2013 (7) TMI 849 - HC - Income Tax

Block assessment - Limitation period of notice u/s 143(2) for the purpose of assessment u/s 158BC - whether service of notice on the assessee u/s 143(2) within the prescribed period of time is a pre-requisite for framing the block assessment under Chapter XIV-B - Held that - There is a clear omission on the part of the assessing authority to issue notice under section 143(2) is not a procedural irregularity and the same is not curable If there is violation of the mandatory provision then the assessment order passed is illegal and liable to be set aside - the requirement of notice u/s 143(2) cannot be dispensed with in respect of the block return filed the AO must necessarily issue notice u/s 143(1) within the time prescribed in the proviso to section 143(2) - Even for the purpose of Chapter XIV-B for determination of the undisclosed income for the block assessment under the provisions of section 158BC, the provisions of section 142 and sub-sections (1) and (3) of section 143 are applicable - No assessments could be made without issuance of notice u/s 143(2) where the AO in repudiation of the return filed u/s 158BC proceeds to make an enquiry he has to necessarily follow the provisions of section 142, sub-sections (2) and (3) of section 143 - the issuance of notice u/s 143(2) within the prescribed time limited for the purpose of making assessment u/s 143(3) is mandatory appeal decided in favour of assesse.

Summary

Issues:
Jurisdictional limitation based on the period of limitation for initiating proceedings under section 143(2) of the Income-tax Act, 1961 in the context of block assessment proceedings.

Detailed Analysis:

The judgment delivered by the Karnataka High Court pertains to four appeals concerning the same assessee and dispute related to block assessment years 1988-89 to 1998-99. The Assessing Officer issued a notice under section 143(2) of the Income-tax Act, 1961 beyond the period of limitation, leading to a challenge by the assessee regarding the jurisdiction to pass assessment orders for the block period. The Tribunal held that the mandatory provisions of issuing notice under section 143(2) were not applicable to block assessment proceedings, rejecting the assessee's objection based on limitation and remanding the matter on the ground of non-satisfaction to the assessing authority.

The central issue revolved around the jurisdictional limitation based on the period of limitation for initiating proceedings under section 143(2) of the Income-tax Act, 1961 in block assessment proceedings. The judgment referred to the apex court's decision in Asst. CIT v. Hotel Blue Moon, emphasizing the mandatory nature of issuing notice under section 143(2) within the prescribed time for framing block assessments under Chapter XIV-B of the Act.

The apex court's interpretation highlighted that the provisions of section 143(2) were crucial for completing assessments under section 143(3) in block assessment proceedings. The judgment clarified that the omission to issue notice under section 143(2) was not a procedural irregularity and was not curable, emphasizing the necessity of such notice for block assessments. The court rejected the Revenue's contention that the provisions of section 142 and sub-sections (2) and (3) of section 143 need not be strictly followed for block assessments.

Section 158BH was cited to underscore that all provisions of the Act, except as otherwise provided, apply to block assessments, reinforcing the applicability of section 142 and sub-sections (2) and (3) of section 143 in such proceedings. The judgment concluded that the failure to issue notice under section 143(2) rendered the assessment order illegal, following the law laid down by the apex court. Consequently, the assessee's appeal succeeded, and the Revenue's appeals were dismissed based on the substantial question of law regarding limitation.

In the final order, I. T. A. No. 818 of 2006 was allowed, setting aside the orders passed by the Appellate Tribunal and assessing authority, while I. T. A. Nos. 905 of 2006, 904 of 2006, and 314 of 2007 were dismissed. The judgment upheld the significance of complying with the mandatory provisions for issuing notice under section 143(2) in block assessment proceedings to ensure the validity of assessment orders.