The failure to issue a notice under section 292BB of the Income Tax Act renders the assessment order void even if the assessee has participated in the proceedings: Supreme Court

The assessee, Laxman Das Khandelwal was in the business of brokerage. A search and seizure operation was conducted. The assessee submitted return, declaring total income of Rs.9,35,130/-. The assessment was completed under Section 143(3) read with Section 153(D) of Income Tax Act 1961 (IT Act). Unexplained cash and unexplained jewellery was added subsequently.

The assessee filed an appeal before the Commissioner Income Tax (Appeal) (CIT-A). The CIT-A deleted certain amount. Aggrieved by this, the Revenue filed an appeal. The Assessee filed cross objection on the ground of jurisdiction of Assessment Officer (AO) regarding non issue of notice under Section 143(2) of the IT Act. 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 AO lacked jurisdiction in absence of notice under Section 143(2) of the IT Act.

On appeal to the High Court, the issue that arose was the effect of absence of notice under Section 143(2) of IT Act. The assessee relied upon the decision of the Apex Court in Assistant Commissioner of Income Tax and Another vs. Hotel Blue Moon.

The Revenue relied upon the provisions of Section 292BB of the IT Act to submit that the Respondent having participated in the proceedings, the defect, if any, stood completely cured.

On appeal to the High Court, the question of law that arose for consideration was-

· Whether on the facts and in circumstances of the case the issuance of notice under Section 143(3) of the IT Act within the prescribed time limit for the purpose of making the assessment is mandatory?

Accordingly, the High Court answered the question of law in affirmative and in favour of the appellant and against the Revenue. The High Court, disagreeing with the Tribunal, held, that the provisions of Section 142 and Section 143 (2) and (3) 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) of the IT Act proceeds to make an inquiry.

The Revenue appealed to the Supreme Court for special leave under Article 136 of the Constitution which was granted.

The Supreme Court bench of Justices Uday Umesh Lalit and Vineet Saran presided over the case.

The consideration in this appeal before the Supreme Court was whether service of notice on the assessee under Section 143(2) of the IT Act within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the IT Act 1961.

The Court held that 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. The Court held that “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 and Section 143 (2)(3).”

The Court noted that for Section 292BB to apply, the notice must have emanated from the department. If the assessee had participated in the proceedings it shall be deemed that any notice 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.

The Supreme Court dismissed the appeal upholding the decisions of the High Court and the ITAT.

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