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  

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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  

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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,  

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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  

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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  

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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  

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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  

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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  

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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  

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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  

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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  

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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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