1. The following question has been referred to the Special Bench for its opinion by the Hon'ble President of the IT AT : "Whether the provisions of Sub-section (2) of Section 143 of the IT Act, 1961, are applicable to the block assessment proceedings. If so, whether non-issuance and non-service of the notice under Section 143(2) shall have the effect of mitigating the block assessment order, so as to render the assessment orders itself as null and void ?" 2. Both the parties furnished their written submissions in advance so that each of them could keep in mind the line of arguments of the opposite party. The learned counsel for the assessee, Mr. S.K. Garg has raised various contentions in favour of the proposition that the provisions of Section 143(2) are fully applicable to the block assessment proceedings and non-issuance/service of such notice would render the block assessment order as null and void. At the outset, he took us through the scheme of regular assessment provided in Sections 142, 143 and 144 and then submitted that Section 142 empowers the AO only to collect the information for the purpose of making assessment.
On the basis of the material so collected, he may accept the return under Section 143(1), However, on the basis of such information, if he is not satisfied with the return and wants to verify the correctness of the return filed by the assessee then he is bound to issue the notice under Section 143(2) before making assessment in accordance with the provisions of Section 143(3). It was greatly emphasized by him that Section 142 by itself does not empower the AO to make, the assessment.
If any assessment has to be made on the basis of information collected under Section 142, then before making such assessment he has to issue notice under Section 143(2) except in the circumstances mentioned in Section 144. Proceeding further, he drew our attention to the provisions of Section 158BC(b) to point out that as per this section, AO is required to assess the undisclosed income of the assessee in accordance with the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 under Chapter XIV-B. No other manner has been prescribed for making the assessment of undisclosed income. Hence, it was vehemently argued by him that provisions of Section 143(2) being mandatory are fully applicable to the block assessment proceedings and consequently, mere issue of notice under Section 142 would not tantamount to compliance of the provisions of Section 158BC(b) since Section 142 does not empower the AO to make assessment. Therefore, if any assessment of undisclosed income under Chapter XIV-B has to be made, then it can be made only after issuing notice under Section 143(2) within the time prescribed by the legislature.
3. Proceeding further, it was argued by him that the legislature has used the word "shall" in Section 143(2) which indicates that such provisions are mandatory. He also referred to the golden rule of interpretation that nothing can be added to or subtracted from language employed by the legislature if the language is clear and unambiguous, Aids to the rule of interpretation can be resorted to only if the language used by the legislature is ambiguous. According to him, the language of Section 143(2) is simple, clear and unambiguous and, therefore, full play should be allowed to the language used by the legislature. Accordingly, it was strongly pleaded that Section 143(2), being mandatory, the AO is bound to serve the notice before initiating the block assessment proceedings within the prescribed time-limit.
4. Regarding the expression "so far as may be" used by the legislature in Clause (b) of Section 158BG, he heavily relied on the judgment of Supreme Court in the case of R. Dalmia and Anr. v. CIT (1999) 236 ITR 480 (SC) wherein the scope of such expression has been duly considered while construing the provisions of Section 148. According to him, this judgment lays down that all procedural provisions relating to assessment in Chapter XIV should be applied. Since the legislature has restricted to the provisions of Sections 142, 143(2) and 144 for application to the block assessment proceedings, such provisions, being procedural in nature, must be fully applied. Hence, block assessment cannot be made without issuing notice under Section 143(2) within the period of limitation.
5. Proceeding further, he relied on the Board Circular No. 717 dt. 14th Aug., 1995, reported in (1995) 215 ITR 70 (St). He drew our attention to p. 98 where, vide Clause 39.3(e), it has been explained that provisions of Section 142, 143(2) and 144 would apply to the block assessment proceedings. It has been pleaded by him that the controversy before the Tribunal is meaningless since the circular directs the AO to apply the provisions of Section 143(2) in its entirety in as much as the said circular ignores the expression "so far as may be". Proceeding further, it was pleaded that such circular is binding on the Tax authorities in view of the various Supreme Court judgments, namely, State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC), CIT v. Jai Parkash (1996) 219 ITR 737 (SC) and UCO Bank v. CIT (1999) 237 ITR 889 (SC). At this stage, he also referred to Article 73 of Constitution of India for the proposition that policies declared by Government of India are enforceable at law and consequently, the Board circular representing the policy of Government of India is enforceable at law.
Reliance was placed on the decision of the Tribunal in the case of Ericsson Communication Ltd. v. Dy. CJT (2002) 74 TTJ (Del) 337 : (2002) 81 ITD 77 (Del).
6. In support of the above submissions, he relied on the various unreported decisions of the Tribunal, namely, in the case of Rakesh S.Mardia, ITA (SS) No. 30/Ahd/2000 decided by Ahmedabad Bench, decision of Allahabad Bench in the case of Sarswati Dew, ITA No. 975/All/96 decided on 1st Nov., 1997, and the decision of Lucknow.Bench in the case of Narender Kumar Jain 1853/All/96 decided on 31st July, 2001.
7. Regarding the second aspect of the issue, he drew our attention to the provisions of Section 143(2) as existed prior to the amendment effective from 1st April, 1989, and the post-amendment provisions.
According to him, prior to 1st April, 1989, no time-limit had been prescribed for issuing notice under Section 143(2) but after the insertion of the proviso by way of amendment effective from 1st April, 1989, a time-limit has been prescribed for serving of such notice, and consequently, jurisdiction of the AO to proceed to make the assessment is effected. According to him, one could argue prior to the amendment that the provisions carried the principle of natural justice and failure to follow the same would not render the assessment as illegal but after the amendment, no such argument can be raised since such provisions now affects the jurisdiction of the AO to proceed to make the assessment. Hence, failure to serve such notice within the time would render the assessment as null and void.
8. Proceeding further, it was contended and reiterated by him that after the filing of the return, the option is available to the AO either to accept the return under Section 143(1) or to make the assessment if not satisfied with the return. If the AO opts to make the assessment after examining the books of accounts of the assessee then the only course open to the AO is to exercise the option in accordance with the provisions of Section 143(2). After 1st April, 1989, such option can be exercised only within the time-limit provided in the proviso to such section. According to him, the legislature has clearly restricted the powers of the AO inasmuch as he cannot proceed to assess after the expiry of the time-limit prescribed in the proviso to Section 143(2). That means non-compliance of such provisions would affect the jurisdiction of the AO and consequently, assessment made without complying with such provisions would be without jurisdiction and null and void. In support of his above contention, he relied on the decision of Supreme Court in the case of Menaka Gandhi, AIR 1978 SC and the decision of the Tribunal in the case of Colonisers v. Asstt. CIT (1993) 45 TTJ (Hyd)(SB) 114 : (1992) 41 ITD 57 (Hyd)(SB) wherein it has been held that non-compliance of principle of natural justice amounts to nullity. He also relied on the decision of the Tribunal, Allahabad Bench in the case of Sarswati Devi (supra) wherein it has been held that where the right of the AO to issue notice under Section 143(2) had already been extinguished on account of the expiry of the time-limit, then such right cannot be revived by any direction of the superior authority. It has also been held therein that after the amendment made w.e.f. 1st April, 1989, the proviso inserted in Section 143(2) has controlled the jurisdiction of the AO to exercise the option to proceed to make the assessment. He also relied on the judgment of Bombay High Court in the case of CIT v. D.S. Sareen (P) Ltd. (2001) 248 ITR 633 (Bom) wherein it has been held that additional ground taken by the assessee challenging the assessment under Section 143(3) on the ground that the notice under Section 143(2) was not issued, had been rightly allowed by the Tribunal as such ground related to the jurisdiction of the AO. He has also invited our attention to the decision of the Tribunal, Mumbai Bench in the case of Uma Polymers (P) Ltd. (2002) 123 Taxman 226 (Mum) (Mag) as well as in the case of Bhagat Singh Virender Singh v. Asstt. CIT (2000) 69 TTJ (Del)(TM) 660 : (2000) 251 ITR 74 (AT)(TM) wherein it has been held that assessment made without issuing notice under Section 143(2) was invalid. Reliance was also placed on the judgment of Punjab & Haryana High Court in the case of Vipin Khanna v. CIT (2002) 255 ITR 220 (P&H) for the proposition that assessment under Section 143(3) could be made only after serving notice under Section 143(2) within the time prescribed.
9. Alternatively, it was argued that null and void would not only include illegal order ah initio void but also included partial nullity i.e., illegality with reference to the variation made in the assessment order as AO could not vary the income returned without the issue of notice under Section 143(2). So, according to him, even if assessment proceedings are not held to the void ab initio the assessment be held void so as to delete the additions made by the AO.10. Mr. Jain appearing for the Intervener also adopted the arguments of Mr. Garg. In addition, he drew our attention to the various provisions of Chapter XIV-B to point out that such chapter contains substantive as well as procedural provisions. According to him, the provisions of Section 158B and 158BA are substantive provisions as held by the Tribunal in the case of Vidya Madanlal Malani v. Asstt. CIT (2000) 69 TTJ (Pune) 456 : (2000) 74 ITD 341 (Pune) while the provisions of Section 158BB are machinery provisions for computation of undisclosed income. He then referred to the provisions of Section 158BC, which is in two parts, namely, (i) the provisions calling for the return, and (ii) the provisions empowering the AO to proceed to determine the undisclosed income in accordance with the provisions of Section 142, 143(2) and 144. He then referred to the provisions of Section 158BA which directs the AO to proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. In view of such provisions, it was argued by him that AO was bound to follow the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 since such provisions are engrafted in Section 158BC.According to him, if certain provisions are borrowed and incorporated in Chapter XIV-B then AO is bound to comply with the same. He also referred to the provisions of Section 143(2) as existed prior to 1st April, 1989, and the provisions as amended w.e.f 1st April, 1989, and then pleaded that the moment proviso to Section 143(2) was added w.e.f.
1st April, 1989, such provisions became mandatory and, therefore, notice under Section 143(2) had to be issued and served within the prescribed time. Hence, if the notice has not been issued within the prescribed time then the action of the AO in assessing the assessee would be without jurisdiction and consequently, null and void. He also pleaded the doctrine of severance and submitted that if the action is severable then such action would be null and void to that extent.
Reliance was placed on the judgments P. Vittal Pai and Ors. v. Agrl.
ITO (1976) 104 ITR 794 (Kar), Mrs. Banoo F. Cowasji v. CGT (1997) 223 ITR 219 (MP) and Hope Textiles Ltd. and Anr. v. Union of India and Ors.
(1994) 205 ITR 508 (SC). Mr. Sidharth Pathak appearing for other Intervener also adopted the arguments of Mr. Garg and had nothing to add.
11. On the other hand, the learned CIT Departmental Representative has vehemently opposed the contentions raised by the learned counsel for the assessee by raising various contentions. Firstly, it was contended by him that filing of a valid return is a condition precedent for application of Section 143(2). Reliance was placed on the decision of J&K High Court in the case of Aziz Qazi & Bros (1974) TLR 540. So in a case where no return is filed or the return filed is not a valid return, the assessee cannot contend that assessment without issue of notice under Section 143(2) is invalid. It was also argued by him that unlike Section 148, Section 158BC does not provide fiction that return filed under this section shall be treated as return filed under Section 139. Further, there is no provision for filing of voluntary return under Chapter XIV-B. The return under chapter XIV-B can be filed only in response to the notice under Section 158 BC(a). Therefore, if the return is not filed within the prescribed time provided in the notice under Section 158BC then the belated return will have to be ignored being non est. He also relied on the various decisions of the Supreme Court for the proposition that literal rule of construction would apply while construing such provisions. It would be sufficient to note two judgments i.e., in the case of Orissa State Warehousing Corporation (supra) and Mohd Ali Khan (supra). Therefore, it was strongly contended by him that provisions of Section 139(4) cannot be invoked and applied to the belated returns in pursuance of notice under Section 158BC.Therefore, where no valid return is filed under Section 158BC, notice under Section 143(2) is not required to be issued. It was also submitted by him that even assuming that notice under Section 143(2) is to be issued in respect of belated returns then it would be impossible to issue such notice if the assessee chooses to file the return on the last day i.e., when the assessment is to be completed. According to him, compliance of notice under Section 143(2) in such a situation could never have been intended by the legislature.
12. Secondly, it was contended that Chapter XIV-B is a special code for assessing the undisclosed income and does not contain the machinery provisions of its own. However, it has incorporated certain machinery provisions applicable to regular assessment for limited application inasmuch as the legislature has used the expression "so far as may be" in Clause (b) of Section 158BC. Such words, according to him, have been defined as "to the extended possible" and, therefore, the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 cannot be applied in its entirety in the literal sense. In this connection, he referred to the meaning given to such expression in the legal glossary issued by the Ministry of Law. He also relied on the judgment of Hon'ble Supreme Court in the case of Dr. Pratap Singh v.Director of Enforcement, AIR 1985 SC 989 wherein the expression "so far as may be" has been construed as "to the extent possible". He took us through the relevant portions of that judgment and pointed out that in that case Section 37(2) of Foreign Exchange Regulation Act (FERA) provided that "the provisions of CrPC relating to searches shall, so far as may be apply to searches under Section 37(1)". The contention of the appellant before the Court was that the Director of Enforcement was under obligation to record the reasons before conducting the search as provided in Section 165 of the Cr.PC. However, this contention of the appellant was rejected by the Supreme Court by observing that provisions of Section 165 of CrPC were not incorporated by pen and ink in Section 37(3) of FERA. On the other hand, the expression "so far as may be" would only mean that the methodology prescribed for carrying out the search provided in Section 165 of the CrPC has to be generally followed. Based on this principle, it was argued by the learned Departmental Representative that only procedural requirement of Section 143(2) was to be followed and not the provisions of Section 143(2) in its entirety. According to him, the extent of the application of such provisions would depend upon the context, in which the provisions of Chapter XIV-B are enacted. In this connection, he also relied on the recent judgment of the apex Court in the case of Bhavnagar University v. Palitana Sugar Mills Ltd. (2003) 2 SCC 111 wherein it has been held that full effect must be given to the words "so far as may be" by following the procedural requirement so far as reasonably possible. He has also relied on the decision of the Tribunal Pune Bench in the case of Vijay Kapoor appearing at p. 205 of the Department's paper book (II) wherein it has been held that provisions of Section 143(2) cannot be applied in its entirety to block assessment proceedings. According to this decision, such provisions are to be applied only for the purpose of giving an opportunity to the assessee. The other decisions of the Tribunal relied upon by him are in the case of Action Electronics v.Dy. CIT, ITA No. 5215/Del/96 and in the case of ITO v. Master Vishal D.Lagade, ITA No. 633/Pn/2001.
13. At this stage, he also distinguished the judgment of the Supreme Court in the case of R. Dalmia (supra) relied upon by the learned counsel for the assessee. It was argued by him that provisions of Section 148, which were considered by the Hon'ble Supreme Court and the provisions of Section 158BC are couched in different manner. He drew our attention to the language of Section 148 and pointed out that there is a fiction to the effect that the return filed under Section 148 shall be deemed to be return under Section 139. So the words "so far as may be" were to be construed by the apex Court in the light of such fiction. According to him, it is only because of this fiction it was held by the Supreme Court in that case that all the procedural requirements of regular assessment were to be applied. However, such fiction has not been inserted in Section 158BC. According to him, such departure is deliberate and, therefore, the decision of the Supreme Court is distinguishable. According to him, the issue before us is squarely covered by the decision of the Supreme Court in the case of Dr. Pratap Singh (supra), (i) The purpose behind insertion of the proviso was to expedite the process of selection of the cases for scrutiny so as to remove uncertainty in the matter of selection of cases for scrutiny.
Departmental Circular No. 549, dt. 31st Jan., 1989, as also the Memorandum accompanying the Finance Bill (No. 2), 1991, emphasize this point. The underline philosophy is to accept the return generally without scrutiny so as to secure and promote the level of voluntary compliance. As against this, an assessment under Chapter XIV-B is statutorily required to be made after scrutiny and after due consideration of the seized materials and, to that extent, no uncertainty of time is involved as to whether a return furnished under Section 158BC would be picked up for scrutiny as all such returns. are required to be scrutinized and assessment is to be framed under Section 158BC r/w Section 158BB and 143(3). Acceptance of return under Section 143(1) without scrutiny is contra indicated by Section 158BC and hence, the provisions cannot be interpreted in a manner that compels the AO to function in contravention of law.
(ii) Since block assessment cannot be made under Section 143(1), it is not possible to interpret the proviso in such a way as to force the AO to accept the return under Section 143(1). This is why the legislature has thought in its wisdom to apply the provisions of Section 143(2) to the extent possible. In the context of block assessment, the time-limit laid down in Section 143(2) loses its significance and, therefore, the same will have to be ignored in its application to block assessment.
15. Proceeding further, it was contended by him that the scheme of assessment under Chapter XIV-B is entirely different from the scheme of regular assessment under Chapter XIV; According to him, Section 139 provides that assessee would file a return of income voluntarily either under Sub-section (1) or Sub-section (4) but there is no such provision in Chapter XIV-B. It is only where the assessee does not file the return voluntarily, he may be asked to file the return under Section 142(1). On the other hand, under Section 158BC, the AO has to first issue notice to the assessee for filing of the return and it is only in response to such notice, the return is filed by the assessee. Secondly, once a return is filed under Section 139(1) or 139(4) or 142(1), the AO has an option either to accept the return filed under such provisions or if he is not satisfied with the correctness of such return, he may make the assessment after examining the books of the assessee and in the manner provided in Section 143(3) after serving the notice under Section 143(2). According to him, the legislature has provided a bar for exercising such option in the form of time-limit. Therefore, if the AO opts to exercise the option to make assessment under Section 143(3), then he has to exercise such option by serving notice within the time provided in Section 143(2) but there is no such option available with the AO while making the assessment under Chapter XIV-B. He drew our attention to the provisions of Section 158BC to point out that after the issue of notice for filing of the return, the AO has to proceed to make the assessment of undisclosed income irrespective of the filing of the return. In view of the above, difference in both the schemes, it was argued by him that provisions of time-limit for issuance of notice would not apply to the block assessment proceedings and it would be sufficient if the notice under Section 143(2) is served on the assessee where the return is filed as per the provisions of Sub-section (1) of Section 158BC.16. Proceeding further, it was submitted by him that as soon as the notice under Section 158BC is issued, the AO not only gets the jurisdiction to assess but is also dutybound to proceed to determine the undisclosed income of the assessee and there is no option unlike option under Section 143. So, the AO need not to wait for filing of the return and can assess the assessee where the assessee does not file the return within the time prescribed under Section 158BC(1). In such a situation, the assessment can be made even without issuing notice under Section 143(2) since the application of issue of notice arises only when the return has been filed by the assessee. However, he conceded that where the return has been filed by the assessee in terms of Section 158BC(1) and, thereafter, the AO decides to make the assessment then he has to issue notice under Section 143(2) because the procedural provisions are to be followed in view of the Supreme Court judgment in the case of Dr. Pratap Singh (supra). But where the return has not been filed by the assessee, the question of issuing notice under Section 143(2) would not arise. The block assessment has to be completed within one year from the end of the month in which last authorization under Section 132 was issued. So if the assessee chooses not to file the return or files the return few days before the expiry of limitation period for completing the assessment, then it would not only be impracticable but also putting too much burden on the AO to proceed to make the assessment only after issuing notice under Section 143(2).
Such interpretation, according to him, would give license to the assessee not only to delay the assessment but also to prevent the AO to make the assessment till the filing of the return. In such a situation, it will not only be impracticable but rather impossible to complete the assessment in such a short period particularly when the AO has to examine the enormous seized material. So, it was concluded by him in this regard by submitting that AO can proceed to make the assessment immediately after the expiry of time-limit for filing of the return under Section 158BC even without issuing notice under Section 143(2) where the assessee chooses not to file the return or to delay such return. Further, it was stated that there is no prescribed form for issuing the notice in order to proceed to make the assessment, and, therefore, the AO can even initiate the assessment proceedings by issuing questionnaire in respect of the seized material and asking the assessee to explain the same.
17. Regarding the Board circular relied upon by the learned counsel for the assessee, it was submitted by him that the circular uses the word "accordingly" which means according to the provisions of Section 158BC.Hence, it was argued by him that no inference can be drawn from the said circular to the effect that provisions of Section 143(2) are to be applied in its entirety. It was also submitted by him that the Board Circular has to be read in the context of the powers under Section 119.
According to him, the Board can only tone down the rigours of the provision as held by the Supreme Court in various cases but cannot whittle down or obliterate the expression used by the legislature.
18. Regarding the second part of the question referred to the Special Bench, the learned CIT Departmental Representative raised various submissions. Firstly, it was submitted by him that the provisions of the proviso to Section 143(2) are not mandatory and rather mere obligatory and, therefore, non-compliance of the same would not render the same as null and void. According to him, no provision can be said to be mandatory unless the adverse consequences flow from its non-compliance. According to him, unlike Section 153 or Section 275, Section 143(2) does not debar the AO from making assessment under Section 143(3). The purpose behind the issuance of notice under Section 143(2) is only to provide an opportunity to the assessee to represent his case and nothing more. It is only the principle of natural justice which has been incorporated by the legislature in Section 143(2).
According to him, if in a given case notice is not issued then assessment' may be set aside for giving proper opportunity to the assessee but on that account assessment cannot be declared null and void. He relied on various judgments for the proposition that provisions are to be construed directory where no adverse consequence flows from the non-compliance of the same. According to him, in the following judgments, the providing time-limit have been held to be directory :State of U.P. v. Manbodhan Lal Srivastava AIR 1957 SC 1912, p.
918;Bombay Union of Journalists v. State of Bombay AIR 1964 SC 1617; (iv) Punjab Baeverages (P) Ltd. v. Sureshchand AIR 1978 SC 995; (v) TsUsman v. Food Inspector AIR 1994 SC 1818;Topline Shoes Ltd. v. Corpn. Bank (2002) 6 SCC 33 (paras 6 to 8 at pp. 37 & 38); andDirector of Inspection of Income-tax v. Pooran Mall & Sons and Anr.
Consequently, mere omission to issue such a notice cannot be a ground for holding the resultant assessment proceedings as null and void. Mr.
Dubey, the learned CIT Departmental Representative advanced the case of the Department by raising various contentions. Firstly, it was contended that explanatory notes is only the explanation of the clauses of the bills and, therefore, such clarification by way of circular cannot be considered a circular under Section 119 of the IT Act. In this connection, he referred to the Commentary by Crais on Statute Law at p. 295 and the decision of Andhra Pradesh High Court in the case of CIT v. Bakelite Hylam Ltd. (1999) 237 ITR 392 (AP) at p. 400. It was also submitted by him that circulars cannot bypass the relevant provisions of a Statute. Therefore, it was pleaded by him that if any circular does away with the expression used by the legislature then such circular would by beyond the scope of Section 119 and, therefore, the same has to be ignored. So the expression "so far as may be" has to be given its due weight and the provisions referred to have to be applied "to the extent Addpossible" or "as practical as possible".
19. Proceeding further, it has been submitted by him that even presuming that such provisions are mandatory, the further test would be whether the provisions of Section 143(2) are substantially complied with and as to whether its non compliance caused and prejudice to the assessee. According to him, if such provisions are substantially complied with and no prejudice is caused to the assessee then the assessment cannot be deleted null and void. Reliance was placed on the following judgments : .Director of Inspection v. Pooran Man & Sons and Anr.
(ii) Rachpal Singh v. State of Punjab (2002) 6 SCC 642 (Para. 11 of the judgment);State of U.P. v. Harendra Arora 20. Proceeding further, he invoked the doctrine of waiver/acquiescence.
According to him, if the assessee participates in the proceedings initiated by the AO then no stand can be taken by the assessee regarding non-issuance of notice under Section 143(2). In this connection, he relied on the following judgments : (i) Vellayan Chettiar v. Province of Madras AIR 1947 PC 197 at p.
199 (referred to in Commissioner of Customs v. Virgo Steels (2002) 4 SCC 316;Commissioner of Customs v. Virgo Steels (2002) 4 SCC 316 (copy of judgment is enclosed);P. V. Doshi v. CIT (vii) Karnataka SRTC v. KSRTC Staff & Workers' Federation (1999) 2 SCC 687; (viii) Birla Cotton Spg. Wivg. Mills Ltd. v. ITO (1994) 209 ITR 434 (Raj); and (ix) Doctrine of Acquiescence as explained in P. Ramanatha Viyar : Law Lexicon 2nd Edn, Reprint 2000, General Ed. Justice Y.V. Chandrachud at p. 32.
21. Proceeding further, it was submitted by him that Section 143(2) is not a jurisdictional provision and omission to issue such notice is only procedural irregularity.
22. Proceeding further, it was contended by him that there is a distinction between a situation where the provisions of a Statute are bodily lifted and incorporated in the other provisions and a situation where only reference is made to other provisions of a Statute. In the case of former, the provisions borrowed and incorporated into other provisions become part and parcel of provisions wherein such provisions are incorporated and there can be no deviation.. But in a later case, such is not the position. In support of such proposition he relied on the decision of the Constitution Bench of the apex Court in the case of Ujagar Prints v. Union of India AIR 23. In reply the learned counsel for the assessee Mr. Garg has mainly reiterated his stand party advances and, therefore, need not be repeated. He also relied on certain, decisions and commentary regarding construction of Statutes. Reference was made to Law and Practice of Income-tax by Kanga & Palkiwala in the proposition that "one has to look merely at what is clearly stated. There is no room for any intendment. There is no presumption as to tax. Nothing is to be read into, nothing is to be implied. One can only look fairly at the language used". Then he referred to the judgment of the Supreme Court in the case of Reserve Bank of India v. Peerless General and Finance and Investment Company (1987) 1 SCC 424 for the proposition that interpretation must defined on the text and context. Reliance was also placed on the judgment of the Supreme Court in the case of K.P.Verghese v. JTO and Anr. (1981) 131 ITR 597 (SC) for the proposition that Board circular are binding on the Department.
24. Accordingly it was argued that provisions of Section 143(2) should be construed in literal sense. He also reiterated that the expression "so far as may be" has become meaningless since the Board in Circular No. 717 dt. 14th Aug., 1995, had omitted to use such expression. He also relied upon the Allahabad High Court judgment in the case of Rajmani Devi v. CIT (1937) 5 ITR 631 (All) for the proposition that non-issuance of notice under Section 143(2) would render the assessment as null and void. He also referred to the provisions of Section 158BH for the contention that all the provisions of the Act shall apply to the block assessment proceedings. He also contended that no Court has ever held that non-issuance of notice under Section 143(2) is of no consequence having no bearing on the validity of the assessment made in violation of the requirement of issuing requisite notice. Further, to counter the arguments learned Departmental Representative he referred to the provisions of Section 158BFA to contend that belated return are recognized by then statute itself and, therefore, such returns cannot be treated as non est. Regarding the decision of Tribunal Delhi Bench, it was pleaded that provisions of Section 143(2) proviso were not brought to the notice of the Bench and, therefore, the said decision is distinguishable. It was also stated that if any intention was to provide an opportunity of being heard then there was no necessity for applying the provisions of Section 143(2).
25. In reply, Mr. Jain for the intevener, confronted the argument of learned Departmental Representative by making various submissions which in brief are these : (i) That proviso to Section 143(2) provides the outer limit for issuing the notice and, therefore, does not prevent the AO to serve the notice earlier than the said outer limit, Therefore, it is imperative upon the AO to issue such notice even where the return has been abnormally delayed. Accordingly to him in any such case, the AO may complete assessment after issuing such notice and the assessee cannot put forth the plea that he was not given reasonable opportunity of being heard since nobody can take advantage of his own wrong or laches.
(ii) The words "so far as may be" are words of many dimensions and one of the dimension is that where the engrafted provision in another provision of law has to be pressed into service the application thereof cannot be barred rather on the contrary it has to be applied in a manner which befits with the context of the legislation in which such engrafted provision occurs and this neither amounts to harmonious interpretation nor to contextual interpretation and it simply amounts to giving effect to the provisions of the legislation as it stand along with the borrowed/engrafted provision.
(iii) Clause (b) of Section 158BC is clearly dissectible into two easily clearly identifiable parts. The first part mandates that the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158B and the second part engrafts, or in other words, borrows the provisions of Section 142, Sub-sections (2) and (3) of Section 143, Section 144 and Section 145 with the expression "So far as may be" intertwined in it. According to him if the return is filed, the AO is bound to issue notice under Section 143(2) within the time prescribed in the proviso. However, where return is not filed by the assessee, the AO is not powerless and he is not supposed to wait for the return. He can invoke the provisions of Section 142(1)(i) and direct the assessee to call for the return and thereafter complete the assessment in accordance with the Section 143(2) or Section 144(l)(b).
(iv) Regarding the principle of referential legislation canvassed by learned Departmental Representative in view of the Supreme Court judgment in the case of Ujagar Prints (supra), it has been contended that nothing has been laid down therein that the expression "so far as may be" is akin to "to the extent possible and practicable".
According to him such expression in Section 158BC(b) does not, in any manner, whatsoever mean that the provisions of Section 143(2) in its entirety are not applicable to block assessment proceeding. It is further stated that there is nothing to ignore the proviso to Section 143(2). On the other hand lie relied on the following observation of Lord Esher MR In re. Wood's State (1886) 31 Ch.D 607.
"It is to put them in the Act of 1855, just as if they had been written into it for the first time. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just at if they had been actually written in it with the pen, or printed in it, and the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all".
(v) The provisions of Section 158BC(b) r/w Section 143(2) including the proviso thereto have been couched in most unambiguous terms and therefore, principles of harmonious interpretation cannot be pressed into service and moreover the subjective or intuitive or apprehensive as contradistinguished from objective conflicts and absurdities cannot be allowed to be taken as a ground for canvassing the principles of harmonious interpretation. Reliance in this context is placed upon following judicial pronouncements : (b) Padma Sundar Rao (Deed.) and Ors. v. State of Tamilnadu and Ors.
(2002) 255 ITR 147 (SC).
26. Rival submissions of the parties have been considered carefully in the light of the case law referred to by the parties. The first question to be considered related to the applicability of the provisions of Sub-section (2) of Section 143 to the block assessment proceedings. Both the parties are agreed that the aforesaid provisions are applicable to block assessment proceedings but the dispute between the parties is with reference to the extent of its application.
According to the assesses, the provisions of Sub-section (2) of Section 143 are applicable in its entirety while as per the Revenue, such provisions are applicable to the extent possible or practical. So the dispute involves interpretation of the words "so far as may be" used by the legislature in Section 158BC(b) which, for the benefit of this order, is being reproduced as under: "Where any search has been conducted under Section 132 of books of account, other documents or assets are requisitioned under Section 132A in the case of any person then, (b) The AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158B and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 shall, so far as may be, apply." 27. The interpretation of the words "so far as may be" is in our opinion, no more res Integra. Immediate reference can be made to the judgment of the Hon'ble Supreme Court in the case of Dr. Pratap Singh v. Director of Enforcement (supra) which has been heavily relied upon by the learned CIT Departmental Representative. In that case, the Court had occasion to consider the provisions of Section 37(2) of Foreign Exchange Regulation Act, 1973 (in short FERA), which provides that provisions of the CrPC relating to searches, shall so far as may be, apply to searches directed under Section 37(1) of the said Act. It was contended by the appellant before the apex Court that provisions of Section 165 of the CrPC were incorporated by pen and ink in Section 37 of FERA and, therefore, the search made under Section 37 without recording reasons in advance which was condition precedent for exercising the power to search as provided in Section 165 of CrPC was illegal This contention was negatived by the Court and it was held that the words "so far as may be" have always been construed to mean "to the extent possible". It was further ruled that the expression "so far as may be" should mean that broadly the procedure relating to searches provided in Section 165 of CrPC should be followed. The relevant observations of their Lordships appearing at p. 993 are being reproduced as under: "Section 37(2) provides that the provisions of the Code relating to searches, shall so far may be, apply to searches directed under Section 37(1). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as may be" has always been construed to mean that those provisions may be generally followed to the extent possible. The submission that Section 165(1) has been incorporated by pen and ink in Section 37(2) has to be negatived in view of the positive language employed in the section that the provisions relating to searches shall so far as may be apply to searches under Section 37(1). If Section 165(1) was to be incorporated by pen and ink as Sub-section (2) of Section 37, the legislative draftsmanship will leave no room for doubt by providing that the provisions of the CrPC relating to searches shall apply to the searches directed or ordered under Section 37(1) except that the power will be exercised by the director of Enforcement or other officer exercising his power and he will be substituted in place of the Magistrate. The provisions of Sub-section (2) of Section 37 has not been cast in any such language. It merely provides that the search may be carried out according to method prescribed in Section 165(1). If the duty to record reasons which furnish grounds for entertaining a reasonable belief were to be recorded in advance, the same could have been incorporated in Section 37(1), otherwise a simple one line section would have been sufficient that all searches as required for the purpose of this Act shall be carried out in the manner prescribed in Section 165 of the Code by the officer to be set out in the section. In order to give full meaning to the expression "so far as may be" Sub-section (2) of Section 37 should be interpreted to mean that broadly the procedure relating to search as enacted in Section 165 shall be followed. But if a deviation becomes necessary to carry out the purposes of the Act in which Section 37(1) is incorporated, it would be permissible except that when challenged before a Court of law, justification will have to be offered for the deviation. This view will give full play to the expression "so far as may be".
28. The above observations of their Lordships clearly show that only the procedural requirements of Section 165 of CrPC were intended to be complied with and not the substantive requirements. Recording of the reasons provided in Section 165 of CrPC was a substantive provision and the condition precedent for carrying out a search but the same was held not necessarily to be followed while carrying out a search under Section 37(2) of FERA because of the expression "so far as may be" used by the legislature. The search was held to be valid since there was sufficient material on record to justify the same. Similar view has also been taken by the apex Court in the recent judgment in the case of Bhav Nagar University v. Palitana Sugar Mills Ltd. 29. At this stage, it would be appropriate to refer to the judgment of Hon'ble Supreme Court, 'delivered by the Constitution Bench, in the case of Ujagar Prints (supra), wherein the principles of referential legislation has been explained. The relevant discussion is in para 49 of the judgment, which is being reproduced as under: "Referential legislation is of two types. One is where an earlier Act or some of its provisions are incorporated by reference into a later Act. In this event, the provisions of the earlier Act or those so incorporated, as they stand in earlier Act at the time of incorporation, will be read into the later Act. Subsequent changes in the earlier Act or the incorporated provisions will have to be ignored because, for all practical purposes, the existing provisions of the earlier Act have been reenacted by such reference into the later one, rendering irrelevant what happens to the earlier statute thereafter. Examples of this can be seen in Secretary of State v. Hindustan Co-operative Insurance Society, AIR 1931 PC 149, Bolani Ores Ltd v. State AIR 1975 SC 17, Mahindra and Mahindra Ltd. v. Union of India. AIR 1979 SC 798. On the other hand, the later statute may not incorporate the earlier provisions. It may only make a reference of as broad nature as to the law on a subject generally, as in Bhajiya v. Gopikabai (1978) 3 SCR 561 : AIR 1978 SC 793, or contain as general reference to, the terms of an earlier statute which are to be made applicable. In this case any modification, repel or re-enactment of the earlier statute will also be carried into in the later, for here, the idea is that certain provisions of an earlier statute which become applicable in certain circumstances are to be made use of for the purpose of the latter Act also.
Examples of this type of legislation are to be seen in Collector of Customs v. Nathella Sampasthu Chetty (1962) SC 316, New Central Jute Mills Co. Ltd. v. Asstt. Collector (1971) 2 SCR 92 : AIR 1971 SC 454 and Special Land Acquisition Officer v. City Improvement Trust (1977) SCR 569. Whether a particular statute falls into the first or second category is always a question of construction. In the present case, in my view, the legislation falls into the second category.
Section 3(3) of the 1957 Act does not incorporate into the 1957 Act any specific provisions of the 1944 Act. It only declares generally that the provisions of the 1944 Act shall apply "so far as may be" this is to the extent necessary and practical for the purposes of 1957 Act as well" 30. The perusal of the above observations shows that there is distinction between legislation where provisions of an earlier Act are incorporated by pen and ink and the legislation where provisions of an earlier Act are incorporated but are merely referred to. In the case of former, the provisions so incorporated become integral part of the Statute and are to be literally applied while in the latter case, the provisions referred to are not to be applied literally. It further holds that in the latter case if the legislation uses the expression 'so far as may be' then the provisions of the earlier Act referred to are to be applied to the extent possible and practical, That means that the provisions referred to cannot be applied literally i.e., 'in its entirety as contended on behalf of the assessee.
31. If the ratio of the above judgments are applied to the provisions of Clause (b) of Section 158BC, then we are of the considered view that the provisions of Sub-section (2) of Section 143 and other provisions mentioned therein are to be applied to the extent possible/practical and not in the literal sense. It is only the methodology or the procedural requirements of sections mentioned in Clause (b) of Section 158BC which are to be applied to search cases. Further, if any deviation is necessary to carry out such procedural- provisions then justification for the same will have to be offered by the Revenue.
Clause (b) of Section 158BC is an enabling provision for making assessment of undisclosed income falling within the scope of Section 158BB under Chapter XIV-B. Every fiscal statute prescribes a procedure to be followed for making assessment. The legislature inserted Chapter XIV-B by Finance Act, 1995, for assessing the undisclosed income in search cases, Instead of prescribing a procedure for making such assessment, the legislature has referred to the provisions of Sections 142, 143(2), 143(3) and 144 which are to be applied, so far as may be.
Therefore, in our opinion, the only intention of the legislature was to apply broadly the procedure contained in such, provisions to the extent possible or practical as held by the apex Court in the case of Dr.
Pratap Singh (supra). However, if any deviation is necessary then it would be for Revenue to justify for such deviation. Therefore, so long as it is possible or practical to apply the procedural requirements of Section 143(2), the Revenue has to apply. We hold accordingly.
32. Heavy reliance was placed by the learned counsel for the assessee on the judgment of the Hon'ble Supreme Court in the case of R. Dalmia (supra). In our opinion, this judgment does not help the assessee.
Rather it is distinguishable on the basis of the language used by the legislature in Section 148 which provided that the AO shall serve on the assessee a notice containing all or any of the requirement which may be included in the notice under Section 139(2). It further provided "and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section". By virtue of this legal fiction, the return under Section 148 was to be treated as return under Section 139(2) and as a consequence thereof entire procedure of assessment was required to be followed which was necessary to be followed in the case of a return under Section 139. As a necessary corollary, their Lordships held that procedure provided under Section 144B was applicable to such return. On the other hand, the judgment in R. Dalmia's case, is not contrary to the ratio laid down by the apex Court in the case of Dr. Pratap Singh (supra) or in the case of Ujagar Singh (supra). It will be useful to refer to the following observations appearing at p. 487 : "It was submitted on behalf of the assessee that the provisions of Section 144B were not applicable to assessments and reassessments under Section 147 because Section 144B stated that it applied only to "an assessment to be made under Sub-section (3) of Section 143".
The submission cannot be accepted because the words we have quoted from Section 148 cannot be ignored. A notice having been issued under Section 148, the procedure set out in the sections subsequent to Section 139 has to be followed 'so far as may be. Section 144B is a procedural provision, It fits into the procedural scheme as hereinbefore noted and, therefore, it cannot be excluded by reason of the use of the words "so far as may be', Nor is there any other good reason to exclude it from the procedure to be followed subsequent to notice under Section 148." 33. The above observations also clearly point out that it is the procedure set out in sections subsequent to Section 139 which is to be followed so far as may be, Such observations are in conformity with the ratio laid down by the apex Court in the case of Dr. Pratap Singh (supra). It is in this background that the provisions of Section 144B, being a procedural section was held to be applicable. The judgment nowhere lays down that all the provisions of the Act are to be applied in their entirety. Hence, in our view, this judgment does not advance the proposition canvassed by the learned counsel for assessee.
34. Further, heavy reliance placed by the learned counsel for the assessee on the Board's Circular No. 717, dt. 14th Aug., 1995, (1995) (1995) 215 ITR (St) 95], is also misplaced. The contention of Mr. Garg, learned counsel for the assessee, is that the use of expression 'so far as may be' in Section 158BC(b) has become meaningless isasmuch as Clause (e) of Para. 39.3 of such circular provides "the officer shall proceed to determine the undisclosed income of the block period and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 and Section 144 shall apply, accordingly". According to him, the Board has clarified that the provision of Section 143(2) and other sections are to be applied in its entirety without exception as the expression "so far as may be" is binding on the AO in view of various Supreme Court judgments. We are unable to accept such contention. No doubt, the circular issued by the Board are binding on the Tax authorities provided such circulars are issued under Section 119. A circular under Section 119, while interpreting a provision, may tone down the rigour of the provisions of IT Act as held by the Hon'ble Supreme Court in the case of UCO Bank (supra) but, in our opinion, no circular can omit/delete/obliterate the words or expression used by the legislature.
Howsoever large the scope of a circular may be but it cannot whittle down or obliterate or delete the words used by the legislature in any enactment since such function is within the exclusive domain of the legislature. Accordingly, we do not find any merit in such contention of the learned counsel for the assessee.
35. Let us now consider the questions regarding applicability of the proviso to Section 143(2). In this connection it would be appropriate to consider the scheme of Section 143(2) with reference to the scheme of Section 158BC. The perusal of Section 143(2) shows that it confers powers on the AO to proceed to make assessment of the total income of an assessee if he considers that it is 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. The use of the word "if by the legislature clearly shows that the power to assess is optional and the AO need not proceed to assess in each and every case. If he opts to exercise such powers then such exercise must be made within the period prescribed by the proviso to this section. So, in our opinion, the proviso is attached to such power/jurisdiction of the AO to proceed to assess that is what the learned counsel for assessee has vehemently argued by submitting that by insertion of proviso w.e.f. 1st April, 1989, the jurisdiction of AO has been effected. However, the mode for exercise of such power is through the issue of notice under Section 143(2). In view of above discussion, we are of the view that there are two limbs of this sub-section. In the first part it contains jurisdictional aspect since the AO has to decide as to whether he intends to proceed to make assessment. If yes, then such decision is to be implemented within the period prescribed in the proviso. In the second part, it contains the procedural aspect i.e., the mode for exercising the jurisdiction. In such case, the AO is required to serve the notice.
36. On the other hand, there is no such option available to the AO under the provisions of Chapter XIV-B. According to Section 158BC, once a notice to file the return is issued under Clause (a), the AO is bound to proceed to assess the undisclosed income in each and every search case after the period specified in such notice irrespective of the filing of the return by the assessee. Such power/jurisdiction is duly vested with the AO under Section 158BC. Such power is not controlled by any period of limitation. Therefore, the AO need not wait for the return to be filed by the assessee and consequently, the assessee also cannot stop the AO in exercising such power by delaying the return. The reason is obvious, The AO has to examine lot of seized material and the assessee has to be allowed reasonable opportunity to explain such material. All this has to be done within a short period prescribed under Section 158BE. It is because of such reason, the legislature in its own wisdom has not given any discretion to the AO. Since there is no discretion, the AO is bound to proceed to make the assessment.
Hence, no time-limit was provided to exercise such power. However, no specific provisions are made regarding procedure for making the assessment. It is only for this purpose that the provisions of Section 143(2) are made applicable to search cases.
37. The above discussion reveals that the legislature has made independent substantive provisions regarding the power to proceed to make assessment under Section 143(2) as well as under Section 158BC, Section 158BC r/w Section 158BA, being special provisions for proceeding to assess the undisclosed income of the assessee in search matters, would override the provisions of Section 143(2) as far as power/jurisdiction to proceed to make assessment is concerned inassuch as it is the settled legal position that special provisions override the general provisions. The view which has been taken by us can be illustrated by pointing out that Section 142 has also been made applicable to block assessment proceeding but such provisions cannot be applied for asking the assessee to file the return since specific provisions have been made by the legislature in this regard by enacting Clause (a) of Section 158BC. Perhaps, because of such reasons, the legislature has used the expression "so far as may be".
38. In view of the above discussions, we are of the view that only the procedural part of Section 143(2) can be applied to block assessment proceedings and consequently, provisions of Section 143(2) cannot be applied for invoking the power/jurisdiction to proceed to assess the undisclosed income which directly flows from the provisions of Section 158BA r/w Section 158BC(b). Hence, the proviso to Section 143(2), which is part of jurisdictional aspect, as also contended by the assessee's counsel, would be inapplicable to block assessment proceedings.
Accordingly, only that portion of Section 143(2) would apply which provides for serving of notice to assessee. That means where a return has been filed under Section 158BC, notice as prescribed in Section 143(2) will have to be issued unless there are justifiable reasons for deviation.
39. Before parting with this aspect of the issue, we would like to mention that, in our view, there could not have been any intention of the legislature while enacting Chapter XIV-B by Finance Act, 1995, to apply the proviso to Section 143(2). When Chapter XIV-B was enacted, the period prescribed for exercising the option to proceed to make the assessment under Section 143(2) was one year from the end of the month in which the return was filed. On the other hand, the legislature had provided period of one year under Section 158BE for completion of undisclosed income under Chapter XIV-B from the end of month in which the last authorization for search under Section 132 or for requisition under Section 132A was executed. Since the period for making assessment under Section 158BE was to commence much before the filing of the return, in any case, such period would expire much before the expiry of the period prescribed under Section 143(2). Therefore, it is clear that there was no occasion for the AO to issue any notice under Section 143(2) beyond the period prescribed in the proviso. Hence, in our view, the application of the proviso to Section 143(2) was never intended by the legislature.
40. At this stage, we may mention that reliance was also placed on two circulars No. 549, dt. 31st Oct., 1989, and Circular No. 554, dt. 13th Feb., 1990 which provide that notice under Section 142 must be issued within the period prescribed in the proviso to that section. In our opinion, reliance on these circulars by the learned counsel for the assessee is misplaced for the reasons, firstly, such circulars were issued with reference to regular assessment when Chapter XIV-B was not in existence and secondly, for the reasons given by us in the preceding para to the effect that the proviso was never intended to be applied to block assessment proceedings.
41. Let us now visualize certain situations where it can be said that issuance of notice under Section 143(2) is possible/practical or not.
There is no dispute that the existence of the return is the condition precedent for application of Section 143(2). So if the return is filed under Section 158BC then AO must issue the notice before proceeding to assess. For the similar reason, if no return is filed in response to notice under Section 158BC, the question of issuing such notice would not rise. However, difficulty arise when the learned CIT Departmental Representative contends that the belated return should be treated as non est/invalid and, therefore, should be ignored. According to him, the notice under Section 143(2) is not required to be issued where the assessee files the return under Section 158BC after the expiry of the period specified in the notice issued under Section 158BC. We are unable to accept such contention since it is not supported by any logic or judicial pronouncement. Once a notice under Section 158BC(1) is issued by the AO, the assessee is under obligation to file the return.
There may be various valid reasons for not filing the return in time.
There is no provision for extension of time. Further, there may be a case where the assessee is not provided with the copies of the seized material In such cases, it would be impossible for the assessee to file the return. On the other hand, the legislature recognizes such belated return in as much as Section 158BFA provides for levy of interest upto the date of filing of the belated return. It is only where no return is filed, the interest is leviable upto the date of assessment. If the contention of the CIT Departmental Representative is accepted then the provisions of Section 158BFA would become redundant which could not be the intention of the legislature. Even in case of regular return under Section 139(1) or under Section 142(1), the interest is also leviable under Section 234A upto the date of belated return. No case law has been brought to our notice by the CIT Departmental Representative in support of his contention. Therefore, we reject such contention of the Revenue.
42. Having held that the belated return is a valid return and, therefore, cannot be ignored, the question arises as to whether AO is barred from proceeding to make assessment after the expiry of the time specified in the notice under Section 158BG or whether the assessee can compel the AO not to proceed to make the assessment by delaying the filing of the return. In our opinion, in such situation, the AO is at liberty to proceed to make the assessment by virtue of powers/jurisdiction conferred on him under Clause (b) of Section 158BG r/w Section 158BA. Once a notice under Section 158BC is issued for filing the return and the period specified therein is expired then, in our opinion, the AO not only is at liberty but is also bound to proceed to assess irrespective of the filing of the return. There is nothing is Section 158BC which may compel the AO to wait for filing of the return by the assessee. All seized material is normally required to be examined in the light of the explanation of the assessee, which may take lot of time. That is perhaps the reason that no limitation whatsoever is prescribed by the Statute on the powers of the AO to proceed to make the assessment except to provide an opportunity, which is part of the natural justice. Since no prescribed procedure is provided in such situation, we are of the view that the AO may issue any kind of notice to achieve the object of making the assessment.
Therefore, where the assessee does not file the return in response to notice under Section 158BC(a) and the AO wants to proceed to make assessment then no notice under Section 143(2) is required to be issued since filing of return is condition precedent for issue of such notice.
In such situation, the procedure prescribed in Section 144 would become applicable which provide for granting of an opportunity to the assessee. So, the only requirement is the compliance of rules of natural justice. However, if the AO decides to wait for the return to be filed by the assessee then AO is bound to issue notice under Section 143(2) after filing of the return.
43. However, there may be a situation where abnormal delay is made by the assessee in filing the return and the AO also might not have started the procedure for assessment. In such cases, notice under Section 143(2) is required to be issued and served but on the facts of the case if the AO intends to deviate from such procedure on the ground that issuance of such notice is not possible or practical. Then justification for deviation will have to be offered by AO.44. In view of the above discussion, it is held that (i) provisions of Section 143(2) are not applicable in its entirety to block assessment proceedings but are applicable to the extent possible, (ii) Proviso to such section is not applicable to block assessment proceedings, (iii) it is only the procedural requirement of Section 143(2) which are applicable as the AO is bound to issue notice under Section 143(2) where return under Section 158BG is placed on record at the time when AO intends to proceed to make assessment under Section 158BC, (iv) where return is not filed by the assessee under Section 158BC, the AO is at liberty to proceed to make assessment by virtue of provisions of Section 158BC(b) r/w Section 158BA itself and the only requirement in such situation would be to grant an opportunity of being heard to the assessee, and (v) whether the issue of notice under Section 143(2) is possible or practical or not would depend on the facts of each case.
45. Having held that only the procedural requirement of Section 143(2) is applicable to the block assessment proceedings, the next question to be considered is whether non-issuance of notice under Section 143(2) would render the block assessment order as null and void, In our considered opinion, the answer is in negative. It is settled legal position that there is a distinction between nullity and irregularity.
If the foundation itself is taken away then it would be the case of nullity. However, where there is only deviation from rule of law, it would be the case of irregularity which is curable. Another test is as to whether party affected can waive the objection. If the answer is yes, then it would be a case of irregularity otherwise it would be a case of nullity.
46. The Hon'ble Supreme Court had occasion to consider this issue in the case of Dhirender Nath Gorai v. Sudhir Chandra Ghosh AIR 1964 SC 1300 wherein at p. 1304, their Lordship quoted with approval following observations of Calcutta High Court in the case of Ashutosh Sikdar v.Bihari Lal Kirtania (1907) ILR 35 Calcutta 61 at 72 : "No hard and fast line can be drawn between nullity and irregularity, but this much is clear that any irregularity is a deviation from rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is a proceeding that is taken without any foundation for it, or is so essentially defective is to be of no avail or effect whatever, or is void and incapable of being validated".
47. At this stage, it would also be appropriate to refer to the test laid down by the Justice Coleridge in Holmes v. Russell (1841) 9 DOWL 487 which reads as under: "It is difficult sometimes to distinguish between the irregularity and a nullity, but the safest role is to determine what is irregularity and what is nullity is to see whether the party can waive the objection, if he can waive it, it amount to an irregularity, if he cannot, it is a nullity." 48. According to 'Words and Phrases" (Permanent edition), irregularity has been defined "want of adherence to some prescribed rule or mode of proceeding" whereas nullity is "void Act or an Act having no legal force or validity". So the safest rule of distinction is whether a party can waive the objection. If he can waive, it amounts to irregularity and if he cannot then it is a nullity. This view has been approved by the Hon'ble Supreme Court in the case of Krishan Lal v.CIT(A) of J&K (1994) 4 SC 422 at page. 432.
49. In view of the legal position mentioned above, we are of the considered view that non-issuance of notice under Section 143(2) cannot render the block assessment as a nullity since foundation of such assessment is validly laid by issue of notice by the AO under Section 158BC(a) asking the assessee to file the return. It is settled legal position that assessment proceedings are validly initiated either by filing of the return or by issuance of notice for filing of the return in view of Supreme Court judgment in the case of Ghansham Dass v.Regional Asstt. CST (1964) 51 ITR 557 (SC). There is no provision under Chapter XIV-B for filing of voluntary return. The only provision under which such return can be filed is Section 158BC. Therefore, assessment proceedings can be said to be validly initiated when the notice under Section 158BC is issued. Once assessment proceedings are validly initiated by issuance of notice under Section 158BC, then the AO would have seisin over the case resulting in vesting of overall jurisdiction of the AO. Accordingly non-issuance of notice under Section 143(2) would only be a case of deviation from a rule of law resulting in irregularity only, which is curable, and not a nullity.
50. We are fortified in our view by the jurisdictional High Court decision in the case of Sant Baba Mohan Singh v. CIT (1973) 90 ITR 197 (All) wherein it has been held that non-issuance of notice under Section 23(2) of 1922 Act, corresponding to Section 143(2) of 1961 Act, would merely amount to irregularity and on that account the impugned order may be set aside but cannot be declared as null and void. The relevant portion of the judgment is quited below ; "Section 31(3)(a) speaks of the power of the AAC to annul an assessment. That is a power to be exercised where the assessment proceedings is a nullity in the sense that the ITO had no jurisdiction ab initio to take the proceeding. A proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject-matter of the proceeding. A proceeding is a nullity when the authority taking it has no power to have seisin over the case. The omission of the ITO to issue a notice under Section 23(2) does not affect the ab initio jurisdiction enjoyed by the ITO in respect of the proceeding. The ITO had seisin over the case, he had overall jurisdiction over the case and in that sense had power to initiate the proceeding. The omission to issue a notice under Section 23(2) merely prevents the ITO from making an assessment order under Section 23(3), and after he rectifies the omission by issuing that notice he can proceed further to the next stage, that is, to exercise the power of completing the assessment under Section 23(3). All these are steps within the overall jurisdiction vested in the ITO over the entire assessment proceeding. We are of definite opinion that the failure of the ITO to issue a notice under Section 23(2) does not call for an order by the AAC annulling the assessment. The AAC was right in merely setting aside the assessment." 51. The earlier judgment of Allahabad High Court in the case of Rajmani Dew (supra) relied upon by the learned counsel for the assessee is quite distinguishable and does not advance the case of the assessee. In this case, it is nowhere laid down that non-issuance of notice under Section 23(2) of 1922 Act would render the assessment as null and void.
What has been held is that notice under Section 23(2) is mandatory and the AO is bound to issue the same if he believes that the return is incompetent or incorrect. On the contrary it has been observed at p.
632 (head note) that issuance of a valid notice under Section 23(2) is not the condition precedent of an assessment under Section 23(4). It is pertinent to note that this judgment was relied upon by the assessee in the case of Sant Baba Mohan Singh (supra) for the proposition that non-issuance of notice under Section 23(2) would amount to nullity but the Hon'ble Allahabad High Court did not accept such contention and held that non-issuance of notice under Section 23(2) was merely an irregularity and not a nullity.
52. The view taken by the Hon'ble Allahabad High Court in the case of Sant Baba Mohan Singh (supra) has been followed by the Hon'ble Rajasthan High Court in the case of CIT v. Gyan Parkash Gupta (1987) 165 ITR 501 (Raj), wherein it has been held as under : "An assessment order passed without issuing notice under Section 143(2) of the IT Act, 1961, is invalid but the invalidity is not of such nature that it goes to the root of the proceedings. The ITO gets jurisdiction as soon as a return is filed but on failure to comply with Section 143(2) of the Act, he cannot complete the assessment. An assessment order completed without service of notice under Section 143(2) is not void ab initio and cannot be annulled." 53. Even otherwise, the procedural part of Section 143 is nothing but rule of audi alteram pattern i.e., every person should be given a reasonable opportunity of being heard before drawing any advance inference against such person. Since this rule of law is for the benefit of the assessee, he can always waive it. At this stage, we may clarify that the test of waiver cannot be applied to a notice, which is a condition precedent for assuming jurisdiction like notice under Section 148, since jurisdiction cannot be conferred by consent.
Therefore, the judgments relevant to notice under Section 148 would not be applicable to the present case. We have already held that block assessment proceedings are validly initiated by issue of notice under Section 158BC(a) and consequently the jurisdiction to proceed to assess is already validly vested in the AO after issue of such notice.
Therefore, even on the basis of second test, non-issue of notice under Section 143(2) would be a case of irregularity and not a nullity.
54. Before parting with this issue we would like to refer to two judgments of Hon'ble Supreme Court. First case is Guduthm Bros. v. ITO (1960) 40 ITR 298 (SC). In that case, penalty under Section 28(l)(a) of 1922 Act was levied without affording an opportunity to the assessee.
The AAC set aside the said order of penalty and directed the AO to refund the penalty amount. Thereafter, the AO issued a further notice to provide an opportunity to the assessee to show cause as to why penalty be not imposed. The said notice was challenged by way of writ before the High Court, The petitioner was dismissed. On appeal to Supreme Court, it was held that denial of opportunity to the assessee vitiated the order of the penalty by irregularity, which supervened not at the initial stage but during the course of it. Hence, such irregularity could be corrected by issuing another notice. The second judgment of Supreme Court is reported as Supdtt. of Central Excise v.Paitap Rai (1978) 114 ITR 231 (SC) wherein it has been held as under : "Whenever an order is struck down as invalid being in violation of the principle of natural justice there is no final decision of the cause and fresh proceedings are left open. All that is done is that the order assailed by virtue of its inherent defect is vacated but the proceedings are not terminated".
55. In view of the above legal position, we hold that non-issuance of notice under Section 143(2) would only be an irregularity which is curable and not as nullity. Hence, the assessment order passed in violation of such requirement cannot be declared as null and void.
56. Having held that non-issuance of notice under Section 143(2) is not a nullity but is an irregularity, the question may arise as to what course should be adopted in such cases by the appellate authority, One easy course would be to set aside the assessment and restore the matter to the file of the AO for fresh assessment after giving reasonable opportunity of being heard to the assessee. But there may be cases where sufficient opportunity might have already been given by the AO or the assessee might have participated in the proceedings before the AO or there may be sufficient materials on the record for adjudication. In such cases mere restoration may prove to be a futile exercise.
Therefore, in such cases, the appellate authority may adjudicate the issue itself after giving reasonable opportunity to the assessee to explain his case. These observations are mere guidelines and no limitations are being placed on the powers of the appellate authority.
The appellate authority would be free to choose the right course depending upon the facts of the each case.
57. The matter will now go to the regular Bench for final disposal of the appeal on merit.