ACIT vs. Hotel Blue Moon (Supreme Court)

DATE: (Date of pronouncement)
DATE: February 4, 2010 (Date of publication)

Click here to download the judgement (blue_moon_1432_158BC_block_assessment_notice.pdf)

Issue of s. 143 (2) notice is mandatory for block assessment proceedings. Disclosed items cannot be assessed in block assessment. Circulars are binding on the revenue.

Chapter XIV-B provides that where a search u/s 132 is conducted, the AO shall determine the undisclosed income for the block period. S. 158 BC(b) provides that in making the block assessment the provisions of s. 143 (2) shall “so far as may be, apply”. The Supreme Court had to consider whether a block assessment order passed without service of notice on the assessee u/s 143(2) within the prescribed period of time was valid. HELD, deciding in favour of the assessee:

(i) While notice u/s 143 (2) is not necessary if the AO accepts the return as filed, the notice within the prescribed time is mandatory if the AO proposes to make an assessment u/s 158BC r.w.s143 (3). Omission to issue notice u/s 143(2) is not a procedural irregularity and the same is not curable and, the requirement of notice u/s 143(2) cannot be dispensed with. If the intention of the legislature was to exclude the provisions of s. 143 (2), the legislature would have indicated that.

(ii) In Circular No.717 dated 14.8.1995 the CBDT has directed that the AO “shall proceed to determine the undisclosed income of the block period and the provisions of s. 142, sub-s (2) and (3) of s. 143 and s. 144 shall apply accordingly”. This circular clarifies the requirement of law in respect of service of notice u/s 143 (2). The circular is binding on the department though not on the Court.

(iii) A search is the sine qua non for a block assessment under Ch. XIV-B. A block assessment is in addition to regular assessments proceedings and not in substitution thereof. The scope and ambit of a block assessment is limited to materials unearthed during search and can only be done on the basis of evidence found as a result of search or requisition.

Note: The judgements in Bandana Gogoi 289 ITR 28 (Gau), Pawan Gupta 181 TM 299 (Del) & Mudra Nanavati (Bom) are impliedly approved while that of the Special Bench in Nawal Kishore & Sons 87 ITD 407 (Luck) (SB) is impliedly overruled. On the scope of a block assessment, Vikram Doshi 256 ITR 129 & Shaw Wallace 238 ITR 13 (Cal) are impliedly approved. S. 292BB inserted w.e.f 1.4.2008 provides that despite non-service etc of notice, the proceedings shall be valid if the assessee has co-operated and not raised an objection before completion of the proceeding. This has been held not to be retrospective in Kuber Tobacco 119 ITD 273 (SB) (Del)

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