedural irregularity; proviso to 143(2) applies. | The court treated the Hotel Blue Moon decision as controlling: it concluded that the service of notice under Section 143(2) within the limitation period is mandatory for block assessments, that non-issuance is not curable, and that the Tribunal's view (that the proviso did not apply) was erroneous. The present appeals were decided in accordance with this precedent. |
Court's Reasoning and Analysis
The court considered the rival submissions and examined the statutory scheme and applicable decisions. It identified the central statutory provision for block assessments — Section 158BC (and related references to Section 158BB, Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145) — which, by its language, incorporates other provisions of the Act "so far as may be" applicable to the determination of undisclosed income for a block period.
The court observed (following the Supreme Court in Hotel Blue Moon) that:
- Section 158BC(b) refers to the procedure to be followed (including issue of notice under Section 143(2)/142 and completion under Section 143(3)) when the A.O. repudiates the return filed under Section 158BC(a).
- Where the A.O. repudiates the return and proceeds to make an inquiry, notice under Section 143(2) must be issued within the time prescribed by the proviso to Section 143(2); omission to issue such a notice cannot be regarded as a curable irregularity.
- Section 158BC's reference to specific sub-sections indicates legislative intent to incorporate those procedural provisions; had the legislature intended to exclude them, it would have done so expressly.
- The Court noted the Central Board of Direct Taxes' Circular No. 717 dated 14.8.1995 as a departmental clarification but emphasized that the legal requirement is to be discerned from the statute and judicial interpretation (and that the circular is binding on the Department but not the Court).
Applying the above principles, the court found that in the present case no notice under Section 143(2) had been issued and the period of limitation for issuing such notice had expired. Therefore the notice could not now be issued, and the Tribunal's remand to allow issuance of a fresh notice was unjustified.
The court specifically held that the Tribunal's conclusion that the proviso to Section 143(2) (which prescribes a time limit) does not apply to block assessment under Section 158-BC was erroneous, given the Supreme Court's reasoning in Hotel Blue Moon and the consistent views of the Gauhati and Delhi High Courts.
Holding and Implications
Holding: The appeals are allowed. The court set aside the order of the Tribunal and the order of the authority below.
Core Ruling: The service of notice under Section 143(2) within the prescribed period is a mandatory prerequisite for framing a block assessment under Section 158-BC; non-issuance of such notice is not a merely curable irregularity and cannot be remedied by remanding the matter to the A.O. to issue a notice after the limitation period has expired.
Implications: As applied in this case, because no notice under Section 143(2) was issued within the prescribed time and the limitation period has expired, the remand to cure the defect was unjustified and the assessment orders framed without complying with Section 143(2) were invalid. The direct effect is that both appeals are allowed and the Tribunal's and lower authority's orders are set aside.
The opinion proceeds by applying and following existing higher-court authorities (including the Supreme Court's decision in Hotel Blue Moon); the decision in this opinion enforces those precedents in the facts before the court. The opinion does not purport to create a novel principle beyond the authorities it applies.
(Delivered by Hon'ble Rajes Kumar, J.)
These are two appeals under Section 260-A of the Income Tax Act relating to the block period
1.4.1988 to 28.4.1998 arising from the order of the Tribunal dated 6.2.2009 raising the following substantial questions of law in both the appeals :
“Income Tax Appeal No. 120 of 2009
I)Whether on the facts and in the circumstances of the case, the decision of the learned Tribunal is not erroneous in holding that the application of provision to section 143(2) would not be applicable to block assessment procedure and the matter would necessarily travel back to the file of A.O for the purpose of curing the defect of non service of notice under section 143
(2) whereas the assessment deserves to be quashed ?
II)Whether such restoration is valid in terms of S. 292B of the Act which cures only the defect or omission in the notice issued or purported to have been issued which in substance and effect is in conformity with or according to the itent and purpose of this Act; but does not cure the non service of notice in view of the fact that the (i) defect or omission in the notice and (ii) non service of notice which refers to the act of omission but not to any defect, are entirely two different factors and cannot be combined as defect of non service of notice ?”
“Income Tax Appeal No. 126 of 2009
I)Whether on the facts and in the circumstances of the case, the decision of the learned
Tribunal is not erroneous in holding that the application of provision to section 143(2) would not be applicable to block assessment procedure and the matter would necessarily travel back to the file of A.O for the purpose of curing the defect of non service of notice under section 143
(2) whereas the assessment deserves to be quashed ?
II)Whether such restoration is valid in terms of S. 292B of the Act which cures only the defect or omission in the notice issued or purported to have been issued which in substance and effect is in conformity with or according to the intent and purpose of this Act; but does not cure the non service of notice in view of the fact that the (I) defect or omission in the notice and (ii) non service of notice which refers to the act of omission but not to any defect, are entirely two different factors and cannot be combined as defect of non service of notice ?”
It appears that a search and seizure operation was conducted by the Income Tax officials on
28.4.1998 at the residential premises of the appellants and in pursuance thereof orders under Section 158-BC were passed against both the appellants for the block period 1.4.1988 to
28.4.1998 It appears that both the appellants have filed the return for the block period on
16.11.1999
Challenging the order under Section 158-BC the appellants filed appeals before the Commissioner of Income Tax (Appeals). Both the appeals have been allowed in part.
Being aggrieved by the order of the Commissioner of Income Tax (Appeals), the appellants as well as the revenue filed appeals before the Tribunal. Before the Tribunal the appellants have submitted that for making assessment under Section 158-BC it is mandatory to issue and to serve notice under Section 143(2) within the specified time. It was submitted that no notice was issued under Section 143(2) within the specified time and, therefore, the entire block assessment orders against both the appellants were illegal and without jurisdiction and liable to be quashed.
It appears that the senior departmental representative, before the Tribunal, has admitted that no notice under Section 143(2) has been issued to the appellants. The Tribunal, in the impugned order, has held that the provision of Section 143(2), i.e the issue of verification notice for the block assessment under Chapter XV-B, is applicable. The Tribunal, however, held that the application of the proviso to Section 143(2), providing for a time limit for the service of notice issued thereunder and, thus, also, to its issue, would not be applicable to the block assessment procedure. The Tribunal, accordingly, remanded back the matter to the assessing officer to cure the defect. The Tribunal observed as follows :
“6. This, then, concludes all the issues arising for adjudication of the assessee's additional ground. The matter, thus, would necessarily travel back to the file of the A.O For the purpose of curing the defect of non-service of the notice(s) u/s. 143(2), so that the assessment stands framed in compliance with the mandate of the procedure as statutorily defined. Before parting, however, it may be clarified that the restoration back to the file of the A.O Is only for the reason of the categorical admission by the Sr. D.R Made with reference to the assessment record(s), of their being no issue of notice(s) u/s. 143(2) in the present case, as, if as it appears from the assessee's ground, if the same stand already served, albeit beyond the time limit as prescribed vide the proviso to the provision, there would be no purpose for remission thus, with we having confirmed the non-applicability of the said proviso to the block period assessment, as in the instant case(s), and restoring back the assessment back to the file of the A.O Only for that purpose. We decide accordingly.”
Learned counsel for the appellant submitted that issue of notice under Section 143(2) for the purposes of making the block assessment under Section 158-BC is mandatory. The said notice has to be issued within the specified period and if not issued such defect is not curable and the block assessment order stand vitiated and liable to be quashed. He submitted that the service of notice on the assessee under Section 143(2) within the prescribed period of time is a pre-requisite for framing the block assessment under Chapter XV-B of the Act and, therefore, the Tribunal has erred in remanding back the case to the assessing officer to cure the defect instead of quashing the assessment order for want of non-issuance and non-service of the notices under Section 143(2) within the prescribed period. The reliance is placed on the decision of the Gauhati High Court in the case of Smt. Bandana Gogoi v. Commissioner of Income-Tax and another reported in (2007) 289 ITR 28 (Gauhati), the decision of the Delhi High Court in the case of Commissioner Of Income Tax v. Pawan Gupta reported in (2009) 318 ITR 322 (Delhi) and the recent decision of the apex Court in the case of Assistant Commissioner of Income-Tax and another v. Hotel Blue Moon reported in (2010) 321 ITR 362 (SC).
Sri Shambhu Chopra, Standing Counsel, states that non-issuance of notice under Section 143
(2) is merely an irregularity and is curable. He further submitted that the purpose for the issue of notice is to provide proper opportunity of hearing which has been duly afforded and, therefore, the Tribunal has rightly remanded back the matter to the assessing authority to cure the defect by issuing the notice under Section 143(2). He further submitted that the Tribunal has rightly held that the proviso to Section 143(2), which provides time limit, is not applicable to the assessment under Section 158-BC.
Section 143(2) of the Income Tax Act, 1961 reads as follows :
“Where a return has been furnished under section 139, or in response to a notice under subsection (1) of section 142, the Assessing Officer shall, -
(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim:
Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003;
(ii)notwithstanding anything contained in clause (I), if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return:
Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.”
We have considered the rival submissions of learned counsel for the parties and the materials on record. We are of the opinion that the issue involved is no more res integra and is covered by the decision of the apex Court in the case of Assistant Commissioner of Income-Tax and another v. Hotel Blue Moon (supra). On the consideration of the scheme of the Act and the relevant provision, the Gauhati High Court in the case of Smt. Bandana Gogoi (supra) has held as follows :
“For this reason, we hold that the provisions of section 142 and sub-sections (2) and (3) of section 143 willl have mandatory application in a case where the Assessing Officer in repudiation of the return filed in response to a notice issued under section 158BC(a) proceeds to make an inquiry. The defects crept in cannot be cured at this stage in view of the limitation provided in section 143(2). The assessment order in the instant case thus suffers from both procedural and jurisdictional error. The option left with the Assessing Officer is to compute the income and levy taxes on the basis of the return filed by the assessee.
The question formulated is answered against the Revenue and in favour of the assessee.
Consequent thereupon, the orders passed by the authorities below are set aside. The appeal, accordingly, stands allowed.”
Similar view has been taken by the Division Bench of the Delhi High Court in the case of Commissioner Of Income Tax v. Pawan Gupta (supra). It has been held as follows :
“Thus, we are of the clear view that where the Assessing Officer is not inclined to accept the return of undisclosed assessment filed by the assessee issuance of a notice under section 143
(2) is a prerequisite for framing the block assessment order under Chapter XIV-B of the Income-tax Act, 1961. We are also of the view that if an assessment order is passed in such a situation without complying with section 143(2), it would be invalid and not be merely irregular.”
The aforesaid decisions of the Gauhati High Court and the Delhi High Court have been affirmed by the apex Court in the case of Assistant Commissioner of Income-Tax and another v. Hotel Blue Moon (supra). The question for consideration before the apex Court was whether the service of the notice on the assessee under Section 143(2), within the prescribed period of time, is a prerequisite for framing the block assessment under Chapter XV of the Income Tax Act. The apex Court has held as follows :
“We may now revert back to section 158BC(b) which is the material provision which requires our consideration. Section 158BC(b) proviees 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 section 158BB and the provisions of section 142, subsections (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 the Assessing Officer to complete the assessment by following the procedure like issue of notice under section 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(1)(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 section 143(2)/142, the Assessing Officer is authorized to complete the assessment ex parte under section 144. Clause (b) of section 158BC 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 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 158BC notice under section 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 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 dispensed with. The other important feature that requires to be noticed is that section 158BC(b) specifically refers to some of the provisions of the Act which require 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 of sub-sections which are to be followed by the Assessing Officer. Had the intention of the Legislature been 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, in our opinion, if the Assessing Officer, if for any reason, repudiates the return filed by the assessee in response to notice under section 158BC(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. Where the Legislature intended to exclude certain provisions from the ambit of section 158BC(b) it has done so specifically. Thus, when section 158BC(b) specifically refers to applicability of the proviso thereto it cannot be excluded. We may also notice here itself that the clarification given by the Central Board of Direct Taxes in its Circular No. 717 dated August 14, 1995, has a binding effect on the Department, but not on the court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of section 143 of the Act. Accordingly, we conclude that even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions 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.”
“The case of the Revenue is that the expression “so far as may be apply” indicates that it is not expected to follow the provisions of section 142, sub-sections (2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the Revenue, since we do not see any reason to restrict the scope for the Revenue, since we do not see any reason to restrict the scope and meaning of the expression “so far as may be apply”. In our view, where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143.”
“On a consideration of the provisions of Chapter XIV-B of the Act, we are in agreement with the reasoning and the conclusion reached by the High Court.” (emphasis provided).
From the aforesaid decision it emerges that the service of notice on the assessee under Section 143(2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XV of the Act. It is mandatory. Non-issuance of notice is not a mere procedural irregularity and the same is not curable. For the purpose of Chapter XV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158-BC the provision 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 within the time specified. Where the assessing officer in repudiation of the return filed under Section 158-BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142 and sub-sections (2) and (3) of section 143.
Admittedly, in the present case, the notice under Section 143(2) has not been issued. The period of limitation has already expired and, therefore, such notice cannot be issued.
Thus, we are of the view that the remand of the case to the assessing officer to cure the defect by issuing a fresh notice is wholly unjustified. We are also of the view that the view of the Tribunal that the proviso of Section 143(2), which provides limitation for serving of the notice, does not apply to the block assessment under Section 158-BC under Chapter XV-B, is erroneous.
In the result, both the appeals are allowed. The order of the Tribunal as well as the order of the authority below are set aside.
Dated : 19.4.2010
PG.
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