REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1198 OF 2010
(Arising out of SLP(C) No. 22973 of 2007)
Assistant Commissioner of Income Tax & Anr. .......Appellants
Versus
M/s. Hotel Blue Moon ........Respondent
WITH
C.A. No. 1199/2010 @ S.L.P.(C) No.30284/2009,
C.A. No. 1200/2010 @ S.L.P.(C) No.30285/2009,
C.A. No.1201/2010 @ S.L.P.(C) No.30286/2009,
C.A. No.1202/2010 @ S.L.P.(C) No.30287/2009, and
C.A. No.1203/2010 @ S.L.P.(C) No.30288/2009
JUDGMENT
H.L. Dattu,J.
1) Leave granted in all the special leave petitions.
2) These six appeals have been heard together. They
arise out of similar facts and the question of law
arising therefrom is the same.
3) The facts in the lead case are : This is an appeal
against the judgment of the High Court of Guwahati
in a appeal under Section 260A of the Income Tax
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Act, 1961, hereinafter referred to as `the Act’,
and the point that is raised for our determination
is, whether issue of notice under Section 143(2)
of the Act within the prescribed time for the
purpose of block assessment under Chapter XIV-B of
the Act is mandatory for assessing undisclosed
income detected during search conducted under
Section 132 of the Act. While, according to the
department, issue of a notice under Section 143(2)
is not essential requirement in block assessment
under Chapter XIV-B of the Act. According to the
assessee, service of notice on the assessee under
Section 143(2) of the Act within the prescribed
period of time is a pre-requisite for framing the
block assessment under Chapter XIV-B of the Act.
The Appellate Tribunal held, while affirming the
decision of the CIT(A) that non-issue of notice
under Section 143(2) is only a procedural
irregularity and the same is curable. In the
appeal filed by the assessee before the Guwahati
High Court, the following two questions of law
were raised for consideration and decision of the
High Court, they were : –
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“(1) Whether on the facts and in
circumstances of the case the issuance
of notice u/s 143(3) of the Income Tax
Act, 1961 within the prescribed time
limit for the purpose of making the
assessment under Section 143(3) of the
Income Tax Act, 1961 is mandatory? And
(2)Whether, on the facts and in the
circumstances of the case and in view
of the undisputed findings arrived at
by the Commissioner of Income Tax
(Appeals), the additions made u/s 68 of
the Income Tax Act, 1961 should be
deleted or set aside.”
4) The High Court, disagreeing with the Tribunal,
held, that the provisions of Section 142 and sub-
sections (2) and (3) of Section 143 will have
mandatory application in a case where the
assessing officer in repudiation of return filed
in response to a notice issued under Section 158
BC(a) proceeds to make an inquiry. Accordingly,
the High Court answered the question of law framed
in affirmative and in favour of the appellant and
against the revenue. The revenue thereafter
applied to this Court for special leave under
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Article 136, and the same was granted, and hence
this appeal.
5) The learned counsel Sri Shekhar for the revenue
submitted, that, Chapter XIV B of the Act provides
a special procedure for search cases and is a
complete code in itself dealing with both the
substantive as well as procedural aspects of
search cases and, therefore, there is a
distinction between the procedure for regular
assessment under Chapter XIV and the procedure of
Block assessment under Chapter XIV B. Therefore,
it is submitted for the purpose of block
assessments the assessing authority need not
follow the procedure prescribed under Chapter XIV
which includes issuance of notice under Section
143(2). The learned counsel has further contended
that in a proceeding under Section 158 BC, there
is no requirement of a notice to be issued under
Section 143(2), since issuance of notice for the
purpose of Section 158 BC is separately
prescribed. It is further submitted that Block
assessment is in addition to regular assessment,
and what is included in regular assessment, cannot
be assessed again in the course of a Block
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assessment and similarly, what is assessed in
Block assessment, cannot be the subject matter of
regular assessment. It is further submitted that
Section 143(2) of the Act is in two parts. The
first part deals with jurisdiction and the second
with the procedure. The proviso to Section 143(2)
puts an embargo on the assessing officer to
exercise jurisdiction after the expiry of 12
months from the end of the month in which the
return was filed by the assessee. It is the
discretion of the assessing officer to accept the
return as it is or to proceed further with the
assessment of income, once the assessing officer
decides to proceed, he has to issue notice under
Section 143(2) within the prescribed time limit to
make the assessee aware that his return has been
selected for scrutiny assessment. In distinction
to this procedure, under the special procedure
prescribed in Chapter XIV B, there is no
discretion left with the assessing officer. It
is further contended that the source and origin of
a Block assessment is the search which has been
conducted under Section 132 of the Act. Once the
search has been carried out, the assessing officer
5
is left with no discretion but to proceed with the
Block assessment. It is also submitted that in
search cases the material is already found and is
in the knowledge of the assessing officer. This
is distinct and different from the situation of an
ordinary assessment, where, the assessing officer
does not have any material other than the return
filed by the assessee. Therefore, the requirement
of notice under Section 143(2) is essential for
production of material by the assessee. This is
so because in regular assessments the assessing
officer in the first instance has no material
available to him except the return filed by the
assessee. It is further submitted that the
computation of undisclosed income of the Block
period has to be done in accordance with the
provisions of Section 158 BB and on the basis of
evidence found as a result of search or
requisition of books of account, or other
documents and such other materials or information
as are available with the assessing officer and
relatable to such evidence and, therefore,
issuance of notice under Section 143(2) is not
required for Block assessment proceedings. It is
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further submitted that the provisions of Section
143(2) and other provisions mentioned in Section
158 BC(b) are to be applied only to the extent
possible, since the provisions incorporated in the
Chapter XIV B constitute a special Code to assess
the undisclosed income in search cases, they would
override the provisions of Chapter XIV being the
procedure for normal assessments. In support of
this contention, reference is made to the decision
of this Court in the case of Dr. Pratap Singh vs.
Director of Enforcement, [1985] 155 ILR 166 (SC).
Lastly, it is submitted, that, since both the
schemes under Chapter XIV for a regular assessment
and under Chapter XIV B for Block assessments are
different that while no assessment under Section
143(3) could be completed without the issuance of
notice under Section 143(2), the same restriction
would not be applicable in the case of Block
assessment.
6) Per contra, the contention on behalf of the
assessee(s) is that, for the purpose of Block
assessment under Section 158 BC, the provisions of
Section 142 and Sub-sections (2) and (3) of
Section 143 are applicable and, therefore, no
7
Block assessments could be made without issuing
notice under Section 143(2) of the Act. It is
further contended that notice under Section 143(2)
could have been dispensed with by the assessing
officer if he proceeds to determine the income on
the basis of the return without going for
scrutiny. Referring to the provisions in clause
(v) of the Second Proviso to Section 158 BC, it is
submitted by the learned counsel that the words
“so far as may be” does not give any discretion to
the assessing officer to dispense with the
requirement of such a notice under Section 143(2),
when he proceeds to make an enquiry within the
scope and ambit of Section 143(2). It is further
contended that after a notice under Section 158 BC
is issued, the assessee is required to file a
return within a stipulated period. Once the
return is filed, it is open to the assessing
officer to accept the same or to require further
investigation. If he accepts the return of
undisclosed income as it is, then, there would be
no necessity of issuing any notice under Section
143(2) of the Act. However, if the assessing
officer is not satisfied with the return so filed,
8
then he is required to issue further notice under
Section 143(2) before an assessment order is
passed under Chapter XIV-B of the Act.
7) The only question that arises for our
consideration in this batch of appeals is, whether
service of notice on the assessee under Section
143(2) within the prescribed period of time is a
pre-requisite for framing the block assessment
under Chapter XIV-B of the Income Tax Act, 1961?
8) Chapter XVI-B prescribes the special procedure for
making the assessment of search cases.
9) Section 158 B defines “undisclosed income”, and
“block period” which are the two basic factors for
framing the block assessments.
10) Section 158 BA is an enabling section, empowering
the assessing officer, to assess “undisclosed
income” as a result of search initiated or
requisition made after June 30, 1995, in
accordance with the provisions of this Chapter and
tax the same at the fixed rate specified in
Section 113. Section 158 BB provides the
methodology for computation of undisclosed income
9
of the block period. Section 158 BC prescribes the
procedure for making the Block assessment of the
searched person. Section 158 BD enables assessment
of any person, other than the searched person.
Section 158 BE sets the time limits for completion
of the Block assessments. Section 158 BF provides
for immunity from levy of interest under Sections
234A, 234B and 234C and penalties under Section
271(1)(C), 271A and 271B. Section 158 BFA
provides for levy of interest and penalty in cases
of search on or after January 1, 1997. Section
158 BG specifies the authorities competent to make
the block assessment. Section 158 BH provides for
application of all the other provisions of this
Act, except those as provided in Chapter XIV-B.
Section 158 BI provides for abolition of the
scheme in cases of search after 31.5.2003.
11) The scheme of Block assessment has been explained
by Central Board of Direct Taxes in paragraph 39.3
of Circular No.717 dated 14th August, 1995 ([1995]
215 ITR.70). We may only notice clause (e) of the
circular which provides for the procedure for
making Block assessment. Omitting what is not
10
necessary for the purpose of this case, clause (e)
is extracted and it reads as under :-
"(e) Procedure for making block
assessment: (i) The Assessing Officer
shall serve a notice on such person
requiring him to furnish within such
time, not being less than 15 days, as
may be specified in the notice, a return
in the prescribed form and verified in
the same manner as a return under clause
(i) of sub-section(1) of section 142
setting forth his total income including
undisclosed income for the block period.
The officer shall proceed to determine
the undisclosed income of the block
period and the provisions of section
142, sub-sections (2) and (3) of section
143 and section 144 shall apply
accordingly.”
12) Chapter XIV-B provides for an assessment of the
undisclosed income unearthed as a result of search
without affecting the regular assessment made or
to be made. Search is the sine qua non for the
Block assessment. The special provisions are
devised to operate in the distinct field of
undisclosed income and are clearly in addition to
the regular assessments covering the previous
years falling in the block period. The special
procedure of Chapter XIV-B is intended to provide
a mode of assessment of undisclosed income, which
has been detected as a result of search. It is
not intended to be substitute for regular
11
assessment. Its scope and ambit is limited in
that sense to materials unearthed during search.
It is in addition to the regular assessment
already done or to be done. The assessment for
the block period can only be done on the basis of
evidence found as a result of search or
requisition of books of accounts or documents and
such other materials or information as are
available with the assessing officer. Therefore,
the income assessable in Block assessment under
Chapter XIV-B is the income not disclosed but
found and determined as the result of search under
Section 132 or requisition under Section 132A of
the Act.
13) Section 158 BC stipulates that the Chapter would
have application where search has been effected
under Section 132 or on requisition of books of
accounts, other documents or assets under Section
132A. By making the notice issued under this
Section mandatory, it makes such notice the very
foundation for jurisdiction. Such notice under
the Section is required to be served on the person
who is found to be having undisclosed income. The
Section itself prescribes the time limit of 15
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days for compliance. In respect of searches on or
after 1.1.1997, the time limit may be given up to
45 days instead of 15 days for compliance. Such
notice is prescribed under Rule 12(1A) which in
turn prescribes Form 2B for block return.
14) Section 158 BC(b) is a procedural provision for
making a regular assessment applicable to Block
assessment as well. Section 158 BC(c) would
require the assessing officer to compute the
income as well as tax on completion of the
proceedings to be made. Section 158 BC(d) would
authorise the assessing officer to apply the
assets seized in the same manner as are applied
under Section 132B.
15) We may now revert back to Section 158 BC(b) which
is the material provision which requires our
consideration. Section 158 BC(b) provides for
enquiry and assessment. The said provision reads
“that the assessing officer shall proceed to
determine the undisclosed income of the Block
period in the manner laid down in Section 158 BB
and the provisions of Section 142, sub-section (2)
and (3) of Section 143, Section 144 and Section
13
145 shall, so far as may be, apply.” An analysis
of this sub section indicates that, after the
return is filed, this clause enables the assessing
officer to complete the assessment by following
the procedure like issue of notice under Sections
143(2)/142 and complete the assessment under
Section 143(3). This Section does not provide for
accepting the return as provided under Section
143(i)(a). The assessing officer has to complete
the assessment under Section 143(3) only. In case
of default in not filing the return or not
complying with the notice under Sections
143(2)/142, the assessing officer is authorized to
complete the assessment ex-parte under Section
144. Clause (b) of Section 158 BC by referring to
Section 143(2) and (3) would appear to imply that
the provisions of Section 143(1) are excluded.
But Section 143(2) itself becomes necessary only
where it becomes necessary to check the return, so
that where block return conforms to the
undisclosed income inferred by the authorities,
there is no reason, why the authorities should
issue notice under Section 143(2). However, if
an assessment is to be completed under Section
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143(3) read with Section 158-BC, notice under
Section 143(2) should be issued within one year
from the date of filing of block return. Omission
on the part of the assessing authority to issue
notice under Section 143(2) cannot be a procedural
irregularity and the same is not curable and,
therefore, the requirement of notice under Section
143(2) cannot be dispensed with. The other
important feature that requires to be noticed is
that the Section 158 BC(b) specifically refers to
some of the provisions of the Act which requires
to be followed by the assessing officer while
completing the block assessments under Chapter
XIV-B of the Act. This legislation is by
incorporation. This Section even speaks of sub-
sections which are to be followed by the assessing
officer. Had the intention of the legislature was
to exclude the provisions of Chapter XIV of the
Act, the legislature would have or could have
indicated that also. A reading of the provision
would clearly indicate, in our opinion, if the
assessing officer, if for any reason, repudiates
the return filed by the assessee in response to
notice under Section 158 BC(a), the assessing
15
officer must necessarily issue notice under
Section 143(2) of the Act within the time
prescribed in the proviso to Section 143(2) of the
Act. Where the legislature intended to exclude
certain provisions from the ambit of Section 158
BC(b) it has done so specifically. Thus, when
Section 158 BC(b) specifically refers to
applicability of the proviso thereto cannot be
exclude. We may also notice here itself that the
clarification given by CBDT in its circular No.717
dated 14th August, 1995, has a binding effect on
the department, but not on the Court. This
circular clarifies the requirement of law in
respect of service of notice under sub-section (2)
of Section 143 of the Act. Accordingly, we
conclude even for the purpose of Chapter XIV-B of
the Act, for the determination of undisclosed
income for a block period under the provisions of
Section 158 BC, the provisions of Section 142 and
sub-sections (2) and (3) of Section 143 are
applicable and no assessment could be made without
issuing notice under Section 143(2) of the Act.
However, it is contended by Sri Shekhar, learned
counsel for the department that in view of the
16
expression “So far as may be” in Section 153
BC(b), the issue of notice is not mandatory but
optional and are to be applied to the extent
practicable. In support of that contention, the
learned counsel has relied on the observation made
by this Court in Dr. Pratap Singh’s case [1985]
155 ITR 166(SC). In this case, the Court has
observed that Section 37(2) provides that “the
provisions of the Code relating to searches, shall
so far as may be, apply to searches directed
under Section 37(2). Reading the two sections
together it merely means that the methodology
prescribed for carrying out the search provided in
Section 165 has to be generally followed. The
expression “so far as may be” has always been
construed to mean that those provisions may be
generally followed to the extent possible. The
learned counsel for the respondent has brought to
our notice the observations made by this Court in
the case of Maganlal Vs. Jaiswal Industries,
Neemach and Ors., [(1989) 4 SCC 344], wherein this
Court while dealing with the scope and import of
the expression “as far as practicable” has stated
“without anything more the expression `as far as
17
possible’ will mean that the manner provided in
the code for attachment or sale of property in
execution of a decree shall be applicable in its
entirety except such provision therein which may
not be practicable to be applied.”
16) The case of the revenue is that the expression `so
far as may be apply’ indicates that it is not
expected to follow the provisions of Section 142,
sub-sections 2 and 3 of Section 143 strictly for
the purpose of Block assessments. We do not agree
with the submissions of the learned counsel for
the revenue, since we do not see any reason to
restrict the scope and meaning of the expression
`so far as may be apply’. In our view, where the
assessing officer in repudiation of the return
filed under Section 158 BC(a) proceeds to make an
enquiry, he has necessarily to follow the
provisions of Section 142, sub-sections (2) and
(3) of Section 143.
17) Section 158 BH provides for application of the
other provisions of the Act. It reads : “Save as
otherwise provided in this Chapter, all the other
provisions of this Act shall apply to assessment
18
made under this Chapter.” This is an enabling
provision, which makes all the provisions of the
Act, save as otherwise provided, applicable for
proceedings for block assessment. The provisions
which are specifically included are those which
are available in Chapter XIV-B of the Act, which
includes Section 142 and sub-sections (2) and (3)
of Section 143.
18) On a consideration of the provisions of Chapter
XIV-B of the Act, we are in agreement with the
reasoning and the conclusion reached by the High
Court.
19) The result is that the appeals fail and are
dismissed. No order as to costs.
...............J.
[S.H. KAPADIA]
...............J.
[ H.L. DATTU ]
New Delhi,
February 2, 2010
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