SHRI SHIRISH M.DALVI vs. ASSISTANT COMMISSIONER OF INCOME-TAX COMMISSIONER OF INCOME

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

INCOME INCOME INCOME TAX APPEAL NO. 153 OF 2004 TAX APPEAL NO. 153 OF 2004 TAX APPEAL NO. 153 OF 2004

Shri Shirish Madhukar Dalvi.

... Appellant.

V/s.

Assistant Commissioner of

Income-tax and others.

... Respondents.

Arun P. Sathe for the appellant.

Ashok Kotangale for the respondents.

CORAM CORAM CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ.

DATED DATED DATED : 13th July 2006. : 13th July 2006. : 13th July 2006.

JUDGMENT JUDGMENT JUDGMENT : : : (Per V.C.Daga, J.)

-------- -------- --------

This appeal is directed against the order

of the Income Tax Appellate Tribunal, Bench-I, Mumbai

("Tribunal" for short) dated 28th July, 2003.

The The The Facts : Facts : Facts :

--------- --------- ---------

The facts of the case are that the

appellant

dealing in landed properties.

regularly

assessed

income-tax.

Action

under

section

132

of the Income Tax Act, 1961 ("Act"

for

short)

for

search and seizure was conducted at

the

residential

and

business premises of the

appellant

between 11th June, 1998 and concluded on 15th July,

1998. CNR No : HCBM020004742004 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 2 -

The assessing officer issued notice dated

6th

July,

1998 calling upon the appellant

file

return

for

the

block period.

However,

appellant

disputes

the receipt of the said letter/notice.

The

appellant admits to have received a letter dated 17th

September,

1998 from the assessing officer reminding

him

to file a return for the block period 1987-88 to

1997-98

which

referred to the earlier notice

dated

6th July, 1998 though incorrectly and stated that the

appellant did not file return for the block period in

response to the said notice dated 6th July, 1998.

The appellant by his letter dated 28th

September,

1998

denied receipt of the notice

dated

6th

July,

1998, however, sought extension

time

and,

ultimately,

filed

his return

for

the

block

period i.e. assessment year 1989-90 to 1999-2000 on

2nd November, 1998.

The assessing officer assessed return for

the said block on 30th June, 2000 and passed an order

under section 158-BC read with section 143(3) of the

Act. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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The appellant preferred an appeal before

the

Commissioner of Income Tax (Appeals) challenging

the

validity of the said assessment order contending

that

the

order was passed by the assessing

officer

without serving proper notice under section 158-BC(a),

as such assessment is illegal and without

jurisdiction.

The Commissioner (Appeals) decided appeal

against the appellant by his order dated 28th July,

2000.

Being aggrieved by the aforesaid order of

the

Commissioner

(Appeals),

appellant

preferred

second

appeal

before

the

Income

Tax

Appellate

Tribunal ("Tribunal" for short) raising the questions

mentioned hereinabove.

The Tribunal by its order dated 28th July,

2003

deleted

certain additions and remitted

matter

back

the assessing officer for

verification

expenditure

allowable

under

section

37.

The

Tribunal,

however,

confirmed

addition

Rs.3,85,196/-.

The

Tribunal

relying

upon

the

decision

the

Supreme Court in C.I.T.

Jai C.I.T.

Jai C.I.T.

Jai Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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Prakash Prakash Prakash

Singh

Singh

Singh,

219

ITR

737

(SC)

upheld

the

jurisdiction

the assessing officer and held

the

notice

dated

6th July, 1998 as valid in

law

being

under

the

umbrella of section 292B of the

Act

and

held that the said notice was factually served on the

noticee- appellant.

10.

Being aggrieved by the aforesaid order of

the

Tribunal

dated 28th July, 2003,

the

appellate

jurisdiction

of this Court under section 260A of the

Act is invoked by the appellant to raise the

following questions said to be questions of law:

Whether

the

facts

and

the

circumstances

of the case, the

Tribunal

was

right in law in treating the

letter

dated 6th July, 1998 as Notice u/s 158-BC

of the Act?

Whether

the

facts

and

the

circumstances

of the case, the

Tribunal

was

right

law

coming

the

conclusion

that

provisions

section

292-B of the Income Tax Act were

applicable to the present case?

Whether

the

facts

and

the

circumstance of the case the Tribunal was

right

law in not allowing

deduction

u/s

37 of Rs.3,85,196/- just because the

vouchers

the said

expenditure

were

undated

and despite the incontrovertible

fact that the said expenditure related to

the transactions undertaken and concluded

earlier? Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 5 -

Submissions Submissions Submissions : : :

----------- ----------- -----------

11.

Mr.Sathe, learned counsel

for the

appellant

submits

that the notice dated

6th

July,

1998 was never served on the appellant apart from the

fact

that

the

same

was

suffering

from

enormous

infirmities

and defects.

Mr.Sathe went on to submit

that

the notice dated 6th July, 1998 was not

issued

under

correct provisions of the Act.

That the block

period

mentioned therein was erroneous.

That it did

not provide 15 days clear notice.

That it was issued

much before the conclusion of search which, according

him,

lasted

till

15th July,

1998

since

last

panchanama

was drawn on that date.

That the

notice

was not in the prescribed format of ITNS-274. That

it was never served on the appellant.

12.

In the submission of Mr.Sathe, all the

above

infirmities/

defects in the notice dated

6th

July,

1998 go to the root of the jurisdiction of the

assessing

officer

to initiate proceedings for

bloc

assessment

much

less

to assess

the

total

income

including

undisclosed

income for the

block

period

under

section 158-BC.

According to him, service

legal

and valid notice under section 158-BC(a) is

condition precedent for assumption of jurisdiction to Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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assess

the return for block period.

He submits that

the

issue

and

service

notice

under

section

158-BC(a)

not

procedural

requirement;

the

compliance of the mandatory provision of section

158-BC cannot be by-passed or waived.

13.

Mr.Sathe placed reliance on the judgment

this

Court

the

case

Commissioner

of Commissioner

of Commissioner

Agricultural Agricultural Agricultural

Income

Tax v.

Ramkumar & others

Income

Tax v.

Ramkumar & others

Income

Tax v.

Ramkumar & others,

141

ITR

85, to contend that defect in the alleged notice

not

a procedural defect but a failure to

comply

with

condition

precedent

assumption

jurisdiction must result in vitiating the assessment

proceedings.

14.

Mr.Sathe placed reliance on the judgment

the Apex Court in the case of C.I.T.

Kurban C.I.T.

Kurban C.I.T.

Kurban

Hussain Hussain Hussain Ibrahimji

Ibrahimji

Ibrahimji Mithiborwala

Mithiborwala

Mithiborwala, 82 ITR 821 to contend

that

the Income Tax Officer’s jurisdiction to reopen

assessment

under section 34 of the Act has

been

held

be depending upon the issuance of

valid

notice.

If the notice issued itself is invalid, then

the

entire proceedings taken pursuant thereto

would

become

void

for

want of

jurisdiction.

Mr.Sathe,

borrowing assistance from this judgment, submits that

entire impugned proceedings have become void for want Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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jurisdiction.

He placed reliance on

number

other

judgments reference of which in detail, in our

opinion,

this

stage is not necessary

since

propose

deal with the relevant citations at

the

later stage of this judgment while dealing with the

rival contentions.

15.

Mr.Sathe further submits that by no

stretch

of imagination the conduct of the

appellant

would

lead to an inference that appellant has either

acquiesced

waived the objection with respect

jurisdiction

and

submitted to the

jurisdiction

filing

his return for the block period in

question.

his submission, question of jurisdiction goes

the

root of the matter and the assessee not

raising

the

same

the assessment stage does

not

confer

jurisdiction

the

assessing

officer.

his

submission,

inherent

lack

of jurisdiction

can

challenged

any point of time or at any stage

any

proceeding.

In support of his

submission,

placed

reliance on the judgment of this Court in the

case of Inventors Industrial Corpn. Ltd. v. Inventors Industrial Corpn. Ltd. v. Inventors Industrial Corpn. Ltd. v.

C.I.T. C.I.T. C.I.T., 194 ITR 548.

16.

Mr.Sathe would urge that the provision of

section

158-BC

is synonymous and pari materia

with Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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that

section 148 of the Act.

He, thus,

submits

that

the validity of the notice issued under section

158-BC(a)

must

be tested with the same rigour

with

which

the validity of notice under section 148(a) is

required

to be examined.

Based on this

foundation,

Mr.Sathe

submits that the very basis to assume valid

jurisdiction

assess

total

income

including

undisclosed

income for the block period is:

A valid

search

conducted

under

section

132

the

Act;

finding

undisclosed

income

the

basis

material

seized

during the conduct of such

search;

and issuance coupled with service of a valid notice

under section 158-BC(a).

17.

Mr.Sathe submits that the notice under

section

158-BC(a)

to be issued

for

the

block

period

which

maximum

assessment

years

preceding

the

assessment year in which a search

conducted.

The

block

period

contemplated

under

section

158-B

not

necessarily

all

the

assessment

years

preceding the assessment

year

which

search is conducted, as undisclosed income for

the

block period is to be assessed is in context

the

material

found

during the search.

He,

thus,

submits

that the alleged notice dated 6th July, 1998

which

directed the appellant to file return for

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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block

period

1987-88

1997-98

had

assumed

jurisdiction

for assessing the income under

section

158-BC beyond the years as mandated by definition of

block period under section 158-B.

18.

Mr.Sathe, while developing another shed of

his

submission

leading

to the shelter

section

292-B of the Act taken by the respondents, urged that

the

glaring defects and/or infirmities in the notice

going

the

root

the

jurisdiction

the

authority

can

not

cured by

resorting

the

provision

section 292-B.

The refuge of

section

292-B

cannot be allowed to be taken in all cases

get

over

the vital defects in the notice.

the

defects

are

merely technical in nature,

then

such

defects can be cured by the provision of section 292B

the Act.

In support of his submission he pressed

into service statement of objects and reasons leading

to introduction of section 292B of the Act.

19.

Mr.Sathe, turning to the facts of the

present

case

hand would urge

that

the

notice

issued

the appellant was not in conformity

with

the

provisions of the Act.

The same was contrary to

the

provision

section 158-BC as such

the

said

notice

cannot

be made valid by

providing

material Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 10 -

under

section

292B of the Act.

In his

submission,

the

defects

pointed

out

him

are

not

merely

technical

nature

but

they

are

vital

and

substantial,

as such the said defects which

existed

could not be treated as cured by resorting to section

292-B.

In support of his submission he relied

upon

the

judgment of this Court in the case of Comm.

of Comm.

of Comm.

Agricultural Agricultural Agricultural

Income Tax v.

Ramkumar & ors.

Income Tax v.

Ramkumar & ors.

Income Tax v.

Ramkumar & ors.

(supra)

and

the

judgments of the other High

Courts,

viz.;

P.N.Shashikumar P.N.Shashikumar P.N.Shashikumar

& Ors.

C.I.T.

& Ors.

C.I.T.

& Ors.

C.I.T.

(Ker.), 170

ITR

80;

Continental Commercial Corpn.

I.T.O. Continental Commercial Corpn.

I.T.O. Continental Commercial Corpn.

I.T.O.,

100

ITR 170 (Mad.); Sunrolling Mills Pvt.Ltd. v. Sunrolling Mills Pvt.Ltd. v. Sunrolling Mills Pvt.Ltd. v.

I.T.O. I.T.O. I.T.O., 160 ITR 412 (Cal.).

20.

Mr.Sathe further submits that the reliance

placed

the Tribunal on the judgment of the

Apex

Court

in the case of C.I.T.

Jai Prakash

Singh C.I.T.

Jai Prakash

Singh C.I.T.

Jai Prakash

Singh,

(supra) is misplaced. On facts, he tried to

distinguish the said judgment.

21.

Mr.Sathe, turning to the third question

with regard to the disallowance of Rs.3,85,196/-, has

urged

that the vouchers of expenditure incurred were

respect of payments made to the land owners

from

whom

the lands were purchased by the appellant.

The

transaction

question

was

concluded

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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assessment year 1999-2000.

In his submission, merely

because

the

vouchers were undated

the

expenditure

could

not have been assessed in the assessment

year

1999-2000

holding

that the search was conducted

the

previous

year corresponding to

the

assessment

year

1999-2000.

According to him, under the concept

block

assessment

under

provision

section

158-BB(1)

the

total

income

including

undisclosed

income

to be computed for each of

the

previous

years

falling

within

the block period.

That

the

expenditure

Rs.3,85,196/-

ought

have

been

considered

for

the

previous

year

which

the

transactions

leading

purchase

lands

were

entered

into, i.e.

assessment year 1993-94 and

not

assessment

year 1999-2000.

Mr.Sathe, thus,

submits

that

considering his submission, the impugned

order

is liable to be set aside and the appeal deserves to

be allowed.

22.

Per Per Per contra contra contra, Mr.Kotangale, learned counsel

appearing

for

the

Revenue while

replying

the

submissions

with

respect to the validity of

notice

issued

under

section

158-BC(a) and

protection

section

292-B, submits that nowhere in the Act it is

made

mandatory

issue notice in

the

prescribed

format.

The subject notice dated 6th July, 1998 can Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 12 -

very

well

be said to be a valid notice because

the

said notice bears signature of the issuing authority,

having

stamp

and seal of the officer concerned

and

the

appellant was merely put on notice requiring him

comply

with

his legal obligation.

further

submits that merely because a notice purports to make

reference

to a wrong provision of law that by itself

would

not

make

notice invalid which

otherwise

within

the four corners of law.

That mere

reciting

wrong source of power does not affect validity of the

notice.

In his submission, the subject notice dated

6th July, 1998, substantially complies with the

provision of section 158-BC of the Act.

23.

Mr.Kotangale further submits that in order

make the notice legal refuge of section 292B

can

very

well

be taken by the Revenue to get

over

the

technical defects, if any.

Alternatively, he submits

that

subsequent

to notice dated 6th July, 1998

one

more

notice dated 17th September, 1998 was issued to

the

appellant- assessee which has strictly

complied

with

the

requirement

section

158-BC(a),

the

receipt

of which by the appellant is not in dispute.

In his submission, at any rate, the subsequent notice

dated

17th

September,

1998 being a

valid

notice,

received

by the assessee, the alleged illegality

of Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 13 -

notice dated 6th July, 1998, if any, stands cured and

the order of assessment cannot be said to be bad and

illegal.

24.

Mr.Kotangale reiterates that the appellant

the

appeal memo or in the written statement

did

not

attack

illegality

the

notice

dated

17th

September,

1998, in his submission, rightly, because

the

said

subsequent

notice complies with

all

the

requirement

of section 158-BC.

Mr.Kotangale,

thus,

submits

that

it is not necessary to dwell upon

the

legality

validity of the notice dated 6th

July,

1998 in view of the subsequent valid and legal notice

issued

by the department on which the appellant

has

acted upon and filed his return without raising any

objection thereto.

25.

Mr.Kotangale further submits that the

notice

dated

17th

September,

1998

has

been

acknowledged

the assessee vide his letter

dated

29th

September,

1998;

wherein he did

not

dispute

legality

of the said notice.

On the top of it,

the

appellant

admitted

necessary

return for

the

bock

period consisting assessment years 1989-90 to 1998-99

plus

period from 1st April, 1998 to 11th June, 1998.

The

appellant

also prayed for time to

file

return Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 14 -

beyond

days and requested not to initiate

penal

proceedings

filing return for the block

period.

view

this,

Mr.Kotangale

submits

that

the

submissions made by the learned counsel for the

appellant hold no water.

26.

So far as third issue relating to

deduction

under section 37 of the Act in the sum

Rs.3,85,196/- is concerned, Mr.Kotangale submits that

the

question

relating to this aspect of the

matter

can

hardly

be said to be a substantial question

law.

In his submission, the Tribunal has

confirmed

the

addition

made by the assessing officer

the

extent

Rs.3,85,196/- as the appellant could

not

establish

particular

expenditure

business

expenditure by producing cogent evidence.

He further

submits

that unless it is proved that expenditure in

question

was

incurred for earning income which

has

been brought to tax, no deduction under section 37(1)

could

have

been

allowed.

support

his

submission, he relied upon the judgment of the Madras

High

Court

the

case of

C.I.T.

Bhagwati C.I.T.

Bhagwati C.I.T.

Bhagwati

Developers Developers Developers,

261

ITR 658 and judgment of Delhi

High

Court

in the case of R.Kanaklal v.

C.I.T. R.Kanaklal v.

C.I.T. R.Kanaklal v.

C.I.T., 244

ITR

holding it to be without any substance. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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Statutory Statutory Statutory Provisions : Provisions : Provisions :

-------------------- -------------------- --------------------

27.

Before proceeding to consider the rival

contentions revolving around the questions raised, it

is necessary to turn to the statutory provisions

having direct impact on the questions raised.

escaped escaped escaped assessment.

assessment.

assessment.

(1) Before making the assessment,

reassessment

recomputation

under

section

147, the Assessing Officer

shall

serve

on the assessee a notice

requiring

him

to furnish within such period, as may

specified

in the notice, a return

his

income

the income of

any

other

person

respect

which

assessable

under

this

Act

during

the

pervious

year

corresponding

the

relevant

assessment

year,

the

prescribed

form

and

verified

the

prescribed

manner and setting forth

such

other

particulars

as may be

prescribed;

and

the provisions of this Act shall,

far

may be, apply accordingly

such

return were a return required to

furnished under section 139.

(2)

..... ..... ..... .....

158-BA. 158-BA. 158-BA.

Assessment of undisclosed income

Assessment of undisclosed income

Assessment of undisclosed income

as as as a result of search.

a result of search.

a result of search.

(1)

Notwithstanding anything contained in

any

other

provisions of this Act,

where

after

the 30th day of June, 1995 a search

is initiated under section 132 or books of

account, other documents or any assets are

requisitioned

under

section 132A in

the

case

any person, then, the

Assessing

Officer

shall

proceed

assess

the

undisclosed

income in accordance with the

provisions of this Chapter. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 16 -

(2)

The total undisclosed income relating

the

block period shall be charged

tax, at the rate specified in section 113,

as income of the block period irrespective

the

previous year or years

which

such

income

relates and irrespective

the

fact

whether regular assessment

for

any one or more of the relevant assessment

years is pending or not.

Explanation.-

For the removal of

doubts,

it is hereby declared that-

(a)

the

assessment

made

under

this

Chapter

shall be in addition to

the

regular assessment in respect of each

previous year included in the block

period.

(b)

the total undisclosed income relating

the

block

period

shall

not

include

the income

assessed in

any

regular assessment as income of such

block period;

(c)

the

income assessed in this

Chapter

shall

not be included in the regular

assessment of any previous year

included in the block period.

(3) Where the assessee proves to the

satisfaction of the Assessing Officer that

any

part

income

referred

sub-section

(1) relates to an

assessment

year

for which the previous year has

not

ended

or the date of filing the return of

income

under

sub-section (1) of

section

139 for any previous year has not expired,

and

such

income

the

transactions

relating to such income are recorded on or

before

the

date

the

search

requisition

the books of

account

other

documents maintained in the

normal

course

relating

to such previous

years,

the

said income shall not be included

the block period.

158-BC. 158-BC. 158-BC.

Procedure for block

assessment.

Procedure for block

assessment.

Procedure for block

assessment.

Where

any search has been conducted under

section

132

or books of

account,

other

documents

assets

are

requisitioned Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 17 -

under

section

132A, in the case

any

person, then,-

(a)

the Assessing Officer shall-

(i)

respect of search

initiated

books

of account

other

documents

any

assets

requisitioned after the 30th day

June,

1995, but before

the

1st

day of January, 1997, serve

notice

such

person

requiring

him to furnish within

such time not being less than

fifteen days;

(ii)

respect of search

initiated

books

of account

other

documents

any

assets

requisitioned

or after

the

1st

day of January, 1997, serve

notice

such

person

requiring

him to furnish within

such

time

not being less

than

fifteen days but not more than

forty-five days,

may be specified in the notice

return

the prescribed

form

and

verified

the

same manner

return

under

clause

(i)

sub-section

(1)

section

142,

setting

forth

his

total

income

including the undisclosed income for

the block period:

Provided Provided Provided

that

no notice

under

section

148

is required to

issued

for

the

purpose

proceeding under this Chapter:

Provided Provided Provided

further

further

further that a

person

who has furnished a return under

this

clause

shall

not

entitled

file

revised

return.

(b)

.....

.....

.....

(c)

.....

.....

.....

(d)

.....

.....

..... Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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292B. 292B. 292B. Return of income, etc., not to be Return of income, etc., not to be Return of income, etc., not to be

invalid invalid invalid on certain ground.- on certain ground.- on certain ground.-

return of income, assessment,

notice,

summons

or other proceeding furnished

made

issued or taken or purported

have

been furnished or made or issued

taken

pursuance

any

the

provisions of this Act shall be invalid or

shall

deemed to be invalid merely

reason

of any mistake, defect or omission

such

return

income,

assessment,

notice,

summons

or other

proceeding

such return of income, assessment, notice,

summons

other

proceeding

substance and effect in conformity with or

according

the intent and

purpose

this Act.

Legislative Legislative Legislative History : History : History :

------------------- ------------------- -------------------

28.

The Finance Act, 1995 inserted a new

Chapter

XIV-B

in the Act.

The Finance

(No.2)

Act

1996

has made some changes with retrospective effect

from

1st

July,

1995.

The Chapter provides

new

concept

for assessment in cases relating to searches

conducted

under

section

132

the

Act

requisitions made under section 132A of the Act after

30 June, 1995.

29.

This chapter required an assessing officer

assess the undisclosed income of a block

period,

person being searched, in accordance with

the

provisions

this chapter.

The block

period

was

defined

mean

a period of six

assessment

years Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 19 -

preceding the previous year of search and included

the period up to the date of search.

30.

An undisclosed income was also specifically

defined.

Such income determined in accordance

with

the provisions of the chapter and other provisions of

the Act was charged to tax at the rate of 60% or such

other rate as specified under section 113 of the Act.

Surcharge as applicable in the year of search was

also levied.

31.

This special assessment was independent of

the

regular

assessment

for

the

relevant

years

included

the

block

period.

Generally,

the

disclosed

income

of a person was taxed

regular

assessment and undisclosed income found in the course

search was taxed in block assessment in case of a

person

who

was searched.

A detailed procedure

was

laid

down for computation as also for assessment

undisclosed income.

Time limit also was provided for

completion

the

block

assessments

land

the

authority

competent to make such assessment was also

defined. Special provisions were made for assessment

of third party’s undisclosed income. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 20 -

32.

No interest under sections 234A, 234B and

234C

was

levied in respect of

undisclosed

income.

similarly,

penalty for concealment of income

also

for

non-maintenance

accounts

and

audit

thereof was leviable in respect of unaccounted

transactions and undisclosed income.

33.

The block assessment was subjected to

appeal

under section 246A and could be rectified and

revised.

was possible to

file

petition

before the Settlement Commission against the block

assessment for the settlement of case.

34.

Separate provisions for levy of interest

for

delay in filing the return for block period were

provided.

Provisions

were

also made for

levy

penalty

the

amount of

difference

between

the

returned undisclosed income and the assessed

undisclosed income.

35.

All the provisions of the Act other than

those provided were made applicable to the assessment

under this Chapter XIV-B of the Act. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 21 -

Ruling Ruling Ruling Authorities : Authorities : Authorities :

------------------ ------------------ ------------------

36.

Before we deal with the aforesaid

contentions

raised on behalf of the rival parties in

the

light

the

above

extracted

statutory

provisions,

it is appropriate to first consider

the

law

laid

down by the Apex Court with various

other

High Courts relevant to the facts of the case at

hand.

37.

In the case of State of Kerala vs. State of Kerala vs. State of Kerala vs.

Muniyalla Muniyalla Muniyalla,

AIR

1985 SC 470, it is held that

merely

because

order

is purported to be made

under

wrong provision of law, it does not become invalid so

long as there is some other provision of law

38.

In the case of Hukumchand Mills Ltd. vs. Hukumchand Mills Ltd. vs. Hukumchand Mills Ltd. vs.

State State State

of Madhya Pradesh

of Madhya Pradesh

of Madhya Pradesh, AIR 1964 SC 1329, the

Apex

Court has ruled that mere mistake in the opening part

the notification in reciting the wrong source

power does not affect the validity of the amendments

made.

39.

In the case of State Bank of Patiala vs. State Bank of Patiala vs. State Bank of Patiala vs.

S.K.Sharma S.K.Sharma S.K.Sharma,

(1996)

3 SCC 364, the Apex Court

ruled

that

in case of a procedural provision which is

not Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 22 -

a mandatory character, the complaint of violation

has

examined

from

the

stand-point

substantial

compliance.

The

order

passed

violation

such provision can be set

aside

only

where

such violation has occasioned prejudice to the

subject.

further went on to observe

that

even

mandatory

requirement

can be waived by

the

person

concerned,

such

mandatory provision of

law

conceived

his

interest and not

the

public

interest.

The conduct of the subject must be

borne

in mind while examining a complaint of non-observance

procedural rules governing such enquiries.

rule,

all

such

procedural rules

are

designed

afford a full and proper opportunity to the subject

to defend himself.

40.

In the case of Dove Investments (P) Ltd vs Dove Investments (P) Ltd vs Dove Investments (P) Ltd vs

Gujarat Gujarat Gujarat

Industrial Investment Corporation

Industrial Investment Corporation

Industrial Investment Corporation, (2006)

SCC

619;

the Apex Court has observed

that

regard

must be had to the context, subject matter and object

of the statutory provision in question in determining

whether

the

same

is mandatory

directory.

universal

principle

law could be laid

that

behalf

whether

particular

provision

enactment shall be considered mandatory or directory.

the duty of the Court to try to get the

real Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 23 -

intention

of the legislature by carefully

analysing

the whole scope of the statute or section or a phrase

under consideration.

41.

In the case of P.T. Rajan vs. T.P.M. P.T. Rajan vs. T.P.M. P.T. Rajan vs. T.P.M.

Sahuj Sahuj Sahuj, (2003) 8 SCC 498, the Apex Court has said that

whether

statute would be directory

mandatory

will

depend upon the scheme thereof.

Ordinarily,

procedural

provision would not be mandatory even

the word "shall" is employed therein unless a

prejudice is caused.

42.

In Chandrakant Uttam Chandrakant Uttam Chandrakant Uttam

Chodankar Chodankar Chodankar v. v. v.

Dayanand Dayanand Dayanand Rayu Mandrakar Rayu Mandrakar Rayu Mandrakar (2005) 2 SCC 188, the Apex

Court has observed as under:

"74.

In this case, it is not necessary

for us to go into the question as to

whether section 83 is imperative in

character or not inasmuch as it is settled

law that even where the expression ‘shall’

is used, the same may not be held to be

mandatory. Even a mandatory provision

having regard to the text and context of

the statute may not call for strict

construction.

75.

In U.P.SEB v. Shiv Mohan Singh

(2004) 8 SCC 402, this Court stated the

law in the following terms: (SCC p.440,

paras 96-97)

"96.

Ordinarily, although

word ‘shall’ is considered to be

imperative in nature but it has to

be interpreted as directory if the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 24 -

context or the intention otherwise

demands. (See Sainik Motors v.

State of Rajastan, AIR 1961 SC

1480, para 12)

97.

It is important to

that in Crawford on Statutory

Construction at p.539, it is

stated:

"271. Miscellaneous implied

exceptions

from the

requirements

of mandatory statutes, in general-

Even

where

statute

clearly

mandatory

or prohibitory, yet, in

many

instances,

the courts

will

regard

certain conduct beyond the

prohibition of the statute through

the

use

various

devices

principles.

Most, if not all

these

devices

find

their

jurisdiction

in considerations of

justice.

It is a well-known fact

that

often to enforce the law

its

letter

produces

manifest

injustice,

for

frequently

equitable

and

humane

considerations,

and

other

considerations

closely

related

nature, would seem to

of a sufficient calibre to execute

justify a technical

violation

of the law."’"

43.

In the case of Balchand v. I.T.O., Sagar Balchand v. I.T.O., Sagar Balchand v. I.T.O., Sagar,

(1969)

72 ITR 197, the Apex Court ruled that

merely

because

defect in service of notice, the

assessment

order

does not become invalid.

Similarly, the

Apex

Court

in the case of Jai Prakash Singh Jai Prakash Singh Jai Prakash Singh (supra)

went

to hold that non-service of notice under

section

147(1)

the

Income Tax Act,1961 to 9 out

representatives

the

deceased did

not

validate Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 25 -

order of the Assessing Officer relating to the

assessment year in question.

44.

In in the case of P.N.Sasikumar P.N.Sasikumar P.N.Sasikumar (supra),

the

Kerala High Court has ruled that issue of notice

under

section

148 of the I.T.

Act is

condition

precedent

the validity of any

assessment

order

passed

under

section

147 of the Act.

further

ruled that absence of notice and service of defective

notice

stand

on different footing.

absence

service of notice authority does not get jurisdiction

whereas

case

of a defective

notice,

authority

would

be entitled to exercise jurisdiction provided,

there

are no substantial defects causing substantial

prejudice

the noticee.

This principle has

been

settled

several

reported

judgments.

After

amendment

section

292B came into force

1st

October, 1975 no notice shall be deemed to be invalid

merely because of any omission to serve or any defect

in the service of notice does not as erase liability

to pay tax.

45.

In the case of Dove Investments (P) Ltd.

(supra), the Apex Court has held that it is necessary

for the person to show how he was prejudiced.

It is,

therefore,

necessary for the person objecting to the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 26 -

validity

of notice to demonstrate prejudice suffered

by it. The same principle is reiterated in the case

of State Bank of Patiala State Bank of Patiala State Bank of Patiala (Supra).

Application Application Application of law to the case at hand: of law to the case at hand: of law to the case at hand:

-------------------------------------- -------------------------------------- --------------------------------------

46.

Having examined factual matrix, statutory

provision,

law laid down by various Courts presently

holding

the field, if one turns to the facts of

the

case

at hand, it is not in dispute that notice dated

6th

July, 1998 did not mention correct provisions of

the Act;

it did not mention correct block period for

which

the

return was required to be filed;

did

not

give

days clear notice.

Though

the

said

notice

was defective, it did not cause any prejudice

the appellant.

Undisputed factual matrix reveals

that

appellant was served with another notice

dated

17th September 1998 mentioning block period for which

the

return

was required to be

filed

incorporating

correct

reference to the sections applicable to

the

case

in question and it mentioned that the period of

days

for

filing

return was

available

the

appellant which the appellant did not avail. He was

directed to file return. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 27 -

47.

Pursuant to the above notice dated 17th

September,

1998, the appellant approached the Deputy

Commissioner

Income

Tax vide his

letter

dated

28the September, 1998 and sought further extension of

days

for

filing block period return.

has,

accordingly,

filed his return on 2nd November, 1998,

declaring total income of Rs.1,01,33,700/-.

The same

was accordingly assessed vide assessment order dated

30th June 2002.

48.

It is not in dispute that notice dated 6th

July,

1998

did

not

cause

any

prejudice

the

appellant.

During

the

course

hearing,

specifically

asked Mr.Sathe as to what prejudice was

suffered

the

appellant on

account

alleged

defective

notice

dated 6th July, 1998.

made

positive statement no specific prejudice was suffered

the appellant.

At any rate, the notice dated 6th

July,

1998 suffered from only technical defects,

any, and, in our opinion, it was protected under the

umbrella of section 292-B of the Act.

49.

Having said so, now it is necessary to

consider one more potent legal submission of Mr.Sathe

that

provisions

sections

148

and

158-BC

are

synonymous

and

pari materia.

Having

examined

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 28 -

provisions

sections 148(1) and 158-BC,

side

side,

would be clear that section

148(1)

opens

with

words

"Before

making

the

assessment,

reassessment

or recomputation under section 147, the

Assessing

Officer

shall

serve on

the

assessee

notice

requiring

him......"

This

very

opening

sentence,

unequivocally,

goes

to suggest

that

order

assume jurisdiction for

assessment

under

section

147,

notice

under

section

148(1)

condition precedent;

whereas scheme of Chapter XIV-B

the Act suggests that section 158-BA is a section

which

provides

that

notwithstanding

anything

contained

in any other provisions of this Act, where

after

30th

day of June, 1995 a search is

initiated

under

section

132

books

account,

other

documents

any

assets

are

requisitioned

under

section

132A

in the case of any person,

then,

the

assessing

officer

shall

proceed

assess

the

undisclosed

income in accordance with the provisions

this Chapter.

Reading of this provision suggests

that

this

section

158-BA is

the

provision

which

provides

for jurisdiction in favour of the assessing

officer

assess undisclosed income in

accordance

with

Chapter XIV-B.

Whereas section 158-BA(2) is

charging

section;

section

158-BB

provides

for

computation

undisclosed

income

for

the

block Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

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period;

whereas

section 158-BC provides

procedure

for

block

assessment.

Section

158-BA

bestows

jurisdiction on the assessing officer and not section

158-BC

as submitted by Mr.Sathe.

Thus, notice under

section

158-BC(a)

cannot

be equated with

that

notice

under section 148.

That notice under section

158-BC(a)

only provides for procedure to be

adopted

for

block

assessment.

does

not

confer

jurisdiction

assess in favour of

the

assessing

officer. In these circumstances, submission made by

Mr.Sathe is devoid of any substance.

50.

The judgment of the Calcutta High Court in

the

case

of Shaw Wallance & Co.

Ltd.

C.I.T. Shaw Wallance & Co.

Ltd.

C.I.T. Shaw Wallance & Co.

Ltd.

C.I.T.,

(1999)

238 ITR 13 relied upon by Mr.Sathe is not

all

applicable to the facts of the present case.

that

case, the Calcutta High Court was dealing

with

the

power

of the assessing officer to make

regular

assessment

respect

of a

financial

year

which

formed

the

subject

matter of the block

period

assessment.

While

considering

this

question,

observations

were made by the Calcutta High Court to

say

that section 158-BC substituted procedure

under

section

148.

The observations made in the

judgment

are

required to be read in the context in which they

are

made.

is not permissible to read

them

in Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 30 -

isolation or out of context.

A stray sentence cannot

allowed

to be put into service to

draw

meaning

which

was never meant by the author himself.

Thus,

these

observations by itself do not mean that rigour

section

148

stands

substituted

with

that

section 158-BC.

Section 148 is a substantive section

whereas section 158-BC is a procedural section.

Both

sections

definitely stand on different footings.

already

observed, procedural requirement can

always

waived by the subject for which benefit they

are

enacted as such submission made by Mr.Sathe in this

behalf does not hold water.

51.

So far as the last submission made by

Mr.Sathe

in respect of disallowance of deduction

Rs.36,77,196/- is concerned, disallowance is based on

the

findings of fact based on the material

evidence

available

record

which was appreciated

the

authorities

below.

The additions were confirmed

the

Commissioner of Income-tax (Appeals) as well

by the Tribunal.

The concurrent findings of fact are

recorded

both

the

authorities

below.

The

appellant

facts

could not

establish

the

said

expenditure

business

expenditure.

Since

this

question

revolves

around

the

appreciation

evidence, the view taken is a reasonable and possible Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44

- 31 -

view

which can be supported on the basis of material

available

on record;

it can hardly be said to be

substantial question of law warranting

re-adjudication by this Court.

52.

In the above totality of the facts and

circumstances of the case, appeal is dismissed with

no order as to costs.

(J.P.DEVADHAR, (J.P.DEVADHAR, (J.P.DEVADHAR, J.) J.) J.)

(V.C.DAGA (V.C.DAGA (V.C.DAGA J.) J.) J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:19:44 Powered by TCPDF (www.tcpdf.org)