Facts of the Case

A search under Section 132A of the Income-tax Act, 1961 was conducted on 25.01.1999, pursuant to which cash amounting to ₹1,80,000 was seized from certain business premises of the assessee-company. Thereafter, a notice under Section 158BC(a) was issued requiring the assessee to file a block return.

The assessee filed the block return declaring 'Nil' undisclosed income. Subsequently, the Assessing Officer completed the block assessment under Section 158BC determining undisclosed income at ₹2,07,81,717.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who partly allowed the appeal. Both the assessee and the Revenue thereafter filed cross-appeals before the Income Tax Appellate Tribunal (ITAT).

Before the Tribunal, the assessee raised an additional legal ground contending that the block assessment proceedings and the consequential assessment order were without jurisdiction since no notice under Section 143(2) had been issued before framing the assessment.

The Tribunal accepted the assessee’s contention and held the assessment to be invalid. The Revenue challenged the Tribunal’s decision before the Delhi High Court.

Issues Involved

  1. Whether issuance of notice under Section 143(2) is mandatory before completion of block assessment proceedings under Section 158BC of the Income-tax Act, 1961?
  2. Whether the defect arising from non-issuance of notice under Section 143(2) can be cured by Section 292BB inserted by the Finance Act, 2008?
  3. Whether Section 292BB has retrospective operation so as to validate assessments completed prior to 01.04.2008?

Petitioner’s Arguments

The Revenue contended that:

  • Block assessment proceedings under Chapter XIV-B substantially involve procedural and machinery provisions.
  • Non-issuance of notice under Section 143(2) constituted only a procedural irregularity and did not invalidate the assessment.
  • By virtue of Section 292BB inserted by the Finance Act, 2008 with effect from 01.04.2008, an assessee who participated in assessment proceedings was precluded from challenging the validity of assessment on the ground of non-service or improper service of notice.
  • Since the assessee had actively participated in the assessment proceedings, the assessment could not be invalidated merely because notice under Section 143(2) was not issued.

The Revenue relied upon several judicial precedents dealing with procedural defects and machinery provisions under tax law.

Respondent’s Arguments

The assessee submitted that:

  • Notice under Section 143(2) is a mandatory jurisdictional requirement for framing an assessment under Section 158BC.
  • In the present case, it was undisputed that no notice under Section 143(2) had ever been issued.
  • Failure to issue such notice was not a curable procedural defect but a jurisdictional defect rendering the assessment void.
  • Section 292BB presupposes the existence of a notice and merely cures defects relating to service, timing, or manner of service.
  • Section 292BB cannot cure a complete absence of notice.
  • The provision is prospective in operation and cannot validate assessments completed before 01.04.2008.

The assessee relied upon:

  • Bandana Gogoi v. CIT (2007) 289 ITR 28 (Gauhati)
  • CIT v. Pawan Gupta (2009) 318 ITR (Delhi)

Court Findings

The Delhi High Court upheld the decision of the Income Tax Appellate Tribunal and held as follows:

1. Notice under Section 143(2) is Mandatory

The Court reiterated that where the Assessing Officer does not accept the return as filed and seeks to make an assessment, issuance of notice under Section 143(2) is mandatory.

The requirement is not a mere procedural formality but confers a substantive right upon the assessee to support the return filed and contest the proposed additions.

2. Complete Absence of Notice Cannot Be Cured

The Court observed that Section 292BB applies only where a notice has actually been issued and the dispute concerns:

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

The provision does not apply where no notice under Section 143(2) was issued at all.

3. Section 292BB is Prospective

The Court held that Section 292BB creates a disability against the assessee from raising objections regarding service of notice and therefore affects substantive rights.

Consequently, the provision operates prospectively and cannot be applied to assessments completed before 01.04.2008.

4. Assessment Year 2008-09 and Subsequent Years

The Court approved the Special Bench view that Section 292BB would apply only from Assessment Year 2008-09 onwards and not to earlier assessment years.

Court Order

The Delhi High Court dismissed the Revenue’s appeal and affirmed the order of the Income Tax Appellate Tribunal.

The Court held that:

  • Non-issuance of notice under Section 143(2) rendered the block assessment under Section 158BC invalid.
  • Section 292BB could not cure the complete absence of notice.
  • Section 292BB is prospective and applicable only from Assessment Year 2008-09 onwards.

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

Important Clarification

The judgment draws a critical distinction between:

Defective Service of Notice

Where notice exists but suffers from defects relating to service, timing, or mode of service, Section 292BB may cure such defects.

Complete Absence of Notice

Where no notice under Section 143(2) is issued at all, the defect is jurisdictional and cannot be cured through Section 292BB.

This principle continues to hold significance in assessment and reassessment proceedings under the Income-tax Act.

Sections Involved

  • Section 132A – Requisition of books of account, documents, etc.
  • Section 143(2) – Notice for scrutiny assessment.
  • Section 158BC – Procedure for block assessment.
  • Section 292BB – Notice deemed to be valid in certain circumstances.
  • Chapter XIV-B of the Income-tax Act, 1961.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2010:DHC:9931-DB/AKS06102010ITA13082009_162353.pdf

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