The main legal point established in the judgment is that the service of notice under Section 143(2) of the Income Tax Act must be within the time limitation as prescribed in the proviso, and the reassessment proceedings are not sustainable if the notice is served beyond the specified time.

K. Vinod Chandran, J.

1. The short question raised in the above Income Tax Appeal is the sustainability of the proceedings for reassessment in the context of the notice being served on the assessee, beyond the time, as stipulated in the Proviso to Section 143(2) of the Income Tax Act, 1961 (for brevity 'the Act'). On facts suffice it to state that pursuant to a search in the premises of the assessee on 11.11.1999, a notice under Section 158BC of the Act was issued by the Assessing Officer on 23.05.2000. In response to the said notice, the assessee filed return of income in Form No.2B on 24.07.2000. The notice under Section 143(2) of the Act. Dated 27.02.2001 was served on the assessee on 03.08.2001; three days after the limitation period, as prescribed under the Proviso to Section 143(2) of the Act.

2. Section 143(2) as was in existence at the relevant point of time is as follows:-

“Where a return has been made under section 139, or in response to a notice under subsection( 1) of section 142, the Assessing Officer shall, if he considers it necessary or expedite to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return:

Provided that no notice under this subsection shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.”

Going by the facts, the notice is served on the assessee beyond the time of limitation as spoken of in the proviso.

3. The learned Senior Counsel, Government of India (Taxes), would rely on Assistant CIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC) and an unreported judgment of a Division Bench of this Court in I.T.A No.65 of 2015 dated 11th July of 2017 [Padinjarekara Agencies Pvt. Ltd. v. The Commissioner of Income Tax]. The submission is that though the proviso speaks of service of notice, the Hon'ble Supreme Court has understood it as “issuance of notice” in Hotel Blue Moon. On similar set of facts, the Division Bench in I.T.A No.65 of 2015 also found that absence of Section 143(2), notice is not relevant when the assessee has participated in the proceedings. The Division Bench had also relied on yet another decision of a Division Bench of this Court in K.J Thomas v. Commissioner of Income Tax [2008] 301 ITR 301 [Ker]. The learned Counsel appearing for the assessee however would contend that Hotel Blue Moon is in his favour.

4. A reading of Hotel Blue Moon would indicate that the issue decided was as to “whether service of notice on the assessee under Section 143 (2) within the prescribed period is a prerequisite for framing the block assessment under Chapter XIV-B of the Income Tax act, 1961” (sic-para 4). The Tribunal, considering the appeal from the block assessment found that it is only a procedural irregularity and the same was curable. The High Court of Guwahati reversed the order of the Tribunal finding the provisions under Section 142 and sub-section (2) and (3) of Section 143 of the Act to have mandatory application. It was argued by the department that Chapter XIV-B being a complete code in itself, enabling block assessment, pursuant to a search; the other provisions of the Act are applicable only so far as it is possible of being extended. The Supreme Court found that after the return is filed, on the notice issued under Section 158BC(a), if the assessing officer intends to repudiate the return filed and to initiate an inquiry, then the notice under Section 143(2) is mandatory.

5. It is argued that the Hon'ble Supreme Court in Hotel Blue Moon had at many places in the decision spoken of the issuance of notice U/S 143(2)/142 of the Act and hence the proviso has to be understood as mandating only issuance of notice and not serving