COMMISSIONER OF INCOME TAX versus LAXMAN DAS KHANDELWAL on 13 August 2019

1. Delay condoned. Leave granted.

2. These Appeals are directed against the judgment and final orderBdated 27.04.2018 passed by the High Court[1] in Income Tax Appeal No.97of 2018 and against the order dated 14.09.2018 in Review PetitionNo.1289 of 2018 arising from said Income Tax Appeal No.97 of 2018.

3. The relevant facts leading to the filing of aforementioned IncomeTax Appeal No.97 of 2018 before the High Court, as culled out from theCjudgment and order dated 27.04.2018 presently under appeal are as under:- “The assessee is an individual carrying a business of brokerage.Search and seizure operation was conducted under Section 132of the Act of 1961 on 11.03.2010 at his residential premises. Theassessee submitted return of income on 24.08.2011, declaring totalDincome of Rs.9,35,130/-. The assessment was completed underSection 143(3) read with Section 153(D) of 1961 Act. Rupees9,09,110/- was added on account of unexplained cash underSection 69 of 1961 Act. Rs.15,09,672/- was added on account ofunexplained jewellery. Rupees 45,00,000/- was added on accountof unexplained hundies and Rs.29,53,631/- was added on accountEof unexplained cash receipts.

Aggrieved, the assessee filed an appeal before the CommissionerIncome Tax (Appeal). The Commissioner of Income Tax (Appeal)deleted an amount of Rs.7,48,463/- holding that jewellery found inlocker weighing 686.4 gms stood explained in view of circularFNo.1916 and further deleted the addition of Rs.29,23,98,117/- outof Rs.29,53,52,631/- holding that the correct approach would beto apply the peak formula to determine in such transaction whichcomes to Rs.29,54,514/- as on 05.03.2010.

Aggrieved, Revenue filed an appeal. The Assessee filed crossGobjection on the ground of jurisdiction of Assessment Officerregarding non issue of notice under Section 143(2) of the Act of1961. The Tribunal vide impugned order upheld the cross objectionand quashed the entire reassessment proceedings on the findingthat the same stood vitiated as the assessment Officer lacked 1 High Court of Madhya Pradesh at Gwalior H

jurisdiction in absence of notice under Section 143(2) of the act of1961. The Tribunal observed:

“17. In conclusion, we find that there was no notice issued u/s 143(2) prior to the completion of assessment under section143 (3) of the Act by the AO; that the year under considerationwas beyond the scope of the provisions of Section 143A of theAct, it being the search year and not covered in the six year tothe year of search as per the assessment scheme/proceduredefined u/s 153A; that the AO has passed regular assessmentu/s 143(3) of the Act; although the Id. CIT has mentioned thesection as 143 r.w.s. 153A and that the department had notcontroverted these facts at the stage of hearing. It is notedthat issue of notice u/s 143(2) for completion of regularassessment in the case of the assessee was a statutoryrequirement as per the provisions of the Act and non issuancethereof is not a curable defect. Even in case of blockassessment u/s 158BC, it has been so held by the apex Courtin the case of ‘ACIT v. Hotel Blue Moon’ (2010) 321 ITR 362(Supra).”

4. In said appeal arising from the decision of the Income TaxAppellate Tribunal (‘the Tribunal’, for short), the issue that arose beforethe High Court was the effect of absence of notice under Section 143(2)of the Income Tax Act, 1961 (‘the Act’, for short). The Respondent-Assessee relied upon the decision of this Court in AssistantCommissioner of Income Tax and Another vs. Hotel Blue Moon[2].On the other hand, reliance was placed by the Appellant on the provisionsof Section 292BB of the Act to submit that the Respondent havingparticipated in the proceedings, the defect, if any, stood completely cured.

5. At the outset, it must be stated that out of two questions of lawthat arose for consideration in Hotel Blue Moon’s case[2]the first questionwas whether notice under Section 143(2) would be mandatory for thepurpose of making the assessment under Section 143(3) of the Act. Itwas observed:- “3. The Appellate Tribunal held, while affirming the decision ofCIT (A) that non-issue of notice under Section 143(2) is only aprocedural irregularity and the same is curable. In the appeal filed A

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by the assessee before the Gauhati High Court, the following twoquestions of law were raised for consideration and decision of theHigh Court, they were:

“(1) Whether on the facts and in circumstances of the casethe issuance of notice under Section 143(3) of the Income TaxAct, 1961 within the prescribed time-limit for the purpose ofmaking the assessment under Section 143(3) of the IncomeTax Act, 1961 is mandatory? And

(2) Whether, on the facts and in the circumstances of the caseand in view of the undisputed findings arrived at by theCommissioner of Income Tax (Appeals), the additions madeunder Section 68 of the Income Tax Act, 1961 should be deletedor set aside?”

4. The High Court, disagreeing with the Tribunal, held, that theprovisions of Section 142 and sub-sections (2) and (3) of Section143 will have mandatory application in a case where the assessingofficer in repudiation of return filed in response to a notice issuedunder Section 158-BC(a) proceeds to make an inquiry. Accordingly,the High Court answered the question of law framed in affirmativeand in favour of the appellant and against the Revenue. TheRevenue thereafter applied to this Court for special leave underArticle 136, and the same was granted, and hence this appeal.

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13. The only question that arises for our consideration in this batchof appeals is: whether service of notice on the assessee underSection 143(2) within the prescribed period of time is a prerequisitefor framing the block assessment under Chapter XIV-B of theIncome Tax Act, 1961?

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27. The case of the Revenue is that the expression “so far asmay be, apply” indicates that it is not expected to follow theprovisions of Section 142, sub-sections (2) and (3) of Section 143strictly for the purpose of block assessments. We do not agreewith the submissions of the learned counsel for the Revenue, sincewe do not see any reason to restrict the scope and meaning of the expression “so far as may be, apply”. In our view, where theassessing officer in repudiation of the return filed under Section158-BC(a) proceeds to make an enquiry, he has necessarily tofollow the provisions of Section 142, sub-sections (2) and (3) ofSection 143.”

6. The question, however, remains whether Section 292BB whichcame into effect on and from 01.04.2008 has effected any change. SaidSection 292BB is to the following effect:- “292BB. Notice deemed to be valid in certaincircumstances. – Where an assessee has appeared in anyproceeding or cooperated in any inquiry relating to an assessmentor reassessment, it shall be deemed that any notice under anyprovision of this Act, which is required to be served upon him, hasbeen duly served upon him in time in accordance with the provisionsof this Act and such assessee shall be precluded from taking anyobjection in any proceeding or inquiry under this Act that the noticewas –

(a) Not served upon him; or

(b) Not served upon him in time; or

(a) Not served upon him; or

(b) Not served upon him in time; or

(c) Served upon him in an improper manner:

Provided that nothing contained in this section shall apply wherethe assessee has raised such objection before the completion ofsuch assessment or reassessment.”

7. A closer look at Section 292BB shows that if the assessee hasparticipated in the proceedings it shall be deemed that any notice whichis required to be served upon was duly served and the assessee wouldbe precluded from taking any objections that the notice was (a) notserved upon him; or (b) not served upon him in time; or (c) served uponhim in an improper manner. According to Mr. Mahabir Singh, learnedSenior Advocate, since the Respondent had participated in theproceedings, the provisions of Section 292BB would be a completeanswer.

On the other hand, Mr. Ankit Vijaywargia, learned Advocate,appearing for the Respondent submitted that the notice under Section143(2) of the Act was never issued which was evident from the orders A

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Apassed on record as well as the stand taken by the Appellant in thememo of appeal. It was further submitted that issuance of notice underSection 143(2) of the Act being prerequisite, in the absence of suchnotice, the entire proceedings would be invalid.

8. The law on the point as regards applicability of the requirementBof notice under Section 143(2) of the Act is quite clear from the decisionin Blue Moon’s case[2]. The issue that however needs to be consideredis the impact of Section 292BB of the Act.

9. According to Section 292BB of the Act, if the assessee hadparticipated in the proceedings, by way of legal fiction, notice would beCdeemed to be valid even if there be infractions as detailed in said Section.The scope of the provision is to make service of notice having certaininfirmities to be proper and valid if there was requisite participation onpart of the assessee. It is, however, to be noted that the Section doesnot save complete absence of notice. For Section 292BB to apply, thenotice must have emanated from the department. It is only the infirmitiesDin the manner of service of notice that the Section seeks to cure. TheSection is not intended to cure complete absence of notice itself.

10. Since the facts on record are clear that no notice under Section143(2) of the Act was ever issued by the Department, the findingsrendered by the High Court and the Tribunal and the conclusion arrivedEat were correct. We, therefore, see no reason to take a different viewin the matter.

11. These Appeals are, therefore, dismissed. No costs.

FNidhi Jain

Appeals dismissed.

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