CIT vs. Laxman Das Khandelwal (Supreme Court)

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SLP(C)No.Diary No. 7708 of 2019
Commissioner of Income Tax vs. Laxman Das Khandelwal
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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 timelimit
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 subsections
(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.