Sun Aero Ltd. v. PCIT

Case snapshot

Sections / provisions: 143(2); 158BC

Questions before the Court / Tribunal

• Block assessment; mandatory notice under section 143(2): The reported case concerns the procedural requirement of a section 143(2) notice in a block-assessment setting. The dispute addresses whether later material or participation can cure absence of the mandatory statutory notice.

Material facts and background

13.05.2019: (i) Whether it was mandatory for the Assessing Officer('AO') to have issued a notice under Section 143 (2) of the Income Tax Act, 1961 ('Act') within one year from the date of filing of the return of income for the block period and only thereafter complete the assessment under Section 158 BC of the Act?

claiming the amount of Rs. 21 crores as exempt from capital gains under Section 47(v) of the Act of 1961, which claim of the appellant, was accepted by the Assessing Officer while passing assessment order dated 09.02.1998, under Section 143(3) of the Act of 1961 after due scrutiny in the matter.

certain material came to the notice of the Assessing Officer on the basis whereof, he formed an opinion that the appellant – assessee is not the wholly owned subsidiary of said company (Sun Air Hotels Limited) and an order for the block period under Section 158BC of the Act of 1961 and made addition of Rs. 21 crores in appellant’s hands came to be passed. By way of appeal, the appellant assailed the said order of the Assessing Officer (dated 29.11.2002) before the Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘CIT (A)’], who allowed the same vide order dated 31.10.2003, while observing thus: “3.20. In the letter dt. 20/2/2003, it is submitted that the issue regarding taxability of capital gain has already been examined earlier by the Assessing Officer, Special Range-5, New Delhi while passing the order u/s 143(3) for the relevant assessment year 1995-96. Hence, the addition made is beyond the scope of Chapter XIV-B of the Act as it is a completely disclosed transaction in the regular books of account.” 8.

Appellant / assessee submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Revenue / respondent submissions

Mr. Siddhartha Sinha, Senior Standing Counsel.

Mr. Siddharth Sinha, learned Senior Standing Counsel for the

Learned Senior Standing Counsel for the respondent, invited Court’s

counsel submitted that the fact that certain material was found is evident from the above part of the assessment order and therefore, the assessee’s claim that no material was found during the search is untenable. In relation to assessee’s contention that notice under Section 143(2) of the Act of 1961 was not issued to the appellant, learned Senior Standing Counsel argued that this contention was never raised by the assessee and the same was not the basis for setting aside the Assessing Officer’s order by the CIT(A). He argued that the same cannot be entertained by this Court, simply because it appears or happens to be a question of law. 20.

Mr. Sinha, learned Senior Standing Counsel for the Department, also is

Court / Tribunal analysis and reasoning

under Section 158BC of the Act, it is incumbent upon the Assessing Officer to issue a notice under Section 143(2) of the Act, as has been held by Hon’ble the Supreme Court in the case of Assistant Commissioner of Income Tax vs. Hotel Blue Moon, 2010 3 SCC 259 and by this Court in the case of Principal Commissioner of Income Tax vs. Silver Line, 2016 383 ITR 455. He invited Court’s attention to paragraph 22 of the Hotel Blue Moon (supra) and paragraph 16 and 18 of the Silver Line (supra). The relevant paragraphs are as follows : In Hotel Blue Moon (supra), Hon’ble the Supreme Court observed as under : “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 block return conforms to the undisclosed income inferred by the 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...

affecting the regular assessment made or to be made. Search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the assessing officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the Income not disclosed but found and determined as the result of search under Section 132 or requisition under Section 132-A of the Act. 17.

attention towards the relevant part of the assessment order dated 29.11.2002 and submitted that during the course of search, certain material was seized from the premises of the assessee which created a genuine doubt about the appellant’s claim as a wholly owned subsidiary of the holding company namely ‘Sun Air’. The relevant part of the assessment order is reproduced thus: “During the course of search and seizure operation the fact came to light that M/s Sunaero Ltd. had declared Rs. 21 Crores as their profit for assessment year 1995-1996 and claimed exemption u/s 47 (v) of the Income Tax Act, 1961 on the ground that it was wholly owned subsidiary of M/s Sunair Hotels Ltd. However seizure operations conducted at the Reg. office of the assessee company, certain materials were seized from the premises of the assessee company which indicated that the claim regarding the status of the company as wholly owned subsidiary of the holding company M/s Sunair Hotels Ltd. was not correct. Investigations regarding this fact that whether this company was actually a wholly owned subsidiary of M/s Sunair Hotels Ltd. were carried out during post search investigation. Vide reply of the assessee...

counsel submitted that the fact that certain material was found is evident from the above part of the assessment order and therefore, the assessee’s claim that no material was found during the search is untenable. In relation to assessee’s contention that notice under Section 143(2) of the Act of 1961 was not issued to the appellant, learned Senior Standing Counsel argued that this contention was never raised by the assessee and the same was not the basis for setting aside the Assessing Officer’s order by the CIT(A). He argued that the same cannot be entertained by this Court, simply because it appears or happens to be a question of law. 20.

Operative decision and relief

Tribunal dated 20.09.2016 are quashed and set aside. Consequences to follow. 40.

Authorities and precedents appearing in the judgment

• Advocate. versus PRINCIPAL COMMISSIONER OF INCOME TAX.....Respondent
• Supreme Court in the case of Assistant Commissioner of Income Tax vs. Hotel Blue Moon
• Commissioner of Income Tax vs. Silver Line
• Supreme Court in National Thermal Power Co. Ltd. v. CIT
• Ltd. v. CIT (supra)
• Kolkata-700054 vs. Central Electricity Regulatory Commission and
• Supreme Court in Damodar Valley Corporation vs. Central Electricity

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Block assessment; mandatory notice under section 143(2). The operative result is classified as Quashed Or Set Aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Block assessment; mandatory notice under section 143(2). Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Use the judgment as a fact-specific precedent: match the statutory version, assessment period, procedural stage and evidentiary record before relying on the result.
• Check whether a later High Court/Supreme Court order has affirmed, reversed, distinguished or rendered the decision academic.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the authenticated official judgment PDF

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