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TMI Blog2007 (1) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ard Dr. A. K. Saraf, learned senior counsel for the appellant, and also Mr. U. Bhuyan, learned counsel for the Revenue. 3. The appellant is an assessee under the Income-tax Act, 1961. He is carrying on business of plying buses and other sundry business in clothes, fruits, etc. A search and seizure operation was conducted in his business and residential premises at different places in 1997-98. Cash, jewellery and other valuable articles were recovered during the search operation. Thereafter, the Assessing Officer issued a notice under section 158BC on August 20, 1998. In response to the said notice, the assessee filed the return of income for the block period 1988-89 to 1998-99 on March 31, 1999, estimating the total income at Rs. 86,168. A statutory notice under section 142(1) and other notices were issued and served on the assessee. After hearing the assessee and the authorised representative, the Assessing Officer assessed the total income under section 158BC/143(3) at Rs.7,90,120, and the tax payable thereon has been assessed at Rs.4,74,072. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Guwahati. The said appeal was disposed of by the order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, the proceeding for block assessment was initiated after search and seizure. The appellant-assessee submitted the return in response to a notice issued under section 158BC. The Assessing Officer also issued the notice under section 142(1), and completed the assessment under section 158BC and section 143(3) of the Act. Admittedly, no notice was issued under section 143(2). It is obvious that the Assessing Officer did not act upon the return filed in response to a notice under section 158BC(a)(ii) and proceeded to complete the assessment after necessary inquiry as envisaged under section 142. The procedure adopted in completing the assessment will be relevant for determining whether the words "so far as may be" are mandatory or directory in the case at hand. 7. Chapter XIV-B deals with the procedure for assessment of search cases. Section 158BA provides for assessment of undisclosed income as a result of search under section 132. Section 158BB provides the manner of computation of undisclosed income of the block period. Section 158BC provides the procedure for block assessment. To appreciate the procedure prescribed, we may quote herein below the relevant provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows : "(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,- (i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim : Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003 ; (ii) notwithstanding anything contained in clause (i), if he con siders it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return : Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under Chapter XIV-B, where the Assessing Officer does not proceed to make an assessment and determine the tax payable on the basis of the return filed in response to a notice under section 158BC(a), he has to follow the provisions of sub-section (2) of section 143. The requirement of a notice under sub-section (2) of section 143 cannot be dispensed with in a case where the Assessing Officer proceeds to make an inquiry for the purpose of assessment, and determination of taxes payable after issuing notice under section 142(1) as well. 11. In the instant case, the Assessing Officer did not act upon the return filed in response to the notice issued under section 158BB(a). He had issued a notice under section 142(1). He had proceeded to make an inquiry. This could not be done without a notice under sub-section (2) of section 143. The provisions of sub-section (3) quoted above clearly show that the powers under this sub-section could be invoked only after service of notices under sub-section (2). In the instant case, the Assessing Officer admittedly did not follow the provisions of sub-section (2) of section 143. The words "so far as may be", will thus become mandatory where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce his books of account and other materials in support of his return. Only then, the Assessing Officer can make an assessment under sub-section (3) of section 143 of the Act. 13. Dr. Saraf also relied upon the circular issued by the Board of Direct Taxes which provides that a notice under sub-section (2) can be served on the assessee during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. The circular further provides that the Assessing Officer must serve notice under sub-section (2) on the assessee within this period in a case picked up for scrutiny. It is further clarified that if a notice is not served under section 143(2), the assessee can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. The clarification given by the Board has a binding effect on the Department, but not on the court. However, this circular also clarifies the requirement of law in respect of service of notice under subsection (2) of section 143. 14. We have also considered the other decisions relied upon by Dr. Saraf in Padmasunda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even in the case of a block assessment so far as may be. There is no dispute that in the case of assessment under Chapter XIV, a notice under section 143(2) is mandatory where the Assessing Officer proceeds to make an inquiry as provided in section 142. Similarly, the provision of section 143(2) will be mandatorily applicable in the case of a block assessment also where the Assessing officer in repudiation of the return filed under section 158BC(a) proceeds to make an inquiry in the proceeding under Chapter XIV-B. Once the power of inquiry under section 142 is invoked, the Assessing Officer has no option but to follow the provisions of section 143(2). For this reason, we hold 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 the return filed in response to a notice issued under section 158BC(a) proceeds to make an inquiry. The defects crept in cannot be cured at this stage in view of the limitation provided in section 143(2). The assessment order in the instant case thus suffers from both procedural and jurisdictional error. The option left with the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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