Supreme Court Of India
ACIT & Anr. vs. Hotel Blue Moon
Section 143(2), 158BC, 158BH
S.H. Kapadia & H.L. Dattu, JJ.
Civil Appeal No. 1198 of 2010
2nd February, 2010
Counsel Appeared :
V. Shekhar with Arijit Prasad, Kunal Bahri, B.V. Balaram Das, Hrishikesh Baruah, Balvir Singh Dosanjh, Jagjit
Singh Chhabra, Dr. Rakesh Gupta, Amboj Kumar Sinha & Ms. Aarti Sain, for the Appearing Parties
H.L. Dattu, J. :
Leave granted in all the special leave petitions. These six appeals have been heard together. They arise out of similar facts and the question of law arising therefrom is the same. The facts in the lead case are : This is an appeal against the judgment of the High Court of Guwahati in an appeal under s. 260A of the IT Act, 1961, hereinafter referred to as âthe Actâ, and the point that is raised for our determination is, whether issue of notice under 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 under s. 132 of the Act. While, according to the Department, issue of a notice under s. 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 s. 143(2) of the Act within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the Act. The Tribunal held, while affirming the decision of the CIT(A) that non-issue of notice under s. 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 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 under s. 143(3) [sicâ143(2)] of the IT Act, 1961 within the prescribed time-limit for the purpose of making the assessment under s. 143(3) of the IT 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 CIT(A), the additions made under s. 68 of the IT Act, 1961 should be deleted or set aside ?”
The High Court, disagreeing with the Tribunal, held, that the provisions of s. 142 and sub-ss. (2) and (3) of s. 143 will have mandatory application in a case where the AO in repudiation of return filed in response to a notice issued under s. 158BC(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 Art. 136, and the same was granted, and hence this appeal. The learned counsel Sri Shekhar for the Revenue submitted, that, Chapter XIV-B of the Act provides a special procedure for search cases and is a complete code in itself dealing with both the substantive as well as procedural aspects of search cases and, therefore, there is a distinction between the procedure for regular assessment under Chapter XIV and the procedure of block assessment under Chapter XIV-B. Therefore, it is submitted for the purpose of block assessments the assessing authority need not follow the procedure prescribed under Chapter XIV which includes issuance of notice under s. 143(2). The learned counsel has further contended that in a proceeding under s. 158BC, there is no requirement of a notice to be issued under s. 143(2), since issuance of notice for the purpose of s. 158BC is separately prescribed. It is further submitted that block assessment is in addition to regular assessment, and what is included in regular assessment, cannot be assessed again in the course of a block assessment and similarly, what is assessed in block assessment, cannot be the subject-matter of regular assessment. It is further submitted that s. 143(2) of the Act is in two parts. The first part deals with jurisdiction and the second with the procedure. The proviso to s. 143(2) puts an embargo on the AO to exercise jurisdiction after the expiry of 12 months from the end of the month in which the return was filed by the assessee. It is the discretion of the AO to accept the return as it is or to proceed further with the assessment of income, once the AO decides to proceed, he has to issue notice under s. 143(2) within the prescribed time-limit to make the assessee aware that his return has been selected for scrutiny assessment. In distinction to this procedure, under the special procedure prescribed in Chapter XIV-B, there is no discretion left with the AO.
It is further contended that the source and origin of a block assessment is the search which has been conducted under s. 132 of the Act. Once the search has been carried out, the AO is left with no discretion but to proceed with the block assessment. It is also submitted that in search cases the material is already found and is in the knowledge of the AO. This is distinct and different from the situation of an ordinary assessment, where, the AO does not have any material other than the return filed by the assessee. Therefore, the requirement of notice under s. 143(2) is essential for production of material by the assessee. This is so because in regular assessments the AO in the first instance has no material available to him except the return filed by the assessee. It is further submitted that the computation of undisclosed income of the block period has to be done in accordance with the provisions of s.
158BB and on the basis of evidence found as a result of search or requisition of books of account, or other documents and such other materials or information as are available with the AO and relatable to such evidence and, therefore, issuance of notice under s. 143(2) is not required for block assessment proceedings. It is further submitted that the provisions of s. 143(2) and other provisions mentioned in s. 158BC(b) are to be applied only to the extent possible, since the provisions incorporated in the Chapter XIV-B constitute a special Code to assess the undisclosed income in search cases, they would override the provisions of Chapter XIV being the procedure for normal assessments. In support of this contention, reference is made to the decision of this Court in the case of Dr. Partap Singh & Anr. vs. Director of Enforcement & Ors. (1985) 46 CTR (SC) 319 : (1985) 155 ITR 166 (SC). Lastly, it is submitted, that, since both the schemes under Chapter XIV for a regular assessment and under Chapter XIV-B for block assessments are different that while no assessment under s. 143(3) could be completed without the issuance of notice under s. 143(2), the same restriction would not be applicable in the case of block assessment.
6. Per contra, the contention on behalf of the assessee(s) is that, for the purpose of block assessment under s.
158BC, the provisions of s. 142 and sub-ss. (2) and (3) of s. 143 are applicable and, therefore, no block assessments could be made without issuing notice under s. 143 (2) of the Act. It is further contended that notice under s. 143(2) could have been dispensed with by the AO if he proceeds to determine the income on the basis of the return without going for scrutiny. Referring to the provisions in cl. (v) of the second proviso to s. 158BC, it is submitted by the learned counsel that the words “so far as may be” does not give any discretion to the AO to dispense with the requirement of such a notice under s. 143(2), when he proceeds to make an enquiry within the scope and ambit of s. 143(2). It is further contended that after a notice under s. 158BC is issued, the assessee is required to file a return within a stipulated period. Once the return is filed, it is open to the AO to accept the same or to require further investigation. If he accepts the return of undisclosed income as it is, then, there would be no necessity of issuing any notice under s. 143(2) of the Act. However, if the AO is not satisfied with the return so filed, then he is required to issue further notice under s. 143(2) before an assessment order is passed under Chapter XIV-B of the Act.
7. The only question that arises for our consideration in this batch of appeals is, whether service of notice on the assessee under s. 143(2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the IT Act, 1961 ?
8. Chapter XIV-B prescribes the special procedure for making the assessment of search cases.
9. Sec. 158B defines “undisclosed income”, and “block period” which are the two basic factors for framing the block assessments.
10. Sec. 158BA is an enabling section, empowering the AO, to assess “undisclosed income” as a result of search initiated or requisition made after 30th June, 1995, in accordance with the provisions of this chapter and tax the same at the fixed rate specified in s. 113. Sec. 158BB provides the methodology for computation of undisclosed income of the block period. Sec. 158BC prescribes the procedure for making the block assessment of the searched person. Sec. 158BD enables assessment of any person, other than the searched person. Sec. 158BE sets the timelimits for completion of the block assessments. Sec. 158BF provides for immunity from levy of interest under ss.234A, 234B and 234C and penalties under ss. 271(1)(c), 271A and 271B. Sec. 158BFA provides for levy of interest and penalty in cases of search on or after 1st Jan., 1997. Sec. 158BG specifies the authorities competent to make the block assessment. Sec. 158BH provides for application of all the other provisions of this Act, except those as provided in Chapter XIV-B. Sec. 158BI provides for abolition of the scheme in cases of search after 31st May, 2003.
11. The scheme of block assessment has been explained by CBDT in para 39.3 of Circular No. 717, dt. 14th Aug., 1995 [(1995) 127 CTR (St) 21 : (1995) 215 ITR 70 (St)]. We may only notice cl. (e) of the circular which provides for the procedure for making block assessment. Omitting what is not necessary for the purpose of this case, cl. (e) is extracted and it reads as under : “(e) Procedure for making block assessment : (i) The AO shall serve a notice on such person requiring him to furnish within such time, not being less than 15 days, as may be specified in the notice, a return in the prescribed form and verified in the same manner as a return under cl. (i) of sub-s. (1) of s. 142 setting forth his total income including undisclosed income for the block period. The officer shall proceed to determine the undisclosed income of the block period and the provisions of s. 142, sub-ss. (2) and (3) of s. 143 and s. 144 shall apply accordingly.”
12. Chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting 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 in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. 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 found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO. 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 s. 132 or requisition under s. 132A of the Act. Sec. 158BC stipulates that the chapter would have application where search has been effected under s. 132 or on requisition of books of accounts, other documents or assets under s. 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 undisclosed income. The section itself prescribes the time-limit of 15 days for compliance. In respect of searches on or after 1st Jan., 1997, the time-limit may be given up to 45 days instead of 15 days for compliance. Such notice is prescribed under r. 12(1A) which in turn prescribes Form 2B for block return. Sec. 158BC(b) is a procedural provision for making a regular assessment applicable to block assessment as well. Sec. 158BC(c) would require the AO to compute the income as well as tax on completion of the proceedings to be made. Sec. 158BC(d) would authorise the AO to apply the assets seized in the same manner as are applied under s. 132B.
We may now revert back to s. 158BC(b) which is the material provision which requires our consideration. Sec. 158BC(b) provides for enquiry and assessment. The said provision reads “that the AO 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, subss. (2) and (3) of s. 143, 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 AO to complete the assessment by following the procedure like issue of notice under s. 143(2)/142 and complete the assessment under s. 143(3). This section does not provide for accepting the return as provided under s. 143(1)(a). The AO has to complete the assessment under
s. 143(3) only. In case of default in not filing the return or not complying with the notice under s. 143(2)/142, the AO is authorized to complete the assessment ex parte under s. 144. Clause (b) of s. 158BC by referring to ss. 143(2) and 143(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 conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under s. 143 (2). However, if an assessment is to be completed under s. 143(3) r/w s. 158BC, notice under 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 under s. 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under s. 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that the s. 158BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the AO 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 AO. 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, in our opinion, if the AO, if for any reason, repudiates the return filed by the assessee in response to notice under s. 158BC(a), the AO must necessarily issue notice under s. 143(2) of the Act within the time prescribed in the proviso to s. 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of s. 158BC(b) it has done so specifically. Thus, when s. 158BC(b) specifically refers to [sic-s. 143(2)] applicability of the proviso thereto cannot be excluded. We may also notice here itself that the clarification given by CBDT in its Circular No. 717, dt. 14th Aug., 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-s. (2) of s. 143 of the Act. Accordingly, we conclude 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 s. 158BC, the provisions of s. 142 and sub-ss. (2) and (3) of s. 143 are applicable and no assessment could be made without issuing notice under s. 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 s. 153BC(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 Singhâs case (supra). In this case, the Court has observed that s. 37(2) provides that “the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under s. 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in s. 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 vs. Jaiswal Industries & Ors. (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.”
16. 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 s. 142, sub-ss. (2) and (3) of s. 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 AO in repudiation of the return filed under s. 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of s. 142, sub-ss. (2) and (3) of s. 143. Sec. 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 s. 142 and sub-ss. (2) and (3) of s. 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. The result is that the appeals fail and are dismissed. No order as to costs.
[Citation : 321 ITR 362]