Facts of the Case

A search under Section 132A of the Income-tax Act, 1961 was conducted on 25.01.1999 pursuant to an excise raid conducted by the Anti-Evasion Wing of the Central Excise Department, Delhi. During the operation, cash amounting to ₹1,80,000 was seized from the business premises of Kuber Tobacco Products Pvt. Ltd.

Subsequently, a notice under Section 158BC(a) was issued to the assessee requiring filing of a block return. The assessee filed its return on 29.09.2000 declaring NIL undisclosed income. Thereafter, the Assessing Officer completed block assessment under Section 158BC on 29.01.2001 and determined undisclosed income at ₹2,07,87,171/-.

The assessee challenged the assessment before the Commissioner of Income Tax (Appeals). The CIT(A) partly allowed the appeal and deleted an addition of ₹37,26,867/-. Both the assessee and the Revenue filed cross appeals before the Income Tax Appellate Tribunal.

Before the Tribunal, the assessee raised an additional legal ground that the block assessment order was without jurisdiction because no mandatory notice under Section 143(2) had been issued before completion of the block assessment proceedings.

Issues Involved

  1. Whether issuance and service of notice under Section 143(2) is mandatory in block assessment proceedings under Section 158BC of the Income-tax Act?
  2. Whether failure to issue notice under Section 143(2) renders the block assessment invalid and without jurisdiction?
  3. Whether Section 292BB, inserted by the Finance Act, 2008 with effect from 01.04.2008, cures the defect of non-issuance of notice under Section 143(2)?
  4. Whether Section 292BB operates retrospectively so as to validate assessments completed prior to 01.04.2008?

Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • Section 292BB was inserted to prevent assessees from challenging assessments on technical grounds relating to service of notice.
  • Since the assessee had participated in the assessment proceedings, it could not subsequently challenge the assessment on the ground that notice under Section 143(2) was not served.
  • Assessment provisions under Chapter XIV-B are procedural in nature and procedural defects should not invalidate completed assessments.
  • Section 292BB being procedural should be applied retrospectively and should validate the assessment proceedings even if notice under Section 143(2) was not issued.

Respondent’s Arguments (Assessee)

The assessee argued that:

  • Notice under Section 143(2) is mandatory for framing an assessment under Section 158BC.
  • In the present case, no notice under Section 143(2) was ever issued.
  • Non-issuance of notice is not a mere procedural irregularity but a jurisdictional defect.
  • Section 292BB presupposes existence of a notice and only cures defects relating to service of notice.
  • Section 292BB cannot cure a complete absence of notice.
  • The provision came into force on 01.04.2008 and therefore cannot apply retrospectively to block assessments completed before that date.
  • Reliance was placed on several judicial precedents including Bandana Gogoi v. CIT and CIT v. Pawan Gupta.

Court Findings

The Delhi High Court upheld the Tribunal's decision and made the following significant findings:

1. Notice under Section 143(2) is Mandatory

The Court reiterated the principle laid down in CIT v. Pawan Gupta (2009) 318 ITR 322 (Delhi) that issuance of notice under Section 143(2) is a mandatory requirement even in block assessment proceedings under Chapter XIV-B.

The Court observed that where the Assessing Officer does not accept the return of undisclosed income filed by the assessee and proceeds to make an assessment, notice under Section 143(2) must necessarily be issued before completing the assessment.

2. Non-Issuance of Notice is a Jurisdictional Defect

The Court held that complete absence of notice under Section 143(2) is not a mere procedural irregularity but a substantive defect affecting the jurisdiction of the Assessing Officer.

Accordingly, a block assessment framed without issuance of such notice is invalid in law.

3. Section 292BB Does Not Cure Complete Absence of Notice

The Court examined Section 292BB and held that the provision applies only where a notice has actually been issued but there is a dispute regarding:

  • Service of notice;
  • Timeliness of service;
  • Manner of service.

The provision does not validate a case where no notice was issued at all.

4. Section 292BB is Prospective

The Court agreed with the Special Bench of the Tribunal that Section 292BB creates a disability against the assessee from raising objections regarding service of notice and therefore cannot be applied retrospectively.

The provision applies only from Assessment Year 2008-09 onwards and cannot validate block assessments completed before 01.04.2008.

Court Order

The Delhi High Court dismissed the Revenue's appeal and held that:

  • Notice under Section 143(2) is mandatory in block assessment proceedings under Section 158BC.
  • Non-issuance of notice renders the assessment illegal and invalid.
  • Section 292BB does not cure complete absence of notice.
  • Section 292BB is prospective in operation and applicable only from Assessment Year 2008-09 onwards.

Accordingly, the appeal filed by the Revenue was dismissed.

Important Clarifications

Key Legal Principle

Where no notice under Section 143(2) is issued before completion of block assessment proceedings under Section 158BC, the assessment becomes void and unsustainable in law.

Scope of Section 292BB

Section 292BB can cure defects relating to:

  • Non-service of notice;
  • Delayed service of notice;
  • Improper service of notice.

However, it cannot cure:

  • Complete absence of notice;
  • Non-issuance of notice;
  • Jurisdictional defects arising from failure to issue mandatory notice.

Prospective Operation

Section 292BB operates prospectively from 01.04.2008 and cannot be invoked to validate assessments completed before its introduction.

Sections Involved

  • Section 132A – Requisition of Books of Account, etc.
  • Section 143(2) – Scrutiny Notice
  • Section 158BC – Procedure for Block Assessment
  • Section 292BB – Notice Deemed to be Valid in Certain Circumstances
  • Chapter XIV-B – Special Procedure for Assessment of Search Cases
  • Section 158BC(a) – Filing of Block Return

Link to download the order –https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:10017-DB/RK06102010ITA11612010_164336.pdf

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