Facts of the Case

This batch of appeals involves several assessees who were subject to block assessment proceedings under Chapter XIV-B of the Income-tax Act, 1961, following search and seizure operations conducted under section 132. The assessees filed returns in response to notices issued under section 158BC. The Assessing Officer (AO) completed the block assessment orders without issuing a notice under section 143(2) to the respective assessees. The Income-tax Appellate Tribunal (ITAT) quashed these assessment orders, relying on the Gauhati High Court's decision in Smt. Bandana Gogoi v. CIT, ruling that the failure to issue a notice under section 143(2) invalidated the block assessment.

Issues Involved

  • Whether the issuance and service of a notice under section 143(2) within the prescribed time limit is a mandatory prerequisite for framing a block assessment order under Chapter XIV-B of the Income-tax Act, 1961.
  • Whether the failure to issue such a notice constitutes a mere procedural irregularity or renders the assessment order null and void.

Petitioner’s Arguments (Revenue)

  • The Revenue argued that Chapter XIV-B is a self-contained code for search cases, and provisions like section 143(2) apply only "so far as may be," meaning only to the extent practical.
  • It was contended that since the AO already possesses incriminating material from the search, the requirement of notice under section 143(2)—which is meant for regular assessments where the AO lacks initial material—is not essential.
  • The Revenue maintained that if any lapse occurred regarding the notice, it was merely a curable procedural irregularity and did not invalidate the block assessment.

Respondent’s Arguments (Assessees)

  • The assessees argued that the legislature specifically incorporated section 143(2) into section 158BC(b), making it a mandatory condition precedent for any assessment where the AO intends to deviate from the filed return.
  • They submitted that the proviso to section 143(2), which sets a time limit, is substantive in nature and essential to protect the assessee's rights.
  • Relying on legal principles, they argued that non-compliance with a jurisdictional requirement cannot be waived and renders the resulting order null and void.

Court Order / Findings

  • The Delhi High Court upheld the ITAT's decision, ruling that section 143(2) is a mandatory provision.
  • The Court clarified that if an AO intends to reject the return of undisclosed income filed by an assessee, they must issue a notice under section 143(2) within the prescribed time limit.
  • An assessment order passed without such notice, when the AO is not accepting the filed return, is invalid and not merely procedurally irregular.
  • The appeals filed by the Revenue were dismissed.

Important Clarification

The Court clarified that the words "so far as may be" apply to situations where the AO accepts the return of undisclosed income as filed. In such instances, no further inquiry is needed, and consequently, no notice under section 143(2) is required. However, if the AO chooses to investigate or deviate from the return, the service of notice under section 143(2) becomes a non-negotiable prerequisite.

Section Involved

  • Section 143(2): Assessment (notice for inquiry/scrutiny)
  • Section 158BC: Procedure for block assessment

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:9670-DB/BDA15042009ITA8312008_162600.pdf 

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