Karnataka H.C : For making block assessment under section 143(3) read with section 158BC, notice under section 143(2) must be issued within one year from date of filing block return

High Court Of Karnataka

Pai Vinod vs. DCIT

Section 143, 142, 158BC

N. Kumar And Ravi Malimath, JJ.

IT Appeal Nos. 818, 904 & 905 Of 2006 And 314 Of 2007

August 24, 2011

JUDGMENT

N. Kumar, J. – All these four appeals are taken up for consideration together as it pertains to the same assessee and regarding the same dispute. It relates to the block assessment years 1988-89 to 1998-99. After conclusion of the search and seizure, the assessee filed a return on May 4,1999. The Assessing Officer repudiated the said return filed under section 158BC(a) and wanted to hold an enquiry. Therefore he issued a notice under section 143(2) of the Income-tax Act, 1961 (for short herein after referred to as “the Act”) on July 3, 2000. The period stipulated for issue of notice is one year from the date of filing of the return. The said period expired on May 31, 2000. Therefore, admittedly, the notice issued on July 3,2000, was beyond the period of limitation. Therefore, the assessee contended that the assessing authority has no jurisdiction to pass any assessment orders for the block period. However, overruling the said objection and holding those provisions are not applicable to the block assessment proceedings he has passed an order on the merits and levied tax under section 113 of the Act. Aggrieved by the same, the assessee preferred an appeal to the Appellate Commissioner who partly allowed the appeal and granted partial relief to the assessee. Aggrieved by the said order both the assessee as well as the Revenue preferred appeals to the Tribunal. The Tribunal on the merits granted relief to the assessee. Aggrieved by the same, the Revenue has preferred I. T. A. No. 905 of 2006 and I. T. A. No. 904 of 2006 herein as before the Tribunal there were two appeals. The assessee filed miscellaneous application bringing it to the notice of the Tribunal that the notice was issued beyond one year period and, therefore, the entire proceedings is void ab initio. Following the judgment of the Special Bench the Tribunal held that those mandatory provisions are not applicable to block assessment proceedings. The said application was rejected. In the said application two grounds were urged one is regarding limitation. The second ground is that the satisfaction required under law did not exist. On the ground of limitation the contention of the assessee was rejected. Insofaras the ground of non-satisfaction is concerned the matter was remanded to the assessing authority. Against that portion of the order remanding the matter to the assessing authority the Revenue has preferred an I. T. A. No. 314 of 2007 herein. Challenging the order passed by the Tribunal on the ground that it was not barred by time, the assessee has preferred I. T. A. No. 818 of 2006 herein. That is how all these four appeals arising out of the very same proceedings are before us and they are taken up for consideration together.

2. The question of limitation is a jurisdictional limitation. If the proceedings are initiated beyond the period of limitation, initiation of proceedings would be without jurisdiction. Then the order of assessment passed by the assessing authority also would be a nullity and non est in the eye of law. In this regard, the assessee relies on the judgment of the apex court in the case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) where an identical issue regarding limitation, mandatory nature of the provision under section 143(2) being applicable to block assessment proceedings arose for consideration. Wherein the apex court held that;

“The only question that arises for our consideration in this batch of appeals is, whether 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 XIV-B of the Income-tax Act, 1961 ?”

3. In the facts and circumstances of the case, the issuance of notice under section 143(2) of the Income-tax Act, 1961, within the prescribed time limited for the purpose of making assessment under section 143(3) of the Income-tax Act, 1961, is mandatory.

4. The said question was answered by the apex court in the following manner (page 369) :

“We may now revert back to section 158BC(b) which is the material provision which requires our consideration. Section 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 section 158BB and the provisions of section 142, sub-sections (2) and (3) of section143, section 144 and section 145 shall, so far as may be, apply.’ Ananalysis 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)/142and 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 section143(2). However, if an assessment is to be completed under section143(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. However, it is contended by Sri Shekhar, learned counsel for the Department that in view of the expression ‘so far as may be’ in section 158BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this court in Dr. Partap Singh’s case [1985] 155 ITR 166 (SC). In this case, the court has observed that section 37(2) provides that ‘the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under section 37(2). 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 expression “so far as may be” has always been construed to mean that those provisions may be generally followed to the extent possible’. The learned counsel for the respondent has brought to our notice the observations made by this court in the case of Maganlal v. Jaiswal Industries [1989] 4 SCC 344 wherein this court while dealing with the scope and import of the expression “as far as practicable” has stated’ without anything more the expression “as far as possible” will mean that the manner provided in the Code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied’.

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 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.

Section 158BH provides for application of the 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, applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes section 142 and sub-sections (2) and (3) of section143.”

5. Therefore, it is a clear omission on the part of the assessing authority to issue notice under section 143(2) is not a procedural irregularity. The same is not curable. Therefore, the requirement of notice under section 143(2) of the Act cannot be dispensed with. When the same is issued in respect of the block return filed, the Assessing Officer must necessarily issue notice under section 143(1) of the Act within the time prescribed in the proviso to section 143(2) of the Act. Even for the purpose of Chapter XIV-B of the Act, for determination of the undisclosed income for the block assessment under the provisions of section 158BC, the provisions of section 142 and sub-sections (1) and (3) of section 143 are applicable. No assessments could be made without issuance of notice under section 143(2) of the Act where the Assessing Officer in repudiation of the return filed under section158BC, proceeds to make an enquiry he has to necessarily follow the provisions of section 142, sub-sections (2) and (3) of section 143. If there is violation of the mandatory provision then the assessment order passed is illegal and liable to be set aside. In the light of the law declared by the apex court the appeal filed by the assessee in I. T. A. No. 818 of 2006 has to succeed and consequently the appeals preferred by the Revenue are liable to be dismissed. The substantial questions of law insofaras limitation is concerned is answered in favour of the assessee and against the Revenue.

The other substantial questions of law do not arise for consideration and, therefore, they are not answered. Hence, we pass the following order :

6. I. T. A. No. 818 of 2006 is allowed. The order passed by the Appellate Tribunal and the assessing authority are hereby set aside. I. T. A. Nos. 905of 2006, 904 of 2006 and 314 of 2007 are dismissed.

[Citation : 353 ITR 622]

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