Facts of the Case

A search operation under Section 132 of the Income Tax Act, 1961 was conducted on 25 January 1999 pursuant to an excise raid carried out by the Anti-Evasion Wing of the Central Excise Department. Subsequently, a notice under Section 158BC(a) was issued to Kuber Tobacco Products Pvt. Ltd. requiring it to file a block return.

The assessee filed its return declaring Nil undisclosed income. However, the Assessing Officer completed the block assessment under Section 158BC and determined undisclosed income at ₹2,07,87,171.

The assessee challenged the assessment before the Commissioner of Income Tax (Appeals), who granted partial relief. Thereafter, both the Revenue and the assessee filed cross-appeals before the Income Tax Appellate Tribunal (ITAT).

Before the Tribunal, the assessee raised an additional ground contending that the block assessment proceedings were void because no mandatory notice under Section 143(2) of the Income Tax Act had ever been issued before completion of the assessment.

 

Issues Involved

  1. Whether issuance of notice under Section 143(2) is mandatory before framing a block assessment under Section 158BC of the Income Tax Act?
  2. Whether a block assessment made without issuing notice under Section 143(2) is invalid and without jurisdiction?
  3. Whether Section 292BB, inserted by the Finance Act, 2008 with effect from 01.04.2008, operates retrospectively?
  4. Whether participation of the assessee in assessment proceedings cures the defect arising from non-issuance of notice under Section 143(2)?

 

Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • Section 292BB was introduced to prevent assessees from challenging assessments on technical grounds relating to service of notice.
  • Since the assessee had actively participated in the assessment proceedings, it could not subsequently challenge the validity of the assessment on the ground that notice under Section 143(2) had not been served.
  • Assessment proceedings under Chapter XIV-B are procedural in nature and procedural irregularities should not invalidate an otherwise lawful assessment.
  • Section 292BB being procedural should be applied retrospectively.
  • The absence of notice under Section 143(2) should be treated merely as an irregularity and not as a jurisdictional defect.

 

Respondent’s Arguments (Assessee)

The assessee argued that:

  • Notice under Section 143(2) is a mandatory statutory requirement where the Assessing Officer proposes to scrutinize or vary the return filed by the assessee.
  • In the present case, no notice under Section 143(2) was ever issued.
  • Non-issuance of notice is not a procedural defect but a jurisdictional defect that renders the assessment void.
  • Section 292BB presupposes the existence and issuance of a notice and only cures defects relating to service of notice.
  • Section 292BB cannot cure a complete absence of notice.
  • Since Section 292BB came into force on 01.04.2008, it cannot apply retrospectively to assessments completed before that date.
  • Reliance was placed on the decisions in Bandana Gogoi v. CIT and CIT v. Pawan Gupta.

Court Findings

The Delhi High Court upheld the order of the Tribunal and held:

1. Notice under Section 143(2) is Mandatory

The Court reaffirmed that where the Assessing Officer is not inclined to accept the return filed by the assessee and seeks to make additions, issuance of notice under Section 143(2) is a mandatory requirement.

Failure to issue such notice is not a mere procedural irregularity but a jurisdictional defect which renders the assessment invalid.

2. Non-Issuance Cannot Be Cured by Participation

The Court held that mere participation by the assessee in assessment proceedings does not cure the complete absence of a mandatory notice under Section 143(2).

The statutory right of hearing and opportunity provided under Sections 143(2) and 143(3) cannot be defeated merely because the assessee participated in proceedings.

3. Section 292BB is Prospective

The Court agreed with the Special Bench of the Tribunal that Section 292BB creates a disability against the assessee by preventing certain objections relating to notice.

Therefore, the provision cannot be interpreted retrospectively and is applicable only from Assessment Year 2008-09 onwards.

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

The Court emphasized that Section 292BB deals with defects in service of notice and cannot validate an assessment where no notice was issued at all.

Court Order

The Delhi High Court dismissed the Revenue’s appeal and upheld the Tribunal's decision.

The Court held that:

  • The block assessment framed under Section 158BC without issuance of notice under Section 143(2) was invalid and illegal.
  • Section 292BB is prospective and applicable only from Assessment Year 2008-09 onwards.
  • The assessee was entitled to challenge the assessment despite having participated in assessment proceedings.

Accordingly, the question of law was answered against the Revenue and in favour of the assessee.

 

Important Clarification

Legal Principle Established

Where an Assessing Officer does not accept the return filed by an assessee and proposes to make additions in a block assessment under Section 158BC, issuance of notice under Section 143(2) is mandatory.

A complete absence of such notice is a jurisdictional defect that cannot be cured by:

  • Participation of the assessee in proceedings; or
  • Invocation of Section 292BB.

Section 292BB is prospective in operation and applies only from Assessment Year 2008-09 onwards.

 

Sections Involved

  • Section 132 – Search and Seizure
  • Section 143(2) – Notice for Scrutiny Assessment
  • Section 143(3) – Assessment after Hearing
  • Section 158BC – Block Assessment Procedure
  • Section 260A – Appeal to High Court
  • Section 292BB – Notice Deemed to be Valid in Certain Circumstances

Link to download the order -

.https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:10013-DB/RK06102010ITA11592010_164215.pd

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