Madras High Court
Shri.Kalyanasundaram Swaminathan vs The Deputy Commissioner Of on 7 July, 2026
Author: C.Saravanan
Bench: C.Saravanan
2026:MHC:2896
W.P.Nos.2485 and 2495 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 28.04.2026
Pronounced on 07.07.2026
CORAM :
THE HONOURABLE MR. JUSTICE C.SARAVANAN
W.P.Nos.2485 and 2495 of 2019
and
W.M.P.Nos.2766, 2767 and 2771 of 2019
Kalyanasundaram Swaminathan
S/o.T.M.Kalyanasundaram … Petitioner in both W.Ps
Vs.
The Deputy Commissioner of Income Tax,
Corporate Circle 1(1),
Chennai – 34. … Respondent in both W.Ps
Prayer in W.P.No.2485 of 2019: Writ Petition filed under Article 226 of the
Constitution of India, for issuance of a Writ of Certiorari, to call for the
records on the files of the Respondent dated 26.12.2018, relating to the
Assessment Year 2011-2012, passed under Section 143(3) read with Section
147 of the Income Tax Act, 1961 and quash the same as being without
jurisdiction, invalid and illegal.
Prayer in W.P.No.2495 of 2019: Writ Petition filed under Article 226 of the
Constitution of India, for issuance of a Writ of Certiorari, to call for the
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records on the files of the Respondent dated 29.03.2018 issued in Notice
No.ITBA/AST/S/148/2017-18/1009532577(1), and quash the same as being
without jurisdiction, invalid and illegal.
For Petitioner : Ms.G.Vardini Karthik
(In both W.Ps)
For Respondent : Mr.Avinash Krishnan Ravi
(In both W.Ps) Junior Standing Counsel
COMMON ORDER
By this Common Order, both these Writ Petitions are being disposed
of.
2. In W.P.No.2485 of 2019, the Petitioner has challenged the impugned
Assessment Order dated 26.12.2018 passed for the Assessment Year 2011-
2012 under Section 143(3) read with Section 147 of the Income Tax Act,
1961 (hereinafter referred to as the ‘Act’).
3. In W.P.No.2495 of 2019, the Petitioner has challenged the impugned
Section 148 Notice dated 29.03.2018 issued to the Petitioner.
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4. The challenge to the impugned Assessment Order is primarily on the
ground that the impugned Assessment Order dated 26.12.2018 has been
passed without following the due procedure prescribed under Section 143(2)
read with Section 148 of the Act.
5. On perusal of the records before this Court reveals that originally the
Petitioner had filed a Return of Income under Section 139(1) of the Act on
31.07.2011. In the said Return of Income, the Petitioner had declared only a
sum of Rs.8,30,997/- as a gross total taxable income.
6. The Return was also processed under Section 143(1) of the Act on
15.10.2011. Subsequently, a summons was issued to the Petitioner on
21.08.2012 under Section 272A of the Act in response to which, the
Petitioner replied on 28.08.2012, 29.08.2012 and 05.10.2012.
7. In this background, the Petitioner filed a Revised Return under
Section 139(4) of the Act on 11.09.2012. In the Revised Return, the
Petitioner declared a gross total taxable income of Rs.17,29,621/- and paid a
sum of Rs.4,34,512/- towards income tax.
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8. The Revised Return that was filed by the Petitioner under Section
139(4) of the Act was followed with a Section 148 Notice dated 29.03.2018.
9. In response to Section 148 Notice dated 29.03.2018, the Petitioner
filed a Return on 22.05.2022 wherein the Petitioner reiterated the content of
Revised Return filed under Section 139(4) of the Act on 11.09.2012.
10. After the Petitioner filed the aforesaid Return of Income, the
Petitioner was furnished with the reasons for reopening of assessment on
08.06.2018, wherein it was stated as under:-
“As requested by you the reasons for reopening of
Assessment for Assessment Year 2011-2012 is as under:
The assessee, is the founder of M/s.Smartlearn
Edutech (P) Ltd, and has filed his return of income for
the Assessment Year 2011-2012 on 31.07.2011 admitting
total income of Rs.8,16,000/- after claiming Chapter VIA
deduction to the tune of Rs.15,000/-. The return was
processed and completed under Section 143(1) of the
Income-tax Act, 1961, on 15.10.2011. The case was not
selected for scrutiny for the Assessment Year 2011-2012.
2. Based on the information received from
DDIT(Inv), Unit II(2), Chennai, in the case of
M/s.Smartlearn Edutech (P) Ltd, it is seen that
M/s.Smartlearn Edutech (P) Ltd was the brainchild of
Shri K.Swaminathan, who founded the company which4/38
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offered IIT/JEE course material online to aspirants.
After sometime, all the assets of this company was sold
to M/s.Edserve Ltd for a consideration of Rs.2 crores.
However, M/s.Edserve which took over this company
insisted that the said sale of Rs.2 crores would be sent to
Shri Swaminathan and in turn he should sent back this
sum of M/s.Edserve which would allot shares to him on
agreed price. Thus, on 04.11.2010, M/s.Aspire Telecom
Pvt. Ltd. Shri Swaminathan’s account (A/c
No.602605053105) was credited with Rs.2 crores and on
the same day Rs.2 crores was sent back to M/s.Edserve
and they allotted 93458 shares of Rs.214/- per share.
On further enquiry, Shri.Swaminathan was asked to
state that what were the other benefits received by him in
his individual capacity. He had stated that he received
Rs.42,65,000/- as non compete fee from Edserve Ltd.
3. On verification of the Return of Income filed by
the assessee for the Assessment Year 2011-2012 as well
as the computation of total income, it is seen that the
assessee has reported a total income of Rs.8,16,000/-
comprising of salary and income from other sources
being interest income. The assessee has neither
reported the receipt of non-competent fee as per the
return filed nor furnished the working of any capital
gains or business income arising out of the same.
Therefore, there is clearly an escapement of income in
this case for the Assessment Year 2011-2012 on account
of non reporting of the non-compete fee received by the
assessee from M/s.Edserve Ltd to the tune of
Rs.42,65,000/-.
4. In this case, a return of income was filed for the
year under consideration but no scrutiny assessment
under Section 143(3) of the Act was made. Accordingly,
in this case, the only requirement to initiate proceeding
under Section 147 of the Act is reason to believe which
has been recorded above in Paragraph 2 above.
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It is pertinent to mention here that in this case the
assessee has filed return of income for the year under
consideration but no assessment as stipulated under
Section 2(40) of the Act was made and the return of
income was duly processed under Section 143(1) of the
Act. In view of the above, provisions of Clause (b) of
Explanation 2 to Section 147 are applicable to facts of
this case and the Assessment Year under consideration is
deemed to be a case where income chargeable to tax has
escaped assessment.”
11. In this background, the Petitioner sent a reply on 03.10.2018
wherein the Petitioner has stated that in the Revised Return dated 11.09.2012
filed under Section 139(4) of the Act, the Petitioner had admitted an income
of Rs.42,65,000/- as “non-compete fee” received from M/s.Edserve Soft
Systems Limited.
12. In these circumstances, the Notice under Section 142(1) of the Act
was issued to the Petitioner on 20.11.2018 wherein, the Petitioner was called
upon to submit the details of “non-compete fee” and the “business loss”
which was written-off by the Petitioner.
13. In the Reply dated 26.11.2018, the Petitioner has stated that he had
filed the Revised Return on 11.09.2012 showing a receipt of Rs.42,65,000/-
towards “non-compete fee”, and that the Petitioner had booked an amount of
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Rs.27,97,576/- towards “business loss” which was written-off as the
Petitioner could not recover the money due from M/s.Aspire Learning
Company Private Limited due to severe financial crisis.
14. That apart, it was stated that many of the documents were lost
during 2015 flood. In this background, a Notice under Section 142(1) of the
Act was issued once again on 14.12.2018. The Petitioner had replied to the
Section 142(1) Notice on 17.12.2018, 20.12.2018 and 24.12.2018.
15. After participating in the proceedings and after the above reply was
given by the Petitioner, the impugned Assessment Order was passed by the
Respondent on 26.12.2018 in furtherance of the impugned Section 148
Notice dated 29.03.2018.
16. Learned counsel for the Petitioner would draw attention to the
express language in Section 143(2) of the Act and the express language in
Section 148 of the Act as it stood during the period in dispute.
17. Specifically, the learned counsel for the Petitioner would draw
reference to Section 143(2) of the Act as it stood during the period in dispute.
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It is submitted that after the Return was filed on 22.05.2018 in response to the
impugned Section 148 Notice dated 29.03.2018, the Assessing Officer or the
prescribed Income Tax Authority was required to issue a Notice specifying
the date to attend the Office of the Assessing Officer and/or to produce, or
cause to be produced before such Officer any evidence on which the assessee
may rely in support of the Return.
18. Text of Section 143(2) of the Act reads as under:-
“143. Assessment:
(1) …..
(2) Where a return has been furnished under Section
139, or in response to a notice under sub-section (1) of
section 142, the Assessing Officer or the prescribed
income-tax authority, as the case may be, if, considers it
necessary or expedient 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, shall serve on the assessee a notice requiring
him, on a date to be specified therein, either to attend the
office of the Assessing Officer or to produce, or cause to
be produced before the Assessing Officer any evidence
on which the assessee may rely in support of the return.
Provided that no notice under this sub-section shall be
served on the assessee after the expiry of six months
from the end of the financial year in which the return is
furnished.”
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19. It is submitted that as per Section 148 of the Act as it stood during
the period in dispute, the provisions of the Act so far as may apply as if such
Returns were required to be furnished under Section 139(1) of the Act.
20. A reference was made to the following decisions of the Hon’ble
Supreme Court, Allahabad High Court, Delhi High Court and that of this
Court:-
i. Assistant Commissioner of Income-tax Vs. Hotel Blue
Moon, [2010] 188 Taxman 113 (SC).
ii. GKN Driveshafts (India) Limited Vs. Income-Tax
Officer and others, [2003] 259 ITR 19 (SC).
iii. Commissioner of Income-tax-II, Lucknow Vs. Salarpur
Cold Storage (P.) Ltd., [2014] 50 taxmann.com 105
(Allahabad).
iv. Principal Commissioner of Income-tax Vs. Shri Jai Shiv
Shankar Traders (P.) Ltd., [2015] 64 taxmann.com 220
(Delhi).
v. Principal Commissioner of Income-Tax Vs. Staunch
Marketing Private Limited, [2018] 404 ITR 299 (Del.).
vi. Sapthagiri Finance & Investments Vs. Income-tax
Officer, Ward I(4), Kanchipuram, [2012] 25
taxmann.com 341 (Mad.)
vii. Commissioner of Income-Tax Vs. Gitsons Engineering
Co., [2015] 370 ITR 87 (Mad.)
viii. Martech Peripherals Private Limited Vs. Deputy
Commissioner of Income-Tax and another, [2017] 394
ITR 733 (Mad.)
ix. Ms.Jayanthi Natarajan Vs. Assistant Commissioner of
Income-Tax, [2018] 401 ITR 215 (Mad.)
x. Tractors and Farm Equipment Limited Vs. Assistant
Commissioner of Income-Tax, [2018] 409 ITR 369
(Mad.)
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21. It is, therefore, submitted that the proceedings has to abate after
Section 148 Notice was issued in the absence of a Notice under Section
143(2) of the Act.
22. Learned Junior Standing Counsel for the Respondent on the other
hand would place reliance on the decision of the Division Bench of this Court
in Avera T & D India Limited Vs. Assistant Commissioner of Income-
tax, [2007] 165 Taxman 123 (Madras).
23. Apart from the above, the learned Junior Standing Counsel for the
Respondent has also placed reliance on the decision of the Hon’ble Supreme
Court and that of the Delhi High Court:-
i. Jakhotia Platics (P.) Limited Vs. Principal
Commissioner of Income-tax, [2018] 94 taxmann.com 96
(SC).
ii. Director of Income-tax (IT)-II Vs. Black & Veatch
Prichard, Inc., [2019] 107 taxmann.com 290 (SC).
iii. Principal Commissioner of Income-tax (Central)-3, New
Delhi Vs. Jakhotia Plastics (P.) Limited, [2018] 94
taxmann.com 89 (Delhi).
24. Learned Junior Standing Counsel for the Respondent would submit
that the assessment proceedings cannot abate even if there was any
procedural irregularity committed.
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25. By way of rejoinder, the learned counsel for the Petitioner would
submit that the decision of the Division Bench of this Court in Areva T & D
India Limited Vs. Assistant Commissioner of Income-tax, [2007] 165
Taxman 123 (Madras) was rendered prior to the decision of the Hon’ble
Supreme Court in Hotel Blue Moon’s case (referred to supra) and therefore,
it cannot be held to have any precedential value.
26. I have considered the arguments advanced by the learned counsel
for the Petitioner and the learned Junior Standing Counsel for the
Respondent. I have also perused the records and affidavit and counter
affidavit filed on behalf of Petitioner and the Respondent. I have also
examined the provisions of the Act.
27. The point for consideration is whether Section 143(2) Notice was
required to be issued to the Petitioner or not before proceeding to pass the
impugned Assessment Order dated 26.12.2018.
28. The Division Bench of this Court in Sapthagiri Finance &
Investments Vs. Income-tax Officer, Ward I(4), Kanchipuram, [2012] 25
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taxmann.com 341 (Mad.) was rendered in the context of an Assessment
Order passed pursuant to a Section 148 Notice.
29. In Paragraph No.12 of the Order, the Division Bench of this Court
observed as under:-
“12. As far as the contention of the Revenue that
failure to issue notice under Section 143(2) of the Act is only
curable defect is concerned, the decision relied on by the
assessee reported in Hotel Blue Moon’s case (supra), also
covers the said issue. It is no doubt true that the said
decision dealt with the assessment done under Chapter XIV
relating to block assessment. The assessee therein raised a
contention that the failure to issue notice under Section
143(2) within the prescribed time for the purpose of block
assessment could be fatal to the validity of the assessment
made under Chapter XIVB of the Income Tax Act, 1961. In
other words, the assessee contended that the issuance of
notice under Section 143(2) within the prescribed period of
time for the purpose of block assessment is mandatory for
assessing the assessee’s undisclosed income found during the
search. The Revenue took the stand that issue of notice under
Section 143(2) of the Act was only procedural irregularity
which was curable. The Apex Court pointed out to Section
158BC(b) provided for determination of the undisclosed
income of the block period in the manner laid down in
Section 158BB and the provisions of Section 142, sub
sections (2) and (3) of Section 143, Section 144 and Section
145 shall, so far as may be, apply. The Apex Court pointed
out after return is filed, the Assessing Officer has to follow
the procedure like the issue of notice under Section
143(2)/142 and complete the assessment under Section
143(3). In the event, the assessee is not filing the return or
not complying with the notice under Section 143(2)/142, the
Officer is authorised to complete the assessment ex parte
under Section 144. The Apex Court further pointed out that
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where the block return does not conform undisclosed income
inferred by the authorities. Thus, if an assessment is to be
completed under Section 143(3) read with Section 158BC,
notice under Section 143(2) should be issued within one
year from the date of filing of the block return. The Apex
Court further held that omission on the part of the assessing
authority to issue notice under Section 143(2) cannot be a
procedural irregularity and the same is not curable, and
therefore, the requirement of notice under Section
143(2) cannot be dispensed with. The legislation referring to
the compliance of the provisions under Section 143, 144 and
145 of the Act is a legislation by incorporation. Thus, where
the Assessing Officer repudiates the return filed by the
assessee in response to notice under Section 158BC(a), the
Assessing Officer must necessarily issue notice under
Section 143(2) of the Act. Dealing with the contention that
the issue of notice is not mandatory but optional and is to be
applied to the extent practicable, in view of expression “so
far as may be” in Section 153BC(b), the Apex Court pointed
out that the expression “so far as may be” has always been
construed to mean that those provisions may be generally
followed to the extent possible. Rejecting the contention of
the Revenue that it is not expedient to follow the provisions
under Sections 142 and 143(2) and (3) strictly for the
purpose of block assessment, the Apex Court held that in
completing the assessment, when the officer repudiates the
return filed under Section 158BC(a) proceeds to make an
enquiry, he has necessarily to follow the provisions
of Section 142 and 143(2) and (3) of the Act.”
30. The decision of the Hon’ble Supreme Court in Hotel Blue Moon’s
case referred to supra dealt with the special procedure for making assessment
of search cases under Chapter XIV-B of the Act as it stood then. There, the
said appeal arose from the decision of the Gauhati High Court which framed
the following substantial question of law:-
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(1) Whether, on the facts and in circumstances of the case
the issuance of notice under Section 143(3) of the
Income Tax Act, 1961 within the prescribed time-limit
for the purpose of making the assessment under
Section 143(3) of the Income Tax Act, 1961 is
mandatory? and
(2) Whether, on the facts and in the circumstances of the
case and in view of the undisputed findings arrived at by
the Commissioner of Income Tax (Appeals), the
additions made under Section 68 of the Income Tax Act,
1961 should be deleted or set aside.
31. The Gauhati High Court there held that the provisions of Section
142 and Section 143(3) will have to be mandatorily applied in a case where
the Assessing Officer repudiates a Return in response to a Notice issued in
Section 158BC(a) of the Act and proceedings.
32. In Hotel Blue Moon’s case referred to supra, the Hon’ble Supreme
Court ultimately framed the following question of law in Paragraph No.7
which reads as under:-
“7. The only question that arises for our
consideration in this batch of appeals is, whether
service of notice on the assessee under Section 143(2)
within the prescribed period of time is a prerequisite
for framing the block assessment under Chapter XIV-B
of the Income Tax Act, 1961.”14/38
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33. Section 158BC of the Act which fell for interpretation before the
Hon’ble Supreme Court in the above case reads as under:-
“158BC. Procedure for block assessment:-
Where any search has been conducted under Section 132
or books of account, other documents or assets are
requisitioned under Section 132A, in the case of any
person, then,-
[(a) the Assessing Officer shall-
i. in respect of search initiated or books of account or
other documents or any assets requisitioned after the
30th day of June, 1995, but before the 1st day of January,
1997, serve a notice to such person requiring him to
furnish within such time not being less than fifteen days;
ii. in respect of search initiated or books of account or
other documents or any assets requisitioned on or after
the 1st day of January, 1997, serve a notice to such
person requiring him to furnish within such time not
being less than fifteen days but not more than forty-five
days,
as may be specified in the notice a return in the
prescribed form and verified in the same manner as a
return under Clause (I) of Sub-Section (1) of Section
142, setting forth his total income including the
undisclosed income for the block period:
Provided that no notice under Section 148 is required to
be issued for the purpose of proceeding under this
Chapter:
Provided further that a person who has furnished a
return under this Clause shall not be entitled to file a
revised return:]
(b) the Assessing Officer shall proceed to determine the
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undisclosed income of the block period in the manner
laid down in Section 158BB and the provisions of
Section 142, Sub-Sections (2) and (3) of Section 143
and Section 144 shall, so far as may be, apply;
(c) the Assessing Officer, on determination of the
undisclosed income of the block period in accordance
with this Chapter, shall pass an order of assessment and
determine the tax payable by him on the basis of such
assessment;
(d) the assets seized under Section 132 or requisitioned
under Section 132A shall be retained to the extent
necessary and the provisions of Section 132B shall apply
subject to such modifications as may be necessary and
the references to “regular assessment” or
“reassessment” in Section 132B shall be construed as
references to “block assessment”.”
34. The Hon’ble Supreme Court answered the question of law and
affirmed in favour of the Respondent Assessee therein and against the
Appellant/Income Tax Department.
35. As per the said provision as it stood then, which has been captured
in Paragraph Nos.21 to 26 of the said decision, it is clear that the provisions
of Section 142, Sub-Sections (2) and (3) of Section 143 and Section 144
shall, so far as may be, apply.
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36. The Hon’ble Supreme Court took note of the express language in
Section 158BC(b) of the Act and held that the Assessing Officer, if for any
reason, repudiates the Return filed by the Assessee in response to Notice
under Section 158-BC(a), the Assessing Officer must necessarily issue Notice
under Section 143(2) of the Act within the time prescribed in the Proviso to
Section 143(2) of the Act. The Hon’ble Supreme Court did not agree with
the submissions of the Revenue, observing that it did not see any reason to
restrict the scope and meaning of the expression ‘so far as may be apply’.
37. In the above decision, the Hon’ble Supreme Court also took note of
the clarification in Clause (e) of the Central Board of Direct Taxes (CBDT) in
its Circular No.717 dated 14.08.1995, [1995] 215 ITR 70] wherein it was
stated as under:-
“(e) Procedure for making block assessment:
i. The Assessing Officer shall serve a Notice on such
person requiring him to furnish within such time, not
being less than 15 days, as may be specified in the
Notice, a return in the prescribed form and verified in
the same manner as a return under Clause (i) of Sub-
Section (1) of Section 142 setting forth his total income
including undisclosed income for the block period. The
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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…”.
38. Paragraph Nos.21 to 26, from the above decision of the Hon’ble
Supreme Court in Hotel Blue Moon’s case referred to supra is reproduced
below:-
“21. We may now revert back to Section 158-BC(b) which is
the material provision which requires our consideration. Section
158-BC(b) provides for enquiry and assessment. The said provision
reads that:
“158-BC. (b) the assessing officer shall proceed to
determine the undisclosed income of the block period in
the manner laid down in Section 158-BB and the
provisions of Section 142, sub-sections (2) and (3) of
Section 143, Section 144 and Section 145 shall, so far as
may be, apply;”
An analysis of this sub-section indicates that, after the return is filed,
this clause enables the assessing officer to complete the assessment
by following the procedure like issue of notice under Sections
143(2)/142 and complete the assessment under Section 143(3). This
section does not provide for accepting the return as provided under
Section 143(1)(a). The assessing officer has to complete the
assessment under Section 143(3) only. In case of default in not filing
the return or not complying with the notice under Sections
143(2)/142, the assessing officer is authorised to complete the
assessment ex parte under Section 144.
22. Clause (b) of Section 158-BC by referring to Sections
143(2) and (3) would appear to imply that the provisions of Section
143(1) are excluded. But Section 143(2) itself becomes necessary
only where it becomes necessary to check the return, so that where
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authorities, there is no reason, why the authorities should issue
notice under Section 143(2). However, if an assessment is to be
completed under Section 143(3) read with Section 158-BC, notice
under Section 143(2) should be issued within one year from the date
of filing of block return. Omission on the part of the assessing
authority to issue notice under Section 143(2) cannot be a
procedural irregularity and the same is not curable and, therefore,
the requirement of notice under Section 143(2) cannot be dispensed
with.
23. The other important feature that requires to be noticed is
that Section 158-BC(b) specifically refers to some of the provisions
of the Act which requires to be followed by the assessing officer
while completing the block assessments under Chapter XIV-B of the
Act. This legislation is by incorporation. This section even speaks of
sub-sections which are to be followed by the assessing officer. Had
the intention of the legislature was to exclude the provisions of
Chapter XIV of the Act, the legislature would have or could have
indicated that also. A reading of the provision would clearly
indicate, in our opinion, if the assessing officer, if for any reason,
repudiates the return filed by the assessee in response to notice
under Section 158-BC(a), the assessing officer must necessarily
issue notice under Section 143(2) of the Act within the time
prescribed in the proviso to Section 143(2) of the Act. Where the
legislature intended to exclude certain provisions from the ambit of
Section 158-BC(b) it has done so specifically. Thus, when Section
158-BC(b) specifically refers to applicability of the proviso thereto
cannot be excluded.
24. We may also notice here itself that the clarification given
by CBDT in its Circular No. 717 dated 14-8-1995 [(1995) 215 ITR
(St) 70], has a binding effect on the Department, but not on the
Court. This circular clarifies the requirement of law in respect of
service of notice under sub-section (2) of Section 143 of the Act.
Accordingly, we conclude even for the purpose of Chapter XIV-B of
the Act, for the determination of undisclosed income for a block
period under the provisions of Section 158-BC, the provisions of
Section 142 and sub-sections (2) and (3) of Section 143 are
applicable and no assessment could be made without issuing notice
under Section 143(2) of the Act.
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25. However, it is contended by Shri Shekhar, learned counsel
for the Department that in view of the expression “so far as may be”
in Section 158-BC(b), the issue of notice is not mandatory but
optional and are to be applied to the extent practicable. In support of
that contention, the learned counsel has relied on the observation
made by this Court in Dr. Partap Singh case [(1985) 3 SCC 72 :
1985 SCC (Cri) 312 : 1985 SCC (Tax) 352 : (1985) 155 ITR 166] .
In this case, the Court has observed that: (SCC p. 80, para 12)
“12. Section 37(2) provides that ‘the provisions of the
Code relating to searches, shall so far as may be, apply to
searches directed under Section 37(1)’. Reading the two
sub-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.”
26. The learned counsel for the respondent has brought to our
notice the observations made by this Court in Maganlal v. Jaiswal
Industries [(1989) 4 SCC 344] , wherein this Court while dealing
with the scope and import of the expression “as far as practicable”
has stated: (SCC p. 359, para 28)
“28. … Without anything more the expression ‘as far
as [possible] [Ed.: The original word in Maganlal case,
(1989) 4 SCC 344, is “practicable”.] ’ will mean that
the manner provided in the code for attachment or sale
of property in execution of a decree shall be applicable
in its entirety except such provision therein which may
not be practicable to be applied.””
39. It is in this background, in Paragraph Nos.16 and 17, the Hon’ble
Supreme Court held as under:-
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“16. The case of the revenue is that the expression ‘so
far as may be apply’ indicates that it is not expected to
follow the provisions of Section 142, Sub-Sections (2)
and (3) of Section 143 strictly for the purposes of block
assessments. We do not agree with the submissions of
the learned counsel for the Revenue, since we do not
see any reason to restrict the scope and meaning of the
expression ‘so far as may be apply’. In our view,
where the Assessing Officer in repudiation of the
return filed under Section 158BC(a) proceeds to make
an enquiry, he has necessarily to follow the provisions
of Section 142, Sub-Sections (2) and (3) of Section 143.
17. Section 158BH provides for application of the other
provisions of the Act. It reads: “Save as otherwise
provided in this Chapter, all the other provisions of this
Act shall apply to assessment made under this Chapter”.
This is an enabling provision, which makes all the
provisions of the Act, save as otherwise provided,
applicable for proceedings for block assessment. The
provisions which are specifically included are those
which are available in Chapter XIV-B of the Act,
which includes Section 142 and Sub-Sections (2) and
(3) of Section 143.”
40. The Hon’ble Supreme Court also observed that after a Return is
filed, it enables an Assessing Officer to complete the assessment by following
the procedure like issue of Notice under Sections 143(2)/142 and complete
the assessment under Section 143(3) of the Act.
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41. Having considered the decision of the Hon’ble Supreme Court in
Hotel Blue Moon’s case referred to supra, which has been applied by this
Court in the context of Section 158BC of the Act in Chapter XIV-B as it
stood then and the decision of the Division Bench of this Court in Sapthagiri
Finance & Investments referred to supra, I shall now refer to a decision of
the Division Bench of the Allahabad High Court cited by the learned counsel
for the Petitioner in the case of Commissioner of Income-tax-II, Lucknow
Vs. Salarpur Cold Storage Private Limited, [2014] 50 taxmann.com 105
(Allahabad).
42. There, the Division Bench of the Allahabad High Court following
the view of the Hon’ble Supreme Court in Hotel Blue Moon’s case referred
to supra observed that the omission on the part of the Assessing Officer to
issue a Notice under Section 143(2) of the Act is not a procedural irregularity
and is not curable.
43. The requirement of a Notice under Section 143(2) of the Act cannot
be dispensed with. The Division Bench of the Allahabad High Court also
observed that where the Assessing Officer fails to issue a Notice within the
period of six months as spelt out in the Proviso to Clause (ii) of Section
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143(2) of the Act, the assumption of jurisdiction under Section 143(3) of the
Act would be invalid and that this defect in regard to the assumption of
jurisdiction cannot be cured by taking recourse to the deeming fiction under
Section 292BB of the Act.
44. Section 292BB of the Act reads as under:-
“292BB. Notice deemed to be valid in certain
circumstances:-
Where an assessee has appeared in any proceeding or
co-operated in any inquiry relating to an assessment or
reassessment, it shall be deemed that any notice under
any provision of this Act, which is required to be served
upon him, has been duly served upon him in time in
accordance with the provisions of this Act and such
assessee shall be precluded from taking any objection in
any proceeding or inquiry under this Act that the notice
was-
a. not served upon him; or
b. not served upon him in time; or
c. served upon him in an improper manner:
Provided that nothing contained in this Section shall
apply where the assessee has raised such objection
before the completion of such assessement or
reassessment.”
45. The above decision of the Division Bench of the Allahabad High
Court records that a Notice under Section 143(2) of the Act was issued on
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06.10.2009 and thereafter the assessment was completed on 24.12.2010 under
Section 143(3) of the Act.
46. Therefore, the Commissioner of Income Tax (Appeals) had held
that the Notice dated 06.10.2009 issued under Section 143(2) of the Act was
not issued within the period stipulated under Section 143(3) of the Act and
hence the question of its service either within or beyond the time prescribed
or its improper service within the meaning of Section 292BB of the Act
would not arise.
47. The view of the Commissioner of Income Tax Appeals was
confirmed by the Tribunal. The Tribunal held that a Notice under Section
143(2) of the Act is of a statutory nature through which the Assessing Officer
assumes jurisdiction over the assessee to frame an assessment under Section
143(3) of the Act. If the jurisdiction was not properly assumed by the
Assessing Officer by issuing a valid Notice under Section 143(2) of the Act,
the assessment so framed would be without a valid assumption of jurisdiction
and would be invalid.
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48. Keeping the above decisions of the Hon’ble Supreme Court and
other High Courts and the decision cited by the learned Junior Standing
Counsel for the Respondent in Areva T & D India Limited case referred to
supra and the other decisions cited, I shall proceed to refer to both Section
148 of the Act and Section 143(2) of the Act.
49. Section 143(2) of the Act as it stood during the period in dispute
and Section 148 of the Act as it stood prior to its substitution before
01.04.2021 does not in any manner further the case of Petitioner.
50. Under Section 148(1) of the Act, a Return filed pursuant to a
Notice under Section 148 of the Act is to be treated as a Return required to be
furnished under Section 139 of the Act. However, the assessment has to be
completed within the limitation prescribed under Section 153(2) of the Act
i.e., within the period of nine months from the end of the Financial Year in
which Section 148 Notice was issued.
51. In the facts of the present case, there is no dispute that the
Petitioner had earlier filed a Return of Income under Section 139(1) of the
Act on 31.07.2011, declaring income of only Rs.8,30,977/- when indeed the
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Petitioner had received a sum of Rs.42,65,000/- towards “non-compete fee”
and a sum of Rs.2,00,00,000/- on 04.11.2010, directly from M/s.Edserve Soft
Systems Limited after the assets of M/s.Smartlearn Edutech Private Limited
was transferred to former.
52. The amount that was payable for the sale of assets of M/s.Smartlearn
Edutech Private Limited to M/s.Edserve Soft Systems Limited was strangely
retransferred to M/s.Edserve Soft Systems Limited itself on 04.11.2010 and
on the same day, M/s.Smartlearn Edutech Private Limited was allotted 93458
shares of Rs.214/- per share in M/s.Edserve Soft Systems Limited.
53. These were not declared in the aforesaid Return of Income that was
filed on 31.07.2011. The Petitioner merely declared the total income of the
Petitioner as Rs.8,30,977/-. The Return was processed under Section 143(1)
of the Act on 15.10.2011.
54. It is in this background, the Petitioner was issued a Notice under
Section 272A of the Act on 21.08.2012 in response to which the Petitioner
had replied on 28.08.2012, 29.08.2012 and 05.10.2012 and thereafter filed a
revised Return of Income under Section 139(4) of the Act on 11.09.2012.
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55. Thus, the Petitioner declared a taxable income of Rs.17,29,621/-
and paid tax of Rs.4,34,512/-. It is in this background, a Notice was also
issued under Section 148 of the Act on 29.03.2018 which is impugned in
W.P.No.2495 of 2019.
56. As mentioned above, once a Notice is issued under Section 148 of
the Act, the Assessing Officer has to pass a Reassessment Order under
Section 153(2) of the Act within a period of nine months from the end of the
Financial Year in which a Notice under Section 148 of the Act was served.
57. For the sake of clarity, Section 153(2) of the Act is reproduced
below:-
“153. Time limit for completion of assessment,
reassessment and recomputation:
(1) ……
(2) No order of assessment, reassessment or
recomputation shall be made under Section 147 after the
expiry of nine months from the end of the financial year in
which the notice under Section 148 was served.
Provided that where the notice under Section 148 is served on
or after the 1st day of April, 2019, the provisions of this Sub-
Section shall have effect, as if for the words “nine months”,
the words “twelve months” had been substituted.”
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58. In this case, pursuant to the Notice issued under Section 148 of the
Act dated 29.03.2018, the Petitioner had submitted Letters dated 27.04.2018
and 22.05.2018. In the Letter dated 27.04.2018, the Petitioner had requested
the Respondent to consider his earlier Revised Return filed on 11.09.2012 as
a Return to be filed in response to the Notice under Section 148 of the Act.
However, in his Letter dated 22.05.2018, the Petitioner requested the
Respondent to consider his Return dated 22.05.2018 as a Return filed in
response to the Notice under Section 148 of the Act.
59. Section 143 of the Act applies to Return filed under Section 139 or
a Return filed in response to a Notice under Section 142(1) of the Act. A
Return filed pursuant to Section 148 Notice is deemed to be a Return filed
under Section 139 of the Act.
60. The scope for issuance of Section 143(2) Notice will arise only
where the Assessing Officer considers it “necessary” or “expedient” as is
evident from a reading of Section Section 143(2) of the Act.
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61. For the sake of clarity, Section 143(2) of the Act is reproduced
below:-
“143. Assessment:
(1) …..
(2) Where a return has been furnished under section 139,
or in response to a notice under sub-section (1) of section
142, the Assessing Officer or the prescribed income-tax
authority, as the case may be, if, considers it necessary or
expedient 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, shall serve on the
assessee a notice requiring him, on a date to be specified
therein, either to attend the office of the Assessing Officer
or to produce, or cause to be produced before the
Assessing Officer any evidence on which the assessee may
rely in support of the return.
Provided that no notice under this sub-section shall be
served on the assessee after the expiry of six months from
the end of the financial year in which the return is
furnished.”
62. Under Section 143(2) of the Act, if the Assessing Officer or the
prescribed Income Tax Authority, as the case may be, considers it
“necessary” or “expedient” that in the Return furnished under Section 139 of
the Act or in response to a Notice under Sub-Section (1) of Section 142 of the
Act, the assessee has
(a) understated the income; or
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(b) computed excessive loss; or
(c) underpaid the tax in any manner,
shall serve on the assessee,
i. a notice requiring him, on a date to be specified
therein, either to attend the office of the Assessing
Officer; or
ii. to produce, or cause to be produced before the
Assessing Officer any evidence on which the assessee
may rely in support of the return.
63. As per the Proviso to Section 143(2) of the Act, such a Notice
should be issued within six months from the end of the Financial Year in
which such Return was furnished.
64. It is only under those situations, the Assessing Officer or the Income
Tax Authority shall serve on the assessee a Notice requiring him, on a date to
be specified therein, either to attend the office of the Assessing Officer or to
produce, or cause to be produced before the Assessing Officer any evidence
on which the assessee may rely in support of the Return. Thus, Notice under
Section 143(2) of the Act is discretionary and not mandatory to ensure that
there is no violation of Principles of Natural Justice.
65. As per the Letters dated 27.04.2018 and 22.05.2018 and going by
the Petitioner’s own submissions, the Notice under Section 143(2) of the Act
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ought to have been issued either before 30.09.2013 [i.e., six months from the
end of the Financial Year in which such revised Return of Income was filed
on 11.09.2012] or latest by 30.09.2019 [i.e., six months from the end of the
Financial Year of Letter dated 22.05.2018]. However, as mentioned above,
under Section 153(2) of the Act, an Order of Assessment, Reassessment or
Recomputation under Section 147 of the Act has to be passed within nine
months from the end of the Financial Year in which the Notice under Section
148 of the Act was served i.e., on or before 31.12.2018.
66. If the Returns under Section 148(1) of the Act is said to have been
filed on 22.05.2018 based on the said Letter, it is to be treated as if it were a
Returns required to be furnished by the Petitioner under Section 139 of the
Act, a Section 143(2) Notice ought to have been issued latest by 30.09.2019
i.e., after the due date for passing the Assessment Order on 31.12.2018 in
terms of the limitation under Section 153(2) of the Act. This is evident from
a reading of Section 148 of the Act as it stood during the period in dispute.
67. Thus, an anomalous situation arises, as in the present case, after a
Section 148 Notice of the Act was issued, the Department could not have
issued a Notice under Section 143(2) of the Act either after the date of the
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Revised Return was filed on 11.09.2012, or before the expiry of limitation for
passing Orders under Section 147 read with Section 153(2) of the Act i.e.,
31.12.2018 when the date of Revised Return i.e., Letter dated 22.05.2018 is
taken as a Return, the period for issuance of Notice under Section 143(2) of
the Act would have long surpassed the last date.
68. The reassessment proceedings under Section 148 read with Section
147 of the Act are intended to protect the Revenue and therefore the
interpretation which would further the case of the Revenue has to be
accepted. In this case, I am fortified by the view of the Hon’ble Supreme
Court in Commissioner of Income Tax Vs. Sun Engineering Works (P)
Ltd., (1992) 4 SCC 363, wherein it was held as under:-
“40. Although, Section 147 is part of a taxing
statute, it imposes no charge on the subject but deals
merely with the machinery of assessement and in
interpreting a provision of that kind, the rule is that
construction should be preferred which makes the
machinery workable. Since the proceedings under Section
147 of the Act are for the benefit of the Revenue and not
an assessee and are aimed at gathering the ‘escaped
income’ of an assessee, the same cannot be allowed to be
converted as ‘revisional’ or ‘review’ proceedings at the
instance of the assessee, thereby making the machinery
unworkable.”32/38
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69. Therefore, the decision of the Division Bench of this Court in
Sapthagiri Finance case referred to supra was not laid before the Hon’ble
Supreme Court in Hotel Blue Moon’s case referred to supra. The provision
of Section 143(2) of the Act and Section 148 of the Act as it stood prior to its
substitution with effect from 01.04.2021 do not warrant issuance of Notice
pursuant to Section 148 of the Act.
70. The other decision of the Allahabad High Court and that of the
Delhi High Court following the decision of the Hon’ble Supreme Court in
Hotel Blue Moon’s case referred to supra cannot be applied stricto sensu.
71. That apart, the Petitioner has participated in the proceedings and
therefore it is not open for the Petitioner to challenge the Assessment Order
on the ground of jurisdiction in view of Section 292BB of the Act.
72. In the present case, Section 148 Notice was issued on 29.03.2018.
The last date for the Financial Year would end on 31.03.2018, and the last
date for passing Order under Section 147 read with Section 153 of the Act
would be on 31.12.2018. Thus, a Notice under Section 143(2) of the Act, is
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an impossibility as the time for passing an Assessment Order would expire on
31.12.2018.
73. Thus, it has to be held that the procedure prescribed under Section
143(2) of the Act is not mandatory and it has to be issued only where the
Assessing Authority or the Assessing Officer as the case may be considers it
“necessary” or “expedient” to ensure that the assessee has not understated
the income or has not computed excessive loss or has not underpaid tax in
any manner. That apart, the Petitioner has not filed a Revised Return as is
contemplated under Section 148 of the Act rather the Petitioner has merely
reiterated the Revised Return that was filed on 11.09.2012.
74. The argument of the Petitioner that the reasons for reopening the
assessment was different from the ultimate finding in the Impugned
Assessment Order also cannot be countenanced.
75. Although pursuant to the issuance of Section 148 Notice, the
Petitioner was asked to furnish the details of “non-compete fee” during the
course of reassessment. It is noticed that the Petitioner claimed excessive
loss to the tune of Rs.27,97,576/- against the said income. There is a direct
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nexus between the reasons for reopening and the disallowance made in the
Order passed under Section 147 of the Act. Thereafter, the Petitioner has not
filed new Return after Section 148 Notice dated 29.03.2018 was issued.
Therefore, there is no justification for interfering with the Impugned
Assessment Order.
76. In any event, the said issue is pending before the Hon’ble Supreme
Court in Director of Income Tax (IT)-II Vs. Black & Veatch Prichard,
Inc., in Civil Appeal No.9105 of 2017 in SLP (C) No.7658 of 2012, in view
of the divergent views taken by different High Courts while interpreting
Explanation 3 to Section 147 of the Act which read as under:-
“Explanation 3 – For the purpose of assessment or
reassessment under this Section, the Assessing Officer may
assess or reassess the income in respect of any issue, which has
escaped assessment, and such issue comes to his notice
subsequently in the course of the proceedings under this
Section, notwithstanding that the reasons for such issue have
not been included in the reasons recorded under sub-section (2)
of section 148.”
77. Whether there were justifiable reasons for claiming a business loan
written off of Rs.27,97,576/-, while filing the Revised Return under Section
139(4) of the Act on 11.09.2012, which was reiterated in the letter filed on
22.05.2018 in response to the impugned Section 148 Notice dated 27.04.2018
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was to be justified or not was to be decided by the Assessing Officer on
merits. Therefore, I do not wish to make any further observation on the same
as it touches on the merits of the case.
78. That apart, once a Return has been filed, the deduction claimed by
the Petitioner is a subject matter of a scrutiny and that in this case the
Petitioner has not furnished any documents to substantiate the same.
79. That apart, as stated earlier, there is also no merit in the challenge
to the proceedings on the ground of jurisdiction in view of Section 292BB of
the Act. As such, there are also no procedural irregularity in passing the
Impuged Assessment Order warranting its interference under Article 226 of
the Constitution of India.
80. Therefore, both W.P.No.2495 of 2019 as also W.P.No.2485 of
2019 are liable to be dismissed.
81. In the result,
(1) W.P.No.2495 of 2019, challenging the Impugned Section 148
Notice dated 29.03.2018 is dismissed.
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(2) W.P.No.2485 of 2019, challenging the Impugned
Assessment Order dated 26.12.2018 is disposed by giving liberty
to the Petitioner to file an appeal within a period of four weeks
from the date of receipt of a copy of this order and the same may
be entertained without reference to the aspect of limitation.
(3) No costs. Connected Writ Miscellaneous Petitions are closed.
07.07.2026
Neutral Citation: Yes / No
arb
To:
The Deputy Commissioner of Income Tax,
Corporate Circle 1(1),
Chennai – 34.
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C.SARAVANAN, J.
arb
Pre-Delivery Common Order in W.P.Nos.2485 and 2495 of 2019
07.07.2026
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