IT: Where return for block period filed by assessee belatedly was not discarded as invalid, in such a case, if Assessing Officer wanted to frame assessment at higher income, he was bound to issue a notice under section 143(2)
IT: Where assessee, in response to notice issued under section 158BC, filed a return after long delay, however, said return was not discarded as invalid, in such a case, if Assessing Officer wanted to frame assessment at higher income, he was bound to issue a notice under section 143(2)
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[2017] 83 taxmann.com 141 (Gujarat) 
HIGH COURT OF GUJARAT
Principal Commissioner of Income-tax-3, Ahmedabad
v.
Devendranath G. Chaturvedi*
AKIL KURESHI and BIREN VAISHNAV, JJ. 
Tax Appeal No. 306 of 2017†
JUNE  12, 2017 
Section 143, read with section 158BC, of the Income-tax Act, 1961 - Assessment (Issue of notice u/s 143(2)) - Block assessment period 1990 to 2001 - Whether where assessee, in response to notice issued under section 158BC, filed a return after long delay, however, said return was not discarded as invalid, in such a case, if Assessing Officer wanted to frame assessment at higher income, he was bound to issue a notice under section 143(2) - Held, yes [Para 6] [In favour of assessee] 
FACTS
 
■ | | In the case of assessee, the Commissioner (Appeals) and the Tribunal set aside the block assessment made by the Assessing Officer on the ground that no notice under section 143(2) was issued, though required.
■ | | The revenue did not dispute that no such formal notice was issued by the Assessing Officer before rejecting the assessee's returned income and assessing the higher income than the returned income. The revenue, however, raised two-fold contentions. First was that a letter was written to the assessee for supplying certain details which might be treated as a notice under section 143(2) and since the Act did not prescribe any format for issuing such notice, this should be seen as substantial compliance. Second and important limb of the revenue's contention was that the assessee filed the return after a long delay in response to notice under section 158BC. Thus, said return should have been treated as invalid and non est return and, in such a case, there was no requirement for issuing notice under section 143(2) for the Assessing Officer to complete the assessment.
HELD
 
■ | | With respect to the revenue's first contention of a notice having been issued under section 143(2), though not in proper format, it may be recorded that before the Tribunal it was pointed out that the Assessing Officer had issued a letter seeking information from the assessee. This thus clearly was not a notice in any format. section 143 (2) requires a notice by Assessing Officer, if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or does not compute excessive loss or has not under-paid the tax in any manner. Only after issuance of such a notice, the Assessing Officer can frame the assessment under section 143(3) of the Act. The fact that such a notice would be necessary even in case of block assessment is settled by the Supreme Court in the case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113. [Para 4]
■ | | Regarding second contention of the revenue, section 143 pertains to assessment. Sub-section (1) of section 143 provides that where a return has been filed by the assessee under section 139 or in response to notice under sub-section (1) of section 142, the same would be processed in the manner provided therein. Sub-section (2) of section 143 requires the Assessing Officer to issue a notice where a return has been furnished and the Assessing Officer considers it necessary or expedient to ensure that the income is not under-stated. After issuing such a notice, the Assessing Officer would proceed to frame assessment under sub-section (3) of section 143 of the Act. This provision, therefore, envisages a situation where a return under section 139 or in response to notice under section 142(1) has been filed.
■ | | Section 144, which pertains to best judgment assessment covers various situations, including clause (a) of sub-section (1), where a person fails to make return required under sub-section (1) of section 139 or under sub-section (4) or (5) of the said section, and in clause (b), in case of assessee, who fails to comply with the terms of a notice issued under sub-section (1) of section 142 or fails to comply with the direction issued under sub-section (2A) of section 142. The clause (c) of sub-section (1) covers the case where the assessee fails to comply with the terms of a notice issued under sub-section (2) of section 143.
■ | | In such situations, the Assessing Officer would have the authority to frame the assessment, which is popularly referred to as the best judgment assessment. Had the assessee in the present case not filed the return in response to the notice issued by the Assessing Officer or for some reasons such return was held to be invalid or non-est, revenue's contention that no notice under sub-section (2) of section 143 of the Act was necessary and the Assessing Officer could have proceeded to frame the assessment under sub-section (1) of section 144 would merit further consideration. [Para 5]
■ | | In the present case, however, the assessee did file the return, though belatedly. The Assessing Officer did not discard such return but proceeded on the basis of such return and framed an assessment assessing the income higher than the returned income. Under the circumstances, before rejecting such income, notice under section 143(2) was necessary. Such notice not having been issued, the Tribunal correctly upheld the judgment of the Commissioner (Appeals). Tax appeal is dismissed. [Para 6]
CASE REVIEW
 
Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 4) followed.
CASES REFERRED TO
 
Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 3).
Nitin K. Mehta, Advocate  for the Appellant. B.S. Soparkar, Advocate for the Respondent.
ORDER
 
Akil Kureshi, J. - Revenue has filed this appeal against the judgment of the Income Tax Appellate Tribunal dated 29.1.2016 raising following questions for our consideration.
"[A] | | Whether the ITAT has erred in facts and on law in overlooking that the block return was filed on 12/7/2004, nearly 28 months after the issue of notice u/s.158BC dated 11/2/2002, and much beyond the statutory period of 45 days for filing such return?
[B] | | Whether the ITAT has erred in law and on facts in not holding that the delayed return was thus to be treated as non-est return, as held by the Patna Bench of the ITAT in the case of Chand Bihari Agarwal v/s ACIT, IT (SS) A No.5/PAT/2010, and that that ratio of Hotel Blue Moon would not be applicable in this case?
[C] | | Whether in the facts and circumstances of the case ITAT was right in dismissing the appeal of the Revenue purely on the basis of Circular No.21/2015 without considering the fact that the block assessment proceedings and the proceedings of years falling within the block are interconnected and without examining merits of the issue of additions when the tax effect involved in respect of other years (Block Period 1-4-1990 to 7-3-2001) was more than the prescribed limit laid down in the Circular No.21/2015 especially when all the appeals are decided under a common order."
2. Issues arise out of block assessement for the period between 1990 to 2001. CIT (Appeals) and the Tribunal set aside the assessment made by the Assessing Officer on the ground that no notice under Section 143 (2) of the Income Tax Act, 1961 (for short, "the Act") was issued, though required. The revenue does not dispute that no such formal notice was issued by the Assessing Officer before rejecting the assessee's returned income and assessing the higher income than the returned income. The revenue, however, raises two-fold contentions. First is that a letter was written to the assessee for supplying certain details which may be treated as a notice under Section 143 (2) of the Act and since the Act does not prescribe any format for issuing such notice, this should be seen as substantial compliance. Second and important limb of the revenue's contention is that the assessee filed the return after a long delay in response to notice under Section 158 BC of the Act. This return should have been treated as invalid and non-est return and, in such a case, there was no requirement for issuing notice under Section 143 (2) of the Act for the Assessing Officer to complete the assessment.
3. Appearing for the revenue, learned counsel submitted that the Tribunal erred in relying on the decision of the Supreme Court in the case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113, when the return itself was invalid. Requirement for issuing notice under Section 143 (2) would arise only when a valid return is filed. On the other hand, learned counsel Shri Soparkar for the assessee submitted that the Assessing Officer had accepted the return, raised detailed queries and framed an assessment, which was not in the nature of best judgment assessment under Section 144 of the Act. There is neither any provision under the Act nor did the Assessing Officer treat the return as non-est. When the Assessing Officer was rejecting the returned income, in view of the judgment of the Supreme Court in the case of Hotel Blue Moon (supra) notice under Section 143 (2) was necessary.
4. With respect to the revenue's first contention of a notice having been issued under Section 143 (2) of the Act, though not in proper format, we may record that before the Tribunal it was pointed out that the Assessing Officer had issued a letter seeking information from the assessee. This thus clearly was not a notice in any format. Section 143 (2) requires a notice by Assessing Officer, if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or does not compute excessive loss or has not under-paid the tax in any manner. Only after issuance of such a notice, the Assessing Officer can frame the assessment under Section 143 (3) of the Act. The fact that such a notice would be necessary even in case of block assessment is settled by the Supreme Court in the case of Hotel Blue Moon (supra).
5. Regarding second contention of the revenue, we notice that Section 143 of the Act pertains to assessment. Sub-section (1) of Section 143 provides that where a return has been filed by the assessee under Section 139 or in response to notice under sub-section (1) of Section 142, the same would be processed in the manner provided therein. Sub-section (2) of Section 143, as noted, would require the Assessing Officer to issue a notice where a return has been furnished and the Assessing Officer considers it necessary or expedient to ensure that the income is not under-stated. After issuing such a notice, the Assessing Officer would proceed to frame assessment under sub-section (3) of Section 143 of the Act. This provision, therefore, envisages a situation where a return under Section 139 or in response to notice under Section 142 (1) of the Act has been filed. Section 144 of the Act, which pertains to best judgment assessment covers various situations, including Clause (a) of Sub-section (1), where a person fails to make return required under sub-section (1) of Section 139 or under sub-section (4) or (5) of the said Section, and in Clause (b), in case of assessee, who fails to comply with the terms of a notice issued under sub-section (1) of Section 142 or fails to comply with the direction issued under sub-section (2A) of Section 142. The clause (c) of sub-section (1) covers the case where the assessee fails to comply with the terms of a notice issued under sub-section (2) of Section 143. In such situations, the Assessing Officer would have the authority to frame the assessment, which is popularly referred to as the best judgment assessment. Had the assessee in the present case not filed the return in response to the notice issued by the Assessing Officer or for some reasons such return was held to be invalid or non-est, revenue's contention that no notice under sub-section (2) of Section 143 of the Act was necessary and the Assessing Officer could have proceeded to frame the assessment under Sub-section (1) of Section 144 would merit further consideration.
6. In the present case, however, the assessee did file the return, though belatedly. The Assessing Officer did not discard such return but proceeded on the basis of such return and framed an assessment assessing the income higher than the returned income. Under the circumstances, before rejecting such income, notice under Section 143 (2) of the Act was necessary. Such notice not having been issued, the Tribunal correctly upheld the judgment of the CIT (Appeals). Tax Appeal is dismissed.
sunil 

*In favour of assessee.
†Arising out of order of ITAT dated 29-1-2016.