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Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos.6261-6262 OF 2019 (Arising out of Special Leave Petition (Civil) Nos.19320-19321 of 2019)

(Arising out of Special Leave Petition (Civil)D.No.7708 of 2019)

COMMISSIONER OF INCOME TAX    …Appellant

VERSUS

LAXMAN DAS KHANDELWAL      …Respondent

J U D G M E N T

Uday Umesh Lalit, J.

1. Delay condoned.  Leave granted.

2. These Appeals are directed against the judgment and final order

dated 27.04.2018 passed by the High Court1 in Income Tax Appeal No.97

of  2018  and  against  the  order  dated  14.09.2018  in  Review  Petition

No.1289 of 2018 arising from said Income Tax Appeal No.97 of 2018.

1 High Court of Madhya Pradesh at Gwalior

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3.  The relevant facts leading to the filing of aforementioned Income

Tax Appeal No.97 of 2018 before the High Court, as culled out from the

judgment 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 132 of the Act of 1961 on 11.03.2010 at his residential premises.  The assessee submitted return of income on 24.08.2011, declaring total income of Rs.9,35,130/-.   The assessment was completed  under  Section  143(3)  read  with  Section 153(D) of 1961 Act.  Rupees 9,09,110/- was added on account of unexplained cash under Section 69 of 1961 Act.   Rs.15,09,672/-  was  added  on  account  of unexplained jewellery.  Rupees 45,00,000/- was added on account of unexplained hundies and Rs.29,53,631/- was added on account of unexplained cash receipts.

Aggrieved,  the  assessee  filed  an  appeal  before  the Commissioner  Income  Tax  (Appeal).   The Commissioner  of  Income  Tax  (Appeal)  deleted  an amount of Rs.7,48,463/- holding that jewellery found in locker weighing 686.4 gms stood explained in view of circular No.1916 and further deleted the addition of Rs.29,23,98,117/-  out  of  Rs.29,53,52,631/-  holding that the correct approach would be to apply the peak formula to determine in such transaction which comes to Rs.29,54,514/- as on 05.03.2010.   

Aggrieved,  Revenue filed an appeal.   The Assessee filed cross objection on the ground of jurisdiction of Assessment  Officer  regarding  non  issue  of  notice under  Section  143(2)  of  the  Act  of  1961.   The Tribunal  vide  impugned  order  upheld  the  cross objection  and  quashed  the  entire  reassessment proceedings  on  the  finding  that  the  same  stood vitiated as the assessment Officer lacked jurisdiction in absence of notice under Section 143(2) of the act of 1961.  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  section

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143 (3) of the Act by the AO; that the year under consideration was beyond the scope of  the  provisions  of  Section 143A of the Act,  it  being  the  search  year  and  not covered in the six year to the year of search as  per  the  assessment  scheme/procedure defined u/s 153A; that the AO has passed regular assessment u/s  143(3)  of  the Act; although the  Id.   CIT has  mentioned the section  as  143  r.w.s.  153A and  that  the department  had  not  controverted  these facts  at  the  stage of  hearing.   It  is  noted that  issue  of  notice  u/s  143(2)  for completion  of  regular  assessment  in  the case  of  the  assessee  was  a  statutory requirement  as per the provisions of the Act  and  non  issuance  thereof  is  not  a curable  defect.   Even  in  case  of  block assessment u/s 158BC, it has been so held by the apex Court in the case of ‘ACIT v. Hotel  Blue  Moon’ (2010)  321  ITR  362 (Supra).”

4. In  said  appeal  arising  from  the  decision  of  the  Income  Tax

Appellate Tribunal (‘the Tribunal’, for short), the issue that arose before

the 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 Assistant Commissioner of Income

Tax and Another vs.  Hotel Blue Moon2.  On the other hand, reliance was

placed by the Appellant on the provisions of Section 292BB of the Act to

submit  that  the  Respondent  having  participated  in  the  proceedings,  the

defect, if any, stood completely cured.   

2 (2010) 3 SCC 259

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 5. At the outset, it must be stated that out of two questions of law that

arose for consideration in  Hotel Blue Moon’s case2 the first question was

whether notice under Section 143(2) would be mandatory for the purpose

of  making  the  assessment  under  Section  143(3)  of  the  Act.   It  was

observed:-

“3. The Appellate Tribunal held, while affirming the decision  of  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  Gauhati  High  Court,  the  following  two questions  of  law were  raised  for  consideration  and decision of the High Court, they were:

“(1)  Whether  on  the  facts  and  in circumstances  of  the  case  the  issuance  of notice  under  Section  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  under  Section  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

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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 Article 136, and the same was granted, and hence this appeal.

… … …

13. 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 prerequisite for framing the  block  assessment  under  Chapter  XIV-B  of  the Income Tax Act, 1961?

… … …

27. 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.”

6. The  question,  however,  remains  whether  Section  292BB  which

came into effect on and from 01.04.2008 has effected any change.  Said

Section 292BB is to the following effect:-

“292BB.  Notice  deemed  to  be  valid  in  certain circumstances. – Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is  required  to  be  served  upon  him,  has  been  duly served  upon  him  in  time  in  accordance  with  the

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provisions  of  this  Act  and  such  assessee  shall  be precluded  from  taking  any  objection  in  any proceeding or inquiry under this Act that the notice was –

(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  where  the  assessee  has  raised  such objection before  the  completion  of  such  assessment  or reassessment.”

7. A closer  look at  Section  292BB shows that  if  the  assessee  has

participated in the proceedings it shall be deemed that any notice which is

required to be served upon was duly served and the assessee would be

precluded from taking any objections that the notice was  (a) not served

upon him; or (b) not served upon him in time; or (c) served upon him in an

improper  manner.   According  to  Mr.  Mahabir  Singh,  learned  Senior

Advocate, since the Respondent had participated in the proceedings, the

provisions of Section 292BB would be a complete answer.   

On  the  other  hand,  Mr.  Ankit  Vijaywargia,  learned  Advocate,

appearing  for  the  Respondent  submitted  that  the  notice  under  Section

143(2) of  the Act was never issued which was evident from the orders

passed on record as well as the stand taken by the Appellant in the memo

of appeal.  It was further submitted that issuance of notice under Section

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143(2) of the Act being prerequisite,  in the absence of such notice,  the

entire proceedings would be invalid.

8. The law on the point as regards applicability of the requirement of

notice under Section 143(2) of the Act is quite clear from the decision in

Blue Moon’s case2.  The issue that however needs to be considered is the

impact of Section 292BB of the Act.   

9. According  to  Section  292BB  of  the  Act,  if  the  assessee  had

participated in the proceedings, by way of legal fiction, notice would be

deemed 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 certain

infirmities to be proper and valid if there was requisite participation on part

of the assessee.  It is, however, to be noted that the Section does not save

complete absence of notice.  For Section 292BB to apply, the notice must

have  emanated  from  the  department.   It  is  only  the  infirmities  in  the

manner of service of notice that the Section seeks to cure.  The Section is

not intended to cure complete absence of notice itself.

10. Since the facts  on record are clear  that  no notice under Section

143(2) of the Act was ever issued by the Department, the findings rendered

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by the High Court and the Tribunal  and the conclusion arrived at were

correct.  We, therefore, see no reason to take a different view in the matter.

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

………………………..J. [Uday Umesh Lalit]

………………………..J. [Vineet Saran]

New Delhi; August 13, 2019.