Facts of the Case

A search under Section 132A of the Income Tax Act, 1961 was conducted on 25.01.1999. During the course of the search proceedings, cash amounting to ₹1,80,000 was seized from the business premises of the assessee company. Subsequently, a notice under Section 158BC(a) was issued on 12.09.2000 and served upon the assessee.

The assessee filed its block return on 29.09.2000 declaring ‘Nil’ undisclosed income. Thereafter, the Assessing Officer completed the block assessment under Section 158BC on 29.01.2001 determining undisclosed income of ₹2,07,87,171.

The assessee challenged the assessment before the CIT(A), who partly allowed the appeal. Thereafter, both the assessee and the Revenue filed cross appeals before the Income Tax Appellate Tribunal (ITAT).

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

Issues Involved

  1. Whether issuance of notice under Section 143(2) is mandatory for completion of block assessment proceedings under Section 158BC?
  2. Whether non-issuance of notice under Section 143(2) can be cured by Section 292BB of the Income Tax Act?
  3. Whether Section 292BB, inserted with effect from 01.04.2008, applies retrospectively to assessments completed prior to its insertion?
  4. Whether participation of the assessee in assessment proceedings precludes it from challenging non-service or non-issuance of notice under Section 143(2)?

Petitioner’s Arguments

  • The Revenue contended that Section 292BB, inserted by the Finance Act, 2008 with effect from 01.04.2008, creates a legal fiction deeming notices to have been validly served where the assessee has participated in assessment proceedings.
  • Since the assessee had actively participated in the block assessment proceedings, it was barred from challenging the validity of the assessment on the ground of non-service or non-issuance of notice under Section 143(2).
  • It was argued that the provisions relating to issuance of notice are procedural in nature and defects in such procedural requirements should not invalidate the assessment proceedings.
  • The Revenue relied upon several judicial precedents to contend that procedural irregularities should not render the assessment void where the assessee had adequate opportunity of hearing.

Respondent’s Arguments

  • The assessee submitted that no notice under Section 143(2) had ever been issued.
  • It was argued that issuance of notice under Section 143(2) is a mandatory jurisdictional requirement and failure to issue such notice renders the entire assessment void.
  • The assessee contended that Section 292BB presupposes the existence and issuance of a notice and only cures defects relating to service of notice.
  • Since no notice under Section 143(2) was issued at all, Section 292BB could not be invoked.
  • It was further argued that Section 292BB creates a disability against the assessee and therefore cannot be applied retrospectively to assessments completed before 01.04.2008.
  • Reliance was placed upon various judicial precedents including the decision in Bandana Gogoi v. CIT and CIT v. Pawan Gupta.

Court Findings

The Delhi High Court dismissed the Revenue’s appeal and upheld the order of the ITAT.

The Court held that:

  • Issuance of notice under Section 143(2) is mandatory even in block assessment proceedings under Chapter XIV-B.
  • In the absence of issuance of notice under Section 143(2), the assessment framed under Section 158BC becomes invalid.
  • Section 292BB does not cure complete absence of notice. The provision applies only where notice has actually been issued but there is a defect in service.
  • Section 292BB creates a disability against the assessee by preventing certain objections and therefore operates prospectively.
  • The provision is applicable only from Assessment Year 2008-09 onwards and cannot be applied to assessments completed prior to 01.04.2008.
  • Participation of the assessee in assessment proceedings cannot validate an assessment where a mandatory jurisdictional notice was never issued.

Accordingly, the Court answered the question of law against the Revenue and dismissed the appeal.

Important Clarification

The judgment clearly distinguishes between:

Defective Service of Notice

Where a notice has been issued but there are defects in its service, Section 292BB may cure such defects if the assessee has participated in proceedings.

Complete Absence of Notice

Where no notice under Section 143(2) has been issued at all, Section 292BB has no application and the assessment is void.

The Court further clarified that Section 292BB is prospective in operation and applicable only from Assessment Year 2008-09 onwards.

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:9936-DB/RK06102010ITA13112009_162454.pdf

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