2012 (10) TMI 617 - HC - Income Tax

Want of service of notice u/s 143 (2) - block assessment - ITAT held the assessment as void and illegal for want of service of notice - Held that - As decided in ACIT & Anr. Versus M/s. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT OF INDIA where in response to notice under Section 158-BC (a) of the Act relating to the block assessment, the Assessing Officer, for any reason repudiates the return filed by the assessee, the AO must necessarily issue notice under Section 143 (2) of the Act within the time prescribed. Section 292-BB is a rule of evidence for deeming the service of notice. It has nothing to do with the mandatory requirement of giving the notice and specially a notice under Section 143 (2), which is a notice giving jurisdiction to the AO to frame an assessment - in favour of assessee.

Summary

Issues:
Validity of block assessment order due to lack of service of notice under Section 143(2) in block search assessment proceedings.

Analysis:
1. The case involved a search and seizure operation under Section 132 of the Income Tax Act, 1961, at the business and residential premises of a group of cases. Notices under Section 158-BD and Section 142(1) were issued and served on the assessees. The assessees filed their income tax returns in response to these notices. However, during the block assessment proceedings, the assessees retracted their earlier admission of maintaining benami bank accounts.

2. The Assessing Officer determined undisclosed income for the block period in the cases of two companies. The assessees challenged the block assessment orders before the Commissioner of Income Tax (Appeals) by arguing that the absence of a valid notice under Section 143(2) rendered the block assessment order illegal. The Tribunal relied on a judgment by the Gauhati High Court, which held that the notice under Section 143(2) cannot be dispensed with in cases where the AO proceeds to make an assessment under Section 158-BC.

3. The Income Tax Department contended that once a notice under Section 158-BC had been issued and the assessee was aware of the proceedings, the notice under Section 143(2) was not mandatory. However, the respondent-assessees relied on a Supreme Court judgment and subsequent High Court judgments that emphasized the mandatory nature of the notice under Section 143(2) in block assessment proceedings.

4. The Court held that the notice under Section 143(2) is necessary when the AO repudiates the return filed by the assessee in response to the notice under Section 158-BC relating to block assessment. It clarified that Section 292-BB of the Act is a rule of evidence, not a rule that dispenses with the requirement of giving notice under the Act. Consequently, both questions raised by the revenue were decided in favor of the respondent-assessees, leading to the dismissal of both Income Tax Appeals.