Assistant Commissioner Of Income ... vs M/S. Hotel Blue Moon on 2 February, 2010

     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   1

 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 : -

   2

            "(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     3

      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  4

 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   6

      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  12

       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   14

 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

   19