Facts of the Case

  • A batch of appeals was preferred by the Revenue (Commissioner of Income Tax) against a common order passed by the Income Tax Appellate Tribunal (ITAT). The lead matter was CIT v. Pawan Gupta (pertaining to the block assessment period from 01.04.1986 to 10.10.1996).
  • Following search and seizure operations conducted under Section 132, block assessment proceedings were initiated against several assessees.
  • In response to notices issued under Section 158BC(a), the assessees submitted their returns of undisclosed income.
  • The Assessing Officer (AO) issued notices under Section 142(1) and proceeded to make an inquiry to determine the undisclosed income, ultimately passing block assessment orders under Section 158BC.
  • Crucial Omission: Admittedly, the Assessing Officer did not issue or serve any notice upon the assessees under Section 143(2) of the Act within the statutory time frame.
  • Tribunal's Ruling: Relying on the Gauhati High Court judgment in Smt. Bandana Gogoi v. CIT (289 ITR 28), the ITAT quashed the block assessments, holding that the lack of notice under Section 143(2) rendered the assessment orders void ab initio for want of jurisdiction. Aggrieved, the Revenue appealed to the Delhi High Court.

Issues Involved

Whether the issuance and service of a notice under Section 143(2) within the prescribed period of time is a mandatory prerequisite for framing a valid block assessment order under Chapter XIV-B of the Income-tax Act, 1961, or if its omission is merely a curable procedural irregularity.

Petitioner’s (Revenue's) Arguments

  • Special/Self-Contained Code: Chapter XIV-B provides a special, independent procedure for search cases and functions as a complete code in itself. It differs completely from normal regular assessments because the material/evidence is already unearthed during the search and is in the knowledge of the AO.
  • Interpretation of "So Far As May Be": Section 158BC(b) applies Section 143(2) only qualified by the words "so far as may be", meaning it is directory and should only be applied to the extent practical or possible.
  • Jurisdiction vs. Procedure: The jurisdiction to assess is natively derived from the search under Section 132 and the invocation of Section 158BA. Therefore, a notice under Section 143(2) is a purely procedural rule implementing audi alteram partem. Any failure or lapse in issuing it is a curable irregularity (relying on CIT v. Jai Prakash Singh) and does not render the final order a nullity.
  • Deemed Notice / De Facto Compliance: The assessees actively participated in the assessment proceedings and were issued various letters/questionnaires. Since no specific proforma is prescribed for Section 143(2), these communications should be treated as valid notices.

Respondent’s (Assessee's) Arguments

  • No Waiver of Jurisdiction: Participation by the assessee in the block assessment proceedings does not amount to a waiver of statutory mandates, nor can it confer jurisdiction on an AO who fundamentally lacks it (relying on Swaran Yash v. CIT).
  • Mandatory Statutory Route: If the AO decides to tinker with or reject the return filed by the assessee under Section 158BC, he has no choice but to issue a notice under Section 143(2) to allow the assessee to produce evidence supporting their return.
  • The Principle of Incorporation: By referencing Section 143(2) inside Section 158BC(b), the legislature "bodily transposed" and incorporated the provision in its entirety, including the mandatory time-bound proviso (relying on M/s Surana Steels Pvt. Ltd v. CIT).
  • Nullity, Not Irregularity: Revenue statutes are based on public policy. The requirement under Section 143(2) goes to the foundation of the authority to make an inquiry against a return; thus, completing an assessment without it is an incurable nullity rather than a minor procedural deviation (relying on Doshi v. CIT).

Court Order & Findings

  • Dismissal of Revenue's Appeals: The Delhi High Court dismissed all the appeals filed by the Revenue and upheld the orders of the ITAT quashing the assessments.
  • Mandatory Character of Section 143(2): The High Court held that Section 143(2) is a mandatory provision for both regular assessments and search-based block assessments under Chapter XIV-B.
  • Application of "So Far As May Be": The phrase "so far as may be" applies only to situations where the AO accepts the return of undisclosed income as filed. If the AO completely accepts the Form 2B return without embarking on further inquiry, a notice under Section 143(2) is unnecessary. However, if the AO is not inclined to accept the return and seeks to investigate further or vary the income, the issuance of a Section 143(2) notice is an absolute condition precedent.
  • Assessment without Notice is Void: Passing a block assessment order in repudiation of the assessee's return without serving a Section 143(2) notice is not a mere procedural irregularity; it is a fundamental jurisdictional error that renders the final order invalid and void.

Important Clarification

  • The Right to a Hearing is Substantive: The court clarified that the opportunity given to an assessee to support their filed return via a Section 143(2) notice is a substantive right, not an empty formality. Denying this right violates both statutory prescriptions and the principles of natural justice.
  • Legislative Intent: Where the legislature intended to exclude certain procedural steps in block assessments, it did so explicitly (e.g., explicitly excluding Section 148 notices in the proviso to Section 158BC(a)). Because it chose to specifically mention Section 143(2) in Section 158BC(b), the entire weight of that section—along with its time-limiting proviso—is legally binding upon the Revenue.

Section Involved

  • Section 158BC(b) read with Section 142, Section 143(2) (including its Proviso), and Section 143(3) of Chapter XIV-B of the Income-tax Act, 1961.

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:9171-DB/BDA15042009ITA2032008_174410.pdf 

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